Fremont Michigan InsuraCorp (FMMH) 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to            

No. 000-50926

(Commission File Number)

FREMONT MICHIGAN INSURACORP, INC.

(Exact name of Registrant as specified in its charter)

Michigan	42-1609947
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
933 E. Main St., Fremont, Michigan	49412
(Address of principal executive offices)	(Zip Code)

(231) 924-0300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)	Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Number of Shares Outstanding as of August 3, 2009
COMMON STOCK (No Par Value)	1,744,473
(Title of Class)	(Outstanding Shares)

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statement of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Item 4T.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Submission of Matters to a Vote of Security Holders	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
SIGNATURES		35

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

June 30, 2009 and December 31, 2008

	June 30, 2009			December 31, 2008
Assets
Investments:
Fixed maturities available for sale, at fair value	$	51,391,029		$	53,958,783
Equity securities available for sale, at fair value		8,017,955			4,560,368
Mortgage loans on real estate from related parties		242,793			247,000
Total investments		59,651,777			58,766,151
Cash and cash equivalents		10,503,456			6,576,564
Receivable from investments		17,886			—
Premiums due from policyholders, net		9,561,580			8,888,334
Amounts due from reinsurers		7,479,192			6,844,407
Prepaid reinsurance premiums		570,394			465,006
Accrued investment income		577,307			594,776
Deferred policy acquisition costs		3,685,377			3,596,147
Deferred federal income taxes		4,248,243			4,741,726
Property and equipment, net of accumulated depreciation		2,511,066			2,455,766
Other assets		5,732			30,670
	$	98,812,010		$	92,959,547
Liabilities and Stockholders’ Equity
Liabilities:
Losses and loss adjustment expenses	$	22,170,862		$	21,369,524
Unearned premiums		25,818,168			25,455,624
Reinsurance balances payable		58,374			161,845
Accrued expenses and other liabilities		9,646,240			6,657,625
Total liabilities		57,693,644			53,644,618
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value, authorized 4,500,000 shares, no shares issued and outstanding		—			—
Class A common stock, no par value, authorized 5,000,000 shares, 1,754,473 and 1,740,154 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively		—			—
Class B common stock, no par value, authorized 500,000 shares, no shares issued and outstanding		—			—
Additional paid-in capital		8,930,776			8,653,443
Retained earnings		33,213,878			32,507,143
Accumulated other comprehensive loss		(1,026,288	)		(1,845,657	)
Total stockholders’ equity		41,118,366			39,314,929
Total liabilities and stockholders’ equity	$	98,812,010		$	92,959,547

The accompanying notes are an integral part of the consolidated financial statements.

3

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Revenues:
Net premiums earned	$	13,197,608	$	11,778,423	$	26,018,489	$	22,995,328
Net investment income		438,980		535,039		940,165		1,051,275
Net realized gains on investments		14,833		—		211,494		158,602
Other income, net		179,185		148,687		323,351		286,828
Total revenues		13,830,606		12,462,149		27,493,499		24,492,033
Expenses:
Losses and loss adjustment expenses, net		8,773,377		6,910,578		17,994,570		13,247,077
Policy acquisition and other underwriting expenses		4,258,906		4,013,599		8,370,580		8,076,633
Total expenses		13,032,283		10,924,177		26,365,150		21,323,710
Income before federal income tax expense		798,323		1,537,972		1,128,349		3,168,323
Federal income tax expense		213,616		420,986		265,534		946,883
Net income	$	584,707	$	1,116,986	$	862,815	$	2,221,440
Earnings per share
Basic	$	.33	$	.63	$	.49	$	1.25
Diluted	$	.33	$	.62	$	.48	$	1.22

The accompanying notes are an integral part of the consolidated financial statements.

4

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2009

	Common Stock Class A (Number of Shares)		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2008	1,740,154		$	8,653,443		$	32,507,143		$	(1,845,657	)	$	39,314,929
Comprehensive income:
Net income							862,815						862,815
Net unrealized gains on investments, net of tax										847,307			847,307
Amortization of prior service credit, net of tax										(28,276	)		(28,276	)
Amortization of net actuarial loss, net of tax										338			338
Total comprehensive income													1,682,184
Common stock issued	19,509			237,610									237,610
Common stock repurchased	(5,190	)		(24,859	)		(50,658	)					(75,517	)
Tax benefit from stock options exercised				2,318									2,318
Cash dividend							(105,422	)					(105,422	)
Stock-based compensation				62,264									62,264
Balance, June 30, 2009	1,754,473		$	8,930,776		$	33,213,878		$	(1,026,288	)	$	41,118,366

The accompanying notes are an integral part of the consolidated financial statements.

5

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June 30, 2009 and 2008

	2009			2008
Cash flows from operating activities:
Net income	$	862,815		$	2,221,440
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		450,187			567,063
Deferred federal income taxes		71,388			4,580
Stock based compensation expense		62,264			51,865
Net realized gains on investments		(211,494	)		(158,602	)
Net amortization of premiums on investments		160,648			115,317
Excess tax benefit from stock options exercised		(2,319	)		(6,681	)
Changes in assets and liabilities:
Premiums due from policyholders		(673,246	)		(556,435	)
Amounts due from reinsurers		(634,785	)		226,591
Prepaid reinsurance premiums		(105,388	)		(126,565	)
Accrued investment income		17,469			(31,921	)
Deferred policy acquisition costs		(89,230	)		39,048
Other assets		24,938			39,093
Losses and loss adjustment expenses		801,338			582,527
Unearned premiums		362,544			358,277
Reinsurance balances payable		(103,471	)		(145,179	)
Accrued expenses and other liabilities		2,948,600			552,360
Net cash provided by operating activities		3,942,258			3,732,778
Cash flows from investing activities:
Proceeds from sales and maturities of fixed maturity investments		13,288,933			6,535,673
Proceeds from sales of equity investments		156,377			535,853
Purchases of fixed maturity investments		(10,053,866	)		(9,307,166	)
Purchases of equity investments		(2,946,633	)		(545,561	)
Increase (decrease) in receivable from investments		(17,886	)		—
Repayment of mortgage loan on real estate from related party		4,207			3,519
Purchase of property and equipment, net		(505,487	)		(629,264	)
Net cash provided by (used in) investing activities		(74,355	)		(3,406,946	)
Cash flows from financing activities:
Proceeds from issuance of common stock		237,610			9,383
Shares repurchases of common stock		(75,518	)		—
Dividends paid to stockholders		(105,422	)		—
Tax benefit from exercised stock options		2,319			6,681
Net cash provided by financing activities		58,989			16,064
Net increase in cash and cash equivalents		3,926,892			341,896
Cash and cash equivalents, beginning of period		6,576,564			4,033,158
Cash and cash equivalents, end of period	$	10,503,456		$	4,375,054

The accompanying notes are an integral part of the consolidated financial statements.

6

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

Fremont Michigan InsuraCorp, Inc. and subsidiary (collectively, the “Company”) includes Fremont Michigan InsuraCorp, Inc. (“FMIC”) and its wholly owned subsidiary Fremont Insurance Company (“FIC”). FIC is a Michigan licensed property and casualty insurance carrier operating exclusively in the State of Michigan and writing principally personal lines, commercial lines, farm and marine insurance policies through independent agents.

The accompanying unaudited consolidated financial statements which include the accounts of FMIC and its wholly-owned subsidiary, FIC, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions have been eliminated.

The accompanying unaudited consolidated financial statements for the interim periods included herein are unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year. The accompanying unaudited consolidated financial statements should be read with the annual consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. New Accounting Standards

Adopted Accounting Standards

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS No. 141(R)). The Standard will significantly change the financial accounting and reporting of business combination transactions. SFAS No. 141(R) establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for acquisition dates on or after the beginning of an entity’s first year that begins after December 15, 2008. Therefore, the effects of the adoption of SFAS No. 141(R) will depend upon the extent and magnitude of acquisitions after December 31, 2008.

In 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”) which provides guidance for using fair value to measure assets and liabilities as well as enhances disclosures about fair value measurements. SFAS No. 157, which became effective for us on January 1, 2008 for financial assets and financial liabilities, applies whenever other standards require, or permit, assets or liabilities to be measured at fair value. The standard did not expand the use of fair value in any new circumstances and therefore, did not have an impact on our financial position, results of operations or cash flows. The statement established a fair value hierarchy that prioritizes the observable and unobservable inputs to valuation techniques used to measure fair value into three levels. Quantitative and qualitative disclosures focus on the inputs used to measure fair value for these measurements and the effect of these measurements in the financial statements. The required disclosures concerning inputs used to measure fair value are disclosed in Note 3. Effective January 1, 2009, the Company adopted the provisions of SFAS No. 157 related to all non-financial assets and non-financial liabilities. This adoption did not have any impact on our consolidated financial statements.

In February 2007, the FASB issued FSP No. FAS 158-1, “Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88 and No. 106 and to the Related Staff Implementation Guides.” This FSP provides conforming amendments to the illustrations in SFAS 87, 88, and 106 and to related staff implementation guides as a result of the issuance of SFAS 158. The conforming amendments made by this FSP are effective as of the effective dates of SFAS 158. The unaffected guidance that this FSP codifies into SFAS 87, 88, and 106 does not contain new requirements and therefore does not require a separate effective date or transition method. The implementation of FSP No. FAS 158-1 did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the SEC issued Staff Accounting Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of Share Options” (SAB 110). SAB 110 expresses the current view of the staff that it will accept a company’s election to use the simplified method discussed in SAB 107 for estimating the expected term of “plain vanilla” share options regardless of whether the company has sufficient information to make more refined estimates. The staff noted that it understands that detailed information about employee exercise patterns may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The implementation of SAB 110 did not have a material impact on the Company’s consolidated financial statements.

7

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

In 2007, the FASB issued Statement No. 159, “The Fair Value Option of Financial Assets and Financial Liabilities” (“SFAS No. 159”). Under this standard, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We implemented SFAS No. 159 effective January 1, 2008 and elected not to measure any eligible items using the fair value option in accordance with SFAS No. 159. We believe the current accounting is appropriate for our investments as we have the intent and ability to hold our investments for the long-term, therefore, SFAS No. 159 did not have any impact on our consolidated financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160, which became effective for us on January 1, 2009, did not have a material impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. This statement, which became effective for us on January 1, 2009, did not affect our consolidated financial condition or results of operations, but may require additional disclosures if we enter into derivative and hedging activities.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” (FSP 115-2) which amends the recognition guidance for other-than-temporary impairments (OTTI) of debt securities and expands the financial statement disclosures for OTTI on debt and equity securities. We adopted this FSP in the second quarter of 2009.

The FSP essentially states that an OTTI write-down of debt securities, where fair value is below amortized cost, is triggered in circumstances where (1) an entity has the intent to sell a security, (2) it is more-likely-than-not that the entity will be required to sell the security before recovery of its amortized cost basis, or (3) the entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more-likely-than-not the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the difference between the security’s amortized cost and its fair value. If an entity does not intend to sell the security or it is not more-likely-than-not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income.

The FSP requires that companies record, as of the beginning of the interim period of adoption, a cumulative-effect adjustment to reclassify the noncredit component of a previously recognized OTTI loss from retained earnings to other comprehensive income if the company does not intend to sell the security and it is more-likely-than-not that the company will not be required to sell the security before recovery of its amortized cost basis. The adoption had no impact on our financial position or results of operations. We had no cumulative-effect adjustment upon adoption at the beginning of the second quarter.

In April 2009, the FASB issued FSP 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” Our adoption of this FSP was effective April 1, 2009. The FSP reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The FSP also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. The adoption did not impact our financial position or results of operations.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” The FSP requires disclosing qualitative and quantitative information about the fair value of all financial instruments on a quarterly basis, including methods and significant assumptions used to estimate fair value during the period. These disclosures were previously only done annually. The disclosures required by the FSP are effective for the quarter ending June 30, 2009 and are included in Note 4 Fair Value Measurements to the unaudited consolidated financial statements.

8

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

In May 2009, the FASB issued SFAS No. 165,Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009. The adoption of this standard did not have any impact on our results of operations or financial position. We have evaluated subsequent events through August 13, 2009, the date the financial statements were issued.

Prospective Accounting Standards

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162. SFAS No. 168 establishes the FASB Accounting Standard Codification™ (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States (U.S. GAAP). All guidance contained in the Codification carries an equal level of authority. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. On the effective date of SFAS No. 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of SFAS No. 168 will have no impact on the Company’s results of operations or financial position.

In June 2009, the FASB issued SFAS 166, “Accounting for Transfers of Financial Assets” and SFAS 167, “Amendments to FASB Interpretation No. 46(R)”, which update accounting for securitizations and special-purpose entities. SFAS 166 is a revision to SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, and will require additional information regarding financial asset transfers, including securitization transactions, and the presence of continuing exposure around the risks related to transferred financial assets. It removes the concept of a qualifying special-purpose entity from SFAS 140 and removes the exception from applying FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities”, to variable interest entities that are qualifying special-purpose entities. SFAS 167 is a revision to FASB Interpretation No. 46(R) and modifies a Company’s determination of consolidating an entity that is insufficiently capitalized or is not controlled through voting or similar ownership rights. SFAS 166 and 167 will be effective January 1, 2010, and are effective for interim periods within the first annual reporting period. Earlier application is prohibited. We do not expect the implementation of SFAS 166 or 167 to have a significant impact on our financial statements.

3. Investments

Our investment portfolio includes fixed maturity debt securities and equity securities including common stocks and mutual funds. At June 30, 2009 and December 31, 2008, all of the Company’s investments are classified as available-for-sale and are available to be sold in response to the Company’s liquidity needs, changes in market interest rates and asset-liability management strategies, among others. The cost or amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of investments at June 30, 2009 and December 31, 2008 are as follows:

	June 30, 2009
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	6,823,172	$	160,953	$	—	$	6,984,125
States and political subdivisions		21,198,737		245,839		319,638		21,124,938
Corporate securities		10,952,090		104,065		30,682		11,025,473
Mortgage-backed securities		12,493,368		192,948		429,823		12,256,493
		51,467,367		703,805		780,143		51,391,029
Equity securities		10,437,561		83,572		2,503,178		8,017,955
Total	$	61,904,928	$	787,377	$	3,283,321	$	59,408,984

9

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	December 31, 2008
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	9,088,700	$	293,127	$	—	$	9,381,827
States and political subdivisions		23,010,088		224,481		721,766		22,512,803
Corporate securities		5,116,362		49,142		71,830		5,093,674
Mortgage-backed securities		17,378,907		304,940		713,368		16,970,479
		54,594,057		871,690		1,506,964		53,958,783
Equity securities		7,704,834		—		3,144,466		4,560,368
Total	$	62,298,891	$	871,690	$	4,651,430	$	58,519,151

At June 30, 2009, corporate securities accounted for 21% of our fixed maturity portfolio, mortgage backed securities were 24%, states and political subdivisions (tax-exempt municipal) were 41% and U. S. government and government agency bonds were 14%. At June 30, 2009, our equity portfolio included both mutual funds (69%) and stocks (31%). The mutual funds, as a percentage of total equities were spread among the following mutual fund types: large-cap – 17%, mid-cap – 20%, small-cap – 17%, specialty – 2%, and international – 13%. Sector allocation for stocks is as follows: basic materials 3%, bond equivalent 2%, communications 2%, consumer cyclical 2%, consumer non-cyclical 3%, energy 4%, financial 4%, healthcare 3%, industrials 2%, technology 5%, and utilities 1%.

At December 31, 2008, corporate securities accounted for 9% of our fixed maturity portfolio, mortgage backed securities were 32%, states and political subdivisions (including both taxable and tax-exempt municipal) were 42% and U. S. government and government agency bonds were 17%. At December 31, 2008, our equity portfolio, which consists entirely of mutual funds, was spread among the following mutual fund types: large-cap – 29%, mid-cap – 24%, small-cap – 26%, specialty – 3%, and international – 18%.

The following table presents the amortized cost and estimated fair value of fixed maturity securities as of June 30, 2009 by contractual maturity. Actual maturities on mortgage backed securities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, mortgage back securities have been classified on a separate line in the table below.

	Cost or Amortized Cost		Estimated Fair Value
Due in one year or less	$	5,574,604	$	5,619,981
Due after one year through five years		13,727,266		13,917,300
Due after five years through ten years		17,774,111		17,858,487
Due after ten years		1,898,018		1,738,768
Mortgage-backed securities		12,493,368		12,256,493
	$	51,467,367	$	51,391,029

Evaluating Investments for Other-than-Temporary Impairments

The Company reviews the status and market value changes of its investment portfolio on at least a quarterly basis during the year, and any provisions for other-than-temporary impairments in the portfolio’s value are evaluated and established at each quarterly balance sheet date. The following tables are used as part of our impairment analysis.

The table below shows the total value of securities that were in an unrealized loss position as of June 30, 2009 and December 31, 2008 including the length of time they have been in an unrealized loss position. As of June 30, 2009 and December 31, 2008, unrealized

10

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

losses, as shown in the following tables, were 4.7% and 7.1%, respectively of total invested assets including cash and cash equivalents.

	June 30, 2009
	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	—	$	—	$	—	$	—	$	—	$	—
States and political subdivisions		4,668,240		38,093		4,654,338		281,545		9,322,578		319,638
Corporate securities		3,914,969		14,487		514,730		16,195		4,429,699		30,682
Mortgage-backed securities		—		—		3,898,626		429,823		3,898,626		429,823
		8,583,209		52,580		9,067,694		727,563		17,650,903		780,143
Equity securities		2,082,044		1,192,906		4,028,997		1,310,272		6,111,041		2,503,178
Total	$	10,665,253	$	1,245,486	$	13,096,691	$	2,037,835	$	23,761,944	$	3,283,321
	December 31, 2008
	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	—	$	—	$	—	$	—	$	—	$	—
States and political subdivisions		8,377,480		383,576		3,115,265		338,190		11,492,745		721,766
Corporate securities		1,396,720		43,584		571,754		28,246		1,968,474		71,830
Mortgage-backed securities		4,578,839		637,609		937,578		75,759		5,516,417		713,368
		14,353,039		1,064,769		4,624,597		442,195		18,977,636		1,506,964
Equity securities		2,804,128		1,617,854		1,756,240		1,526,612		4,560,368		3,144,466
Total	$	17,157,167	$	2,682,623	$	6,380,837	$	1,968,807	$	23,538,004	$	4,651,430

The following table shows the composition of the fixed maturities securities in unrealized loss positions at June 30, 2009 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings. The vast majority of the securities are rated by S&P and/or Moody’s.

NAIC Rating	Equivalent S&P Rating	Equivalent Moody’s Rating	Book Value		Fair Value		Unrealized Loss			Percent to Total
1	AAA/AA/A	Aaa/Aa/A	$	18,431,046	$	17,650,903	$	(780,143	)	100.0	%
2	BBB	Baa		—		—		—		—
3	BB	Ba		—		—		—		—
4	B	B		—		—		—		—
5	CCC or lower	Caa or lower		—		—		—		—
6				—		—		—		—
			$	18,431,046	$	17,650,903	$	(780,143	)	100.0	%

11

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

In reviewing its fixed maturity securities for other than temporary impairment, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the issuer’s operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audit opinion, industry and securities market conditions, and analyst expectations, to reach its conclusions.

As of June 30, 2009, the fixed maturity portfolio included seventeen securities in an unrealized loss position for less than twelve months and eighteen fixed maturity securities in an unrealized loss position for twelve months or more. Of the fixed maturity securities, seven were trading between 86% and 90% of amortized cost; one was trading between 91% and 95% of amortized cost, while the remaining twenty-seven were trading at or above 95% of amortized cost. All the fixed maturity securities in an unrealized loss position and assigned a rating by commercial credit rating companies are rated investment grade securities. All fixed maturity securities, except one corporate bond, in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. The one corporate bond is a security which was written down in 2008 due to the issuer filing for bankruptcy.

As of April 1, 2009, we adopted FSP FAS 115-2 and FAS 124-2. Accordingly, any credit-related impairment related to fixed maturity securities we do not plan to sell and for which we are not likely to be required to sell is recognized in net income, with the non-credit related impairment recognized in comprehensive income. Based on our analysis, our fixed maturity portfolio is of a high credit quality and we believe we will recover our amortized cost basis of our fixed maturity securities. The fixed maturity unrealized losses can primarily be attributed to changes in interest rates and corresponding spread widening as opposed to fundamental changes in the credit quality of the issuers of the securities. We continually monitor the credit quality of our fixed maturity investments to gauge the likelihood of principal and interest being collected.

In reviewing its equity securities, which include common stock and mutual funds, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the individual investments held within the mutual fund, most current audit opinion, industry and securities market conditions, and analyst expectations to reach its conclusions. In addition to analyzing each individual security that has a fair value below cost, the Company also considers its intent and ability to hold a security until its fair value is equal to or greater than its cost.

As of June 30, 2009, the equity portfolio included fifty-two securities in an unrealized loss position for less than twelve months and five securities in an unrealized loss position for twelve months or more. Of the five equity securities with unrealized losses twelve months or more, the range of market value to cost was from 60% to 69%. Of the fifty-two equity securities with unrealized losses less than twelve months, six had a market value to cost of 51% to 75%, three were between 76% and 85%, ten traded between 85% and 95% of cost and the remaining thirty-three traded above 95% of cost. Equity securities with unrealized losses at June 30, 2009 were determined to have temporary declines in value generally due to the current tightness in the credit markets and the related impact on the equity market, geopolitical reasons or a reaction to their particular industry rather than fundamental reasons.

While all of these securities are monitored for potential impairment, the Company’s experience indicates that they generally do not present as great a risk of impairment, as fair value often recovers over time. These securities have generally been adversely affected by the downturn in the financial markets and overall economic conditions. Management believes that the analysis of each of these securities in addition to the fact that the Company has both the intent and ability to hold these securities until their recovery supports our view that these securities were not other-than-temporarily impaired.

4. Fair Value Measurements

Our available-for-sale investment portfolio consists of fixed maturity and equity securities, and is recorded at fair value in the accompanying Consolidated Balance Sheets in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The change in the fair value of these investments is recorded as a component of other comprehensive income.

Under SFAS No. 159, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option in accordance with SFAS 159.

SFAS No. 157 defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date, and establishes a framework to make the measurement of fair value more consistent and comparable. In determining fair value, we primarily use prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”).

12

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

SFAS No. 157 established a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). The hierarchy level assigned to each security in our available-for-sale portfolio is based on our assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The three hierarchy levels are defined as follows:

Level 1

Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair value of fixed maturity and equity securities included in the Level 1 category were based on quoted prices that are readily and regularly available in an active market. The Level 1 category includes publicly traded equity securities and U.S. Government Treasury and Agency securities.

Level 2

Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of fixed maturity securities in the Level 2 category were based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information. The independent pricing service also monitors market indicators, industry and economic events. For broker-quoted only securities, quotes are obtained from market makers or broker-dealers that it recognizes to be market participants. The Level 2 category includes corporate bonds, municipal bonds, and mortgage-backed securities.

Level 3

Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment. The Company did not hold any available-for-sale investments on the measurement date that are classified in the Level 3 category.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement

The following table presents our available-for-sale investments measured at fair value on a recurring basis as of June 30, 2009 classified by the SFAS No. 157 valuation hierarchy (as discussed above):

			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Available-for-Sale Investments:
Fixed Maturity Securities	$	51,391,029	$	1,648,301	$	49,742,728	$	—
Equity Securities		8,017,955		8,017,955		—		—
Total	$	59,408,984	$	9,666,256	$	49,742,728	$	—

The carrying amount and estimated fair value of the Company’s financial instruments are as follows:

	June 30, 2009				December 31, 2008
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial Assets:
Fixed Maturity Securities	$	51,391,029	$	51,391,029	$	53,958,783	$	53,958,783
Equity Securities		8,017,955		8,017,955		4,560,368		4,560,368
Mortgage loans		242,793		242,793		247,000		247,000
Cash and cash equivalents		10,503,456		10,503,456		6,576,564		6,576,564

5. Comprehensive Income or Loss

The Company’s comprehensive income (loss) for the three and six months ended June 30 is as follows:

13

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Net income	$	584,707		$	1,116,986		$	862,815		$	2,221,440
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments		984,326			(356,971	)		986,891			(1,078,878	)
Reclassification adjustment for realized (gain) loss on investments included in net income		(9,790	)		—			(139,584	)		(104,677	)
Amortization of prior service credit		(14,137	)		(14,138	)		(28,276	)		(28,275	)
Amortization of net actuarial loss		169			2,021			338			4,043
Other comprehensive income (loss), net of tax		960,568			(369,088	)		819,369			(1,207,787	)
Comprehensive income	$	1,545,275		$	747,898		$	1,682,184		$	1,013,653

6. Earnings per Share

Basic earnings per share has been calculated by dividing net income by the weighted-average common shares outstanding. Diluted earnings per share has been calculated by dividing net income by the weighted-average common shares outstanding and the weighted-average dilutive share equivalents outstanding. The computation of basic and diluted earnings per share for the three and six month periods ended June 30 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
Numerator for basic and diluted earnings per share:
Net income	$	584,707	$	1,116,986	$	862,815	$	2,221,440
Denominator:
Denominator for basic earnings per share – weighted average shares outstanding		1,758,400		1,781,154		1,751,505		1,780,581
Effect of dilutive stock options		34,929		34,219		34,494		36,821
Denominator for diluted earnings per share – adjusted weighted average shares outstanding		1,793,329		1,815,373		1,785,999		1,817,402
Basic earnings per share	$	0.33	$	0.63	$	0.49	$	1.25
Diluted earnings per share	$	0.33	$	0.62	$	0.48	$	1.22

7. Segment Information

The Company defines its operations as property and casualty insurance operations. The Company writes four major insurance lines exclusively in the State of Michigan: Personal, Commercial, Farm and Marine. The separate financial information of these four major insurance lines is consistent with the way results are regularly evaluated by management in deciding how to allocate resources and in assessing performance. All revenues are generated from external customers and the Company does not have a significant reliance on any single major customer. The Company evaluates product line profitability based on underwriting gain (loss).

During the quarter ended June 30, 2009, the Company completed its implementation of a new financial reporting system. The new system has expanded the Company’s capability in assigning expenses to a product line, a department or one of the major insurance lines. Prior to April 1, 2009, expenses were allocated to the four major insurance lines based on either net premiums earned or net losses incurred. Effective, April 1, 2009, expenses which are not directly assigned to a product line, a department or a major insurance line are allocated based on measurements including premiums, incurred losses or other departmental employee data. The underwriting gain (loss) by major insurance line would change if different methods were applied.

The Company does not allocate assets, net investment income, net realized gains on investments or other income (expense) to its product lines. In addition, the Company does not separately identify depreciation expense related to the building by product line as such disclosure would be impracticable.

14

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Segment data for the three and six months ended June 30 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Revenues:
Net premiums earned:
Personal lines	$	9,753,637		$	8,193,611		$	19,105,019		$	16,057,739
Commercial lines		1,721,143			1,978,227			3,496,729			3,781,927
Farm		1,248,223			1,157,664			2,471,326			2,268,450
Marine		474,605			448,921			945,415			887,212
Total net premiums earned		13,197,608			11,778,423			26,018,489			22,995,328
Expenses:
Loss and loss adjustment expenses:
Personal lines		6,500,129			5,687,712			13,412,117			10,422,980
Commercial lines		1,294,219			324,735			2,407,929			1,510,336
Farm		762,311			686,380			1,790,692			1,116,020
Marine		216,718			211,751			383,832			197,741
Total loss and loss adjustment expenses		8,773,377			6,910,578			17,994,570			13,247,077
Policy acquisition and other underwriting expenses:
Personal lines		2,582,172			2,791,372			5,463,824			5,639,948
Commercial lines		1,001,023			674,980			1,652,624			1,328,324
Farm		428,916			394,392			868,671			796,746
Marine		246,795			152,855			385,461			311,615
Total policy acquisition and other underwriting expenses		4,258,906			4,013,599			8,370,580			8,076,633
Underwriting gain (loss):
Personal lines		671,336			(285,473	)		229,078			(5,189	)
Commercial lines		(574,099	)		978,512			(563,824	)		943,267
Farm		56,996			76,892			(188,037	)		355,684
Marine		11,092			84,315			176,122			377,856
Total underwriting gain (loss)		165,325			854,246			(346,661	)		1,671,618
Net investment income		438,980			535,039			940,165			1,051,275
Net realized gains (losses) on investments		14,833			—			211,494			158,602
Other income, net		179,185			148,687			323,351			286,828
Income before federal income taxes	$	798,323		$	1,537,972		$	1,128,349		$	3,168,323

As previously noted, effective April 1, 2009, the Company changed its method for determining how certain expenses are assigned to its four major insurance lines. The table below reflects the impact of these changes on each of the affected statement lines:

15

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended June 30, 2009						Six Months Ended June 30, 2009
	As Reported			Prior Method			As Reported			Prior Method
Policy acquisition and other underwriting expenses:
Personal lines	$	2,582,172		$	3,036,474		$	5,463,824		$	5,918,126
Commercial lines		1,001,023			617,854			1,652,624			1,269,455
Farm		428,916			446,693			868,671			886,448
Marine		246,795			157,885			385,461			296,551
Total policy acquisition and other underwriting expenses	$	4,258,906		$	4,258,906		$	8,370,580		$	8,370,580
Underwriting gain (loss):
Personal lines	$	671,336		$	217,034		$	229,078		$	(225,224	)
Commercial lines		(574,099	)		(190,930	)		(563,824	)		(180,655	)
Farm		56,996			39,219			(188,037	)		(205,814	)
Marine		11,092			100,002			176,122			265,032
Total underwriting gain (loss)	$	165,325		$	165,325		$	(346,661	)	$	(346,661	)

8. Other Postretirement Plan

The Company provides certain postretirement health care benefits for retired employees. The components of the net periodic benefit cost for the three and six months ended June 30 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Components of net periodic benefit cost:
Service cost	$	1,944		$	2,844		$	3,890		$	5,688
Interest cost		26,285			25,276			52,570			50,551
Amortization of unrecognized prior service cost		(21,420	)		(21,421	)		(42,841	)		(42,842	)
Amortization of unrecognized net actuarial loss		253			3,063			507			6,126
Net periodic benefit cost	$	7,062		$	9,762		$	14,126		$	19,523

As this plan is not pre-funded, no contributions other than those necessary to cover benefit payments are anticipated. For the six months ended June 30, 2009 the Company has made contributions to the plan of approximately $69,000. During 2009, the Company expects to contribute a total of $70,000 to the plan to cover anticipated benefit payments.

9. Reinsurance

The effect of reinsurance on premiums written and earned and losses and LAE incurred was as follows:

16

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended
	June 30, 2009						June 30, 2008
	Written			Earned			Written			Earned
Direct	$	17,303,818		$	15,892,126		$	16,448,525		$	14,438,875
Assumed		46,322			35,701			29,828			22,143
Ceded		(2,739,919	)		(2,730,219	)		(2,818,825	)		(2,682,595	)
Net premiums	$	14,610,221		$	13,197,608		$	13,659,528		$	11,778,423
	Six Months Ended
	June 30, 2009						June 30, 2008
	Written			Earned			Written			Earned
Direct	$	31,719,502		$	31,365,043		$	28,512,227		$	28,159,558
Assumed		60,860			52,774			47,478			41,871
Ceded		(5,427,327	)		(5,399,328	)		(5,323,311	)		(5,206,101	)
Net premiums	$	26,353,035		$	26,018,489		$	23,236,394		$	22,995,328
	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Loss and LAE incurred	$	9,253,760		$	7,623,738		$	20,294,117		$	14,278,353
Reinsurance recoveries		(480,383	)		(713,160	)		(2,299,547	)		(1,031,276	)
Net loss and LAE incurred	$	8,773,377		$	6,910,578		$	17,994,570		$	13,247,077

10. Federal Income Taxes

The provision for income taxes for the three and six months ended June 30 consists of the following:

	Three Months Ended June 30,					Six Months Ended June 30,
	2009		2008			2009		2008
Current expense	$	97,079	$	457,858		$	194,147	$	942,303
Deferred expense (benefit)		116,537		(36,872	)		71,387		4,580
Total	$	213,616	$	420,986		$	265,534	$	946,883

Actual federal income taxes vary from amounts computed by applying the current federal income tax rate of 34 percent to income before federal income taxes due to the following:

	Three Months Ended June 30,										Six Months Ended June 30,
	2009					2008					2009					2008
Income before federal income taxes	$	798,323				$	1,537,972				$	1,128,349				$	3,168,323
Tax at statutory rate		271,430		34.0	%		522,911		34.0	%		383,639		34.0	%		1,077,230		34.0	%
Tax effect of :
Nontaxable investment income		(60,740	)	(7.6	%)		(79,355	)	(5.2	%)		(122,357	)	(10.9	%)		(156,169	)	(4.9	%)
Nondeductible expenses, net		2,923		0.4	%		1,307		0.1	%		4,249		0.4	%		3,002		0.1	%
Other, net		3		0.0	%		(23,877	)	(1.5	%)		3		0.0	%		22,820		0.7	%
Federal income tax expense	$	213,616		26.8	%	$	420,986		27.4	%	$	265,534		23.5	%	$	946,883		29.9	%

17

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Deferred federal income tax assets and liabilities are recognized for the estimated future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company’s management reviews both positive and negative evidence, including current and historical results of operations, the annual limitation on utilization of net operating loss carryforwards pursuant to Internal Revenue Code Section 382 (“Section 382”), future income projections and the overall prospects of our business. Based upon management’s assessment of all available evidence, including the Company’s cumulative net income for recent fiscal years, estimates of current and future profitability and the overall prospects of our business, it has been determined that as of June 30, 2009 it is more likely than not that sufficient taxable income will exist in the periods of reversal in order to realize the net deferred tax asset. Based on the annual Section 382 limitation of the utilization of net operating loss carryforwards management has determined that approximately $2,971,000 of net operating loss carryforwards will not be realized and therefore a valuation allowance of approximately $1,010,000 will be maintained for the deferred tax asset associated with these amounts.

At June 30, 2009 and December 31, 2008 the tax effects of temporary differences that give rise to deferred federal income tax assets and liabilities are as follows:

	June 30, 2009			December 31, 2008
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves	$	450,378		$	439,895
Unearned premium reserves		1,784,160			1,741,373
Unrealized losses on investments		848,621			1,285,111
Realized losses on investments		123,080			123,080
Postretirement benefits accrued		592,404			591,157
Net operating loss carryforward		2,294,427			2,362,431
Alternative minimum tax credit carryforward		357,697			357,697
Other deferred tax assets		238,640			207,193
Total deferred federal income tax assets		6,689,407			7,107,937
Deferred federal income tax liabilities arising from:
Deferred policy acquisition costs		(1,295,412	)		(1,253,820	)
Property and equipment		(125,311	)		(88,698	)
Other deferred tax liabilities		(10,404	)		(13,656	)
Total deferred federal income tax liabilities		(1,431,127	)		(1,356,174	)
Net deferred federal income tax asset		5,258,280			5,751,763
Valuation allowance		(1,010,037	)		(1,010,037	)
Net deferred tax asset	$	4,248,243		$	4,741,726

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2008, particularly “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report.

Fremont Michigan InsuraCorp, Inc. (the “Company” or the “Holding Company”) and Fremont Insurance Company (the “Insurance Company”) may from time to time make written or oral “forward-looking statements,” including statements contained in our filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits hereto and thereto), in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can find many of these statements by looking for words such as “believes,” “intends,” “expects,” “plans,” “anticipates,” “seeks,” “estimates,” “projects,” or similar expressions in this report. Determination of loss and loss adjustment expense reserves and amounts due from reinsurers are based substantially on estimates and the amounts so determined are inherently forward-looking.

The forward-looking statements are subject to numerous assumptions, risks and uncertainties. We have identified several important factors that could cause actual results to differ materially from any results discussed, contemplated, projected, forecast, estimated or budgeted in the forward-looking information. These factors, which are listed below, are difficult to predict and many are beyond our control:

• future economic conditions and the legal and regulatory environment in Michigan;

• the effects of weather-related and other catastrophic events;

• financial market conditions, including, but not limited to, changes in fiscal, monetary and tax policies, interest rates and values of investments;

• the impact of acts of terrorism and acts of war on investment and reinsurance markets;

• inflation;

• the cost, availability and collectibility of reinsurance;

• estimates and adequacy of loss reserves and trends in losses and loss adjustment expenses;

• heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new and existing competitors;

• our inability to obtain regulatory approval of, or to implement, premium rate increases;

• inability to carry out marketing and sales plans, including, among others, development of new products or changes to existing products and acceptance of the new or revised products in the market;

• unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;

• adverse litigation or arbitration results;

• technological change;

• the ability to carry out our business plans; and

• adverse changes in applicable laws, regulations or rules governing insurance holding companies and insurance companies, and changes that affect the cost of, or demand for, our products.

Because forward-looking information is subject to various risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking information. Therefore, we caution you not to place undue reliance on this forward-looking information, which speaks only as of the date of this filing. All subsequent written and oral forward-looking information attributable to the Holding Company or the Insurance Company or any person acting on our behalf is expressly qualified in its entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to publicly release any revisions that may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this filing.

Overview of Fremont Michigan InsuraCorp

Fremont Michigan InsuraCorp, Inc. is a holding company owning all of the outstanding shares of Fremont Insurance Company. Fremont Insurance Company is a Michigan licensed property and casualty insurer operating exclusively in the State of Michigan and writing principally personal lines, commercial lines, farm and marine insurance policies through independent agents. We were founded in 1876 and have served Michigan policyholders for over 131 years. We market policies through approximately 175 independent insurance agencies. Fremont Insurance Company has a financial strength rating of “B++” (Good) by A.M. Best. The

Holding Company is subject to regulation by the Michigan Office of Financial and Insurance Services (“OFIR”) as its primary regulator because it is the holding company for Fremont Insurance Company. As of June 30, 2009, we had approximately 68,200 policies in force and assets of $98.8 million.

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General

We use accounting principles that are in compliance with those generally accepted in the United States of America (GAAP). Management’s discussion and analysis covers the Company’s financial condition and results of operations for the three and six months ended June 30, 2009 and 2008. The Company’s fiscal year ends on December 31.

Critical Accounting Policies and Estimates

General. Our discussion and analysis of financial condition, results of operations and liquidity and capital resources is based upon the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We generally base our estimates on historical experience or other appropriate assumptions that we believe are reasonable and relevant under the circumstances and evaluate them on an ongoing basis. The results of these estimation processes form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the critical accounting policies and estimates discussed below reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements. These may be further commented upon in applicable sections on Results of Operations and Liquidity and Capital Resources that follow. These policies are more fully described below as well as in our 2008 Annual Report on Form 10-K. There have been no material changes to these policies during the most recent quarter.

Liabilities for Loss and Loss Adjustment Expenses. The liability for losses and loss adjustment expenses represents estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet been reported. The amount of loss reserves for reported claims is based primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss. The amounts of loss reserves for unreported claims and loss adjustment expenses are determined using historical information by line of insurance as adjusted to current conditions. Inflation is ordinarily implicitly provided for in the reserving function through analysis of costs, trends and reviews of historical reserving results over multiple years.

When a claim is reported to us, our claims representatives establish a “case reserve” for the estimated amount of the ultimate payment. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and knowledge of the estimator. The individual estimating the reserve considers the nature and value of the specific claim, the severity of injury or damage, and the policy provisions relating to the type of loss. Case reserves are adjusted by our claims staff as more information becomes available. It is our policy to settle each claim as expeditiously as possible.

We maintain incurred but not reported (“IBNR”) reserves to provide for already incurred claims that have not yet been reported and developments on reported claims. The IBNR reserve is determined by estimating our ultimate net liability for both reported and unreported claims and then subtracting the case reserves and payments made to date for reported claims.

Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. Each quarter we review existing reserves, new claims, changes to existing case reserves and paid losses with respect to the current and prior accident years. In connection with the determination of the reserves we also consider other specific factors such as recent weather-related losses, trends in historical paid losses, and legal and judicial trends with respect to theories of liability. We review our loss reserves to ascertain whether new developments have occurred which would require adjustment to our ultimate loss estimates. The quarterly review also involves roundtable discussion involving the claims, underwriting and accounting departments. Discussion is generally focused on claims involving liability and those claims that involve significant judgment. Because the establishment of loss reserves is an inherently uncertain process, we cannot be certain that ultimate losses will not exceed the established loss reserves and have a material adverse effect on the Company’s results of operations and financial condition. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.

Reserves are estimates because there are uncertainties inherent in the determination of ultimate losses. Court decisions, regulatory changes and economic conditions can affect the ultimate cost of claims that occurred in the past as well as create uncertainties regarding future loss cost trends. Accordingly, the ultimate liability for unpaid losses and loss adjustment expenses will likely differ from the amount recorded at June 30, 2009.

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We have four business segments: personal, commercial, farm and marine. The following table shows the breakdown of our loss and LAE reserves between reported losses and IBNR losses by segment as of June 30, 2009 and December 31, 2008 (in thousands):

	June 30, 2009		December 31, 2008
Reported losses
Personal	$	8,311	$	9,043
Commercial		3,189		2,538
Farm		1,844		1,228
Marine		551		603
		13,895		13,412
IBNR losses
Personal		4,739		4,538
Commercial		2,746		2,644
Farm		447		447
Marine		344		329
		8,276		7,958
Total
Personal		13,050		13,581
Commercial		5,935		5,182
Farm		2,291		1,675
Marine		895		932
	$	22,171	$	21,370

The reserves are reported gross of any amounts recoverable from reinsurers and are reduced for anticipated salvage and subrogation. Anticipated salvage and subrogation as of June 30, 2009 and December 31, 2008, was approximately $88,000 and $131,000, respectively.

Investments.All of the Company’s investments are classified as available-for-sale and are those investments that would be available to be sold in response to the Company’s liquidity needs, changes in market interest rates and asset-liability management strategies, among others. Available-for-sale investments are recorded at fair value, with the corresponding unrealized appreciation or depreciation, net of deferred income taxes and any corresponding deferred tax asset valuation allowance, reported as a component of accumulated other comprehensive income or loss until realized.

When a security in the Company’s investment portfolio has an unrealized loss in value that is deemed to be other than temporary, the Company reduces the book value of such security to its current market value, recognizing the decline as a realized loss in the statement of operations. Any future increases in the market value of investments written down are reflected as changes in unrealized gains as part of accumulated other comprehensive income within stockholders’ equity.

The Company evaluates its investment portfolio on at least a quarterly basis during the year using both qualitative and quantitative criteria to determine impairments in the portfolio for other-than-temporary declines in fair value. In reviewing its fixed maturity securities for other than temporary impairment, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the issuer’s operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audit opinion, industry and securities market conditions, and analyst expectations, to reach its conclusions. In reviewing equity securities, which include both common stocks and mutual funds, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the individual investments held within the mutual fund, most current audit opinion, industry and securities market conditions, and analyst expectations to reach its conclusions.

Under current accounting standards, an OTTI write-down of debt securities, where fair value is below amortized cost, is triggered in circumstances where (1) an entity has the intent to sell a security, (2) it is more-likely-than-not that the entity will be required to sell the security before recovery of its amortized cost basis, or (3) the entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more-likely-than-not the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the difference between the security’s amortized cost and its fair value. If an entity does not intend to sell the security or it is not more-likely-than-not that it will be required to sell the

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security before recovery, the OTTI write-down is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income.

Part of our evaluation of whether particular securities are other-than-temporarily impaired involves assessing whether we have both the intent and ability to continue to hold equity securities in an unrealized loss position. For fixed maturity securities, we consider our intent to sell a security and whether it is more-likely-than-not we will be required to sell the security before the recovery of our amortized cost basis. Significant changes in these factors could result in a charge to net income for impairment losses. Impairment losses result in a reduction of the underlying investment’s cost basis.

The investment strategy of the Company is not one of actively trading securities to generate short-term gains or losses. Instead, the Company focuses on acquiring and holding high quality, high yield fixed maturity securities and equity securities which are expected to appreciate over time. The Company also has the ability to hold investment securities until their fair value has increased to above cost. Factors which support the Company’s ability to hold impaired securities until their recovery include current cash and cash equivalents, sufficient historical and projected cash flow from operations and cash from maturities of fixed maturity securities.

Reinsurance.The Company accounts for reinsurance contracts under the provisions of Statement of Financial Accounting Standards (“SFAS”), No. 113, “Accounting and Reporting for Reinsurance on Short-Duration and Long-Duration Contracts.” Net premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned premiums ceded to them are reported as assets. Reinsurance assumed from other companies, including assumed premiums written and earned and losses and LAE, is accounted for in the same manner as direct insurance written.

Reinsurance recoverables include balances due from reinsurance companies for paid and unpaid losses and LAE that will be recovered from reinsurers, based on contracts in force. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its primary obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk with respect to the individual reinsurer that participates in its ceded programs to minimize its exposure to significant losses from reinsurer insolvencies. When necessary the Company holds collateral in the form of letters of credit or trust accounts for amounts recoverable from reinsurers that are not considered authorized insurers by the State of Michigan Office of Financial and Insurance Regulation.

At June 30, 2009 and December 31, 2008, the Company’s recoverable from reinsurers was comprised of the following:

	June 30, 2009		December 31, 2008
Paid losses and LAE	$	969,567	$	726,618
Unpaid losses and LAE		6,509,625		6,117,789
Amounts due from reinsurers	$	7,479,192	$	6,844,407

Federal Income Taxes.Deferred federal income tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

Description of Ratios Analyzed.In the analysis of our operating results that follows, we refer to various financial ratios and other measures that management uses to analyze and compare the underwriting results of our insurance operations. We calculate the loss and LAE ratio, policy acquisition and other underwriting expense ratio and combined ratio on a GAAP basis. As such, we calculate these ratios by using net premiums earned as the denominator. There have been no material changes to the calculation and use of these ratios during the most recent quarter. The Company also calculates underwriting gain (loss) on a GAAP basis. This measure equals the net premiums earned less loss and loss adjustment expenses as well as policy acquisition and other underwriting expenses. It is another measure used by management and insurance regulators to evaluate the underwriting performance of our insurance operations.

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Results of Operations – Three Months Ended June 30, 2009 and 2008

Consolidated Results of Operations. The following table shows the underwriting gain or loss as well as other revenue and expense items included in our unaudited consolidated statements of income for the three months ended June 30, 2009 and 2008. The Company’s underwriting gain or loss consists of net premiums earned less loss and LAE and policy acquisition and other underwriting expenses. The Company’s underwriting performance is the most important factor in evaluating the overall results of operations given the fluctuations which can occur in loss and LAE due to weather related events as well as the uncertainties involved in the process of estimating reserves for losses and LAE. The underwriting results and the fluctuations in other revenue and expense items are discussed in greater detail below.

	2009			2008			Change
							Dollar			Percentage
Underwriting gain (loss)
Personal	$	671,336		$	(285,473	)	$	956,809		335.2	%
Commercial		(574,099	)		978,512			(1,552,611	)	(158.7	%)
Farm		56,996			76,892			(19,896	)	(25.9	%)
Marine		11,092			84,315			(73,223	)	(86.8	%)
Total underwriting gain		165,325			854,246			(688,921	)	(80.6	%)
Other revenue (expense) items
Net investment income		438,980			535,039			(96,059	)	(18.0	%)
Net realized gains on investments		14,833			—			14,833		—
Other income		179,185			148,687			30,498		20.5	%
Total other revenue (expense) items		632,998			683,726			(50,728	)	(7.4	%)
Income before federal income taxes		798,323			1,537,972			(739,649	)	(48.1	%)
Federal income tax expense		(213,616	)		(420,986	)		207,370		(49.3	%)
Net income	$	584,707		$	1,116,986		$	(532,279	)	(47.7	%)

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the three months ended June 30, 2009 and 2008.

	2009			2008			Change			% Change
Direct premiums written	$	17,303,818		$	16,448,525		$	855,293		5.2	%
Net premiums written	$	14,610,221		$	13,659,528		$	950,693		7.0	%
Net premiums earned	$	13,197,608		$	11,778,423		$	1,419,185		12.0	%
Loss and LAE		8,773,377			6,910,578			1,862,799		27.0	%
Policy acquisition and other underwriting expenses		4,258,906			4,013,599			245,307		6.1	%
Underwriting gain	$	165,325		$	854,246		$	(688,921	)	(80.6	%)
Loss and LAE ratio		66.5	%		58.7	%		7.8	%
Policy acquisition and other underwriting expense ratio		32.3	%		34.1	%		(1.8	%)
Combined ratio		98.8	%		92.8	%		6.0	%

Premiums. The property and casualty industry is affected by soft and hard market business cycles no different than most other industries. During a soft market price competition tends to increase as insurers are willing to reduce premium rates in order to maintain growth in premium volume. The soft market makes it more difficult to attract new business as well as retain exposures which are adequately priced. Although we recognize the need to remain competitive in the Michigan market during the current soft market the Company remains committed to its disciplined underwriting philosophy of only accepting risks which we feel are appropriately priced while declining risks which are under priced for the level of coverage provided.

Direct premiums written by major business segment for the three months ended June 30 are presented in the table below:

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	2009		2008		$ Change			% Change
Direct Premiums Written:
Personal	$	12,137,212	$	11,100,731	$	1,036,481		9.3	%
Commercial		2,722,934		3,017,150		(294,216	)	(9.8	%)
Farm		1,513,144		1,397,401		115,743		8.3	%
Marine		930,528		933,243		(2,715	)	(0.3	%)
	$	17,303,818	$	16,448,525	$	855,293		5.2	%

Direct premiums written increased 5.2% during the quarter ended June 30, 2009 as a result of renewal premium growth of 9.0% offset by a decrease in new business premium of 13.9%. Direct premiums written for the personal segment increased 9.3%, driven by personal auto, up 11.6%, and homeowners, up 5.4%. During the quarter ended June 30, 2009, the personal segment experienced a decrease in new business of 7.2% while renewal business increased 10.7% as compared to the 2008 quarter. Personal auto new business premium increased 3.4% while renewal premium grew 13.1%. Homeowner new business premium decreased 14.8% while renewal premium grew 8.9%. The decrease in new business growth for both personal auto and homeowners is due to a focus on tighter underwriting guidelines coupled with rate increases put into effect during the second quarter. Since March 31, 2009, the in-force policy count for personal auto and homeowners increased 3.0% and 0.6%, respectively.

The commercial segment experienced a decrease of 9.8% in direct premiums written as a result of a reduction in new business premium of 29.2% and growth in renewal business of 6.7%. New business for the quarter was down across all commercial products due to strong growth experienced during the 2008 quarter coupled with the challenging Michigan economy. Since March 31, 2009, the in-force policy count for the commercial segment increased 0.4%.

Farm direct premiums written increased 8.3% driven by growth in new business of 16.8% coupled with growth in renewal business of 3.3%. Direct premiums written for the marine segment was down 0.3%, driven by a decrease in new business of 27.1% offset by renewal growth of 5.6%.

Net premiums written by major business segment for the three months ended June 30 are presented in the table below:

	2009		2008		$ Change			% Change
Net Premiums Written:
Personal	$	10,386,262	$	9,056,466	$	1,329,796		14.7	%
Commercial		1,988,854		2,505,588		(516,734	)	(20.6	%)
Farm		1,353,224		1,228,060		125,164		10.2	%
Marine		881,881		869,414		12,467		1.4	%
	$	14,610,221	$	13,659,528	$	950,693		7.0	%

The increase in net premiums written is due to growth in direct premiums written of $855,000 coupled with a decline of $96,000 in ceded premiums written under the Company’s reinsurance agreements.

Net premiums earned by major business segment for the three months ended June 30 are presented in the table below:

	2009		2008		$ Change			% Change
Net Premiums Earned:
Personal	$	9,753,637	$	8,193,611	$	1,560,026		19.0	%
Commercial		1,721,143		1,978,227		(257,084	)	(13.0	%)
Farm		1,248,223		1,157,664		90,559		7.8	%
Marine		474,605		448,921		25,684		5.7	%
	$	13,197,608	$	11,778,423	$	1,419,185		12.0	%

The increase in net premiums earned is due to the overall increase in direct premiums earned of $1,453,000 offset by an increase of $34,000 in ceded premiums earned under the Company’s reinsurance agreements.

Loss and Loss Adjustment Expenses (LAE). The Company’s net loss and LAE, incurred claim count, average loss and LAE per claim and the loss and LAE ratios for the three months ended June 30 are shown in the tables below:

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	2009			2008			$ Change			% Change
Loss and LAE:
Personal	$	6,500,129		$	5,687,712		$	812,417		14.3	%
Commercial		1,294,219			324,735			969,484		298.5	%
Farm		762,311			686,380			75,931		11.1	%
Marine		216,718			211,751			4,967		2.3	%
	$	8,773,377		$	6,910,578		$	1,862,799		27.0	%
Incurred Claim Count:
Personal		2,466			2,365			101		4.3	%
Commercial		243			179			64		35.8	%
Farm		137			161			(24	)	(14.9	%)
Marine		89			68			21		30.9	%
		2,935			2,773			162		5.8	%
Average Loss and LAE per Claim:
Personal	$	2,636		$	2,405		$	231		9.6	%
Commercial		5,326			1,814			3,512		193.6	%
Farm		5,564			4,263			1,301		30.5	%
Marine		2,435			3,114			(679	)	(21.8	%)
	$	2,989		$	2,492		$	497		19.9	%
Loss and LAE Ratio:
Personal		66.6	%		69.4	%
Commercial		75.2	%		16.4	%
Farm		61.1	%		59.3	%
Marine		45.7	%		47.2	%
		66.5	%		58.7	%

Incurred losses and LAE for the personal segment increased $812,000, however, the segment’s loss and LAE ratio dropped to 66.6% as a result of increased net premiums earned during the quarter ended June 30, 2009. Both the homeowner and personal auto product lines experienced lower loss and LAE ratios in the 2009 quarter compared to 2008 due to an increase in net premiums earned associated with both product lines. The homeowner’s loss and LAE ratio for the 2009 quarter was 74.3% compared to 77.9% in the 2008 quarter while the personal auto loss ratio was 60.6% for the 2009 quarter compared to 64.3% in the 2008 quarter.

The commercial segment experienced an increase of $969,000 in its loss and LAE while the loss and LAE ratio increased to 75.2% in the quarter ended June 30, 2009. Higher losses were experienced in the commercial package and business owner product lines and were caused by fire and water related damages. The Company also experienced higher losses in the workers compensation and the commercial auto lines which contributed to the increased loss and LAE ratio.

Policy Acquisition and Other Underwriting Expenses.Policy acquisition and other underwriting expenses for the three months ended June 30 were as follows:

	2009			2008			Change			% Change
Amortization of deferred policy acquisition costs	$	2,040,632		$	1,936,521		$	104,111		5.4	%
Other underwriting expenses		2,218,274			2,077,078			141,196		6.8	%
Total policy acquisition and other underwriting expenses	$	4,258,906		$	4,013,599		$	245,307		6.1	%
Net premiums earned	$	13,197,608		$	11,778,423		$	1,419,185		12.0	%
Expense ratio		32.3	%		34.1	%		(1.8	%)

Amortization of deferred policy acquisition costs (“DAC”) increased during the second quarter of 2009 as compared to the same period in 2008 as a result of increased earned premium volume. However, as a percentage of net premiums earned DAC amortization

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decreased from 16.4% to 15.5% as a result of the increased volume of personal automobile premium which pays a lower commission than other products as well as increased ceding commission. Other underwriting expenses as a percentage of net premiums earned dropped from 17.6% to 16.8% due to lower assessments from state mandated pools and associations coupled with continued growth in net premiums earned.

Investment Income.The Company’s net investment income excluding realized gains, average invested assets including cash and cash equivalents and the rate of return for the three months ended June 30 are as follows:

	2009			2008			Change			% Change
Fixed maturities	$	501,737		$	578,521		$	(76,784	)	(13.3	%)
Equity securities		8,510			7,910			600		7.6	%
Cash and cash equivalents		17,957			29,965			(12,008	)	(40.1	%)
Gross investment income		528,204			616,396			(88,192	)	(14.3	%)
Less: Investment expenses		(89,224	)		(81,357	)		7,867		9.7	%
Net investment income	$	438,980		$	535,039		$	(96,059	)	(18.0	%)
Average invested assets (amortized cost basis)	$	67,390,932		$	63,649,322		$	3,741,610		5.9	%
Rate of return on average invested assets		2.6	%		3.4	%		(0.8	%)

Gross investment income from the fixed portfolio declined in the second quarter of 2009 compared to the same period in the prior year. Withdrawals from the portfolio reduced the book value of fixed maturities to a lower level than in 2008. Additionally, the changes made to the fixed portfolio structure in order to mitigate credit risk have resulted in a lower yield in the portfolio than in recent quarters. Longer-dated securities were sold and replaced with shorter maturities which are more resistant to potential increases in interest rates. The tax-equivalent yield ended the second quarter of 2009 at 4.5%, compared to 5.31% at the end of the second quarter of 2008 while the duration was 4.51 years at June 30, 2009 compared to 5.35 years at June 30, 2008. The decline in income from cash and cash equivalents is due to a lower yield environment during the 2009 quarter compared to the prior year period.

The table below summarizes the net realized gains generated during the three month period ended June 30:

	2009			2008		Change			% Change
Net realized gains (losses) - fixed maturities	$	15,198		$	—	$	15,198		—
Net realized gains (losses) - equity securities		(365	)		—		(365	)	—
Total net realized gains (losses)	$	14,833		$	—	$	14,833		—

During the quarter ended June 30, 2009 the Company generated net realized gains in the fixed portfolio as a result of efforts to reduce the portfolios duration. The Company did not generate any realized gains or losses during the second quarter 2008.

Income Tax Expense. During the quarters ended June 30, 2009 and 2008 the Company recorded income tax expense of approximately $214,000 and $421,000, respectively. The decrease is due to a decline in pre-tax income in the 2009 quarter compared to the prior year quarter coupled with higher tax-exempt interest income during the 2009 quarter compared to 2008. The effective tax rate for the quarter ended June 30, 2009 was 26.8% compared to 27.4% in the prior year quarter. The decrease in the effective tax rate is due primarily to increased tax-exempt interest income earned during the second quarter of 2009 compared to 2008.

26

Results of Operations – Six Months Ended June 30, 2009 and 2008

Consolidated Results of Operations. The following table shows the underwriting gain or loss as well as other revenue and expense items included in our unaudited consolidated statements of income for the six months ended June 30, 2009 and 2008. The Company’s underwriting gain or loss consists of net premiums earned less loss and LAE and policy acquisition and other underwriting expenses. The Company’s underwriting performance is the most important factor in evaluating the overall results of operations given the fluctuations which can occur in loss and LAE due to weather related events as well as the uncertainties involved in the process of estimating reserves for losses and LAE. The underwriting results and the fluctuations in other revenue and expense items are discussed in greater detail below.

							Change
	2009			2008			Dollar			Percentage
Underwriting gain (loss)
Personal	$	229,078		$	(5,189	)	$	234,267		4514.7	%
Commercial		(563,824	)		943,267			(1,507,091	)	(159.8	%)
Farm		(188,037	)		355,684			(543,721	)	(152.9	%)
Marine		176,122			377,856			(201,734	)	(53.4	%)
Total underwriting gain		(346,661	)		1,671,618			(2,018,279	)	(120.7	%)
Other revenue (expense) items
Net investment income		940,165			1,051,275			(111,110	)	(10.6	%)
Net realized gains on investments		211,494			158,602			52,892		33.3	%
Other income		323,351			286,828			36,523		12.7	%
Total other revenue (expense) items		1,475,010			1,496,705			(21,695	)	(1.4	%)
Income before federal income taxes		1,128,349			3,168,323			(2,039,974	)	(64.4	%)
Federal income tax expense		(265,534	)		(946,883	)		681,349		(72.0	%)
Net income	$	862,815		$	2,221,440		$	(1,358,625	)	(61.2	%)

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the six months ended June 30, 2009 and 2008.

	2009			2008			Change			% Change
Direct premiums written	$	31,719,502		$	28,512,227		$	3,207,275		11.2	%
Net premiums written	$	26,353,035		$	23,236,394		$	3,116,641		13.4	%
Net premiums earned	$	26,018,489		$	22,995,328		$	3,023,161		13.1	%
Loss and LAE		17,994,570			13,247,077			4,747,493		35.8	%
Policy acquisition and other underwriting expenses		8,370,580			8,076,633			293,947		3.6	%
Underwriting gain (loss)	$	(346,661	)	$	1,671,618		$	(2,018,279	)	(120.7	%)
Loss and LAE ratio		69.2	%		57.6	%		11.6	%
Policy acquisition and other underwriting expense ratio		32.2	%		35.1	%		(2.9	%)
Combined ratio		101.4	%		92.7	%		8.7	%

Premiums. The property and casualty industry is affected by soft and hard market business cycles no different than most other industries. During a soft market price competition tends to increase as insurers are willing to reduce premium rates in order to maintain growth in premium volume. The soft market makes it more difficult to attract new business as well as retain exposures which are adequately priced. Although we recognize the need to remain competitive in the Michigan market during the current soft market the Company remains committed to its disciplined underwriting philosophy of only accepting risks which we feel are appropriately priced while declining risks which are under priced for the level of coverage provided.

Direct premiums written by major business segment for the six months ended June 30 are presented in the table below:

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	2009		2008		Change		% Change
Direct Premiums Written:
Personal	$	22,421,427	$	19,796,559	$	2,624,868	13.3	%
Commercial		5,304,006		4,997,852		306,154	6.1	%
Farm		2,726,031		2,454,094		271,937	11.1	%
Marine		1,268,038		1,263,722		4,316	0.3	%
	$	31,719,502	$	28,512,227	$	3,207,275	11.2	%

For the first six months of 2009 direct premiums written increased 11.2% over the prior year period led by growth in personal, commercial and farm lines. New business volume was up 11.9% while renewal business is up 10.8%. Since December 31, 2008 total in-force policy count has increased 3.3%.

Direct premiums written for the personal segment increased 13.3%, driven by personal auto, up 16.4%, and homeowners, up 8.8%. The personal segment’s new business increased 12.9% while renewal business was up 12.4%. Personal auto new business premium increased 23.6% while homeowner’s new business increased 4.2%. Renewal premiums for personal auto and homeowners grew 15.1% and 9.6%, respectively. During the first six months of 2009, the in-force policy count for personal auto and homeowners increased 8.0% and 2.2%, respectively.

The commercial segment experienced an increase of 6.1% in direct premiums written comprised of new business growth of 4.3% and growth in renewal business of 10.5%. During the six months ended June 30, 2009, the in-force policy count for the commercial segment increased 1.5%. New business growth was experienced in all products except for commercial package. In the current soft rate environment, the Company continues to review all commercial renewals to ensure that we are retaining policies that are appropriately priced for the risk assumed.

Farm direct premiums written increased 11.1% as a result of new business growth of 89.9% and renewal business growth of 3.0%. The new business growth was due to a larger account written during the first quarter of 2009. Direct premiums written for the marine segment were flat which is reflective of the challenging Michigan economy and its impact on consumer discretionary spending.

Net premiums written by major business segment for the six months ended June 30 are presented in the table below:

	2009		2008		Change			% Change
Net Premiums Written:
Personal	$	19,004,461	$	15,880,924	$	3,123,537		19.7	%
Commercial		3,720,078		4,095,646		(375,568	)	(9.2	%)
Farm		2,456,273		2,122,270		334,003		15.7	%
Marine		1,172,223		1,137,554		34,669		3.0	%
	$	26,353,035	$	23,236,394	$	3,116,641		13.4	%

The increase in net premiums written is due to the overall increase in direct premiums written of $3,207,000 offset by an increase of $91,000 in ceded premiums written under the Company’s reinsurance agreements.

Net premiums earned by major business segment for the six months ended June 30 are presented in the table below:

	2009		2008		Change			% Change
Net Premiums Earned:
Personal	$	19,105,019	$	16,057,739	$	3,047,280		19.0	%
Commercial		3,496,729		3,781,927		(285,198	)	(7.5	%)
Farm		2,471,326		2,268,450		202,876		8.9	%
Marine		945,415		887,212		58,203		6.6	%
	$	26,018,489	$	22,995,328	$	3,023,161		13.1	%

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The increase in net premiums earned is due to the overall increase in direct premiums earned of $3,205,000 offset by an increase of $182,000 in ceded premiums earned under the Company’s reinsurance agreements.

Loss and Loss Adjustment Expenses (LAE). The Company’s net loss and LAE, incurred claim count, average loss and LAE per claim and the loss and LAE ratios for the six months ended June 30 are shown in the tables below:

	2009			2008			Change		% Change
Loss and LAE:
Personal	$	13,412,117		$	10,422,980		$	2,989,137	28.7	%
Commercial		2,407,929			1,510,336			897,593	59.4	%
Farm		1,790,692			1,116,020			674,672	60.5	%
Marine		383,832			197,741			186,091	94.1	%
	$	17,994,570		$	13,247,077		$	4,747,493	35.8	%
Incurred Claim Count:
Personal		4,404			4,144			260	6.3	%
Commercial		397			327			70	21.4	%
Farm		256			253			3	1.2	%
Marine		114			89			25	28.1	%
		5,171			4,813			358	7.4	%
Average Loss and LAE per Claim:
Personal	$	3,045		$	2,515		$	530	21.1	%
Commercial		6,065			4,619			1,446	31.3	%
Farm		6,995			4,411			2,584	58.6	%
Marine		3,367			2,222			1,145	51.5	%
	$	3,480		$	2,752		$	728	26.5	%
Loss and LAE Ratio:
Personal		70.2	%		64.9	%
Commercial		68.9	%		39.9	%
Farm		72.5	%		49.2	%
Marine		40.6	%		22.3	%
		69.2	%		57.6	%

The increase in the loss and LAE ratio for the personal segment was caused by an increase in fire related losses and to a lesser extent an increase in losses related to winter weather experienced during January and February of 2009. The homeowner’s line generated a loss and LAE ratio of 80.0% for the six months ended June 30, 2009 compared to 66.2% in the 2008 period. The increase in the loss and LAE ratio was due primarily to higher severity from fire losses coupled with increased loss frequency associated with winter weather related losses. The increase in claim count for the personal segment was due to the homeowner’s line. The loss and LAE ratio for personal auto decreased to 62.2% for the six months ended June 30, 2009, compared to 66.6% in the 2008 period. The decrease is due to growth in net premiums earned.

The commercial segment experienced an increase of $898,000 in its loss and LAE while the loss and LAE ratio increased to 68.9% for the six months ended June 30, 2009. Higher losses were experienced in the commercial package and business owner product lines and were caused by fire and water related damages. The Company also experienced higher losses in the workers compensation and the commercial auto lines which contributed to the increased loss and LAE ratio.

The farm segment was also negatively impacted by fire losses which caused the increase in its loss and LAE ratio as compared to the 2008 period.

Policy Acquisition and Other Underwriting Expenses.Policy acquisition and other underwriting expenses for the six months ended June 30 were as follows:

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	2009			2008			Change			% Change
Amortization of deferred policy acquisition costs	$	4,055,785		$	3,816,198		$	239,587		6.3	%
Other underwriting expenses		4,314,795			4,260,435			54,360		1.3	%
Total policy acquisition and other underwriting expenses	$	8,370,580		$	8,076,633		$	293,947		3.6	%
Net premiums earned	$	26,018,489		$	22,995,328		$	3,023,161		13.1	%
Expense ratio		32.2	%		35.1	%		(2.9	%)

Amortization of deferred policy acquisition costs (“DAC”) increased during the 2009 period as compared to the same period in 2008 as a result of increased earned premium volume. However, as a percentage of net premiums earned DAC amortization decreased from 16.6% to 15.6% as a result of the increased volume of personal automobile premium which pays a lower commission than other products as well as increased ceding commission. Other underwriting expenses as a percentage of net premiums earned dropped from 18.5% to 16.6% due to lower assessments from state mandated pools and associations, lower depreciation expense and continued growth in net premiums earned.

Investment Income.The Company’s net investment income excluding realized gains, average invested assets including cash and cash equivalents and the rate of return for the six months ended June 30 are as follows:

	2009			2008			Change			% Change
Fixed maturities	$	1,069,177		$	1,146,641		$	(77,464	)	(6.8	%)
Equity securities		8,667			7,979			688		8.6	%
Cash and cash equivalents		38,791			67,740			(28,949	)	(42.7	%)
Gross investment income		1,116,635			1,222,360			(105,725	)	(8.6	%)
Less: Investment expenses		(176,470	)		(171,085	)		5,385		3.1	%
Net investment income	$	940,165		$	1,051,275		$	(111,110	)	(10.6	%)
Average invested assets (amortized cost basis)	$	67,328,134		$	63,586,524		$	3,741,610		5.9	%
Rate of return on average invested assets		2.8	%		3.3	%		(0.5	%)

Gross investment income from the fixed portfolio declined in the 2009 period compared to the same period in the prior year. Withdrawals from the portfolio reduced the book value of fixed maturities to a lower level than in 2008. Additionally, the changes made to the fixed portfolio structure in order to mitigate credit risk have resulted in a lower yield in the portfolio than in recent quarters. Longer-dated securities were sold and replaced with shorter maturities which are more resistant to potential increases in interest rates. The tax-equivalent yield ended the second quarter of 2009 at 4.5%, compared to 5.31% at the end of the second quarter of 2008 while the duration was 4.51 years at June 30, 2009 compared to 5.35 years at June 30, 2008. The decline in income from cash and cash equivalents is due to a lower yield environment during the 2009 quarter compared to the prior year period.

The table below summarizes the net realized gains generated during the six months ended June 30, 2009 and 2008:

	2009			2008		Change			% Change
Net realized gains (losses) - fixed maturities	$	269,024		$	66,383	$	202,641		305.3	%
Net realized gains (losses) - equity securities		(57,530	)		92,219		(149,749	)	(162.4	%)
Total net realized gains (losses)	$	211,494		$	158,602	$	52,892		33.3	%

During the six months ended June 30, 2009, the Company sold approximately $8.8 million in fixed maturity securities which generated realized gains of $269,024. In addition, the Company rebalanced a portion of the equity portfolio in order to realign the sector allocation within the portfolio. The rebalancing resulted in net realized losses of $57,530.

Income Tax Expense. During the six months ended June 30, 2009 and 2008 the Company recorded income tax expense of approximately $266,000 and $947,000, respectively. The decrease is due to lower pre-tax income in 2009 compared to the prior year period. The effective tax rate for the six months ended June 30, 2009 was 23.5 % compared to 29.9% in the prior year period. The decrease in the effective tax rate is due primarily to increased tax-exempt interest income earned in 2009 compared to 2008.

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Liquidity and Capital Resources

The principal sources of funds for the Company are insurance premiums, investment income and proceeds from the maturity and sale of invested assets. Funds are primarily used for the payment of claims, commissions, salaries and employee benefits, other operating expenses and shareholder dividends. Our short and long term liquidity requirements vary because of the uncertainties regarding the settlement dates for liabilities for unpaid claims and because of the potential for large losses, either individually or in the aggregate.

We maintain an investment portfolio that is intended to provide sufficient funds to meet our obligations without forced sales of investments. A portion of our investment portfolio is maintained in relatively short term and highly liquid assets, including mortgage-backed securities, which have shorter estimated durations, to ensure the availability of funds.

Cash flow provided by operations was $3,942,000 and $3,733,000 for the six months ended June 30, 2009 and 2008, respectively, an increase of $209,000. During the six months ended June 30, 2009 as compared to the same period in 2008, net premiums collected increased $2,999,000, net loss and LAE payments increased $5,390,000, policy acquisition and other underwriting expenses paid decreased $1,094,000 and federal income taxes paid decreased $1,500,000. Other cash provided by operations increased $6,000 during the six months ended June 30, 2009 compared to the same period in 2008.

During the six months ended June 30, 2009 cash flow used in investing activities was $74,000 while during the same period in 2008 cash flow used in investing activities was $3,407,000. The shift in cash flow used in investing activities is due to the fact that in 2009 the investing activity was focused on shifting invested funds between fixed maturities and equity securities whereas in 2008 the Company invested additional cash into the portfolio. During the second quarter 2009, the Company began adding to its equity portfolio via purchases of common stocks and mutual funds. Since March 31, 2009, the Company has added approximately $2,728,000 to the equity portfolio. The Company expects that by the end of the third quarter that it will add an additional $2,300,000 to the equity portfolio. Funding for the equity purchases has come from sales and maturities of fixed maturities and existing operating cash flow.

Cash provided by financing activities was $59,000 and $16,000 for the six months ended June 30, 2009 and 2008, respectively. During the six months ended June 30, 2009, financing activities consisted of the issuance of common stock which generated $240,000 in proceeds, share repurchases of approximately $76,000 and a cash dividend of $105,000 paid to stockholders. During the same period in 2008, financing activities consisted of cash received of approximately $16,000 from the issuance of common stock.

During the six months ended June 30, 2009, the Company has paid two quarterly cash dividends of $.03 per common share each collectively totaling $105,000. The Board’s current intention is to evaluate each quarter whether a cash dividend will be declared. The payment of future dividends will depend upon the availability of cash resources at the Holding Company, the financial condition and results of operations of the Company and such other factors as are deemed relevant by the Board of Directors.

During the quarter ended June 30, 2009, the Company repurchased 5,000 shares of our common stock under a repurchase plan which was previously announced on May 8, 2008. The shares were repurchased at a cost of approximately $73,000, or $14.60 per share. See Part II Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for details of our share repurchase program.

We have not had any liquidity issues affecting our operations. We believe that our existing cash and funds generated from operations will be sufficient to satisfy our financial requirements during the foreseeable future.

As of June 30, 2009, our investment portfolio had the following asset allocation breakdown:

Asset Class	Cost or Amortized Cost		Fair Value		Unrealized Gain (Loss)			% of Total Fair Value		Credit Quality
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	6,823,172	$	6,984,125	$	160,953		11.8	%	AAA
States and political subdivisions		21,198,737		21,124,938		(73,799	)	35.6	%	AA-
Corporate securities		10,952,090		11,025,473		73,383		18.6	%	A+
Mortgage-backed securities		12,493,368		12,256,493		(236,875	)	20.6	%	AAA
Total fixed maturity securities		51,467,367		51,391,029		(76,338	)	86.5	%	AA
Equity securities		10,437,561		8,017,955		(2,419,606	)	13.5	%
Total	$	61,904,928	$	59,408,984	$	(2,495,944	)	100.0	%

31

Changes in Interest Rates

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments. Fluctuations in interest rates have a direct impact on the market valuation of these securities. Therefore, an adverse change in market prices of these securities would result in losses reflected in the balance sheet. The following table shows the effects of a change in interest rates on the fair value of our fixed maturity investment portfolio. We have assumed an immediate increase or decrease of 1% or 2% in interest rates. You should not consider this assumption or the values shown in the table to be a prediction of actual future results.

Change in Rate	Portfolio Value		Change in Value
	(In thousands)
2%	$	46,581	$	(4,810	)
1%		48,980		(2,411	)
0		51,391		—
-1%		53,814		2,423
-2%		56,250		4,859

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Vice President of Finance, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

As required by Securities and Exchange Commission Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Vice President of Finance, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Vice President of Finance concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

ITEM 4T. CONTROLS AND PROCEDURES.

There have not been any changes in our internal control over financial reporting, as defined by the Securities and Exchange Commission Rule 13a-15(f), as of the end of the quarter covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company is party to litigation in the normal course of business. Based upon information presently available to us, we do not consider any litigation to be material. However, given the uncertainties attendant to litigation, we cannot be sure that our results of operations and financial condition will not be materially adversely affected by any litigation.

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The Holding Company’s principal source of cash available for payment of dividends is dividends from the Insurance Company. The payment of dividends by the Insurance Company is subject to limitations imposed by the Michigan Insurance Code. The Insurance Company may not pay an extraordinary dividend unless it notifies the Insurance Commissioner and he does not disapprove the payment. An extraordinary dividend includes any dividend which, when taken together with other dividends paid within the preceding 12 months, exceeds the greater of 10% of the Insurance Company’s statutory policyholders’ surplus as of December 31 of the immediately preceding year or its statutory net income, excluding realized capital gains, for the 12-month period ending December 31 of the immediately preceding year. During the year ended December 31, 2009, the Insurance Company can pay a non-extraordinary dividend of up to $2,688,000 without prior approval from the Insurance Commissioner. In order to pay any dividends, the Insurance Company must be in a position to satisfy the requirement that the Company continues to be safe, reliable and entitled to public confidence. Also, in the absence of approval of the Insurance Commissioner, dividends may only be paid from statutory earned surplus.

The following table sets forth the repurchases of common stock for the quarter ended June 30, 2009:

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans
Month ended April 30, 2009					58,810
Month ended May 31, 2009	—	$	—	—	58,810
Month ended June 30, 2009	5,000	$	14.60	5,000	53,810
Total	5,000	$	14.60	5,000

(1) On May 8, 2008, the Company announced a share repurchase plan for up to 100,000 shares of common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

			Number of Shares
			Voted For	Withheld
Proposal 1:	Election of four Class III directors for a term of three years and until their successors have been elected and qualified.
	Donald E. Bradford		1,515,986	33,709
	Richard E. Dunning		1,546,053	3,642
	William L. Johnson		1,540,312	9,383
	Donald C. Wilson		1,543,196	6,499
		Number of Shares
		Voted For	Against	Abstain
Proposal 2:	Ratification of the appointment of BDO Seidman, LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2009.	1,538,019	5,459	6,217

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS.

(a) Exhibits. The following documents are included as exhibits to this report on Form 10-Q. Documents not accompanying this report are incorporated by reference as indicated.

33

NUMBER	TITLE
31.1	Certification of President and Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Vice President of Finance under Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification pursuant to 18 U.S.C. Section 1350.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FREMONT MICHIGAN INSURACORP, INC.
Date: August 13, 2009	By:	/s/ Richard E. Dunning
		Richard E. Dunning
		President and Chief Executive Officer
Date: August 13, 2009	By:	/s/ Kevin G. Kaastra
		Kevin G. Kaastra
		Vice President of Finance
		(principal financial and accounting officer)

35