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<TITLE>FORM S-1</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt">AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 2004



<DIV align="right" style="font-size: 10pt">REGISTRATION NO.
333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV>



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<DIV align="center" style="font-size: 14pt">UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</DIV>

<DIV align="center" style="font-size: 12pt">WASHINGTON, D.C. 20549
</DIV>


<P align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="25%">


<DIV align="center" style="font-size: 18pt"><B>FORM S-1</B></DIV>

<DIV align="center" style="font-size: 10pt">REGISTRATION STATEMENT UNDER THE</DIV>


<DIV align="center" style="font-size: 10pt">SECURITIES ACT OF 1933</DIV>



<P align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="25%">


<DIV align="center" style="font-size: 24pt"><B>NATIONAL ATLANTIC HOLDINGS CORP.</B></DIV>


<P align="center" style="font-size: 10pt">(Exact name of Registrant as specified in its charter)


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
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<TR valign="bottom">
    <TD align="center" valign="top"><B>New Jersey</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>6331</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>22-3316586</B></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Primary Standard Industrial
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Classification Code Number)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Identification No.)</TD>
</TR>

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</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>4 Paragon Way<BR>
Freehold, NJ 07728<BR>
(732)&nbsp;665-1100</B><BR>
(Address, including zip code, and telephone number,<BR>
including area code, of Registrant&#146;s principal executive offices)



<DIV align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="25%"></DIV>



<DIV align="center" style="font-size: 10pt"><B>James V. Gorman<BR>
Chairman and Chief Executive Officer<BR>
National Atlantic Holdings Corp.<BR>
4 Paragon Way<BR>
Freehold, NJ 07728<BR>
(732)&nbsp;665-1100</B><BR>
(Name, address, including zip code, and telephone number,<BR>
including area code, of agent for service)</DIV>


<DIV align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="25%"></DIV>


<DIV align="center" style="font-size: 10pt">Copies To:</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
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<TR valign="bottom">
    <TD align="center" valign="top"><B>Jonathan L. Freedman, Esq.<BR>
Dewey Ballantine LLP<BR>
1301 Avenue of the Americas<BR>
New York, NY 10019-6092</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Michael Groll, Esq.<BR>
Sheri Bloomberg, Esq.<BR>
LeBoeuf, Lamb, Greene &#038; MacRae, L.L.P.<BR>
125 West 55th Street<BR>
New York, NY 10019-5389</B></TD>
</TR>

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</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="25%"></DIV>


<DIV align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after this registration statement becomes
effective.</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule&nbsp;415 under the Securities Act
of 1933, check the following box. <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If delivery of the prospectus is expected to be made pursuant to Rule&nbsp;434,
check the following box. <FONT face="Wingdings">&#111;</FONT>
 <P>
<DIV align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="25%"></DIV>


<DIV align="center" style="font-size: 10pt"><B>CALCULATION OF REGISTRATION FEE</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Title of Each Class of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proposed Maximum</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Securities to be Registered</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Aggregate Offering Price(1)(2)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Registration Fee</B><HR size="1" noshade></TD>
</TR>

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    <TD><DIV style="margin-left:10px; text-indent:-10px">Common Stock, no par value per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">75,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,503</TD>
    <TD>&nbsp;</TD>
</TR>

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</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Estimated solely for the purpose of calculating the
registration fee pursuant to Rule&nbsp;457 under the Securities Act of
1933, as amended.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes shares to be sold by the selling shareholder
identified herein and shares subject to the underwriters&#146;
over-allotment option.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="25%">



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with </B><B>Section 8(a)</B><B> of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section&nbsp;</B><B>8(a)</B><B>,
may determine.</B>


<P>
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<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P style="padding: 5px; border: 3px double #848284; font-size: 10pt; color: #FF0000">The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.


<P align="center" style="font-size: 10pt">SUBJECT TO COMPLETION,
DATED JULY&nbsp;30, 2004



<P align="left" style="font-size: 10pt">PROSPECTUS



<P align="center" style="font-size: 14pt"><B>&#091;LOGO&#093;</B>



<P align="center" style="font-size: 14pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Shares</B>


<P align="center" style="font-size: 24pt"><B>National Atlantic Holdings Corp.</B>


<P align="center" style="font-size: 14pt"><B>Common Stock</B>



<P align="center" style="font-size: 10pt"><B>$</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>per share</B>



<P align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="10%">



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are selling&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock and the selling
shareholder named in this prospectus is selling&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares. We will not
receive any proceeds from the sale of the shares by the selling shareholder.
We and the selling shareholder have granted the underwriters an option to
purchase up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional shares of common stock to cover
over-allotments.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This is the initial public offering of our common stock. We currently
expect the initial public offering price to be between $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol &#147;NAHC.&#148;


<P align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="10%">



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Investing in our common stock involves risks. See &#147;Risk Factors&#148;
beginning on page 9.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.


<P align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="10%">


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="84%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Per share</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
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<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Public Offering Price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Underwriting Discount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proceeds to National Atlantic Holdings Corp. (before expenses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proceeds to Selling Shareholder (before expenses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

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</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriters expect to deliver the shares to purchasers on or about&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2004.


<P align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="10%">



<P align="center" style="font-size: 18pt"><B>Citigroup</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>&#091;ARTWORK&#093;</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front of this
prospectus.</B>

<DIV align="left">
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</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>TABLE OF CONTENTS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="94%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Page</B><HR size="1" noshade></TD>
</TR>

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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#101">Summary</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#102">Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#103">Cautionary Statement Concerning Forward Looking Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#104">Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#105">Capitalization</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#106">Dilution</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#107">Dividend Policy</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#108">Selected Historical Financial Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#109">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#110">Business</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#111">Management</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#112">Certain Relationships and Related Party Transactions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#113">Principal and Selling Shareholders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#114">Description of Capital Stock</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#115">Shares Eligible for Future Sale</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#116">Material United States Federal Income and Estate Tax Considerations for Non-United States
Holders of Common Stock</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#117">Underwriting</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#118">Legal Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#119">Experts</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#120">Change of Independent Registered Public Accountants</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#121">Where You Can Find More Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#122">Index to Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-1</TD>
    <TD>&nbsp;</TD>
</TR>

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<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w1.htm">FORM OF AGENCY AGREEMENTS</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w2.htm">FORM OF AGENCY AGREEMENTS</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w3.htm">FORM OF LIMITED AGENCY AGREEMENTS</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w4.htm">REPLACEMENT CARRIER AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w5.htm">INVESTOR RIGHTS AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w6.htm">NON-COMPETITION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w7.htm">LETTER AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w8.htm">SHARE REPURCHASE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w9.htm">REPLACEMENT CARRIER AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w10.htm">SHARE REPURCHASE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w11.htm">REPLACEMENT CARRIER AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w12.htm">LIMITED ASSIGNMENT DISTRIBUTION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv10w13.htm">LIMITED ASSIGNMENT DISTRIBUTION AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv16w1.htm">LETTER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y98951exv23w2.htm">CONSENT OF DELOITTE & TOUCHE LLP</A></FONT></TD></TR>
</TABLE>
</DIV>


<DIV align="left">
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</DIV>

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004 (25&nbsp;days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers&#146; obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>SUMMARY</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>This summary highlights information about National Atlantic Holdings
Corp., its subsidiaries and the offering. In this prospectus, &#147;NAHC&#148; refers to
National Atlantic Holdings Corp., &#147;we,&#148; &#147;us,&#148; and &#147;our&#148; refer to National
Atlantic Holdings Corp. and its consolidated subsidiaries, and &#147;Proformance&#148;
refers to Proformance Insurance Company, a wholly-owned insurance subsidiary of
NAHC. Because this is a summary, it may not contain all the information you
should consider before investing in our common stock. You should carefully
read this entire prospectus.</I>


<P align="center" style="font-size: 10pt"><B>National Atlantic Holdings Corp.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a provider of personal lines property and casualty insurance,
predominantly automobile insurance, in the State of New Jersey. We have been
able to capitalize on what we consider an attractive opportunity in the New
Jersey insurance market through our extensive knowledge of the New Jersey
insurance market and regulatory environment, our business model that requires
many of our independent agents to retain an ownership stake in our company, our
packaged product that offers auto, homeowners and other personal lines
coverage, and our insurance related services businesses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, our insurance subsidiary, Proformance Insurance
Company, was the tenth largest and the fastest growing provider of private
passenger auto insurance in New Jersey, based on direct written premiums of
companies writing more than $5&nbsp;million of premiums annually over the past three
years, according to A.M. Best Company, Inc., which we refer to as A.M. Best.
From 1999 through 2003, we experienced a 42.0% compound annual growth rate, as
our direct written premiums for all lines of business we write, including
homeowners and commercial lines, increased from $40.2&nbsp;million in 1999 to $163.2
million in 2003. As of March&nbsp;31, 2004, our shareholders&#146; equity was $61.0
million up from shareholders&#146; equity of $8.1&nbsp;million as of December&nbsp;31, 1999,
reflecting a 60.7% compound annual growth rate.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe the current conditions in the New Jersey property and casualty
insurance market represent an attractive opportunity for us. According to
estimates of the U.S. Bureau of Economic Analysis and Bureau of the Census, New
Jersey had the second highest per capita personal income in 2003 of the 50
states. According to A.M. Best:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>private passenger auto direct written premiums in New Jersey for
2003 were $5.7&nbsp;billion (ranking sixth among the states and having grown
26.5% since 1999); and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>total property and casualty direct written premiums in New Jersey
for 2003 were $14.0&nbsp;billion (ranking eighth among the states and having
grown 41.9% since 1999).</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that these market conditions provide us with the opportunity to
profitably grow our business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As other insurers have reduced their share or withdrawn from the New
Jersey private passenger auto insurance market in recent years, as a result of
numerous factors, especially the regulatory environment, we have expanded our
business both organically and through replacement carrier transactions where we
serve as the replacement carrier to offer insurance coverage upon renewal of
the withdrawing carrier&#146;s policies. We have entered into four replacement
carrier transactions and intend to opportunistically consider others if they
meet our profitability and growth objectives.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We distribute our products exclusively through licensed independent
agents, many of whom are our Partner Agents who have purchased a minimum of
$50,000 of the common stock of NAHC. As of March&nbsp;31, 2004, our Partner Agents,
including those that are directors of our company, owned in the aggregate
approximately 38.7% of our outstanding common stock on a fully diluted basis.
Following this offering (assuming full exercise of the underwriters&#146;
over-allotment option) our Partner Agents will own in the aggregate
approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our outstanding common stock on a fully diluted basis.
None of our Partner Agents are selling shares of our common stock in this
offering. We believe that requiring our Partner Agents to maintain an
ownership interest in our company provides them with an incentive to write on
our behalf the more profitable segments of the personal and


<P align="center" style="font-size: 10pt">1
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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">commercial lines business they produce in New Jersey. We intend to
continue requiring our agents to purchase shares of our common stock prior to
selling our insurance products.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance, founded in 1994, provides comprehensive packaged personal
lines property and casualty insurance. Our packaged personal lines policy,
which we call our &#147;High Proformance Policy,&#148; contains coverages for private
passenger automobile, homeowners, personal excess (&#147;umbrella&#148;) liability, and
personal specialty property lines insurance covering jewelry, furs, fine arts,
cameras, electronic data process equipment, boats, yachts and other high value
items. We believe that our packaged personal lines product provides several
advantages over non-packaged alternatives, including administrative expense
savings, lower loss ratios, increased customer convenience and higher
policyholder retention. Proformance also offers commercial lines products,
predominantly commercial automobile liability and physical damage for small to
medium business &#147;mainstreet&#148; policyholders which we regard as high
frequency/low severity risks.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our non-insurance subsidiaries provide Proformance and third parties with
a variety of services. Most of the services provided by our non-insurance
subsidiaries generate fee-for-service income. Our non-insurance subsidiaries
include:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Riverview Professional Services, Inc</I>. <I>(Riverview)</I>, which we formed
in 2002, provides case management and medical treatment cost
containment to ensure cost-efficient service in the treatment of auto
accident victims and reduced claims expenses for Proformance.
Riverview is also a third party claims administrator providing claims
handling services.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>National Atlantic Insurance Agency, Inc. (NAIA)</I>, which we formed in
1995, provides services to &#147;orphan&#148; policyholders no longer serviced by
their independent agents and policyholders acquired as part of our
replacement carrier transactions.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our other insurance subsidiary, Mayfair Reinsurance Company Limited
(Mayfair), was formed in 2003 as a Bermuda licensed reinsurance company to
assume reinsurance business as a retrocessionaire from third party reinsurers
of Proformance, and provide other potentially profitable small reinsurance
facilities to third parties.


<P align="center" style="font-size: 10pt"><B>Our Competitive Strengths</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Agency Relationships</I></B>. Proformance distributes its products through
licensed independent agents most of whom are required to maintain an ownership
interest in NAHC. We believe this provides each such agent with an incentive
to write on our behalf its more profitable personal and commercial lines
business in New Jersey.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Experienced, Dedicated and Knowledgeable Management Team</I></B>. As of March
31, 2004, our executive management team and directors owned in the aggregate
approximately 33.8% of our outstanding common stock on a fully diluted basis.
Following this offering our executive management team will own in the aggregate
approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our outstanding common stock on a fully diluted basis.
None of our directors or officers are selling shares of our common stock in
this offering. The executive management team, led by our Chairman and Chief
Executive Officer, James V. Gorman, has an average of over 20&nbsp;years of property
and casualty insurance carrier experience. Our management team has
demonstrated an ability to operate successfully within the regulated New Jersey
property and casualty insurance market.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Knowledge of the New Jersey Market and Regulatory Environment</I></B>. We
believe our knowledge of, experience with, and the relationships we have
developed in, the New Jersey property and casualty insurance market provide us
with an advantage over our competitors, especially large, national insurers not
primarily focused on New Jersey. In addition to organically growing our
business, we have expanded our market share by entering into replacement
carrier transactions pursuant to which we agree to act as the replacement
carrier for renewals of insurance policies of insurers that decided to withdraw
from the New Jersey automobile insurance market. Our replacement carrier
transactions provided us with improved economies of scale and enabled us to
increase capital and surplus while increasing premium volume at rates that
cannot be achieved through organic growth of insurance policies sold on an
individual basis.


<P align="center" style="font-size: 10pt">2
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Ability to Offer Policyholders the Convenience of Our Packaged High
Proformance Policy</I></B>. We believe our target customers are attracted to the
convenience of buying all of their personal insurance coverages under one
policy from one company. Our primary insurance product is our High Proformance
Policy. Our High Proformance Policy is a &#147;packaged&#148; product that may include
deluxe homeowners, private passenger automobile, personal excess liability and
personal inland marine insurance coverages. Our historical underwriting
experience indicates that the policyholders who purchase their auto and
homeowners coverage from the same carrier are better risks than policyholders
who purchase only one kind of coverage or the other.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Focus on Reducing Underwriting Costs and Claims Expenses</I></B>. We believe
that our ability to operate efficiently and reduce underwriting costs and
claims expenses enables us to price our products competitively and improve our
profitability.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Ability to Take Advantage of the Services Provided By Our
Non-Insurance Subsidiaries. </I></B>We are able to take advantage of the services
provided by our non-insurance subsidiaries. In particular Riverview provides
services that facilitate cost-effective treatment of auto accident victims and
reduce claims expenses. NAIA operates as a full service insurance agency that
receives the same commission structure as our Partner Agents.


<P align="center" style="font-size: 10pt"><B>Our Growth Strategies</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our goal is to grow our business and maximize shareholder value through
the following strategies:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Focusing on the New Jersey Market</I></B>. We will continue to focus our business
on the New Jersey property and casualty insurance market where we believe we
are able to achieve a competitive advantage through our knowledge and expertise
of the market and regulatory environment.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Capturing a Larger Share of Our Agents&#146; Business</I></B>. We intend to maintain
and further develop our strong independent agent relationships by providing our
agents with a broader portfolio of insurance products and technology services.
We believe this will enable us to capture a growing share of the insurance
business written by our agents, including the amount of commercial lines
business provided to small to medium business &#147;mainstreet&#148; policyholders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Converting Single Coverage Policies into Our Packaged Policies and
Opportunistically Growing Our Business through Replacement Carrier
Transactions</I></B><I>. </I>We intend to continue to grow our homeowners and non-auto
insurance businesses, principally by endorsing additional coverages on policies
which currently cover only automobile insurance. We plan to convert the
policies transferred to us as part of the replacement carrier transactions,
which were primarily only automobile insurance, into our packaged High
Proformance Policies. In addition, as opportunities arise we will enter into
replacement carrier and other transactions which we determine are consistent
with our objectives.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Marketing the Services of Our Non-Insurance Subsidiaries to Third Parties</I></B>.
We intend to selectively market to third parties the services provided by
Riverview, and will market the services of NAIA to our agents who, in exchange
for our service to the designated policyholders of that agent, will receive a
commission from us lower than our normal commission.


<P align="center" style="font-size: 10pt"><B>Certain Risks</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to capitalize on our business strengths and implement our
strategies entails risks. Because we focus exclusively on New Jersey, we are
subject to prevailing regulatory, economic, demographic, competitive, weather
and other conditions in New Jersey. These conditions may have a
disproportionate effect on us, compared to insurers that conduct business in
multiple states. In addition, because we are primarily a private passenger
automobile insurance carrier, negative developments in the economic,
competitive or regulatory conditions affecting the private passenger automobile
insurance industry would have a disproportionate effect on us, compared to more
diversified insurers that also sell other types of property and casualty
insurance products. For a further discussion of these and other risks we face,
see &#147;Risk Factors.&#148;


<P align="center" style="font-size: 10pt">3
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive offices are located at 4 Paragon Way, Freehold, NJ
07728. Our telephone number is (732)&nbsp;665-1100.


<P align="center" style="font-size: 10pt">4
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>The Offering</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock offered by us
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock offered by The Ohio Casualty
Insurance Company, as selling shareholder
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock outstanding after the offering
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Over-allotment option
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">We have granted the
underwriters an option
to purchase up
to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
additional shares of
common stock to cover
over-allotments and the
selling shareholder has
granted the underwriters
an option to purchase up
to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; additional
shares of common stock
to cover
over-allotments.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Proposed NASDAQ symbol
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NAHC</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Use of proceeds
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">We will receive net
proceeds from the
initial public offering
of approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
million, or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
million if the
underwriters exercise in
full their
over-allotment option.
We intend to use the
proceeds from the
offering to provide
additional capital to
our operating
subsidiaries and for
general corporate
purposes.<BR><BR>
We will not receive any
proceeds from the sale
of shares of common
stock by the selling
shareholder in this
offering.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dividend policy
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">We intend to retain all
future earnings to fund
the development and
growth of our business.
Although we paid a 5%
stock dividend on our
common stock in 1997, we
have not paid cash
dividends on our common
stock in the past and
currently do not intend
to pay any cash
dividends on our common
stock in the foreseeable
future.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Any payment of dividends
will be at the
discretion of our board
of directors. Our
ability to pay dividends
is dependent upon, among
other things, the
availability of
dividends from our
subsidiaries, including
our insurance
subsidiaries,
Proformance and Mayfair. The ability of
Proformance to pay
dividends to us is
restricted by New Jersey
insurance law and the
ability of Mayfair to
pay dividends to us is
restricted by Bermuda
law. See
&#147;Business&#151;Supervision
and Regulation.&#148;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The common stock to be outstanding immediately after the offering includes
the conversion of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our outstanding nonvoting common stock
into&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our voting common stock immediately prior to this
offering. The foregoing information is based upon&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares outstanding
as of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, and includes&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares issuable upon exercise of
outstanding stock options as of such date, all of which become fully vested and
exercisable upon consummation of this offering at a weighted average exercise
price of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share.


<P align="center" style="font-size: 10pt">5
</DIV>

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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise indicated, all information in this prospectus assumes
a&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;stock split effected&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004 and assumes no
exercise of the underwriters&#146; over-allotment option.


<P align="center" style="font-size: 10pt">6
</DIV>

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<P align="center" style="font-size: 10pt"><B>Summary Historical Financial Data</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables set forth our summary historical financial data as of
and for each of the five years ended December&nbsp;31, 2003 and as of and for the
three months ended March&nbsp;31, 2004 and 2003. We derived the data as of December
31, 2003 and 2002, and for each of the three years in the period ended December
31, 2003, from our consolidated financial statements that have been subject to
audit and are included elsewhere in this prospectus. We derived the data as of
December&nbsp;31, 2001, 2000 and 1999, and for the years ended December&nbsp;31, 2000 and
1999, from our consolidated financial statements that have been subject to
audit and are not included in this prospectus. The summary historical income
statement data for the three months ended March&nbsp;31, 2003 and 2004 and the summary
historical consolidated balance sheet data as of March&nbsp;31, 2003
and 2004 have been
derived from our unaudited interim consolidated financial statements included
elsewhere in this prospectus. In
the opinion of our management, the unaudited financial data as of and for the
three months ended March&nbsp;31, 2003 and 2004 presented in the tables below
reflects all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of our financial position and results of operations as
of the dates and for the periods indicated. Results for the interim periods
are not necessarily indicative of results to be expected for the entire year.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have prepared the summary historical consolidated financial data, other
than the statutory data, in conformity with accounting principles generally
accepted in the United States of America, or GAAP. We have derived the
statutory data from the annual statements of our insurance subsidiary,
Proformance, filed with the New Jersey Department of Banking and Insurance
prepared in accordance with statutory accounting practices, which vary in
certain respects from GAAP.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The summary historical financial data presented below should be read in
conjunction with &#147;Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations,&#148; &#147;Selected Historical Financial Data,&#148; and our
consolidated financial statements and accompanying notes included elsewhere in
this prospectus.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Income Statement Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Direct written premiums(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,179,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,645,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,757,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">114,624,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">163,178,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,644,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,501,464</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net written premiums(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,706,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,235,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,498,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,431,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,232,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,376,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,659,986</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net earned premiums(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,400,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,807,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,431,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,459,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145,344,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,192,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,401,572</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Replacement carrier
revenue from related party(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,683,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,736,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,916,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,045,455</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Replacement carrier
revenue from unrelated party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,166,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,084,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,592,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,257,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">729,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,184,013</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net realized
investment gains (losses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">504,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55,219</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,372,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29,130</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">676,981</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">929,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">496,693</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,712,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,796,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,074,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,245,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,640,687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,143,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,679,714</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Losses and loss
adjustment expenses(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,707,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,145,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,338,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,491,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,122,636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,720,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,263,346</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Underwriting, operating
and
related expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,376,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,662,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,207,455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,732,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,373,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,528,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,039,245</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,083,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,807,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,545,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,223,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,495,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,249,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,301,591</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before
income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,371,216</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,010,253</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,470,783</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,021,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,144,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,893,824</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,378,123</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax expense
(benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(926,885</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,324,968</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,606,388</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,014,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,989,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,727,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,360,706</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income
(loss)(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,444,331</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,685,285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864,395</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,006,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,155,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,166,681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,017,417</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic Earnings per Share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(18.16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(69.75</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">185.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.46</TD>

    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted
Earnings per Share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(18.16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(69.75</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">162.73</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">62.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.80</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>As of and for the</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>As of and for the Year Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance Sheet Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total cash &#038;
investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,771,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,821,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,852,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">92,351,876</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">179,695,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">127,389,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">196,164,033</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,994,747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,585,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,260,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161,556,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269,367,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,759,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">288,270,579</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Losses and loss
adjustment expenses
reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,055,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,350,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,732,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,472,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,200,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,557,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,226,030</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Debt(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,790,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,682,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">48,851,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">64,379,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">82,275,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">143,050,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">219,119,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">175,512,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">227,346,895</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total shareholders&#146;
equity(5)(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,131,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,206,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,015,479</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,506,590
</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">50,248,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,246,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,923,684</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap><DIV style="margin-left:10px; text-indent:-10px"><B>Statutory Data(7):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
<TD><DIV style="margin-left:20px; text-indent:-10px">Policyholders&#146; surplus (at period end)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,039,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,007,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,640,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,106,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">58,245,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,147,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">57,957,075</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Loss ratio(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">78.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">92.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">78.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">88.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">71.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">73.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Expense ratio(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Combined ratio(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">104.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">125.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">112.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">99.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">108.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">95.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">95.1</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<HR size="1" width="18%" align="left" noshade>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top">
    <TD>(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary driver for a
significant portion of our growth from 2002 through 2003 was an
agreement entered into on December&nbsp;18, 2001 with The Ohio Casualty Insurance Company, which we
refer to as OCIC, and Ohio Casualty of New Jersey, Inc., which we refer to as
OCNJ, to become a replacement carrier pursuant to which OCNJ would transfer to
Proformance the obligation to offer renewals for all of OCNJ&#146;s New Jersey
private passenger automobile business effective March&nbsp;18, 2002. In connection
with this transaction our direct written premiums, net written premiums and net
earned premiums increased from $49.8&nbsp;million, $25.5&nbsp;million
and $25.4 million,
respectively, for the year ended December&nbsp;31, 2001, to $163.2&nbsp;million, $149.2
 million and $145.3&nbsp;million, respectively, for the year ended December&nbsp;31, 2003.
In addition total assets, losses and loss adjustment expense reserves, as well
as total shareholders&#146; equity, increased from $78.3&nbsp;million, $56.7&nbsp;million and
$(4.0) million, respectively as of December&nbsp;31, 2001 to $269.4&nbsp;million, $134.2
million and $50.2&nbsp;million, respectively as of December&nbsp;31, 2003. See
&#147;Business&#151;Recent Transactions.&#148;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD>(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded replacement carrier revenue related to the OCIC agreement
referred to above in the amount of $21.7&nbsp;million and $12.7&nbsp;million for the
years ended December&nbsp;31, 2002 and 2003, respectively which contributed to
increasing total shareholders&#146; equity from $18.5&nbsp;million as of December&nbsp;31,
2002 to $50.2&nbsp;million for the year ended December&nbsp;31, 2003. See
&#147;Business&#151;Recent Transactions.&#148;</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD>(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The loss ratio, when calculated on a statutory basis, is the ratio of
losses and loss adjustment expenses to net earned premiums. The expense ratio,
when calculated on a statutory accounting basis, is the ratio of underwriting
expenses to net written premiums. The expense ratio, when calculated on a GAAP
basis, differs from the statutory method specifically as it related to policy
acquisition expenses. Policy acquisition expenses are expensed as incurred
under the statutory accounting method. However, for GAAP, policy acquisition
expenses are deferred and amortized over the period in which the related
premiums are earned. The combined ratio is the sum of the loss ratio and the
expense ratio. Management considers the statutory methods for calculating the
loss, expense and combined ratios to compare our performance to benchmarks used
by rating agencies and regulatory bodies that monitor the insurance industry.</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD>(4)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1997, we entered into two separate loan agreements. In March of 2002,
one of the loans was paid in full and in December of 2002 the remaining loan
was paid in full.</TD>
</TR>

<TR><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD>(5)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;21, 2003 and December&nbsp;8, 2003, respectively, we entered into two
additional replacement carrier agreements with Sentry Insurance and Met P&#038;C,
whereby we agreed to become the replacement carrier for the personal lines
business of each entity in New Jersey. We received $0.9&nbsp;million and will
receive an additional $2.6&nbsp;million in 2004 from Sentry Insurance, which has
been recorded as deferred revenue as of December&nbsp;31, 2003. We received $20.1
million ($10.1&nbsp;million recorded as deferred revenue as of December&nbsp;31, 2003 and
$10.0&nbsp;million in the form of a capital contribution) from Met P&#038;C. In
connection with these transactions we recorded $5.9&nbsp;million of replacement
carrier transaction revenue for the three months ended March&nbsp;31, 2004 as we
began the process of fulfilling our obligations under the terms of each of
these respective contracts. See &#147;Business&#151;Recent Transactions.</TD>
</TR>
<TR><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD>(6)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the
financial reporting as of and for the year ended December&nbsp;31,
2001, certain adjustments were made to reduce net income and shareholder&#146;s
equity as of January&nbsp;1, 2001 by $1.0&nbsp;million. The
summary historical financial information presented as of and for the
year ended December&nbsp;31, 2000 has been adjusted accordingly to
reflect the impact of such adjustments from that which was derived
from our Consolidated Financial Statements that had
been subject to audit by Arthur Andersen LLP.</TD>
</TR>
 <TR><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD>(7)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As set forth in Note&nbsp;12
to our Consolidated Financial Statements, subsequent to the filing of
Proformance&#146;s statutory annual statements for the year ended December&nbsp;31,
2003, management identified certain adjustments which, if known at
the time, would have impacted the amounts as previously filed. Such amounts
would have reduced statutory surplus by $0.5&nbsp;million, $11.7&nbsp;million and
$4.9&nbsp;million at December&nbsp;31, 2003, 2002 and 2001,
respectively. In accordance with statutory reporting requirements,
these corrections will be reported as an opening surplus adjustment
in the 2004 statutory filing.</TD>
</TR>
</TABLE>

<P style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, the insurance
ratios would have been adjusted as follows:
<CENTER>

<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="27%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="11"><FONT size="1"><B>As of December&nbsp;31,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">111.4</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">91.4</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">74.3</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Expense ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">28.6</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">20.8</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">19.0</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Combined
ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">140.0</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">112.2</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">93.3</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="4" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="4" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="4" noshade></TD>
</TR>
</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left">
<A name="102"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>RISK FACTORS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>An investment in our common stock involves a number of risks. Before
making an investment in our common stock, you should carefully consider the
following risks, as well as the other information contained in this prospectus,
including our consolidated financial statements and the related notes and
&#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations.&#148; Additional risks and certainties not currently known to us, or
risks that we currently deem immaterial, may also impair our business
operations. Any of the risks described below could result in a significant or
material adverse effect on our results of operations or financial condition.
As a result, the trading price of our common stock could decline and you may
lose all or part of your investment.</I>


<P align="left" style="font-size: 10pt"><B>Because we are primarily a private passenger automobile insurance carrier, our
business may be adversely affected by conditions in this industry.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately 85% of our direct gross written premiums for the year ended
December&nbsp;31, 2003 were generated from private passenger automobile insurance
policies. As a result of our focus on that line of business, negative
developments in the economic, competitive or regulatory conditions affecting
the private passenger automobile insurance industry could have a material
adverse effect on our results of operations and financial condition. In
addition, these developments would have a disproportionate effect on us,
compared to more diversified insurers that also sell a larger proportion of
other types of property and casualty insurance products.


<P align="left" style="font-size: 10pt"><B>Because we write insurance only in New Jersey, our business may be adversely
affected by conditions in New Jersey.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our direct written premiums are generated in New Jersey. Our
revenues and profitability are therefore subject to prevailing regulatory,
economic, demographic, competitive, weather and other conditions in New Jersey.
Changes in any of these conditions could make it more costly or difficult for
us to conduct our business. Adverse regulatory developments in New Jersey,
which could include, among others, fundamental changes in the design or
implementation of the New Jersey insurance regulatory framework, could have a
material adverse effect on our results of operations and financial condition.
In addition, these developments would have a disproportionate effect on us,
compared to insurers which conduct operations in multiple states.


<P align="left" style="font-size: 10pt"><B>We have exposure to claims related to severe weather conditions, which may
result in an increase in claims frequency and severity.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to claims arising out of severe weather conditions, such as
rainstorms, snowstorms and ice storms, that may have a significant effect on
our results of operations and financial condition. The incidence and severity
of weather conditions are inherently unpredictable. There is generally an
increase in claims frequency and severity under the private passenger
automobile insurance we write when severe weather occurs because a higher
incidence of vehicular accidents and other insured losses tend to occur in
severe weather conditions. In addition, we have exposure to an increase in
claims frequency and severity under the homeowners and other property insurance
we write because property damage may result from severe weather conditions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because some of our insureds live near the New Jersey coastline, we also
have a potential exposure to losses from hurricanes and major coastal storms
such as Nor&#146;easters. Although we purchase catastrophe reinsurance to limit our
exposure to these types of natural catastrophes, in the event of a major
catastrophe resulting in losses to us in excess of $50&nbsp;million, our losses
would exceed the limits of our reinsurance coverage.


<P align="left" style="font-size: 10pt"><B>Some of our subsidiaries are in their early stages of development and a
substantial amount of management time and attention and financial resources may
be necessary to continue to grow their respective businesses.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Riverview, NAIA and Mayfair are all in their early stages of development.
Companies in their initial stages of operations face significant business and
financial risks and may suffer significant losses. A substantial amount of
management time and attention and financial resources may be necessary to
continue to grow the businesses of these subsidiaries.


<P align="center" style="font-size: 10pt">9
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>If we are not able to attract and retain independent agents, it could adversely
affect our business.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We market our insurance solely through independent agents. We must
compete with other insurance carriers for the business of independent agents.
Some of our competitors offer a larger variety of products, lower prices for
insurance coverage or higher commissions. Changes in commissions, services or
products offered by our competitors could make it harder for us to attract and
retain independent agents to sell our insurance products.


<P align="left" style="font-size: 10pt"><B>Established competitors with greater resources may make it difficult for us to
market our products effectively and offer our products at a profit.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The property and casualty insurance business is highly competitive and
many of our competitors have substantially greater financial and other
resources than us. Our competitors may offer a broader range of products or
offer competing products at lower prices. We compete with both large national
writers and smaller regional companies. Further, our competitors include other
companies which, like us, serve the independent agency market, as well as
companies which sell insurance directly to customers. Direct writers of
property and casualty insurance may have certain competitive advantages over
agency writers of property and casualty insurance, including increased name
recognition, loyalty of the customer base to the insurer rather than to an
independent agency and lower cost structures. A material reduction in the
amount of business independent agents sell would directly and negatively affect
our profitability and our ability to compete with insurers that do not rely
solely on the independent agency market to sell their products.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past, competition in the New Jersey personal auto insurance market
has included significant price competition and there can be no assurance that
these conditions will not recur. Further, we and others compete on the basis
of the commissions and other cash and non-cash incentives provided to agents.
Although a number of national insurers that are much larger than we are do not
currently compete in a material way in the New Jersey personal auto insurance
market, if one or more of these companies decide to aggressively enter the
market it could reduce our share of the New Jersey market and thereby have a
material adverse effect on us. These companies include some that would be able
to sustain significant losses in order to acquire market share, as well as
others which use distribution methods that compete with the independent agent
channel we utilize.


<P align="left" style="font-size: 10pt"><B>Our results may fluctuate as a result of cyclical changes in the personal auto
insurance industry.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The personal auto insurance industry is historically cyclical in nature.
The industry has been characterized by periods of price competition and excess
capacity followed by periods of high premium rates and shortages of
underwriting capacity. Downturns in the business cycle would likely have a
negative impact on our revenues.


<P align="left" style="font-size: 10pt"><B>The continued threat of terrorism and ongoing military and other actions may
result in decreases in our net income, revenue and assets under management and
may adversely affect our investment portfolio.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The continued threat of terrorism, both within the United States and
abroad, and the ongoing military and other actions and heightened security
measures in response to these types of threats, may cause significant
volatility and declines in the equity markets in the United States, Europe and
elsewhere, loss of life, property damage, additional disruptions to commerce
and reduced economic activity. Actual terrorist attacks could cause losses
from insurance claims related to the property and casualty insurance operations
of Proformance, as well as a decrease in Proformance&#146;s surplus and net income
and our consolidated shareholders&#146; equity, net income and/or revenue. The
Terrorism Risk Insurance Act of 2002 requires that some coverage for terrorist
acts be offered by primary property and casualty insurers such as Proformance
and provides federal assistance for recovery of claims through 2005.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, some of the assets in our investment portfolio may be
adversely affected by declines in the equity markets and economic activity
caused by the continued threat of terrorism, ongoing military and other actions
and heightened security measures. We cannot predict at this time whether and
the extent to which industry sectors in which we maintain investments may
suffer losses as a result of potential decreased commercial and economic
activity, or how any such decrease might impact the ability of companies within
the affected industry sectors to pay interest or principal on their securities,
or how the value of any underlying collateral might be affected.


<P align="center" style="font-size: 10pt">10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot assure you that the threats of future terrorist-like events in
the United States and abroad or military actions by the United States will not
have a material adverse effect on our business, financial condition or results
of operations.


<P align="left" style="font-size: 10pt"><B>We have a principal shareholder who has the ability to exert significant
influence over our operations, including controlling the election of directors.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this offering, James V. Gorman beneficially owned approximately
30.4% of the total outstanding common stock of NAHC on a fully diluted basis.
After this offering, Mr.&nbsp;Gorman will own approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the total
outstanding common stock (all of which will be voting common stock) of NAHC on
a fully diluted basis. Mr.&nbsp;Gorman is not selling shares of our common stock in
this offering. Mr.&nbsp;Gorman is also Chairman of the Board of Directors and Chief
Executive Officer of NAHC and Proformance. Until such time as Mr.&nbsp;Gorman sells
or disposes all or most of the common stock he holds, he would have the ability
to exert significant influence over our policies and affairs, including
election of our directors and significant corporation transactions. Mr.
Gorman&#146;s interests may differ from the interests of our other shareholders,
including those who purchase shares in this offering.


<P align="left" style="font-size: 10pt"><B>As a holding company, NAHC is dependent on the results of operations of its
operating subsidiaries, particularly Proformance.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NAHC is a company and a legal entity separate and distinct from its
subsidiaries, including Proformance. As a holding company without significant
operations of its own, the principal sources of NAHC&#146;s funds are dividends and
other distributions from its subsidiaries. Our rights, and consequently your
rights as shareholders, to participate in any distribution of assets of
Proformance are subject to prior claims of policyholders, creditors and
preferred shareholders, if any, of Proformance. Consequently, our ability to
pay debts, expenses and cash dividends to our shareholders may be limited.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The payment of dividends and other distributions to NAHC by Proformance is
regulated by New Jersey insurance law and regulations. In general, dividends
in excess of prescribed limits are deemed &#147;extraordinary&#148; and require prior
insurance regulatory approval. See &#147;Business&#151;Supervision and
Regulation&#151;Insurance Regulation&nbsp;Concerning Dividends.&#148; As of the date of this
prospectus, Proformance is not permitted to pay any dividends without the
approval of the Commissioner as it has negative unassigned surplus as a result
of its replacement carrier transactions.


<P align="left" style="font-size: 10pt"><B>We are subject to comprehensive regulation by New Jersey and our ability to
earn profits may be restricted by these regulations.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General Regulation</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to regulation by the New Jersey Department of Banking and
Insurance, and we must obtain prior approval for certain corporate actions. We
must comply with laws and regulations involving:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>transactions between an insurance company and any of its affiliates;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the payment of dividends;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the acquisition of an insurance company or of any company controlling an insurance company;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>approval or filing of premium rates and policy forms;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>solvency standards;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>minimum amounts of capital and policyholders&#146; surplus which must be maintained;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limitations on types and amounts of investments;</TD>
</TR>

</TABLE>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>restrictions on the size of risks which may be insured by a single company;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limitation of the right to cancel or non-renew policies in some lines;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>regulation of the right to withdraw from markets or terminate involvement with agencies;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requirements to participate in residual markets;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>licensing of insurers and agents;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>deposits of securities for the benefit of policyholders;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reporting with respect to our financial condition, including the
adequacy of our reserves and provisions for unearned premiums;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unfair trade and claims practices; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the type of accounting we must use.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, insurance department examiners from New Jersey perform
periodic financial and market conduct examinations of insurance companies.
Such regulation is generally intended for the protection of policyholders
rather than security holders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>New Jersey Property-Liability Insurance Guaranty Association. </I>New Jersey
law requires that property and casualty insurers licensed to do business in New
Jersey participate in the New Jersey Property-Liability Insurance Guaranty
Association, which we refer to as NJPLIGA. NJPLIGA must pay any claim up to
$300,000 of a policyholder of an insolvent insurer if the claim existed prior
to the declaration of insolvency or arose within 90&nbsp;days after the declaration
of insolvency. Members of NJPLIGA are assessed the amount NJPLIGA deems
necessary to pay its obligations and its expenses in connection with handling
covered claims. Subject to certain exceptions, assessments are made in the
proportion that each member&#146;s net direct written premiums for the prior
calendar year for all property and casualty lines bear to the corresponding net
direct written premiums for NJPLIGA members for the same period. By statute,
no insurer in New Jersey may be assessed in any year an amount greater than 2%
of that insurer&#146;s net direct written premiums for the calendar year prior to
the assessment. In 2003, Proformance was assessed approximately $0.5&nbsp;million,
as its portion of the losses due to insolvencies of certain insurers. We
anticipate that there will be additional assessments from time to time relating
to insolvencies of various insurance companies. Although we are allowed to
re-coup these assessments from our policyholders over time until we have
recovered all such payments, the effect of these assessments could reduce our
profitability in any given period and limit our ability to grow our business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Risk-Based Capital Standards. </I>Proformance is subject to risk-based
capital standards and other minimum capital and surplus requirements imposed
under the laws of the State of New Jersey. These risk-based capital standards,
based upon the Risk-Based Capital Model Act adopted by the National Association
of Insurance Commissioners, which we refer to as the NAIC, require Proformance
to report its results of risk-based capital calculations to the New Jersey
Department of Banking and Insurance and the NAIC.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Failure to meet applicable risk-based capital requirements or minimum
statutory capital requirements could subject Proformance to further examination
or corrective action imposed by state regulators, including limitations on our
writing of additional business or engaging in financing activities, state
supervision or even liquidation. Any changes in existing risk-based capital
requirements or minimum statutory capital requirements may require us to
increase our statutory capital levels, which we may be unable to do. As of the
date of this prospectus, Proformance maintained a risk-based capital level in
excess of the amount that would require any corrective actions on our
part. As described in Note&nbsp;12 to our Consolidated Financial
Statements and footnote&nbsp;7 to the Summary Historical Financial
Data, subsequent to the filing of Proformance&#146;s statutory annual statements for the
year ended December&nbsp;31, 2003, management identified certain
adjustments which, if known at the time, would have impacted the
amounts as previously filed. Management has concluded that had such adjustments
been made at the time of the filing of Proformance&#146;s statutory
financial statements, Proformance&#146;s risk-based capital levels would
have continued to be in excess of the amount that would require any
corrective action on our part. See &#147;Business&#151;Supervision and Regulation.&#148;

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>IRIS Ratios. </I>The NAIC has developed a set of financial relationships or
&#147;tests&#148; known as the Insurance Regulatory Information System that were designed
to assist state insurance regulators in the early identification of

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<P align="left" style="font-size: 10pt">companies which may require special attention or action. Insurance
companies submit data annually to the NAIC which analyzes the data against
defined &#147;usual ranges.&#148; Generally, an insurance company will become subject to
regulatory scrutiny if it falls outside the usual ranges of four or more of the
ratios. As of December&nbsp;31, 2003, Proformance fell outside of the usual ranges
of five ratios. However, we are not subject to regulatory action based on our
falling outside the ranges with respect to those ratios. We believe the rapid
increase in premium and surplus as a result of the replacement carrier
transactions we have entered into was the primary reason we fell outside the
usual ranges for these tests. This is further supported by the fact that the
NAIC, in the &#147;Statistical Phase&#148; portion of its information guide, acknowledges
that rapid increases in premium and surplus may result in an insurer falling
outside the usual ranges of the ratios. Management has concluded that
had the adjustments to Proformance&#146;s statutory financial
statements described in Note&nbsp;12 to our Consolidated Financial
Statements and footnote&nbsp;7 to the Summary Historical Financial
Data been made at the time of the filing of
Proformance&#146;s statutory financial statements, Proformance would
have continued to fall outside of the usual ranges of the same five
ratios. The impact of these adjustments would not have caused
Proformance to fall outside of the usual ranges for the other IRIS
ratios. There can be no assurance that Proformance will fall within the usual ranges of those five ratios or satisfy
the other ratios in the future. In the event that Proformance fails to satisfy
a sufficient number of these ratios, it could become subject to regulatory
scrutiny which could have a negative effect on our operations.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because we are unable to predict with certainty changes in the political,
economic or regulatory environments in New Jersey in the future, there can be
no assurance that existing insurance-related laws and regulations will not
become more restrictive in the future or that new restrictive laws or
regulations will not be enacted and, therefore, it is not possible to predict
the potential effects of these laws and regulations on us. See
&#147;Business&#151;Supervision and Regulation.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>New Jersey Personal Auto Insurance Regulation</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General</I>. We are subject to extensive regulation of the private passenger
automobile insurance industry in New Jersey. Such regulation is primarily for
the benefit and protection of insurance policyholders rather than shareholders,
and could change at any time. Thus, government regulation, which is subject to
change, could significantly limit our profitability and may conflict with the
interests of our shareholders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>FAIR Act/AICC Act</I>. The New Jersey legislature adopted the Fair Automobile
Insurance Reform Act of 1990 which created a difficult insurance market
environment and led to many insurers exiting or reducing their auto insurance
market share in New Jersey. To curtail the rising costs of automobile
insurance to consumers in New Jersey, the New Jersey legislature adopted the
Automobile Insurance Cost Reduction Act of 1998 which negatively affected the
profitability of automobile insurers in New Jersey. In an attempt to improve
the New Jersey auto insurance environment, on June&nbsp;9, 2003, the Governor of New
Jersey signed into law the New Jersey Automobile Insurance Competition &#038; Choice
Act, which we refer to as the AICC Act. The AICC Act was enacted to bring new
competition to the New Jersey auto insurance markets and to provide consumers
with choices for auto insurance. Regulatory changes adopted under this new
legislation include, but are not limited to, establishing a seven-year
(replacing a three-year) look-back period for an excess-profits determination;
phasing out the auto insurance &#147;take all comers&#148; requirement (which required
insurers to cover virtually all applicants); increasing the annual &#147;expedited&#148;
rate filing statewide average rate change maximum from 3% to 7%; requiring
insurers to provide three premium scenarios illustrating the effect of
different coverage choices to new applicants; establishing the Special
Automobile Insurance Policy for low income individuals; and establishing an
Insurance Fraud Detection Reward Program to assist in the prosecution of
insurance frauds and permit enhanced cancellation of policies due to frauds.
We cannot be certain how these legislative changes or future legislative
changes will affect our operations, nor can we be sure whether any additional
legislation would reverse the effect of the AICC Act. The impact of these
legislative changes and additional legislative changes, if any, could reduce
our profitability and limit our ability to grow our business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Excess Profits. </I>Each insurer in New Jersey is required to file an annual
report which includes a calculation of statutory profits on private passenger
automobile business. If the insurer has excess statutory profits as determined
by a prescribed formula, the insurer is required to submit a plan for the
approval of the Commissioner of Banking and Insurance of the State of New
Jersey (whom we refer to as the Commissioner) to refund or credit the excess
profits to policyholders. Prior to the AICC Act, the calculation of statutory
profits was based on the three-year period immediately prior to the report, and
the amount of profit an insurer could earn without being considered excess was
limited to 3.5% of its earned premium. The AICC Act extended the time period
for the calculation of statutory profits from three years to seven years to
take into account market fluctuations over a longer period of time. The AICC
Act also changed the basis for determining allowable profits from earned
premium to policyholder surplus. The amount of profit an insurer can now earn
without being considered excess is 12% of policyholder


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<P align="left" style="font-size: 10pt">surplus. As of December&nbsp;31, 2003, we did not exceed the excess profit
threshold in respect of any prior lookback period.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>&#147;Take All Comers.&#148; </I>Since 1992, with very few exceptions, auto insurers
were not permitted to refuse coverage to an eligible applicant. Under this
&#147;take all comers&#148; requirement, insurers could not refuse to issue a policy to
an applicant who was deemed to be eligible in that the applicant had not been
convicted of serious motor vehicle infractions such as driving while
intoxicated or vehicular homicide in the past three years. The AICC Act phases
out the &#147;take all comers&#148; requirement over five years, to become inoperative on
January&nbsp;1, 2009. Also, the AICC Act provides for an exemption from the &#147;take
all comers&#148; requirement for insurers that increase their private passenger auto
insurance non-fleet exposures by certain amounts. The exemption criteria are
applied every six months to determine if the insurer remains exempt. Insurers
that increased their private passenger auto insurance non-fleet exposures by 5%
during the one-year period ending on January&nbsp;1, 2004 are exempt from the &#147;take
all comers&#148; requirement for the subsequent six-month period, at which time the
5% standard is applied to determine if the insurer remains exempt. Insurers
that increase their private passenger auto insurance non-fleet exposures by the
following amounts will also be exempt from the &#147;take all comers&#148; requirement,
subject to review every six months: 4% in the one-year period ending January
1, 2005, 3% in the one-year period ending January&nbsp;1, 2006, 2% in the one-year
period ending January&nbsp;1, 2007, and 1% in the one-year period ending January&nbsp;1,
2008.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of the date of this prospectus, Proformance has filed with the New
Jersey Department of Banking and Insurance its required certification
indicating it is exempt from the &#147;take all comers&#148; provision in all regions
where it markets as it has satisfied the foregoing criteria. There can be no
assurance that Proformance&#146;s certification will be approved by the New Jersey
Department of Banking and Insurance or, if the certification is approved, that
Proformance will continue to satisfy these criteria and maintain its exemption
in the future. In the event that it fails to meet the exemption criteria,
Proformance will be subject to the &#147;take all comers&#148; requirement until it again
satisfies the exemption criteria or until the &#147;take all comers&#148; requirement
expires on January&nbsp;1, 2009, which could have a negative effect on our results
of operations and financial condition. In addition, in the event that the
market share of applicants eligible to participate in New Jersey&#146;s Personal
Automobile Insurance Plan exceeds 10% of the total New Jersey auto insurance
market share, Proformance&#146;s exemptions would cease and it would be subject to
the &#147;take all comers&#148; requirement, which could have a negative effect on our
results of operations and financial condition.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Urban Enterprise Zones</I>. New Jersey law requires auto insurers to have the
same proportionate share of business in designated &#147;urban enterprise zones&#148;
across the state as is equal to their proportionate share of the auto insurance
market in the state as a whole. If an insurer does not achieve its quota, it
may be assigned business by the state to fill the quota, which business tends
to be unprofitable. Proformance currently satisfies its quota in each urban
enterprise zone primarily as a result of voluntary writings and the influx of
policies from our replacement carrier transactions. There can be no assurance
that Proformance will continue to satisfy its quota in the future, in which
case it may be assigned business by the state, which could have a negative
effect on our results of operations and financial condition.


<P align="left" style="font-size: 10pt"><B>Our failure to maintain a commercially acceptable financial strength rating
would significantly and negatively affect our ability to implement our business
strategies successfully.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.M. Best has currently assigned Proformance a &#147;B (Fair)&#148; rating. A &#147;B&#148;
rating is A.M. Best&#146;s seventh highest rating out of 15 possible rating
classifications for insurance companies. A &#147;B&#148; rating is assigned to insurers
that in A.M. Best&#146;s opinion have a fair ability to meet their current
obligations to policyholders, but are financially vulnerable to adverse changes
in underwriting and economic conditions. A.M. Best bases its ratings on
factors that concern policyholders and not upon factors concerning investor
protection. An important factor in an insurer&#146;s ability to compete effectively
is its A.M. Best rating. Proformance&#146;s A.M. Best rating is lower than those of
some of its competitors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Proformance is rated &#147;A&#148; by Demotech, Inc. Demotech provides
financial stability ratings of property and casualty insurers. In addition to
A.M. Best, Demotech is the only other authorized rating agency recognized by
federally insured lending institutions, such as mortgage companies. Mortgage
companies, as a condition to issuing a mortgage, generally require borrowers to
obtain adequate homeowners insurance. The mortgage companies often refer to
Demotech&#146;s financial stability rating prior


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<P align="left" style="font-size: 10pt">to issuing a mortgage. We believe the &#147;A&#148; rating assigned by Demotech is
beneficial in connection with our homeowners business.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Publications of Demotech indicate that its rating process provides an
objective baseline for assessing the solvency of an insurer. A Demotech
financial stability rating summarizes its opinion as to the insurer&#146;s ability
to insulate itself from the business cycle that exists in the general economy
as well as the underwriting cycle that exists in the industry.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An &#147;A&#148; rating is Demotech&#146;s third highest rating out of six possible
rating classifications for insurers with complete financial data. An &#147;A&#148;
rating is assigned to insurers that in Demotech&#146;s opinion possess exceptional
financial stability related to maintaining positive surplus as regards
policyholders, regardless of the severity of a general economic downturn or
deterioration in the insurance cycle.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our A.M. Best and our Demotech ratings are subject to change and are not
recommendations to buy, sell or hold securities. Any future decrease in our
ratings could affect our competitive position. See &#147;Business&#151;Ratings.&#148;


<P align="left" style="font-size: 10pt"><B>Our losses and loss adjustment expenses may exceed our reserves, which could
significantly affect our business.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reserves for losses and loss adjustment expenses that we have
established are estimates of amounts needed to pay reported and unreported
claims and related expenses based on facts and circumstances known to us as of
the time we established the reserves. Reserves are based on historical claims
information, regulatory change, court decision, industry statistics and other
factors. The establishment of appropriate reserves is an inherently uncertain
process. If our reserves are inadequate and are strengthened, we would have to
treat the amount of such increase as a charge to our earnings in the period
that the deficiency is recognized. As a result of these factors, there can be
no assurance that our ultimate liability will not materially exceed our
reserves and have a negative effect on our results of operations and financial
condition.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the inherent uncertainty of estimating reserves, it has been
necessary, and may over time continue to be necessary, to revise estimated
future liabilities as reflected in our reserves for claims and policy expenses.
In 2003, 2002 and 2001, our reserve reviews indicated that our reserves
established in prior years were lower than necessary, and so in those years we
strengthened $0.1&nbsp;million, $8.6&nbsp;million and $8.9&nbsp;million, respectively, of
previously established reserves for losses and loss adjustment
expenses. The incurred losses related to prior years of
$0.1&nbsp;million in 2003 included a commutation loss of
$0.2&nbsp;million which was offset by favorable loss development on
prior accident year reserves. We
strengthened reserves for prior years by $0.7&nbsp;million in the first three months
of 2004. Proformance&#146;s reserves have shown a deficiency in every year since
1995.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The historic development of reserves for losses and loss adjustment
expenses may not necessarily reflect future trends in the development of these
amounts. Accordingly, it is not appropriate to extrapolate redundancies or
deficiencies based on historical information. See &#147;Business&#151;Reserves.&#148;


<P align="left" style="font-size: 10pt"><B>Changes in insurance industry practices and regulatory, judicial and consumer
conditions and class action litigation are continually emerging in the
automobile insurance industry, and these new issues could adversely impact our
revenues or our methods of doing business.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As automobile insurance industry practices and regulatory, judicial and
consumer conditions change, unexpected and unintended issues related to
pricing, claims, coverages, financing and business practices may emerge. For
example, one emerging issue in New Jersey relates to the judicial
interpretation of New Jersey&#146;s no-fault and uninsured motorist statutes. The
resolution and implication of these issues can have an adverse effect on our
business by changing the way we price our products, by extending coverage
beyond our underwriting intent, or by increasing the size of claims.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recent court decisions and legislative activity may increase our exposure
for litigation claims. In some cases, substantial non-economic, treble or
punitive damages may be sought. The loss of even one claim, if it results


<P align="center" style="font-size: 10pt">15
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<P align="left" style="font-size: 10pt">in a significant punitive damages award, could significantly worsen our
financial condition or results of operations. This risk of potential liability
may make reasonable settlements of claims more difficult to obtain.



<P align="left" style="font-size: 10pt"><B>If we lose key current personnel or are unable to recruit new personnel, our
ability to implement our business strategy could be delayed or hindered.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future
success depends significantly upon the efforts of certain key
management personnel, including James V. Gorman, Chairman and Chief Executive
Officer of NAHC and Proformance. We maintain a $2.5&nbsp;million key man life
insurance policy on Mr.&nbsp;Gorman, as well as on other of our senior executives,
the proceeds of which are payable to us. On or prior to the
consummation of this offering, we intend to enter into employment
agreements with James V. Gorman, Peter A. Cappello, Jr., Cynthia L. Codella,
Frank J. Prudente, and John E. Scanlan. Although we are not aware of any
impending departures or retirements, the loss of key personnel could prevent us
from fully implementing our business strategy and could significantly and
negatively affect our financial condition and results of operations. As we
continue to grow, we will need to recruit and retain additional qualified
management personnel, and our ability to do so will depend upon a number of
factors, such as our results of operations and prospects and the level of
competition then prevailing in the market for qualified personnel.


<P align="left" style="font-size: 10pt"><B>Market fluctuations and changes in interest rates can have significant and
negative effects on our investment portfolio.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our results of
operations depend in part on the performance of our
invested assets. As of March&nbsp;31, 2004, 91.7% of our investment portfolio was
invested in fixed income securities and 7.3% was invested in equity securities.
As of March&nbsp;31, 2004, approximately 53.4% of our fixed income security
portfolio was invested in U.S. government and government agency fixed income
securities, approximately 41.9% was invested in fixed income securities rated
&#147;Aaa"/&#147;Aa&#148; by Moody&#146;s Investor Service, which we refer to as Moody&#146;s, and
approximately 4.7% was invested in fixed income securities rated &#147;A&#148; by
Moody&#146;s. Certain risks are inherent in connection with fixed income securities
including loss upon default and price volatility in reaction to changes in
interest rates and general market factors. For example, the fair value of our
fixed income securities can fluctuate depending on changes in interest rates.
Accordingly, changes in interest rates may result in fluctuations in the income
from, and the valuation of, our fixed income investments. Large investments
losses would significantly decrease our asset base, thereby affecting our
ability to underwrite new business. For the three months ended March&nbsp;31, 2004,
2.7% or $1.2&nbsp;million of our total income was derived from our invested assets.
This represented 4.0% of our income before income tax for the same period.
See &#147;Business&#151;Investments.&#148;


<P align="left" style="font-size: 10pt"><B>We may not be able to successfully alleviate risk through reinsurance
arrangements which could cause us to reduce our premiums written in certain
lines or could result in losses and we are subject to credit risk with respect
to our reinsurers.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to reduce risk and to increase our underwriting capacity, we have
previously purchased third party reinsurance. Although we expect to decrease
our use of third party reinsurance in the future, we expect to purchase
additional third party reinsurance in the future. The availability and the
cost of reinsurance protection is subject to market conditions, which are
outside of our control. As a result, we may not be able to successfully
alleviate risk through these arrangements. For example, if reinsurance
capacity for homeowners risks were reduced as a result of terrorist attacks or
other causes, we may seek to reduce the amount of homeowners business we write.
In addition, we are subject to credit risk with respect to our reinsurance
because the ceding of risk to reinsurers does not relieve us of our liability
to our policyholders. A significant reinsurer&#146;s insolvency, inability or
unwillingness to make payments under the terms of a reinsurance treaty could
have a material adverse effect on our results of operations and financial
condition.


<P align="left" style="font-size: 10pt"><B>Because we intend to reduce our use of third party reinsurance, we will retain
more risk, which could result in more losses.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently use third party reinsurance primarily to increase our
underwriting capacity and to reduce our exposure to losses. See
&#147;Business&#151;Reinsurance.&#148; Since we intend to reduce our use of third party
reinsurance in the future, we will retain more gross premiums written over
time, but will also retain more of the related losses.


<P align="center" style="font-size: 10pt">16
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<P align="left" style="font-size: 10pt">Reducing our reinsurance will increase our risk and exposure to losses,
which could have a material adverse effect on our financial condition and
results of operations.



<P align="left" style="font-size: 10pt"><B>There are anti-takeover provisions contained in our organizational documents
and in laws of the state of New Jersey that could delay or impede the removal
of our directors and management and could make a merger, tender offer or proxy
contest involving us more difficult, or could discourage a third party from
attempting to acquire control of us, even if such a transaction were beneficial
to the interest of our shareholders.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our organizational documents and the New Jersey Business Corporation Act
contain certain provisions that could delay or impede the removal of directors
and management and could make a merger, tender offer or proxy contest involving
us more difficult, or could discourage a third party from attempting to acquire
control of us, even if such a transaction were beneficial to the interest of
our shareholders. Our organizational documents have authorized
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
shares of preferred stock, which we could issue without further shareholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as our board of directors may determine. The issuance of
preferred stock may have the effect of delaying or preventing a change of
control. For example, if in the due exercise of its fiduciary obligations, our
board of directors were to determine that a takeover proposal is not in our
best interests, our board of directors could cause shares of preferred stock to
be issued without shareholder approval in one or more private offerings or
other transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent shareholder or shareholder group. We have no current
plans to issue any preferred stock. Such preferred stock could also have the
right to vote separately as a class with respect to a merger, take-over or
other significant corporate transactions. In addition, our organizational
documents provide for a classified board of directors with staggered terms,
provide that directors may be removed only for &#147;cause&#148;, prohibit shareholders
from taking action by written consent, prohibit shareholders from calling a
special meeting of shareholders and require advance notice of nominations for
election to the board of directors or for proposing business that can be acted
upon by shareholders. These provisions could delay or impede the removal of
directors and management and could make a merger, tender offer or proxy contest
involving us more difficult.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also subject to Section&nbsp;14A:10A-4 of the New Jersey Shareholders
Protection Act, which we refer to as the Protection Act, which prohibits
certain New Jersey corporations from engaging in business combinations
(including mergers, consolidations, significant asset dispositions and certain
stock issuances) with any &#147;interested shareholder&#148; (defined to include, among
others, any person that becomes a beneficial owner of 10% or more of the
affected corporation&#146;s voting power) for five years after such person becomes
an interested shareholder, unless the business combination is approved by the
board of directors of the corporation prior to the date the shareholder became
an interested shareholder. In addition, Section&nbsp;14A:10A-5 of the Protection
Act prohibits any business combination at any time with an interested
shareholder other than a transaction (i)&nbsp;that is approved by the board of
directors of the corporation prior to the date the interested shareholder
became an interested shareholder, or (ii)&nbsp;that is approved by the affirmative
vote of the holders of two-thirds of the voting stock not beneficially owned by
the interested shareholder, or (iii)&nbsp;in which the corporation&#146;s common
shareholders receive payment for their shares that meets certain &#147;fair price&#148;
standards prescribed in the statute. These provisions could have the effect of
delaying, deferring or preventing a change in control of us and prevent our
shareholders from receiving the benefit of any premium over the market price of
our common stock offered by a bidder in a potential takeover. Even in the
absence of a takeover attempt, the existence of these provisions may adversely
affect the prevailing market price of our common stock if they are viewed as
discouraging takeover attempts in the future.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The New Jersey insurance law prohibits any person from acquiring control
of us, and thus indirect control of Proformance, without the prior approval of
the Commissioner. That law presumes that control exists where any person,
directly or indirectly, owns, controls, holds the power to vote or holds
proxies representing 10% or more of our outstanding voting stock. Even persons
who do not acquire beneficial ownership of more than 10% of the outstanding
shares of our voting stock may be deemed to have acquired such control if the
Commissioner determines that such control exists in fact. Therefore, any
person seeking to acquire a controlling interest in us would face regulatory
obstacles which could delay, deter or prevent an acquisition that shareholders
might consider in their best interests.


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<P align="left" style="font-size: 10pt"><B>We may require additional capital in the future, which may not be available or
may only be available on unfavorable terms.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future capital requirements depend on many factors, including our
ability to write new business successfully and to establish premium rates and
reserves at levels sufficient to cover losses. Our additional needs for
capital will depend on our actual claims experience, especially with respect to
any catastrophic events. Any equity or debt financing, if available at all,
may be on terms that are not favorable to us. In the case of equity
financings, dilution to our shareholders could result, and in any case such
securities may have rights, preferences and privileges that are senior to those
of the shares offered pursuant to this prospectus. If we cannot obtain
adequate capital on favorable terms or at all, we could be forced to curtail
our growth or reduce our assets.


<P align="left" style="font-size: 10pt"><B>We rely on our information technology and telecommunication systems, and the
failure of these systems could materially and adversely affect our business.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is highly dependent upon the successful and uninterrupted
functioning of our information technology and telecommunication systems. We
rely on these systems to support our direct and indirect marketing operations
and our agents&#146; basic underwriting and claim-processing efforts, as well as to
process new and renewal business, provide customer service, make claims
payments, and facilitate collections and cancellations. These systems also
enable us to perform actuarial and other modeling functions necessary for
underwriting and rate development. The failure of these systems could
interrupt our operations or materially impact our ability to evaluate and write
new business. We are currently in the process of converting to a new claims
system. There is no assurance that we will successfully complete this process
or that we will not experience implementation delay, operation disruption or
system failure in connection with this transition. In addition, because our
information technology and telecommunications systems interface with and depend
on third party systems, we could experience service denials if demand for such
service exceeds capacity or such third party systems fail or experience
interruptions. If sustained or repeated, a system failure or service denial
could compromise our ability to write and process new and renewal business,
provide customer service or pay claims in a timely manner. This could result
in a material adverse effect on our business.


<P align="left" style="font-size: 10pt"><B>We may experience difficulty in attracting and retaining qualified independent
directors in the increasingly regulated corporate governance environment.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon completion of this offering, we will be subject to the independent
director requirements of the Sarbanes-Oxley Act of 2002, which we refer to as
the Sarbanes-Oxley Act, SEC rules and the Nasdaq corporate governance rules.
Upon completion of this offering, our board intends to designate an audit
committee, a compensation committee and a nominating and corporate governance
committee consisting solely of independent directors. Independent directors
are generally individuals, other than our employees, officers or their family
members or shareholders who hold more than a 10% interest in us, who do not
have a material relationship with us and have not received certain compensation
or other payments from us in previous years. The ultimate determination of
independence, however, is made by our board of directors on a case-by-case
basis based on all relevant facts and circumstances. We may experience
difficulty in attracting and retaining qualified independent directors,
particularly those with financial expertise in the insurance industry, to
respond to the increasing regulation of public companies. If we are unable to
attract or retain independent directors prior to the compliance deadlines
stipulated by the various regulations, we may be faced with delisting of our
common stock or a violation of the Sarbanes-Oxley Act.


<P align="left" style="font-size: 10pt"><B>Future sales of shares of our common stock by our existing shareholders,
officers or employees in the public market, or the possibility or perception of
such future sales, could adversely affect the market price of our stock.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;James V. Gorman
currently owns approximately 30.4% of the total outstanding
common stock of NAHC on a fully diluted basis. Mr.&nbsp;Gorman is not selling
shares of our common stock in this offering. The Ohio Casualty Insurance
Company, which we refer to as OCIC, the selling shareholder in this offering,
currently owns approximately 15.5% of the total outstanding common stock of NAHC
on a fully diluted basis. OCIC is selling a significant amount, but not all,
of its shares in this offering. Metropolitan Property and Casualty Insurance ,
which we refer to as Met P&#038;C, currently owns approximately 7.7% of the total
outstanding common stock of NAHC on a


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<P align="left" style="font-size: 10pt">fully diluted basis. Met P&#038;C is not selling shares in this offering.
After the offering, Mr.&nbsp;Gorman, OCIC and Met P&#038;C will own approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%, respectively, of the common stock of NAHC (all of which will be
voting stock) on a fully diluted basis, assuming the underwriters do not
exercise their over-allotment option.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No prediction can be made as to the effect, if any, that future sales of
shares by our existing shareholders, or the availability of shares for future
sale, will have on the prevailing market price of our common stock from time to
time. For instance, following the completion of this offering, we intend to
file one or more registration statements on Form S-8 under the Securities Act
to register shares of our common stock issued or reserved for issuance under
our 2004 Stock and Incentive Plan. Subject to the exercise of issued and
outstanding options, shares registered under the registration statement on Form
S-8 will be available for sale into the public markets unless such shares are
subject to vesting restrictions with us or the lock-up restrictions described
below.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our officers and directors, including Mr.&nbsp;Gorman, and certain of our
shareholders, including OCIC and Met P&#038;C, have agreed, subject to specified
exceptions, not to sell their shares without the prior written consent of
Citigroup Global Markets Inc. during the period of 180&nbsp;days following the date
of this prospectus. See &#147;Underwriting.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;10, 2004, we entered into an agreement with the selling
shareholder, OCIC and OCNJ, pursuant to which we agreed, among other things,
that following the expiration of the 180-day lock-up period discussed above, we
will use commercially reasonable efforts to facilitate a secondary public
offering by OCIC of the shares of NAHC common stock owned by OCIC which are not
sold as part of this offering. In addition, subject to certain exceptions, we
have granted OCIC the right, on three occasions following the expiration of the
180-day lock-up period relating to this offering, to demand that we file a
registration statement with respect to the resale by OCIC of any shares of NAHC
common stock owned by OCIC which are not sold as part of this offering. See
&#147;Business&#151;Recent Transactions&#151;Ohio Casualty Replacement Carrier Transaction.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of substantial amounts of our common stock in the public market by
our existing shareholders, including by OCIC in the secondary offering, if
consummated, or pursuant to OCIC&#146;s exercise of its demand registration rights
or the possibility or perception that such sales could occur, could cause the
prevailing market prices for our common stock to decrease. If such sales
reduce the market price of our common stock, our ability to raise additional
capital in the equity markets may be adversely affected.


<P align="left" style="font-size: 10pt"><B>Because there has been no prior public market for our common stock, there can
be no assurance that a public market will develop.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this offering, there has been no public market for our common
stock and there can be no assurance that an active trading market will develop
and continue upon completion of this offering or that the market price for our
common stock will not decline below the initial public offering price. The
initial public offering price will be determined through negotiations between
us and the underwriters. The initial public offering price of our common stock
will be based on numerous factors and may not be indicative of the market price
for our common stock after the initial public offering. Among the factors
considered in determining the initial public offering price will be our record
of operations, our current financial condition, our future prospects, our
markets, the economic conditions in and future prospects for the industry in
which we compete, our management, and currently prevailing general conditions
in the equity securities markets, including current market valuations of
publicly traded companies considered comparable to our company. We cannot
assure you, however, that the prices at which the shares will sell in the
public market after this offering will not be lower than the initial public
offering price or that an active trading market in our common stock will
develop and continue after this offering.


<P align="left" style="font-size: 10pt"><B>Because we do not intend to pay dividends, you will not receive funds without
selling shares.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never declared or paid any cash dividends on our capital stock and
do not intend to pay cash dividends in the foreseeable future. We intend to
invest our future earnings, if any, to fund our growth. In addition, our
ability to pay dividends is dependent upon, among other things, the
availability of dividends from our subsidiaries, including Proformance. The
ability of Proformance to pay dividends to us is restricted by New Jersey
insurance law. See &#147;Business&#151;Supervision and Regulation.&#148; As of the date of
this prospectus, Proformance is not permitted to pay any dividends without the
approval of the Commissioner as it has negative unassigned surplus as a


<P align="center" style="font-size: 10pt">19
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<P align="left" style="font-size: 10pt">result of the impact of its replacement carrier transactions. We also
cannot assure that you will receive a return on your investment when you sell
your shares or that you will not lose all or part of your investment.



<P align="left" style="font-size: 10pt"><B>As a new investor, you will incur immediate and substantial dilution as a
result of this offering.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The initial public offering price per share is higher than our net
tangible book value per share. As a result, investors purchasing common stock
in this offering will incur immediate and substantial dilution of their
investment. Based upon the issuance and sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million shares of
common stock at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share
(the midpoint of the price range set forth on the cover page of this
prospectus), investors will incur immediate dilution of approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;in
the net tangible book value per share purchased in this offering. See
&#147;Dilution.&#148;


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<DIV align="left">
<A name="103"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of the statements under &#147;Summary,&#148; &#147;Risk Factors,&#148; &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations,&#148;
&#147;Business&#148; and elsewhere in this prospectus may include forward-looking
statements which reflect our current views with respect to future events and
financial performance. These statements include forward-looking statements
both with respect to the insurance sector in general and us specifically.
Statements which include the words &#147;expect,&#148; &#147;intend,&#148; &#147;plan,&#148; &#147;believe,&#148;
&#147;project,&#148; &#147;anticipate,&#148; &#147;will,&#148; and similar statements of a future or
forward-looking nature identify forward-looking statements for purposes of the
federal securities laws or otherwise. These forward-looking statements may
include, among other things:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>statements and assumptions relating to future growth, earnings,
earnings per share and other financial performance measures, as well as
management&#146;s short-term and long-term performance goals;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>statements relating to the anticipated effects on results of
operations or financial condition from recent and expected developments
or events;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>statements relating to our business and growth strategies; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any other statements or assumptions that are not historical facts.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in these
statements. We believe that these factors include but are not limited to those
described under &#147;Risk Factors&#148; above. We undertake no obligation to publicly
update or review any forward-looking statement, whether as a result of new
information, future developments or otherwise.


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<A name="104"></A>
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<P align="center" style="font-size: 10pt"><B>USE OF PROCEEDS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate that our net proceeds from this offering will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, based on an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
per share (the midpoint of the price range set forth on the cover page of
this prospectus) and after deducting estimated underwriting discounts and
estimated offering expenses we must pay in connection with this offering. If
the underwriters exercise in full their over-allotment option, we estimate that
our net proceeds from this offering will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to use the proceeds from the offering to provide approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
of additional capital to our operating subsidiaries and for general
corporate purposes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will not receive any proceeds from the sale of shares of common stock
by the selling shareholder in this offering.


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<DIV align="left">
<A name="105"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>CAPITALIZATION</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our capitalization at March&nbsp;31, 2004 on an
actual basis and as adjusted to give effect to the offering contemplated by
this prospectus, based upon an assumed initial public offering price of $
per share (the midpoint of the price range set forth on the cover page of this
prospectus), after deducting estimated underwriting discounts and estimated
offering expenses we must pay and assuming that the underwriters&#146;
over-allotment option is not exercised.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This table should be read in conjunction with the consolidated financial
statements and the accompanying notes appearing elsewhere in this prospectus.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="69%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>As of March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Actual</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As Adjusted</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shareholders&#146; Equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock, Class&nbsp;A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,002,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock, Class&nbsp;B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,257,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,948,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,715,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Shareholders&#146; Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,923,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,923,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD>(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Immediately prior to the consummation of this offering, all of our
outstanding Class&nbsp;A and Class&nbsp;B common stock will be converted into one class
of voting common stock.</TD>
</TR>

</TABLE>




<P align="center" style="font-size: 10pt">23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="106"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>DILUTION</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March&nbsp;31, 2004, our net tangible book value was approximately $61.0
million, or $530.7 per share of common stock. As used below, our net tangible
book value per share of common stock represents shareholders&#146; equity divided by
the number of shares of common stock outstanding. After giving effect to the
issuance of shares of our common stock (at an assumed initial public
offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock, the midpoint of the
price range set forth on the cover page of this prospectus, and after deducting
estimated underwriting discounts and estimated offering expenses we must pay
and assuming that the underwriters&#146; over-allotment option is not exercised),
and the application of the estimated net proceeds therefrom, as set forth in
&#147;Use of Proceeds,&#148; our net tangible book value as of March&nbsp;31, 2004, would have
been $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock. This amount
represents an immediate increase of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock to the
existing shareholders and an immediate dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of
common stock issued to the new investors purchasing stock offered hereby at the
initial public offering price. The following table illustrates this per share
accretion:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="85%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Initial public offering price per share of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net tangible book value per share of common stock before the offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Increase attributable to the offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net tangible book value per share of common stock after the offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Dilution per share of common stock to new investors after the offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the number of our shares of common stock
issued, the total consideration paid and the average price per share of common
stock paid by all existing shareholders and new investors purchasing shares in
the offering, after giving effect to the issuance of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common
stock in the offering at an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
per share (after deducting estimated underwriting discounts and estimated
offering expenses we must pay and assuming that the underwriters&#146;
over-allotment option is not exercised).

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Shares Issued</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Total Consideration</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average<br>Price Per</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Share</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Existing shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">New investors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="107"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>DIVIDEND POLICY</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to retain all future earnings to fund the development and growth
of our business. Although we paid a 5% stock dividend on our common stock in
1997, we have never paid cash dividends in the past and do not intend to pay
any cash dividends on our common stock in the foreseeable future.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any payment of dividends will be at the discretion of our board of
directors. Our ability to pay dividends is dependent upon, among other things,
the availability of dividends from our subsidiaries, including our insurance
subsidiaries, Proformance and Mayfair. The ability of Proformance to pay
dividends to us is restricted by New Jersey insurance law. As of the date of
this prospectus, Proformance is not permitted to pay any dividends without the
approval of the Commissioner as it has negative unassigned surplus as a result
of the impact of its replacement carrier transactions. In addition, the
payment of dividends and other distributions by Mayfair is regulated by Bermuda
insurance law and regulations. See &#147;Business &#151; Supervision and Regulation.&#148;


<P align="center" style="font-size: 10pt">25
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="108"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>SELECTED HISTORICAL FINANCIAL DATA</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables set forth our selected historical financial data as
of and for each of the five years ended December&nbsp;31, 2003 and as of and for the
three months ended March&nbsp;31, 2004 and 2003. We derived the data as of December
31, 2003 and 2002, and for each of the three years in the period ended December
31, 2003, from our consolidated financial statements that have been subject to
audit and are included elsewhere in this prospectus. We derived the data as of
December&nbsp;31, 2001, 2000 and 1999, and for the years ended December&nbsp;31, 2000 and
1999, from our consolidated financial statements that have been subject to
audit and are not included in this prospectus. The selected historical income
statement data for the three months ended March&nbsp;31, 2003 and 2004 and the selected
historical consolidated balance sheet data as of March&nbsp;31, 2003
and 2004 have been
derived from our unaudited interim consolidated financial statements included
elsewhere in this prospectus. In the opinion of our management, the unaudited financial data as
of and for the three months ended March&nbsp;31, 2003 and 2004 presented in the
tables below reflects all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of our financial position and
results of operations as of the dates and for the periods indicated. Results
for the interim periods are not necessarily indicative of results to be
expected for the entire year.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have prepared the selected historical consolidated financial data,
other than the statutory data, in conformity with GAAP. We have derived the
statutory data from the annual statements of our insurance subsidiary,
Proformance, filed with the New Jersey Department of Banking and Insurance
prepared in accordance with statutory accounting practices, which vary in
certain respects from GAAP.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The selected historical financial data presented below should be read in
conjunction with &#147;Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations&#148; and our consolidated financial statements and
accompanying notes included elsewhere in this prospectus.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Year Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Income Statement Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Direct written premiums(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,179,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,645,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,757,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">114,624,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">163,178,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,644,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,501,464</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net written premiums(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,706,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,235,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,498,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,431,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,232,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,376,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,659,986</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net earned premiums(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,400,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,807,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,431,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,459,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145,344,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,192,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,401,572</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Replacement carrier
revenue from related party(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,683,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,736,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,916,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,045,455</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Replacement carrier
revenue from unrelated party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,166,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,084,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,592,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,257,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">729,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,184,013</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net realized investment
gains (losses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">504,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55,219</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,372,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29,130</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">676,981</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">211,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">929,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">496,693</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,712,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,796,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,074,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,245,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,640,687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,143,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,679,714</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Losses and loss
adjustment expenses(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,707,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,145,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,338,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,491,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,122,636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,720,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,263,346</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Underwriting, operating
and related expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,376,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,662,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,207,455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,732,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,373,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,528,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,039,245</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,083,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,807,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,545,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,223,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,495,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,249,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,301,591</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before
income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,371,216</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,010,253</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,470,783</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,021,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,144,929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,893,824</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,378,123</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax expense
(benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(926,885</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,324,968</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,606,388</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,014,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,989,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,727,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,360,706</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income
(loss)(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,444,331</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,685,285</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864,395</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,006,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,155,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,166,681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,017,417</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic
Earnings per Share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(18.16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(69.75</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">185.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.46</TD>

</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted
Earnings per Share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(18.16</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(69.75</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">162.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">62.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.80</TD>

</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">26
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>As of and for the</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>As of and for the Year Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance Sheet Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total cash &#038;
investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,771,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,821,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,852,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">92,351,876</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">179,695,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">127,389,051</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">196,164,033</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,994,747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,585,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,260,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161,556,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269,367,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,759,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">288,270,579</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Losses and loss
adjustment
expenses reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,055,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,350,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,732,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,472,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,200,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,557,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,226,030</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Debt(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,900,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,790,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,682,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">48,851,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">64,379,130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">82,275,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">143,050,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">219,119,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">175,512,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">227,346,895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total
shareholders&#146;<BR>
equity(5)(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,131,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,206,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,015,479</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,506,590</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">50,248,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,246,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,923,684</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Statutory
Data(7):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Policyholders&#146;
surplus (at period
end)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,039,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,007,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,640,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,106,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">58,245,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,147,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">57,957,075</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Loss ratio(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">78.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">92.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">78.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">88.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">71.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">73.2</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Expense ratio(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Combined ratio(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">104.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">125.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">112.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">99.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">108.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">95.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">95.1</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><HR size="1" noshade width="10%" align="left">


<DIV align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(1)&nbsp;The
primary driver for a significant portion of our growth from 2002
through 2003 was an agreement entered into on December&nbsp;18, 2001 with OCIC and OCNJ, to become a replacement carrier pursuant to
which OCNJ would transfer to Proformance the obligation to offer renewals for
all of OCNJ&#146;s New Jersey private passenger automobile business effective March
18, 2002. In connection with this transaction our direct written premiums, net
written premiums and net earned premiums increased from $49.8&nbsp;million, $25.5
million and $25.4&nbsp;million, respectively, for the year ended December&nbsp;31, 2001,
to $163.2&nbsp;million, $149.2&nbsp;million and $145.3&nbsp;million, respectively, for the
year ended December&nbsp;31, 2003. In addition total assets, losses and loss
adjustment expense reserves, as well as total shareholders&#146; equity, increased
from $78.3&nbsp;million, $56.7&nbsp;million and $(4.0) million, respectively as of
December&nbsp;31, 2001 to $269.4&nbsp;million, $134.2&nbsp;million
and $50.2&nbsp;million,
respectively as of December&nbsp;31, 2003. See &#147;Business &#151; Recent Transactions.&#148;</DIV>


<P align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(2)&nbsp;We recorded replacement carrier revenue related to the OCIC agreement
referred to above in the amount of $21.7&nbsp;million and $12.7&nbsp;million for the
years ended December&nbsp;31, 2002 and 2003, respectively which contributed to
increasing total shareholders&#146; equity from $18.5&nbsp;million as of December&nbsp;31,
2002 to $50.2&nbsp;million for the year ended December&nbsp;31, 2003. See &#147;Business &#151;
Recent Transactions.&#148;


<P align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(3)&nbsp;The loss ratio, when calculated on a statutory basis, is the ratio of
losses and loss adjustment expenses to net earned premiums. The expense ratio,
when calculated on a statutory accounting basis, is the ratio of underwriting
expenses to net written premiums. The expense ratio, when calculated on a GAAP
basis, differs from the statutory method specifically as it related to policy
acquisition expenses. Policy acquisition expenses are expensed as incurred
under the statutory accounting method. However, for GAAP, policy acquisition
expenses are deferred and amortized over the period in which the related
premiums are earned. The combined ratio is the sum of the loss ratio and the
expense ratio. Management considers the statutory methods for calculating the
loss, expense and combined ratios to compare our performance to benchmarks used
by rating agencies and regulatory bodies that monitor the insurance industry.


<P align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(4)&nbsp;In 1997, we entered into two separate loan agreements. In March of 2002,
one of the loans was paid in full and in December of 2002 the remaining loan
was paid in full.


<P align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(5)&nbsp;On October&nbsp;21, 2003 and December&nbsp;8, 2003, respectively, we entered into two
additional replacement carrier agreements with Sentry Insurance and Met P&#038;C,
whereby we agreed to become the replacement carrier for the personal lines
business of each entity in New Jersey. We received $0.9&nbsp;million and will
receive an additional $2.6&nbsp;million in 2004 from Sentry Insurance, which has
been recorded as deferred revenue as of December&nbsp;31, 2003. We received $20.1
million ($10.1&nbsp;million recorded as deferred revenue as of December&nbsp;31, 2003 and
$10.0&nbsp;million in the form of a capital contribution) from Met P&#038;C. In
connection with these transactions we recorded $5.9&nbsp;million of replacement
carrier transaction revenue for the three months ended March&nbsp;31, 2004 as we
began the process of fulfilling our obligations under the terms of each of
these respective contracts. See &#147;Business &#151; Recent Transactions.

<P align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(6)&nbsp;In
connection with the financial reporting as of and for the year ended
December&nbsp;31, 2001, certain adjustments were made to reduce net
income and shareholder&#146;s equity as of January&nbsp;1, 2001 by
$1.0&nbsp;million. The selected historical financial information
presented as of and for the year ended December&nbsp;31, 2000 has
been adjusted to reflect the impact of such adjustments from that
which was derived from our Consolidated Financial
Statements that had been subject to audit by Arthur Andersen LLP.

<P align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(7)&nbsp;As set forth in note&nbsp;12
to our Consolidated Financial Statements, subsequent to the filing of
Proformance&#146;s statutory annual statements for the year ended December&nbsp;31,
2003, management identified certain adjustments which, if known at
the time, would have impacted the amounts as previously filed. Such amounts
would have reduced statutory surplus by $0.5&nbsp;million,
$11.7&nbsp;million and
$4.9&nbsp;million at December&nbsp;31, 2003, 2002 and 2001,
respectively. In accordance with statutory reporting requirements,
these corrections will be reported as an opening surplus adjustment
in the 2004 statutory filing.

<P style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further the insurance
ratios would have soon adjusted as follows:

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="27%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="11"><FONT size="1"><B>As of December&nbsp;31,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">111.4</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">91.4</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">74.3</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Expense ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">28.6</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">20.8</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">19.0</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TR>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR noshade size="1"></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR noshade size="1"></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR noshade size="1"></TD>
        <TD>&nbsp;</TD>
</TR>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Combined
ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">140.0</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">112.2</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">93.3</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>


<TR>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR noshade size="4"></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR noshade size="4"></TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD>&nbsp;</TD>
        <TD><HR noshade size="4"></TD>
        <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt">27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="109"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS<BR>
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The following discussion should be read in conjunction with the
consolidated financial statements and the accompanying notes that appear
elsewhere in this prospectus. It contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward looking statements as a result of
various factors, including those discussed below and elsewhere in this
prospectus, particularly under the heading &#147;Risk Factors.&#148;</I>


<P align="left" style="font-size: 10pt"><B>Overview</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a provider of personal lines property and casualty insurance,
predominantly automobile insurance, in the State of New Jersey. We have been
able to capitalize upon what we consider an attractive opportunity in the New
Jersey insurance market through:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our extensive knowledge of the New Jersey insurance market and
regulatory environment;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our business model that requires many of our independent agents to
retain an ownership stake in our company;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our packaged product that offers auto, homeowners and other personal lines coverage; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our insurance related services businesses.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, our insurance subsidiary, Proformance Insurance
Company, was the tenth largest and the fastest growing provider of private
passenger auto insurance in New Jersey, based on direct written premiums of
companies writing more than $5&nbsp;million of premiums annually over the past three
years, according to A.M. Best. From 1999 through 2003, we experienced a 42.0%
compound annual growth rate, as our direct written premiums for all lines of
business we write, including homeowners and commercial lines, increased from
$40.2&nbsp;million in 1999 to $163.2&nbsp;million in 2003. As of March&nbsp;31, 2004, our
shareholders&#146; equity was $61.0&nbsp;million up from shareholders&#146; equity of $8.1
million as of December&nbsp;31, 1999, reflecting a 60.7% compound annual growth
rate.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manage and report our business as a single segment based upon several
factors. Historically, on average, in excess of 90% of our total consolidated
revenues were generated by Proformance. In addition, although Proformance
writes both personal line and commercial line insurance business we consider
those operating lines as one segment due to the fact that the nature of the
products are similar and they share the same distribution system.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues are derived principally from the following:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>net premiums earned, which are the difference between the premiums
we earn from sales of automobile insurance policies and the portion of
those premiums that we cede to our reinsurers;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>net investment income we earn on invested assets; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>revenue associated with replacement carrier transactions.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our expenses consist predominately of the following:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>losses and loss adjustment expenses, including estimates for losses
and loss adjustment expenses incurred during the period and changes in
estimates from prior periods, less the portion of those insurance
losses and loss adjustment expenses that we cede to our reinsurers;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">28
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>commissions and other underwriting expenses, which consist of
commissions we pay to agents, premium taxes and company expenses
related to the production and underwriting of insurance policies, less
ceding commissions that we receive under our reinsurance contracts; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other operating and general expenses, which include general and
administrative expenses, depreciation and other expenses.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>Critical Accounting Policies</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with GAAP requires
us to make estimates and assumptions that affect amounts reported in our
financial statements. As additional information becomes available, these
estimates and assumptions are subject to change and thus impact amounts
reported in the future. We have identified below three accounting policies
that we consider to be critical due to the amount of judgment and uncertainty
inherent in the application of these policies.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Loss and Loss Adjustment Expenses Reserves</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant periods of time can elapse between the occurrence of an
insured loss, the reporting to us of that loss and our final payment of that
loss. To recognize liabilities for unpaid losses, we established reserves as
balance sheet liabilities. Our reserves represent actuarially determined best
estimates of amounts needed to pay reported and unreported losses and the
expenses of investigating and paying those losses, or loss adjustment expenses.
Every quarter, we review our previously established reserves and adjust them,
if necessary.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When a claim is reported, claims personnel establish a &#147;case reserve&#148; for
the estimated amount of ultimate payment. The amount of the reserve is
primarily based upon an evaluation of the type of claim involved, the
circumstances surrounding each claim and the policy provisions relating to the
loss. The estimate reflects informed judgment of such personnel based on
general insurance reserving practices and on the experience and knowledge of
the claims personnel. During the loss adjustment period, these estimates are
revised as deemed necessary by our claims department based on subsequent
developments and periodic reviews of the cases.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with industry practice, we also maintain reserves for
estimated losses incurred but not yet reported. Incurred but not yet reported
reserves are determined in accordance with commonly accepted actuarial
reserving techniques on the basis of our historical information and experience.
We review and make adjustments to incurred but not yet reported reserves
quarterly.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When reviewing reserves, we analyze historical data and estimate the
impact of various loss development factors, such as our historical loss
experience and that of the industry, trends in claims frequency and severity,
our mix of business, our claims processing procedures, legislative enactments,
judicial decisions, legal developments in imposition of damages, and changes
and trends in general economic conditions, including the effects of inflation.
A change in any of these factors from the assumptions implicit in our estimate
can cause our actual loss experience to be better or worse than our reserves,
and the difference can be material. There is no precise method, however, for
evaluating the impact of any specific factor on the adequacy of reserves,
because the eventual development of reserves and currently established reserves
may not prove adequate in light of subsequent actual experience. To the extent
that reserves are inadequate and are strengthened, the amount of such increase
is treated as a charge to earnings in the period that the deficiency is
recognized. To the extent that reserves are redundant and are released, the
amount of the release is a credit to earnings in the period that redundancy is
recognized.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The changes we have recorded in our reserves in the past three years
illustrate the uncertainty of estimating reserves. In 2003, 2002 and 2001, our
reserve reviews indicated that our reserves established in prior years were
lower than necessary, and so in those years we strengthened $0.1&nbsp;million, $8.6
million and $8.9&nbsp;million, respectively, of previously established reserves for
losses and loss adjustment expenses. The incurred losses related to
prior years of $0.1&nbsp;million in 2003 included a commutation loss
of $0.2&nbsp;million which was offset by favorable loss development
on prior accident year reserves. We strengthened reserves for prior years
by $0.7&nbsp;million in the first three months of 2004. Proformance&#146;s reserves have
shown a deficiency in every year since 1995. It is not appropriate to
extrapolate future favorable or unfavorable development of reserves from this
past experience. For further information, see &#147;Business &#151; Reserves.&#148;


<P align="center" style="font-size: 10pt">29
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Investment Accounting Policy &#151; Impairment</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective December&nbsp;31, 2003, we adopted Emerging Issue Task Force Issue
No.&nbsp;03-01, <I>The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments</I>, or EITF 03-01. Under the consensus, disclosures are
required for unrealized losses on fixed maturity and equity securities
accounted for under SFAS No.&nbsp;115, <I>Accounting for Certain Investments in Debt
and Equity Securities</I>, or SFAS No.&nbsp;115, that are classified as either
available-for-sale or held-to-maturity. The disclosure requirements include
quantitative information regarding the aggregate amount of unrealized losses
and the associated fair value of the investments in an unrealized loss
position, segregated into time periods for which the investments have been in
an unrealized loss position. The consensus also requires certain qualitative
disclosures about the unrealized holdings in order to provide additional
information that we consider in concluding that the unrealized losses were not
other-than-temporary. The recognition and impairment guidance of EITF 03-01
should be applied to other-than-temporary impairment evaluations in reporting
periods beginning after June&nbsp;15, 2004. Such guidance will apply to all of our fixed
income and equity securities for which fair value is below amortized
cost (or cost, as applicable) and for which we are unable to
demonstrate our ability and intent to hold such securities through
the respective recovery periods (i.e., periods necessary for fair
value to recover to amortized cost, or cost, as applicable). We are in the process of assessing the
impact of adopting the recognition and measurement guidance of EITF 03-01.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal investments are in fixed maturities, all of which are
exposed to at least one of three primary sources of investment risk: credit,
interest rate and market valuation. The financial statement risks are those
associated with the recognition of impairments and income, as well as the
determination of fair values. Recognition of income ceases when a bond goes
into default. We evaluate whether impairments have occurred case-by-case.
Management considers a wide range of factors about the security issuer and uses
its best judgment in evaluating the cause and amount of decline in the
estimated fair value of the security and in assessing the prospects for
near-term recovery. Inherent in management&#146;s evaluation of the security are
assumptions and estimates about the operations of the issuer and its future
earnings potential. Considerations we use in the impairment evaluation process
include, but are not limited to: (i)&nbsp;the length of time and the extent to
which the market value has been below amortized cost; (ii)&nbsp;the potential for
impairments of securities when the issuer is experiencing significant financial
difficulties; (iii)&nbsp;the potential for impairments in an entire industry sector
or subsection; (iv)&nbsp;the potential for impairments in certain economically
depressed geographic locations; (v)&nbsp;the potential for impairment of securities
where the issuer, series of issuers or industry has a catastrophic type of loss
or has exhausted natural resources; and (vi)&nbsp;other subjective factors,
including concentrations and information obtained from regulators and rating
agencies. In addition, the earnings on certain investments are dependent upon
market conditions, which could result in prepayments and changes in amounts to
be earned due to changing interest rates or equity markets. The determination
of fair values in the absence of quoted market values is based on valuation
methodologies, securities we deem to be comparable and assumptions deemed
appropriate given the circumstances. The use of different methodologies and
assumptions may have a material effect on the estimated fair value amounts.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For additional information on the composition and results of our
investment portfolio see &#147;Business &#151; Investments.&#148;


<P align="left" style="font-size: 10pt"><B>Insurance Ratios</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The property and casualty insurance industry uses the combined ratio as a
measure of underwriting profitability. The combined ratio is the sum of the
loss ratio and the expense ratio. The loss ratio is the ratio of losses and
loss adjustment expenses to net earned premiums. The expense ratio, when
calculated on a statutory accounting basis, is the ratio of underwriting
expenses to net written premiums. The expense ratio, when calculated on a GAAP
basis, differs from the statutory method specifically as it relates to policy
acquisition expenses. Policy acquisition expenses are expensed as incurred
under the statutory accounting method. However, for GAAP, policy acquisition
expenses are deferred and amortized over the period in which the related
premiums are earned. The combined ratio reflects only underwriting results and
does not include fee for service income. Underwriting profitability is subject
to significant fluctuations due to competition, catastrophic events, economic
and social conditions and other factors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our insurance ratios on a statutory basis for the years ended December&nbsp;31,
2001, 2002 and 2003 and the three months ended March&nbsp;31, 2004 and 2003 are
outlined in the following table:


<P align="center" style="font-size: 10pt">30
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="31%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss ratio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">78.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">88.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">71.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">73.2</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Expense ratio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">28.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">20.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">23.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21.9</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Combined ratio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">112.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">99.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">108.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">95.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">95.1</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">As set forth in Note&nbsp;12
to our Consolidated Financial Statements, subsequent to the filing of
Proformance&#146;s statutory annual statements for the year ended December&nbsp; 31, 2003,
management identified certain adjustments which if turnover at the time,
would have impacted the amounts as previously filed. Such amounts would have resulted in the following adjusted ratios.

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="27%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>

        <TD width="5%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="11"><FONT size="1"><B>As of December&nbsp;31,</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
        <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">111.4</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">91.4</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">74.3</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Expense ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">28.6</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">20.8</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">14.0</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Combined
ratio</FONT></DIV></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">140.0</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">112.2</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right"><FONT size="2">93.3</FONT></TD>
        <TD align="left"><FONT size="2">%</FONT></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="left" style="font-size: 10pt"><B>Results of Operations</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have experienced considerable growth in our business commencing in
early 2002 and continuing throughout 2003. Specifically, on December&nbsp;18, 2001
we entered into an agreement with OCIC and OCNJ to become a replacement carrier
pursuant to which OCNJ would transfer to Proformance the obligation to offer
renewals for all of OCNJ&#146;s New Jersey private passenger automobile business
effective March&nbsp;18, 2002. In connection with this transaction our direct
written premiums, net written premiums and net earned premiums increased from
$49.8&nbsp;million, $25.5&nbsp;million and $25.4&nbsp;million, respectively, for the year
ended December&nbsp;31, 2001, to $163.2&nbsp;million, $149.2&nbsp;million and
 $145.3&nbsp;million, respectively, for the year ended December&nbsp;31, 2003,
 increases of 227.7%, 485.1% and 472.0%, respectively, during that period.
 In addition total assets, losses and loss adjustment expense reserves and total
 shareholders&#146; equity increased from $78.3&nbsp;million, $56.7&nbsp;million and ($4.0) million, respectively as of
December&nbsp;31, 2001 to $269.4&nbsp;million, $134.2&nbsp;million
and $50.2&nbsp;million,
respectively as of December&nbsp;31, 2003, increases of 244.1%,
136.7% and 1355.0%,
respectively during that period. Also as part of this transaction we recorded
replacement carrier revenue in the amount of $21.7&nbsp;million and $12.7&nbsp;million
for the years ended December&nbsp;31, 2002 and 2003, respectively. These
transactions contributed to our increase in shareholders&#146; equity from $18.5
million as of December&nbsp;31, 2002 to $50.2&nbsp;million as of December&nbsp;31, 2003. See
&#147;Business &#151; Recent Transactions.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, on October&nbsp;21, 2003 and December&nbsp;8, 2003, respectively, we
entered into two additional replacement carrier agreements with Sentry
Insurance and Met P&#038;C whereby we agreed to become the replacement carrier for
the personal lines business of each entity in New Jersey. We received $0.9
million and will receive an additional $2.6&nbsp;million in 2004 from Sentry
Insurance, all of which we recorded as deferred revenue as of December&nbsp;31,
2003. We received $ 20.1&nbsp;million ($10.1&nbsp;million as deferred revenue as of
December&nbsp;31, 2003 and $10.0&nbsp;million in the form of a capital contribution) from
Met P&#038;C. For the three months ended March&nbsp;31, 2004, we recorded $5.9&nbsp;million
of replacement carrier revenue in connection with these transactions. The
deferred revenue associated with both of these transactions, $13.6&nbsp;million as
of December&nbsp;31, 2003, will be recognized in 2004 as we complete our obligations
under the terms of each agreement which relates to our obligation to offer
renewals to each Sentry and Met P&#038;C policyholder transferred to Proformance.
The entire balance of deferred revenue will be recognized in 2004 and we do not
expect to record replacement carrier revenue in the future unless we enter into
additional replacement carrier transactions. See &#147;Business &#151; Recent
Transactions.&#148;


<P align="center" style="font-size: 10pt">31
</DIV>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below shows certain of our selected financial results for the
years ended December&nbsp;31, 2001, 2002 and 2003 and for the three months ended
March&nbsp;31, 2003 and 2004:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(in thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Direct written premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">114,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">163,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,501</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net written premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,660</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net earned premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,402</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Replacement
carrier revenue from related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,045</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Replacement
carrier revenue from unrelated party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875</TD>
    <TD>&nbsp;</TD>
</TR>








<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,184</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net realized investment gains (losses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">677</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">497</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,075</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Losses and loss adjustment expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,263</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Acquisition expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,187</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other operating and general expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">852</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,302</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,470</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,378</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,606</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,361</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net (loss)&nbsp;income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,017</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Three Months Ended March&nbsp;31, 2004 Compared to Three Months Ended March&nbsp;31,
2003</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Direct Written Premiums. </I>Direct written premiums for the three months
ended March&nbsp;31, 2004 increased by $8.9&nbsp;million, or 23.7%, to $46.5&nbsp;million from
$37.6&nbsp;million in the comparable 2003 period. The increase was primarily due to
new business generated by our Partner Agents, the Sentry Insurance replacement
carrier transaction and modest increases in our commercial lines book.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Written Premiums. </I>Net written premiums for the three months ended
March&nbsp;31, 2004 increased by $5.3&nbsp;million, or 13.8%, to $43.7&nbsp;million from $38.4
million in the comparable 2003 period. The increase was due to the increase in
direct written premiums for the same period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Earned Premiums. </I>Net earned premiums for the three months ended March
31, 2004 increased by $3.2&nbsp;million, or 9.6%, to
$36.4&nbsp;million from $33.2
million in the comparable 2003 period. This increase was due to the increase
in net premiums written for the same period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Replacement Carrier Revenue.
</I>Replacement carrier revenue for the three
months ended March&nbsp;31, 2004 was $5.9
million compared to $5.9&nbsp;million in the comparable 2003 period.
Replacement carrier revenue for the first
three months of 2003 was associated with the
Ohio Casualty replacement carrier transaction which was fully recognized by the end
of 2003. The replacement carrier revenue for the first three months of 2004 of
$5.9&nbsp;million, related only to the Met P&#038;C and Sentry Insurance replacement
carrier transactions that we entered into in the fall of 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Investment Income.
</I>Investment income for the three months ended March&nbsp;31,
2004 increased by $0.5&nbsp;million, or 71.4%, to $1.2&nbsp;million
from $0.7&nbsp;million in
the comparable 2003 period. The increase was due primarily to an increase in
invested assets to $186.1&nbsp;million from $118.9&nbsp;million for the comparable 2003
period. The increase was primarily due to the receipt of $21.0&nbsp;million in
deferred revenue and capital contributions in connection with the Met P&#038;C and
Sentry Insurance replacement carrier transactions for the same period and is
consistent with the increase in the net premiums written. Our average book
yield to maturity for the three months ended March&nbsp;31,


<P align="center" style="font-size: 10pt">32
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">2003 and 2004 was 3.5% and 4.5%, respectively. The increase in yield
was due to the purchase of longer term investments and an increase in realized
gains.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Realized Investment Gain (Loss). </I>Net realized investment gain (loss)
for the three months ended March&nbsp;31, 2004 and 2003 were $0.7&nbsp;million and $0.0,
respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Losses and Loss Adjustment Expenses. </I>Losses and loss adjustment expenses
for the three months ended March&nbsp;31, 2004 increased by
$2.6&nbsp;million, or 11.5%,
to $25.3&nbsp;million from $22.7&nbsp;million in the comparable 2003 period. These
results included prior year reserve strengthening of $0.7&nbsp;million as of March
31, 2004. Additionally, we experienced decreases in claim frequency due to the
favorable weather experienced in the first three months of 2004, and our claim
severity was flat for the first three months of 2004 compared to 2003. As a
percentage of net premiums earned, losses and loss adjustment expenses incurred
during the first three months of 2004 was 69.4% compared to 68.5% for the
comparable 2003 period. The ratio of net incurred losses, excluding loss
adjustment expenses, to net premiums earned during the first three months of
2004 was 59.6% compared to 56.8% for the comparable 2003 period. The increase
was related to the fact that net earned premiums as a percentage of net written
premiums was 12&nbsp;percentage points lower in the first three months of 2004 due
to the initial rollover of the Met P&#038;C business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Acquisition Expenses. </I>Acquisition expenses for the three months ended
March&nbsp;31, 2004 increased by $0.7&nbsp;million, or 12.7%, to
$6.2&nbsp;million from $5.5
million in the comparable 2003 period. As a percentage of net written
premiums, our acquisition expense ratio for the first three months of 2004 was
14.2% compared to 14.3% for the comparable 2003 period. The increase
in acquisition expenses is due to the increase in net premiums
written in the first three months of 2004 compared to the comparable
period in 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Operating and General Expenses. </I>Other operating and general
expenses for the three months ended March&nbsp;31, 2004 and 2003 were $0.9&nbsp;million
and $1.0&nbsp;million, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Tax</I>. Income tax for the three months ended March&nbsp;31, 2004 and 2003
were $3.4&nbsp;million and $3.7&nbsp;million, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Income. </I>Net income after tax for the three months ended March&nbsp;31,
2004 increased to $9.0&nbsp;million from $7.2&nbsp;million for the three months ended
March&nbsp;31, 2003 as a result of the factors discussed above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Year Ended December&nbsp;31, 2003 Compared to Year Ended December&nbsp;31, 2002</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Direct Written Premiums. </I>Direct written premiums for the year ended
December&nbsp;31, 2003 increased by $48.6&nbsp;million, or 42.4%, to $163.2&nbsp;million from
$114.6&nbsp;million in the comparable 2002 period. The increase was due to the
direct written premiums generated by the Ohio Casualty replacement carrier
transaction.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Written Premiums.
 </I>Net written premiums for the year ended December
31, 2003 increased by $37.8&nbsp;million, or 33.9%, to $149.2&nbsp;million from $111.4
million in the comparable 2002 period. The increase was due to the increase in
direct written premiums for the same period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Earned Premiums.
 </I>Net earned premiums for the year ended December&nbsp;31,
2003 increased by $68.8&nbsp;million, or 89.9%, to $145.3&nbsp;million from $76.5&nbsp;million
in the comparable 2002 period. This increase was due primarily to the related
increase in net written premiums in connection with the Ohio Casualty
replacement carrier transaction for the same period as well as the impact of a
reinsurance contract that was commuted in early 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Replacement Carrier Revenue. </I>Replacement carrier revenue for year ended
December&nbsp;31, 2003 decreased by $9.0&nbsp;million, or 41.5%, to $12.7&nbsp;million from
$21.7&nbsp;million in the comparable 2002 period. The decrease was due to the
completion of the revenue recognition process associated with the Ohio Casualty
replacement carrier transaction which began in early 2002 and was completed
over a 12&nbsp;month period ending in the first quarter of 2003.


<P align="center" style="font-size: 10pt">33
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Investment Income. </I>Net investment income for the year ended December&nbsp;31,
2003 increased by $2.7&nbsp;million, or 168.8%, to $4.3&nbsp;million from $1.6&nbsp;million in
the comparable 2002 period. The increase was due
primarily to an increase in invested assets to $170.6&nbsp;million from $73.9
million for the comparable 2002 period. The increase in invested assets was
primarily due to investment of increased direct written premiums of $48.6
million, replacement carrier revenue recognized in connection with the Ohio
Casualty replacement carrier transaction and funds received from Sentry
Insurance and Met P&#038;C in connection with those replacement carrier transactions
for an aggregate of $30.3&nbsp;million. The average book yield to maturity for the
year ended December&nbsp;31, 2003 was 3.9% compared to 3.8% in the comparable 2002
period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Realized Investment Gain (Loss). </I>Net realized investment gain (loss)
for the years ended December&nbsp;31, 2003 and 2002 were $1.4&nbsp;million and $(0.1)
million, respectively. As interest rates declined, we sold certain corporate
bonds we considered to be of lower quality and certain other securities and
realized capital gains.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Losses and Loss Adjustment Expenses. </I>Losses and loss adjustment expenses
for the year ended December&nbsp;31, 2003 increased by $38.6&nbsp;million, or 55.5%, to
$108.1&nbsp;million from $69.5&nbsp;million in the comparable 2002 period. As a
percentage of net premiums earned, losses and loss adjustment expenses incurred
during 2003 was 74.4% compared to 90.8% for the comparable 2002 period. The
percentage decrease in loss adjustment expenses incurred from the 2002 amount
was due to a strengthening of losses and loss adjustment expense reserves in
respect to prior periods of $8.6&nbsp;million that was recorded in 2002 because of
higher than expected losses on private passenger automobile business and
commercial automobile business. The ratio of net incurred losses, excluding
loss adjustment expenses, to net premiums earned for the year ended December
31, 2003 was 64.2% compared to 75.7% for the comparable 2002 period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Acquisition Expenses.
 </I>Acquisition expenses for the year ended December
31, 2003 increased by $11.3&nbsp;million, or 74.8%, to $26.4&nbsp;million from $15.1
million in the comparable 2002 period. As a percentage of net written
premiums, our acquisition expense ratio for 2003 was 17.7% compared to 13.6%
for the comparable 2002 period. The increase in acquisition expense and
acquisition expense ratio is consistent with the growth of both direct and net
written premiums for the same period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Operating and General Expenses. </I>Other Operating and General
expenses for the years ended December&nbsp;31, 2003 and 2002 were $1.0&nbsp;million and
$3.6&nbsp;million, respectively. This decrease was due to the expenses incurred in
2002 to expand our infrastructure in connection with the growth in our
business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Tax</I>. Income tax for the years ended December&nbsp;31, 2003 and 2002
were $10.0&nbsp;million and $3.0&nbsp;million, respectively. The increase in income tax
expense in 2003 was due to the increase in income before tax as a result of the
factors previously mentioned above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Income. </I>Net income after tax for the year ended December&nbsp;31, 2003
increased to $19.2&nbsp;million from $9.0&nbsp;million for the year ended December&nbsp;31,
2002 as a result of the factors previously mentioned above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Year Ended December&nbsp;31, 2002 Compared to Year Ended December&nbsp;31, 2001</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Direct Written Premiums. </I>Direct written premiums for the year ended
December&nbsp;31, 2002 increased by $64.8&nbsp;million, or 130.1%, to $114.6&nbsp;million from
$49.8&nbsp;million in the comparable 2001 period. The increase was due to the
direct written premium generated by the Ohio Casualty replacement carrier
transaction. We commenced the renewal process of the Ohio Casualty rollover
business in the first quarter of 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Written Premiums. </I>Net written premiums for the year ended December
31, 2002 increased by $85.9&nbsp;million, or 336.9%, to $111.4&nbsp;million from $25.5
million in the comparable 2001 period. The increase was due to the increase in
direct written premiums for the same period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Earned Premiums. </I>Net earned premiums for the year ended December&nbsp;31,
2002 increased by $51.1&nbsp;million, or 201.2%, to $76.5&nbsp;million from $25.4&nbsp;million
in the comparable 2001 period. This increase was due to the related increase
in net written premiums of $25.5&nbsp;million for the same period in connection with
the Ohio Casualty replacement carrier transaction.


<P align="center" style="font-size: 10pt">34
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Replacement Carrier Revenue. </I>Replacement carrier revenue for year ended
December&nbsp;31, 2002 increased by $21.7&nbsp;million to
$21.7&nbsp;million from $0.0&nbsp;million in the
comparable 2001 period. The increase was due to the revenue associated with
the Ohio Casualty replacement carrier transaction as we begin to complete our
obligations under the terms of this Agreement to offer renewals to each Ohio
Casualty policyholder transferred to Proformance.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Investment Income. </I>Net investment income for the year ended December&nbsp;31,
2002 increased by $0.5&nbsp;million, or 45.5%, to $1.6&nbsp;million from $1.1&nbsp;million in
the comparable 2001 period. The increase was due primarily to an increase in
invested assets to $73.9&nbsp;million from $19.4&nbsp;million for the comparable 2001
period. The increase in invested assets was primarily due to the increase in
direct written premiums of $64.8&nbsp;million and replacement carrier revenue recognized of $21.7
million in connection with the Ohio Casualty replacement carrier transaction.
The average book yield to maturity for the year ended December&nbsp;31, 2002 was
3.8% compared to 3.6% in the comparable 2001 period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Realized Investment Gain (Loss). </I>Realized investment gain (loss)&nbsp;for
the years ended December&nbsp;31, 2002 and 2001 were $(0.1) million and $0.3
million, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Losses and Loss Adjustment Expenses. </I>Losses and loss adjustment expenses
for the year ended December&nbsp;31, 2002 increased by $41.2&nbsp;million, or 145.6%, to
$69.5&nbsp;million from $28.3&nbsp;million in the comparable 2001 period. As a
percentage of net premiums earned, losses and loss adjustment expenses incurred
during 2002 was 90.8% compared to 111.4% for the comparable 2001 period. The
percentage decrease in loss and loss adjustment expenses incurred from the 2001
amount was due to a strengthening of losses and loss adjustment expense
reserves of $8.9&nbsp;million in respect to prior periods that was recorded in 2001
because of higher than expected losses on private passenger automobile business
and commercial automobile business. The ratio of net incurred losses, excluding
loss adjustment expenses, to net premiums earned for the year ended December
31, 2002 was 75.7% compared to 91.0% for the comparable 2001 period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Acquisition Expenses. </I>Acquisition expenses for the year ended December
31, 2002 increased by $9.6&nbsp;million, or 174.5%, to $15.1&nbsp;million from $5.5
million in the comparable 2001 period. As a percentage of net written
premiums, our acquisition expense ratio for 2002 was 13.6% compared to 21.6%
for the comparable 2001 period. The decrease in the acquisition expense ratio
from the 2001 ratio was due to the fact that we incurred significant costs in
building the infrastructure to execute the Ohio Casualty replacement carrier
transaction that were incurred in the later part of 2001.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Operating and General Expenses. </I>Operating and general expenses for
the years ended December&nbsp;31, 2002 and 2001 were $3.6&nbsp;million and $3.7&nbsp;million,
respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Tax</I>. Income tax for the years ended December&nbsp;31, 2002 and 2001
were $3.0&nbsp;million and $(3.6) million, respectively. The increase in income tax
expense in 2002 compared to an income tax benefit in 2001 was due to the
increase in income before tax as a result of the factors previously mentioned
above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Income. </I>Net income after tax for the year ended December&nbsp;31, 2002
increased to $9.0&nbsp;million from $(6.9) million for the year ended December&nbsp;31,
2001 as a result of the factors previously mentioned above.


<P align="left" style="font-size: 10pt"><B>Liquidity and Capital Resources</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are organized as a holding company with all of our operations being
conducted by our insurance subsidiaries, which underwrite the risks associated
with our insurance policies, and our non-insurance subsidiaries, which provide
our policyholders and our insurance subsidiaries a variety of services related
to the insurance policies we provide. We have continuing cash needs for taxes
and administrative expenses. These ongoing obligations are funded with
dividends from our non-insurance subsidiaries. Our taxes are paid by each
subsidiary through an inter-company tax allocation agreement. In addition, a
portion of the proceeds of our sale of common stock to our Partner Agents has
historically been used to pay taxes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance&#146;s primary sources of funds are premiums received, investment
income and proceeds from the sale and redemption of investment securities. Our
non-insurance subsidiaries&#146; primary source of funds is policy


<P align="center" style="font-size: 10pt">35
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">service revenues. Our subsidiaries use funds to pay operating expenses,
make payments under the tax allocation agreement, and pay dividends to us. In
addition, Proformance uses funds to pay claims and purchase investments.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the three months ended March&nbsp;31, 2004 and March&nbsp;31, 2003 and for the
years ended December&nbsp;31, 2003, 2002 and 2001, our consolidated cash flow
provided by operations was $13.5&nbsp;million, $36.0&nbsp;million, $75.3&nbsp;million, $62.7
million, and $(3.7) million, respectively. The decrease in cash flow provided
by operations for the three months ended March&nbsp;31, 2004 as compared to the
three months ended March&nbsp;31, 2003 was due to the reduction of receivables from
Ohio Casualty in connection with the replacement carrier transaction that
increased cash flow provided by operations for the three months ended March&nbsp;31,
2003 by $8.8&nbsp;million. The increase in cash flow from
operations from 2001 to 2003 resulted from general improvement in our results
of operations discussed above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the three months ended March&nbsp;31, 2004 and March&nbsp;31, 2003 and for the
years ended December&nbsp;31, 2003, 2002 and 2001, our consolidated cash flow used
for investing activities was $12.5&nbsp;million, $40.9&nbsp;million,
$97.0&nbsp;million, $55.1
million and $(3.9) million, respectively. The primary use of cash for
investing activities for all periods listed relate to the purchase of
investments in connection with the funds received as part of our replacement
carrier transactions as well as the respective increases in premium writings
for those periods.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the three months ended March&nbsp;31, 2004 and March&nbsp;31, 2003 and for the
years ended December&nbsp;31, 2003, 2002 and 2001, our consolidated cash flow from
financing activities was $(0.0)&nbsp;million, $0.0&nbsp;million,
$12.5&nbsp;million, $7.3&nbsp;million and $0.4
million respectively. The primary source of cash from financing activities
related to the proceeds from the issuance of NAHC&#146;s common stock. The amount
for the year ended December&nbsp;31, 2003 related to the purchase of our stock by
Met P&#038;C as well as a group of former Ohio Casualty agents that elected to
become Partner Agents. The amount for the year ended December&nbsp;31, 2002 related
to the purchase of our common stock by Ohio Casualty.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effective duration of our investment portfolio was 7.6&nbsp;years as of
March&nbsp;31, 2004. By contrast, our liability duration was approximately 3.5
years as of March&nbsp;31, 2004. Pursuant to the company&#146;s tax planning strategy,
we invested the $40.6&nbsp;million received from the Ohio Casualty replacement
carrier transaction in long-term bonds in accordance with Treasury Ruling
Regulation&nbsp;1.362-2, which allows us to defer the payment of income taxes on the
associated replacement carrier revenue until the underlying securities are
either sold or mature. The effective duration of our investment portfolio,
when excluding these securities, is reduced from 7.6&nbsp;years to 3.5&nbsp;years.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no restrictions on the payment of dividends by our non-insurance
subsidiaries other than customary state corporation laws regarding solvency.
Dividends from Proformance are subject to restrictions relating to statutory
surplus and earnings. See &#147;Business &#151; Supervision and Regulation.&#148; As of the
date of this prospectus, Proformance is not permitted to pay any dividends
without the approval of the Commissioner as it has negative unassigned surplus
as a result of the impact of its replacement carrier transactions. Proformance
has not paid any dividends in the past and we do not anticipate that
Proformance will pay dividends in the foreseeable future because we wish to
reduce our reinsurance purchases in order to retain more of the gross premiums
written we generate and seek stronger financial strength ratings for
Proformance, both of which require that the capital of Proformance be
increased. In addition, the payment of dividends and other distributions by
Mayfair is regulated by Bermuda insurance law and regulations. See &#147;Business
&#151; Supervision and Regulation.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because our non-insurance subsidiaries generate revenues, profits and net
cash flows that are generally unrestricted as to their availability for the
payment of dividends, we expect to use those revenues to service all of our
corporate financial obligations, such as shareholder dividends, if declared.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2004, we did not have any material commitments for capital
expenditures.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that the current level of cash flow from operations
provides us with sufficient liquidity to meet our operating needs over the next
12&nbsp;months. We expect to be able to continue to meet our operating needs after
the next 12&nbsp;months from internally generated funds. Since our ability to meet
our obligations in the long term (beyond such 12-month period) is dependent
upon such factors as market changes, insurance


<P align="center" style="font-size: 10pt">36
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">regulatory changes and economic conditions, no assurance can be given that
the available net cash flow will be sufficient to meet our operating needs.


<P align="left" style="font-size: 10pt"><B>Unrealized Losses</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, fixed maturity securities having an unrealized
loss of $543,360, a fair value of $14,211,383 and an amortized cost of
$14,754,743 were in a continuous unrealized loss position for less than twelve
months. As of March&nbsp;31, 2004, fixed maturity securities having an unrealized
loss of $417,617, a fair value of $25,363,406 and an amortized cost of
$25,781,023 were in a continuous unrealized loss position for less than twelve
months.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, equity and preferred securities having an
unrealized loss of $288,038, a fair value of $2,786,840 and an amortized cost
of $3,074,878 were in a continuous unrealized loss position for less than
twelve months. As of March&nbsp;31, 2004, equity and preferred securities having an
unrealized loss of $207,093, a fair value of $4,781,045 and an amortized cost
of $4,988,138 were in a continuous unrealized loss position for less than
twelve months.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our gross unrealized losses represented 0.5% of cost or amortized cost of
the investment portfolio. Fixed maturities represented 77% of the investment
portfolio and 65% of the unrealized losses as of December&nbsp;31, 2003. There were
no securities that were in a continuous unrealized loss position for 12&nbsp;months
or more as of December&nbsp;31, 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our fixed income securities in an unrealized loss position are primarily
above investment grade securities with extended maturity dates, which have been
adversely impacted by the increase in interest rates after the purchase date.
As part of our ongoing security monitoring process by our investment manager
and investment committee, it was concluded that there were no
other-than-temporary impairments of the portfolio as of December&nbsp;31, 2003. We
believe, with the investment committee&#146;s confirmation, that securities that are
temporarily impaired that continue to pay principal and interest in accordance
with their contractual terms, will continue to do so.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The evaluation for other-than-temporary impairments is a quantitative and
qualitative process, which is subject to risks and uncertainties in the
determination of whether declines in the fair value of investments are
other-than-temporary. The risks and uncertainties include changes in general
economic conditions, the issuer&#146;s financial condition or near term recovery
prospects and the effects of changes in interest rates.


<P align="left" style="font-size: 10pt"><B>Contractual Obligations</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes our long-term contractual obligations and
credit-related commitments as of December&nbsp;31, 2003.


<P align="center" style="font-size: 10pt"><B>Contractual Obligations
and Credit-Related Commitments(1)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Less than 1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>More than 5</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>year</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1-3 years</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>3-5 years</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>years</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating
Lease Obligations(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">694,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,388,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,388,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">636,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,107,350</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><HR size="1" noshade width="10%" align="left">

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(1)&nbsp;The
table above excludes our obligations relative to our liability for
unpaid loss and loss adjustment expenses given there is no
contractually specific timeframe in which such obligations are to be
paid.</DIV>


<P><DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(2)&nbsp;Represents our minimum rental commitments as of December&nbsp;31, 2003 pursuant
to our seven-year lease agreement for the use of our office space and equipment
at 4 Paragon Way, Freehold, NJ 07728.</DIV>


<P align="left" style="font-size: 10pt"><B>Off-Balance Sheet Arrangements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not have any off-balance sheet arrangements (as that term is defined
in applicable SEC rules) that are reasonably likely to have a current or future
material effect on our financial condition, results of operations, liquidity,
capital expenditures or capital resources.


<P align="center" style="font-size: 10pt">37
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Quantitative and Qualitative Disclosures about Market Risk</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Market risk is the risk that we will incur losses due to adverse changes
in market rates and prices. We have exposure to market risk through our
investment activities and our financing activities. Our primary market risk
exposure is to changes in interest rates. We have not entered, and do not plan
to enter, into any derivative financial instruments for trading or speculative
purposes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interest Rate Risk</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. Our
fixed maturity investments include U.S. and foreign government bonds,
securities issued by government agencies, obligations of state and local
governments and governmental authorities, corporate bonds and mortgage-backed
securities, most of which are exposed to changes in prevailing interest rates.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our investing is done by our insurance subsidiary, Proformance. We
invest according to guidelines devised by an internal investment committee,
comprised of management of Proformance and an outside director of NAHC,
focusing on investments that we believe will produce an acceptable rate of
return given the risks assumed. Our investment portfolio is managed by the
investment officer at Proformance with oversight from our Chief Financial
Officer and the assistance of outside investment advisors. Our objectives are
to seek the highest total investment return consistent with prudent risk level
by investing in a portfolio comprised of high quality investments including
common stock, convertible securities, bonds and money market funds in
accordance with the asset classifications set forth in Proformance&#146;s Investment
Policy Statement Guidelines and Objectives.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tables below show the interest rate sensitivity of our fixed income
and preferred stock financial instruments measured in terms of fair value
(which is equal to the book value for all our securities) for the periods
indicated.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>As of December 31, 2002</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>($ in thousands)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>-100 Basis</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>as of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&#043;100 Basis</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Point Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>12/31/2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Point Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed maturities and preferred stocks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">67,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,126</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,376</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">86,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">84,502</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>As of December 31, 2003</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>($ in thousands)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>-100 Basis</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>as of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&#043;100 Basis</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Point Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>12/31/2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Point Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed maturities and preferred stocks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">141,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">132,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">123,524</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,124</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">151,036</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">141,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">132,648</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">38
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>As of March 31, 2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>($ in thousands)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>-100 Basis</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>as of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&#043;100 Basis</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Point Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>3/31/2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Point Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed maturities and preferred stocks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">158,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">146,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">135,708</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,109</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">168,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">157,057</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">145,817</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Equity Risk</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity risk is the risk that we will incur economic losses due to adverse
changes in the prices of equity securities in our investment portfolio. Our
exposure to changes in equity prices primarily result from our holdings of
common stocks and other equities. As of March&nbsp;31, 2004, approximately 8% of
our investment portfolio was invested in equity securities. We continuously
evaluate market conditions regarding equity securities. We principally manage
equity price risk through industry and issuer diversification and asset
allocation techniques.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Credit Risk</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have exposure to credit risk as a holder of fixed income securities.
We attempt to manage our credit risk through issuer and industry
diversification. We regularly monitor our overall investment results and
review compliance with our investment objectives and guidelines to reduce our
credit risk. As of March&nbsp;31, 2004, approximately 53.4% of our fixed income
security portfolio was invested in U.S. government and government agency fixed
income securities, 41.9% was invested in other fixed income securities rated
&#147;Aaa"/&#147;Aa&#148; by Moody&#146;s, and 4.7% was invested in fixed income securities rated
&#147;A&#148; by Moody&#146;s. As of the date of this prospectus, we do not own any
securities with a rating of less than &#147;A.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also subject to credit risks with respect to our third party
reinsurers. Although reinsurers are liable to us to the extent we cede risks
to them, we are ultimately liable to our policyholders on all these risks. As
a result, reinsurance does not limit our ultimate obligation to pay claims to
policyholders and we may not be able to recover claims made to our reinsurers.


<P align="left" style="font-size: 10pt"><B>Effects of Inflation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not believe that inflation has had a material effect on our
consolidated results of operations, except insofar as inflation may affect
interest rates and claim costs. See &#147;Risk Factors &#151; Market fluctuation and
changes in interest rates can have significant and negative effects on our
investment portfolio.&#148;


<P align="left" style="font-size: 10pt"><B>Adoption of New Accounting Pronouncements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective December&nbsp;31, 2003, we adopted the disclosure requirements of
Emerging Issues Task Force Issue No.&nbsp;03-01, <I>The Meaning of Other-Than-Temporary
Impairment and Its Applications of Certain Investments</I>. Under the consensus,
disclosures are required for unrealized losses on fixed maturity and equity
securities accounted for under SFAS No.&nbsp;115, <I>Accounting for Certain Investment
in Debt and Equity Securities</I>, which are classified as either
available-for-sale or held-to-maturity. The disclosure requirements include
quantitative information regarding the aggregate amount of unrealized losses
and the associated fair value of the investments in an unrealized loss
position, segregated into time periods for which the investments have been in
an unrealized loss position. The consensus also requires certain qualitative
disclosures about the holdings in an unrealized loss position in order to
provide additional information that we considered in concluding that the
unrealized losses were not other-than-temporary. The recognition and
impairment guidance of EITF 03-01 should be applied to other-than-temporary
impairment evaluations in reporting periods beginning after
June&nbsp;15, 2004. Such guidance will apply to all of our fixed
income and equity securities for which fair value is below amortized
cost (or cost, as applicable) and for which we are unable to
demonstrate our ability and intent to hold such securities through
the respective recovery periods (i.e., periods necessary for fair
value to recover to amortized cost, or cost, as applicable). We
are in the process of assessing the impact of adopting the recognition and
measurement guidance of EITF 03-01.


<P align="center" style="font-size: 10pt">39
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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="110"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>BUSINESS</B>



<P align="left" style="font-size: 10pt"><B>Overview</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a provider of personal lines property and casualty insurance,
predominantly automobile insurance, in the State of New Jersey. We have been
able to capitalize on what we consider an attractive opportunity in the New
Jersey insurance market through our extensive knowledge of the New Jersey
insurance market and regulatory environment, our business model that requires
many of our independent agents to retain an ownership stake in our company, our
packaged product that offers auto, home and other personal lines coverage, and
our insurance-related services businesses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, our insurance subsidiary, Proformance Insurance
Company, was the tenth largest and the fastest growing provider of private
passenger auto insurance in New Jersey, based on direct written premiums of
companies writing more than $5&nbsp;million of premiums annually over the past three
years, according to A.M. Best. From 1999 through 2003, we experienced a 42.0%
compound annual growth rate, as our direct written premiums for all lines of
business we write, including homeowners and commercial lines, increased from
$40.2&nbsp;million in 1999 to $163.2&nbsp;million in 2003. As of March&nbsp;31, 2004, our
shareholders&#146; equity was $61.0&nbsp;million up from shareholders&#146; equity of $8.1
million as of December&nbsp;31, 1999, reflecting a 60.7 compound annual growth rate.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe the current conditions in the New Jersey property and casualty
insurance market represent an attractive opportunity for us. According to
estimates of the U.S. Bureau of Economic Analysis and Bureau of the Census, New
Jersey had the second highest per capita personal income in 2003 of the 50
states. According to A.M. Best, private passenger auto direct written premiums
in New Jersey for 2003 were $5.7&nbsp;billion (ranking sixth among the states and
having grown 26.5% since 1999). Total property and casualty direct written
premiums in New Jersey for 2003 were $14.0&nbsp;billion (ranking eighth among the
states and having grown 41.9% since 1999. We believe that these market
conditions provide us with the opportunity to profitably grow our business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As other insurers have reduced their share or withdrawn from the New
Jersey private passenger auto insurance market in recent years, as a result of
numerous factors that include the regulatory environment, we have expanded our
business through organic growth and through replacement carrier transactions.
Replacement carrier transactions allow insurers to withdraw from the New Jersey
automobile insurance market by finding a replacement carrier, such as
Proformance, that will agree to offer insurance coverage upon renewal of the
withdrawing carriers&#146; policies. We have entered into four replacement carrier
transactions and intend to opportunistically consider others if they meet our
profitability and growth objectives.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We distribute our products exclusively through licensed independent
agents, many of whom are Partner Agents who have purchased a minimum of $50,000
of the common stock of NAHC. By reason of their ownership interest in NAHC, we
believe that each Partner Agent has an incentive to provide us with more
profitable segments of the personal and commercial lines business in New
Jersey. None of our Partner Agents are selling shares of our common stock in
this offering. We provide Partner Agents with advanced automation tools to
reduce expenses, the opportunity to qualify as &#147;Custom Agents&#148; with the ability
to perform some of the basic underwriting and claims processing for additional
compensation, and eligibility to participate in our contingent commission
program which is based upon the volume and the profitability of the business
produced by the agent or agency. We believe that the Partner Agent system of
distributing our products provides us with a sustainable strategic advantage as
compared to our competitors in the areas of underwriting/risk selection and
operating expense control.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance provides comprehensive packaged personal lines property and
casualty insurance. Our packaged personal lines policy, which we call the
&#147;High Proformance Policy&#148; or &#147;HPP,&#148; contains coverages for private passenger
automobile, homeowners, personal excess (&#147;umbrella&#148;) liability, and personal
specialty property lines insurance covering jewelry, furs, fine arts, cameras,
electronic data process equipment, boats, yachts and other high value items.
We believe that our packaged personal lines product provides several advantages
over non-packaged alternatives, including administrative expense savings, lower
loss ratios, increased customer convenience and higher policyholder retention.
We plan to convert individual policies obtained through replacement carrier
transactions or placed by our Partner Agents with other carriers into our HPP
product.


<P align="center" style="font-size: 10pt">40
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance also offers commercial lines products, predominantly
commercial automobile liability and physical damage for small to medium
business &#147;mainstreet&#148; policyholders which we regard as high frequency/low
severity risks. In 2003, commercial auto comprised 8.8% of our direct written
premiums. It is part of our long-term strategy to increase our penetration of
the &#147;mainstreet&#148; commercial market, which in New Jersey is largely controlled
by independent agents. Based upon reports given to us by our Partner and
Active RCS Agents (described below under &#147; &#151; Distribution&#148;), we believe they
write an aggregate of approximately $4.0&nbsp;billion of New Jersey property and
casualty premiums per annum, of which approximately two-thirds is commercial
lines. We currently write only approximately 4.2% of the total premiums placed
by our Partner and Active RCS Agents. We intend to increase our share of our
agents&#146; total business. In particular, we intend to increase the amount of
commercial lines business we write for &#147;mainstreet&#148; policyholders by capturing
a larger share of this business placed by our Partner and Active RCS Agents.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our non-insurance subsidiaries provide Proformance and third parties with
a variety of services. Most of the services provided by our non-insurance
subsidiaries generate fee-for-service income. Our non-insurance subsidiaries
include:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Riverview</I>, which provides case management and medical
treatment cost containment to ensure cost-efficient service in the
treatment of auto accident victims and reduced claims expenses for
Proformance. Riverview is also a third party claims administrator
providing claims handling services.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>NAIA</I>, which provides services to &#147;orphan&#148; policyholders no
longer serviced by their independent agents and policyholders
acquired as part of our replacement carrier transactions.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our other insurance subsidiary, Mayfair, was formed in 2003 as a Bermuda
licensed reinsurance company to assume reinsurance business as a
retrocessionaire from third party reinsurers of Proformance, and provide other
potentially profitable small reinsurance facilities to third parties.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2003 and the three months ended March&nbsp;31,
2004, Proformance and our other subsidiaries generated the following net income
and revenues:


<P align="center" style="font-size: 10pt"><B>Net Income and Revenues(1)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Net Income</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Revenues</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three Months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three Months</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proformance Insurance Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,951,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,250,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">160,852,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,129,149</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Riverview Professional Services, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">846,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">246,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,778,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,196,139</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">National Atlantic Insurance Agency, Inc</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,209,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,573,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">850,208</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mayfair Reinsurance Company Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">314,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,250,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,007,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,216,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">167,204,898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,425,496</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

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<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">The numbers set forth in this table do not include the results of
operations of NAHC on a stand-alone basis.</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt"><B>Our Competitive Strengths</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Summary</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we are well positioned to compete in our target market because of our core strengths:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our agency relationships;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our experienced, dedicated and knowledgeable management team;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our knowledge of the New Jersey insurance market and regulatory environment;</TD>
</TR>

</TABLE>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to offer policyholders the convenience of our packaged High Proformance Policy;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our focus on reducing underwriting costs and claims expenses; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to take advantage of the services provided by our non-insurance subsidiaries.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Agency Relationships</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance distributes its products through licensed independent agents,
primarily its Partner Agents. Partner Agents are our independent agents who
have entered into an agency agreement and a share repurchase agreement and
purchased common stock of NAHC with a minimum purchase price of $50,000. As of
March&nbsp;31, 2004, our Partner Agents, including those that are
directors of our Company, owned in the aggregate
approximately 38.7% of
our outstanding common stock on a fully diluted basis. Following this
offering (assuming full exercise of the underwriters&#146;
over-allotment option) our Partner Agents will own in the aggregate&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our
outstanding common stock on a fully diluted basis. None of our Partner Agents
are selling shares of our common stock in this offering. By reason of their
ownership interest in NAHC, we believe that each Partner Agent has an incentive
to provide us with its more profitable personal and commercial lines business
in New Jersey. We intend to continue requiring our agents to purchase shares
of our common stock prior to selling our insurance products.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, in order to support our independent agents and enhance our
relationships with them we:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide our agents with a portfolio of property and casualty
insurance products at what we consider to be competitive prices to
help our agents address effectively the insurance needs of their
clients;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>offer commission schedules and profit sharing programs to our
agents that we consider to be competitive;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>deliver superior, more efficient service and support to our
agents by providing them with a variety of technological resources;
and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide our agents with the opportunity to qualify as &#147;Custom
Agents&#148; which enables them to perform some of the basic underwriting
and claims processing associated with the business they produce for
additional compensation.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We work directly with our agents to be certain that the business they
produce for us is consistent with our underwriting and risk selection
objectives. Proformance has established a Peer Review Committee which
currently consists of five of our independent agents who evaluate the
performance of and deal with issues relating to our agents, in particular to
ensure compliance with our underwriting guidelines and marketing plans. The
Committee refers issues which it deems appropriate to management for review.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we must compete with other insurance carriers for the business of
these independent agents, we believe these measures will enable us to continue
to capture a growing share of the total insurance business written by our
Partner and Active RCS Agents (including both personal and commercial lines)
which, based upon reports given to us by them, approximates $4.0&nbsp;billion of New
Jersey property and casualty premiums per annum.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Experienced, Dedicated and Knowledgeable Management Team</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2004, our executive management team and directors owned in
the aggregate approximately 33.8% of our outstanding common stock on a fully
diluted basis. Following this offering our executive management team will
own in the aggregate approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our outstanding common stock
on a fully diluted basis. None of our directors or officers are selling shares
of our common stock in this offering. The executive management team, led by
our Chairman and Chief Executive Officer, James V. Gorman, has an average of
over 20&nbsp;years of property and casualty insurance carrier experience. Our
management team has demonstrated an ability to operate successfully within the
regulated New Jersey property and casualty insurance market.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Knowledge of the New Jersey Market and Regulatory Environment</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe our knowledge of and experience with and the relationships we
have developed in the New Jersey property and casualty insurance market provide
us with an advantage over our competitors, especially large, national insurers
not primarily focused on New Jersey. We have a thorough understanding of the
insurance laws and regulations of New Jersey and extensive knowledge concerning
local judges and relationships with local legal and medical service providers
and auto repair companies. We believe this knowledge and experience allows us
to better evaluate the risks in the New Jersey marketplace and adjust claims at
lower costs than our competitors. In addition, certain of our officers are
members of the board of directors and the executive committee of the Insurance
Council of New Jersey and we are a member of the Professional Insurance Agents
Association of New Jersey.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe our knowledge and experience in the New Jersey market has
enabled us to successfully operate and expand our business in New Jersey while
other insurers were withdrawing from or reducing their share in the New Jersey
private passenger auto insurance market. The decision of other insurers to
reduce their business in New Jersey provided us with the opportunity to enter
into replacement carrier transactions to expand our market share and grow our
business. Replacement carrier transactions allow insurers to withdraw from the
New Jersey personal auto insurance market by finding a replacement carrier,
such as Proformance, that will agree to offer insurance coverage upon renewal
of the withdrawing carrier&#146;s policies.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We entered into replacement carrier transactions with Met P&#038;C in 2003,
Sentry Insurance in 2003, OCIC and OCNJ in 2001, and Kemper Insurance Company
in 1995. See &#147;Business &#151; Recent Transactions.&#148; Our replacement carrier
transactions provided us with improved economies of scale and enabled us to
increase capital and surplus while increasing premium volume at rates that
cannot be achieved by organic growth of insurance policies sold on an
individual basis. As opportunities arise, we will evaluate additional
replacement carrier and other transactions which we determine to be consistent
with our objectives.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Ability to Offer Policyholders the Convenience of Our Packaged High
Proformance Policy</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary insurance product is our High Proformance Policy. Our High
Proformance Policy is a &#147;packaged&#148; product that may include deluxe homeowners,
private passenger automobile, personal excess liability and personal inland
marine insurance coverages. We believe customers are attracted to the
convenience of buying all of their personal insurance coverages under one
policy from one company. Our historical underwriting experience further
indicates that the policyholders who purchase their auto and homeowners
coverage from the same carrier are better risks than policyholders who purchase
only one kind of coverage or the other.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of our competitors do not offer a packaged policy. We believe that
others have been slow to introduce package policies in New Jersey because it is
difficult to convert a policy processing system designed to produce single
coverage policies into a system that can handle packaged policies. However,
our advanced technology and information systems allow us to efficiently convert
single coverage policies into packaged policies. In addition, our systems
enable us to provide our packaged policy customers with a single insurance
statement that reflects all of the coverages we provide to them. We believe
our ability to offer our customers the convenience of a packaged policy and a
single insurance statement of all of their coverages gives us an advantage over
our competitors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Focus on Reducing Underwriting Costs and Claims Expenses</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our ability to operate efficiently and reduce underwriting
costs and claims expenses enables us to price our products competitively and
improve our profitability.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have dedicated significant human and financial resources to the
development of advanced information systems and technology which are designed
to maximize the efficiency with which we operate, particularly in working with
our agents and delivering our products and services to our insured. We
continue to develop technology that empowers our independent agents to make it
easier for them to transact business with their clients and with our
underwriters on a real-time basis. Of our 97 Partner Agents, approximately 74%
have the ability


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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">through our proprietary systems to take authorized actions including
receiving applications, quoting new policies, issuing and servicing policies
and claims directly to customers. We provide certain agents with advanced
automation tools to enable the agency to reduce the redundant operations
associated with the personal lines policy production and servicing process. We
believe that the use by us and our agents of our advanced automation and
information systems enables us to operate more efficiently and reduce our
underwriting costs.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our ability to reduce claims expenses enables us to
improve our profitability. We maintain a special investigative unit, which
employs nine individuals responsible for identifying and investigating
potential fraud and misrepresentation by claimants. All of our claims
adjusters are carefully trained to identify certain factors in the claims
handling process that indicate a potentially fraudulent claim or the presence
of misrepresentation in the application or claims process. If a claims
adjuster identifies any such factor, he or she is required to notify our
investigative unit. A member of our investigative unit investigates the claim
further to determine whether the claim is fraudulent or whether the claimant
made a misrepresentation in the application or claims process. We believe the
effectiveness of our investigative unit enables us to reduce our claims
expenses by limiting the number of improper claims.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, as discussed below, Riverview&#146;s cost-efficient service and
management of the medical treatment of auto accident victims reduce our claims
expenses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Ability to Take Advantage of the Services Provided By Our
Non-Insurance Subsidiaries</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe another one of our core strengths is our ability to take
advantage of the services provided by our non-insurance subsidiaries.
Proformance&#146;s operations directly benefit from the unique aspects of
Riverview&#146;s cost efficient service and management of the medical treatment of
auto accident victims and reduction of claims expenses. NAIA operates as a
full service insurance agency that receives the same commission structure as
our Partner Agents. In addition, rather than paying fees to third parties for
similar services, we are able to retain that fee income within our holding
company structure. Since the fee income is earned by non-insurance
subsidiaries, the net after-tax income generated by these subsidiaries can be
transferred by dividend to NAHC without the restrictions imposed under New
Jersey&#146;s insurance laws and regulations. See &#147;Business &#151; Supervision and
Regulation.&#148;


<P align="left" style="font-size: 10pt"><B>Our Growth Strategies</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our goal is to grow our business and maximize shareholder value through
the following strategies:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Focusing on the New Jersey Market</I></B>. We will continue to focus our business
in the New Jersey property and casualty insurance market where we believe we
are able to achieve a competitive advantage through our knowledge and expertise
of the market and regulatory environment.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Capturing a Larger Share of Our Agents&#146; Business</I></B>. We intend to maintain
and further develop our strong independent agent relationships by providing our
agents with a broader portfolio of insurance products and technology services
to enable us to capture a growing share of the total insurance business written
by our agents. Based upon reports given to us by our Partner and Active
Agents, we believe they write an aggregate of approximately $4.0&nbsp;billion of New
Jersey property and casualty premiums per annum, of which approximately
two-thirds is commercial lines. We estimate that we currently write
approximately 4.2% of the aggregate business placed by our Partner and Active
RCS Agents. We intend to expand that percentage. In particular, we intend to
increase the amount of commercial lines business we write for small to medium
business &#147;mainstreet&#148; policyholders by capturing a larger share of this
business written by our Partner and Active Agents.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Converting Single Coverage Policies into Our Packaged Policies and
Opportunistically Growing Our Business through Replacement Carrier
Transactions</I></B><I>. </I>We intend to continue to grow our homeowners and non-auto
businesses, principally by endorsing these additional coverages on policies
which currently cover only automobile insurance, such as the policies
transferred to us as part of the replacement carrier transactions, thereby
converting those policies into our packaged High Proformance Policies. In
addition, as opportunities arise we will enter into replacement carrier and
other transactions which we determine are consistent with our objectives.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Marketing the Services of Our Non-Insurance Subsidiaries to Third Parties</I></B>.
We intend to selectively market and sell to third parties the services
provided by Riverview. These services will generate fee income to these
non-insurance subsidiaries. We believe Riverview provides a unique approach to
maintaining cost-efficient medical service and management of the medical
treatment and reducing frivolous and potentially fraudulent claims. We believe
the services of Riverview are especially marketable to those insurers with
small New Jersey books of business who do not have access to these claims and
cost-reduction services. We will market the services of NAIA to our agents
who, in exchange for our services to the designated policyholders of that
agent, will receive a commission from us lower than our normal commission.


<P align="left" style="font-size: 10pt"><B>Other Subsidiaries</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NAHC was formed on July&nbsp;29, 1994 as a New Jersey corporation to serve as a
holding company for Proformance. Proformance was formed as a New Jersey
property and casualty insurance company on September&nbsp;26, 1994. In addition to
Proformance, our other operating subsidiaries are Riverview, NAIA and Mayfair.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Riverview Professional Services, Inc.</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, we formed Riverview Professional Services, Inc. to address the
problem of sharply increasing costs for medical case management. We believe
that appropriate and effective management of personal injury treatment is
important to our success in the auto insurance industry. As a result, we
created Riverview to provide Proformance with services relating to case
management, medical treatment management, bill and code review and
pre-certification and decision point review. Riverview is also a third party
claims administrator that provides claims handling services.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Riverview deals with auto accident victims&#146; medical providers and screens
requests for medical treatment that it considers to be frivolous, non-compliant
or potentially fraudulent. Riverview pre-certifies all medically necessary
services related to auto accident insureds through qualified medical
professionals and works on containing costs for its clients. We believe
Riverview&#146;s approach leads to a more cost-efficient service for the management
of medical treatment of auto accident victims and reduces claims expenses for
its clients. Riverview also has a staff of six in-house attorneys, allowing
Riverview to handle claims-related litigation more efficiently and
cost-effectively. Proformance pays Riverview an agreed upon flat fee per case
handled.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recently began offering Riverview&#146;s claim adjustment services to third
parties. In June&nbsp;2003, Riverview entered into a third party agreement to
provide its services to AT&#038;T on a countrywide basis. The agreement provides
that Riverview will handle AT&#038;T&#146;s auto liability, auto physical damage and
general liability claims. The agreement will expire on October&nbsp;15, 2004. We
believe that the unique and effective nature of Riverview&#146;s services will
enable it to selectively expand its business and provide its services to
additional third parties on a competitive fee for service basis.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>National Atlantic Insurance Agency, Inc.</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1995, we formed our insurance agency subsidiary, National Atlantic
Insurance Agency, Inc. NAIA is a full service insurance agency that provides
agency services to Proformance&#146;s &#147;orphan&#148; policyholders no longer serviced by
their independent agents. In addition, NAIA provides services to agents and/or
policyholders acquired as part of our replacement carrier transactions
discussed below. NAIA also provides services with respect to policyholders no
longer receiving services from their agents of record. NAIA does not solicit
new insurance customers except as required by New Jersey insurance laws and
regulations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NAIA receives a standard rate of commission, similar to that received by
our Partner Agents, in exchange for the services it provides. NAIA does not
currently provide agency services with respect to any other property casualty
business other than Proformance&#146;s business, although we plan to market NAIA&#146;s
services to agents who wish to have NAIA service such agents&#146; customers.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Mayfair Reinsurance Company Limited</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;7, 2003 we formed Mayfair Reinsurance Company Limited in
Bermuda to provide reinsurance on certain blocks of business. Mayfair is
classified as a Class&nbsp;3 reinsurer in Bermuda and received its reinsurance
license on December&nbsp;19, 2003 from the Bermuda Monetary Authority. Mayfair does
not reinsure business directly from Proformance, but rather assumes business as
a retrocessionaire from Odyssey Re, which is one of Proformance&#146;s reinsurers.
We believe that this arrangement with Odyssey Re and Mayfair will promote
effective protection of Proformance&#146;s surplus, manage premium to surplus
leverage to improve Proformance&#146;s A.M. Best rating, and position Proformance to
underwrite better segments of the personal and commercial lines business in New
Jersey. We believe that this strategy will enable us to retain some of the
profits on the reinsurance business ceded within the consolidated group as
opposed to passing all of those profits to third party reinsurers.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We anticipate that Mayfair will provide small reinsurance facilities to
other similarly situated single-state or small regional personal lines carriers
which may provide us with profitable business opportunities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Niagara Atlantic Holdings Corporation</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own an 80% interest in Niagara Atlantic Holdings Corporation, a New
York corporation. Niagara Atlantic was formed in December&nbsp;1995 as a holding
company for the purpose of executing a surplus debenture and service agreement
with Capital Mutual Insurance Company. On June&nbsp;5, 2000, Capital Mutual
Insurance Company went into liquidation and is currently under the supervision
and control of the New York State Insurance Department. Through loan
guaranties, we lost approximately $3.0&nbsp;million in connection with our
investment in Niagara Atlantic. As of the date of this prospectus, Niagara
Atlantic is an inactive subsidiary.


<P align="left" style="font-size: 10pt"><B>The New Jersey Property and Casualty Insurance Market</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Regulatory Environment</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance is licensed by the Commissioner of the Department of Banking
and Insurance of the State of New Jersey (whom we refer to as the Commissioner)
to transact property and casualty insurance in New Jersey. All of
Proformance&#146;s business is extensively regulated by the Commissioner, as
described below and elsewhere in this prospectus.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>New Jersey Market for Private Passenger Automobile Insurance</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Private passenger automobile insurance is heavily regulated in New Jersey.
In many respects, the private passenger automobile insurance market in New
Jersey is unique, in comparison with other states. This is due to a number of
factors, including unusual regulatory conditions such as the &#147;take all comers&#148;
requirement and the Automobile Insurance Urban Enterprise Zone (UEZ)&nbsp;Program.
For many insurance companies, these factors present substantial challenges, but
we believe they give us a competitive advantage because of our thorough
understanding of this market and our ability to take advantage of opportunities
available under the law.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Recent Legislation</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1990, the New Jersey legislature adopted the Fair Automobile Insurance
Reform Act of 1990, which we refer to as the FAIR Act, which, among other
things, restricted the ability of insurance companies to refuse automobile
insurance applicants and restricted their right to non-renew existing policies.
In response to the FAIR Act, many insurance companies withdrew from or reduced
their market share in the New Jersey automobile insurance market.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By the mid-1990&#146;s, the FAIR Act was deemed insufficient to meet the needs
of the marketplace. Auto insurance rates had become a major political issue,
and the New Jersey legislature passed the Automobile Insurance Cost Reduction
Act of 1998, which we refer to as the AICRA.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AICRA attempted to control consumer costs by cutting auto rates by 15%
across the board. The loss of premiums to insurance carriers was to be made up
by implementing strict measures to reduce insurance fraud and abuse, especially
in the areas of vehicle repair and medical case management. Although the
industry noted an increase in the efforts of the state&#146;s law enforcement
personnel to combat insurance fraud, the impact of AICRA on the profitability
of carriers was viewed by the automobile insurance industry in New Jersey as
being largely negative.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>New Jersey Automobile Insurance Competition &#038; Choice Act</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;9, 2003, the New Jersey Automobile Insurance Competition &#038; Choice
Act, which we refer to as the AICC Act, was signed into law by the Governor of
New Jersey to address the issues of auto insurance availability and capacity.
The new legislation was designed to attract competition in the New Jersey auto
insurance market, and to provide consumers with coverage choices. Pursuant to
the AICC Act, the following regulatory changes have been adopted.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Rate Increases. </I>The AICC Act improves the ability to achieve rate
increases with respect to private passenger automobile insurance in a more
timely fashion. The AICC Act increases the annual &#147;expedited&#148; rate filing
threshold from 3% per annum to 7% per annum. The AICC Act shortens the time
periods for the Commissioner to issue a decision with respect to an insurer&#146;s
proposal to increase rates by up to 7%. For a proposed rate increase of up to
3%, the Commissioner must issue a decision within 30&nbsp;days after receipt of the
filing. For a proposed rate increase of more than 3%, but not more than 7%,
the Commissioner must issue a decision within 45&nbsp;days after receipt of the
filing.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Excess Profits. </I>Each insurer in New Jersey is required to file an annual
report which includes a calculation of statutory profits on private passenger
automobile business. If the insurer has excess statutory profits as determined
by a prescribed formula, the insurer is required to submit a plan for the
approval of the Commissioner to refund or credit the excess profits to
policyholders. Prior to the AICC Act, the calculation of statutory profits was
based on the three-year period immediately prior to the report, and the amount
of profit an insurer could earn without being considered excess was limited to
3.5% of its earned premium. The AICC Act extended the time period for the
calculation of statutory profits from three years to seven years to take into
account market fluctuations over a longer period of time. The AICC Act also
changed the basis for determining allowable profits from earned premium to
policyholder surplus. The amount of profit an insurer can now earn without
being considered excess is 12% of policyholder surplus. As of December&nbsp;31,
2003, we did not exceed the excess profit threshold in respect of any prior
lookback period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>&#147;Take All Comers&#148; Requirement</I>. The AICC Act phases out the &#147;take all
comers&#148; requirement over five years, to become inoperative on January&nbsp;1, 2009.
Also, the AICC Act provides for an exemption from the &#147;take all comers&#148;
requirement for insurers that increase their private passenger auto insurance
non-fleet exposures by certain amounts. The exemption criteria are applied
every six months to determine if the insurer remains exempt. Insurers that
increased their private passenger auto insurance non-fleet exposures by 5%
during the one-year period ending on January&nbsp;1, 2004 are exempt from the &#147;take
all comers&#148; requirement for the subsequent six-month period, at which time the
5% standard is applied to determine if the insurer remains exempt. Insurers
that increase their private passenger auto insurance non-fleet exposures by the
following amounts will also be exempt from the &#147;take all comers&#148; requirement,
subject to review every six months: 4% in the one-year period ending January
1, 2005, 3% in the one-year period ending January&nbsp;1, 2006, 2% in the one-year
period ending January&nbsp;1, 2007, and 1% in the one-year period ending January&nbsp;1,
2008. As of the date of this prospectus, Proformance has filed with
the New Jersey Department of Banking and Insurance its required
certification indicating it is exempt from the &#147;take
all comers&#148; provision for 2004 as it has satisfied the foregoing criteria.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tier Rating</I>. Under the tier rating system used to determine rates,
drivers are assigned to different rating tiers according to driving history and
other risk characteristics including, among others, driving record
characteristics, experience and type of car. The tier rating system requires
insurers to take into account the entire record of the consumer, rather than
penalizing drivers for accidents and department of motor vehicle violations.
Each insurer creates tiers based on the risk characteristics that are important
to it, which vary from insurer to insurer. By establishing tiers, each insurer
is able to target the risks which it prefers to underwrite. Proformance&#146;s
tiering system seeks to charge low rates to good drivers and higher rates to
drivers with poor driving records.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Unsatisfied Claim and Judgment Fund. </I>The Unsatisfied Claim and Judgment
Fund was created to pay claims of victims of hit and run or uninsured motor
vehicle accidents and to reimburse insurers when medical expense benefits
exceed $75,000 per person per accident. The AICC Act eliminates reimbursement
to insurers for medical claims in excess of $75,000 for policies issued on or
after January&nbsp;1, 2004. The administration of these claims will be transferred
from the Unsatisfied Claim and Judgment Fund to the New Jersey
Property-Liability Insurance Guaranty Association, a private, nonprofit entity.
This change is beneficial to us as the cost of this facility to Proformance
has historically exceeded its benefits to Proformance.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Insurance Fraud Detection Reward Program</I>. In an effort to enable
efficient prosecution of fraud against insurance companies, the AICC Act
establishes the crime of &#147;insurance fraud&#148; to criminalize the harmful conduct.
To provide the public with incentives to come forward regarding reasonable
suspicion or knowledge of insurance crimes, the AICC Act also establishes the
Insurance Fraud Detection Reward Program to obtain information from the public.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Insurance Scenarios</I>. Starting in 2004, every insurer must provide each
new applicant seeking automobile insurance, and each insured upon request, with
three premium scenarios illustrating the effect of different coverage choices.
Insurers are required to explain how each choice may affect costs and benefits
in the event of an accident.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Automobile Insurance Urban Enterprise Zone Program</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Automobile Insurance Urban Enterprise Zone Program is an effort by the
State of New Jersey to increase the availability of insurance and decrease the
number of uninsured motorists in urban areas. New Jersey law requires each
insurer to have its share of business in designated &#147;urban enterprise zones&#148;
across the state equal to its proportionate share of the auto insurance market
in the state as a whole. If an insurer does not achieve its quota, it is
assigned business by the state to fill the quota. Proformance currently
satisfies its quota in each urban enterprise zone primarily as a result of
voluntary business it writes and the influx of policies from our replacement
carrier transactions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Personal Automobile Insurance Plan</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Personal Automobile Insurance Plan, or PAIP, is a plan designed to
provide personal automobile coverage to drivers unable to obtain private
passenger auto insurance in the voluntary market and to provide for the
equitable assignment of PAIP liabilities to all licensed insurers writing
personal automobile insurance in New Jersey. We may be assigned PAIP
liabilities by the state in an amount equal to the proportion that our net
direct written premiums on personal auto business for the prior calendar year
bears to the corresponding net direct written premiums for all personal auto
business written in New Jersey for such year.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into an agreement pursuant to which the PAIP liabilities
assigned to us by the state are transferred to a third party that writes and
services the business in exchange for an agreed upon fee. Upon the transfer,
we have no liabilities with respect to such PAIP business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Commercial Automobile Insurance Plan</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Automobile Insurance Plan, or CAIP, is a plan similar to
PAIP, but involving commercial auto insurance rather than private passenger
auto insurance. Private passenger vehicles cannot be insured by CAIP if they
are eligible for coverage under PAIP or if they are owned by an &#147;eligible
person&#148; as defined under New Jersey law. We are assessed an amount in respect
of CAIP liabilities equal to the proportion that our net direct written
premiums on commercial auto business for the prior calendar year bears to the
corresponding net direct written premiums for commercial auto business written
in New Jersey for such year.


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<P align="left" style="font-size: 10pt"><B>Recent Transactions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Ohio Casualty Replacement Carrier Transaction</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;18, 2001, NAHC and Proformance entered into a transaction with
OCNJ pursuant to which OCNJ transferred to Proformance the obligation to renew
all of OCNJ&#146;s private passenger automobile business written in New Jersey and
OCNJ ceased writing private passenger automobile insurance in the State of New
Jersey. As part of the withdrawal, Proformance became the replacement carrier
for all of OCNJ&#146;s private passenger auto insurance policies. OCNJ retained all
rights and responsibilities related to the policies it issued. Proformance
offered renewal policies to all eligible OCNJ policyholders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the transaction, OCNJ paid Proformance
$41,100,000, of which $500,000 was paid at the contract date and
$40,600,000 was paid in twelve equal monthly installments of $3,833,333,
with the first payment due on March 18, 2002. In connection with this
transaction, OCIC acquired a 19.71 percent interest (at the time of
the transaction) in NAHC by purchasing 20,185 shares of Class
B nonvoting common stock. We valued the stock issued as part of the
transaction at $13,500,000, based on a valuation performed for
us. The remaining $27,600,000 was earned evenly as
replacement carrier revenue over the twelve month period beginning on
March 8, 2002. Further, OCNJ may be required to pay to Proformance up to an additional
$15,600,000 in the aggregate to maintain a premium-to-surplus ratio of 2.5 to 1
on the renewal business. A calculation of the premium-to-surplus ratio is made
annually to determine the amount of the additional payment, if any, for such
year. The $15,600,000 conditional guaranty will expire on December&nbsp;18, 2004.
We received payments of $2,521,000 on June&nbsp;25, 2004 and $4,299,000 on July&nbsp;14,
2004 for a total of $6,820,000 from OCNJ pursuant to this requirement.
Proformance entered into a non-competition agreement with OCIC that prohibits
Proformance from writing any commercial lines insurance policy until December
31, 2004 where the expiring policy was issued by Ohio Casualty Group.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required under the December&nbsp;18, 2001 agreement, on August&nbsp;1, 2003,
NAHC conducted a private offering of its nonvoting common stock. The offering
was made only to former personal automobile agents of OCNJ, who met certain
eligibility requirements as determined by NAHC&#146;s board of directors. In
connection with the offering, NAHC issued nonvoting common stock for an
aggregate price of $2,500,000.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also, as part of the transaction, NAHC, James V. Gorman and OCIC entered
into an Investor Rights Agreement, dated as of December&nbsp;18, 2001, which sets
forth certain rights of OCIC with respect to its shares of NAHC. See &#147;Certain
Relationships and Related Party Transactions &#151; Investor Rights Agreement.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;10, 2004, we entered into an agreement with OCNJ and OCIC pursuant
to which we agreed to include OCIC as the selling shareholder in this offering
and to use commercially reasonable efforts to facilitate the sale by OCIC of
shares of common stock of NAHC owned by OCIC that have an aggregate value equal
to at least 10% of the aggregate value of all shares of common stock sold by
NAHC and OCIC in this offering, which we anticipate will approximate 50% of the
shares of NAHC common stock owned by OCIC. In exchange for the foregoing, OCIC
agreed to waive any rights it has, had or may have under the Investor Rights Agreement to require us to
redeem all of its shares of NAHC common stock as provided in that agreement.
OCIC also executed a 180-day lock-up agreement in connection with this offering
as described below in &#147;Underwriting.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following expiration of the 180-day lock-up period, we agreed to use
commercially reasonable efforts to facilitate a secondary public offering in
which OCIC will sell its shares of NAHC common stock not sold as part of this
offering. In lieu of a secondary offering, we and OCIC may mutually agree that
OCIC shall sell to us an amount of NAHC common stock owned by OCIC which are
not sold as part of this offering, the aggregate market value of which is equal
to any additional amounts then due Proformance under the provision concerning
maintenance of a 2.5 to 1 premium-to-surplus ratio on the renewal business of
the Replacement Carrier Agreement. Upon the transfer by OCIC of its shares of
NAHC common stock to us, OCNJ shall have no further obligation under such
provision, except to the extent that the aggregate market value of the shares
transferred to us is less than the amount due Proformance, in which case, OCNJ
shall pay Proformance cash in the amount of such shortfall.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, subject to certain exceptions, we have granted OCIC the
right, on three occasions following the expiration of the 180-day lock-up
period relating to this offering, to demand that we file a registration
statement with respect to the resale by OCIC of any shares of NAHC common stock
owned by OCIC which are not sold as part of this offering.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Sentry Insurance Replacement Carrier Transaction</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;21, 2003, Proformance consummated a replacement carrier
transaction with Sentry Insurance, a Wisconsin mutual company. Sentry
Insurance agreed to not renew its personal lines insurance business in New
Jersey upon policy expiration dates and Proformance agreed to offer replacement
policies with substantially similar coverages and rates to the non-renewed
Sentry Insurance policyholders, and to be responsible for any statutory or
regulatory obligations that flow from the transfer of the business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sentry Insurance also agreed to support the business renewed by
Proformance as a result of this transaction by paying Proformance $3,500,000,
paid in four equal installments. In addition, in the event that the
premium-to-surplus ratio for the Sentry Insurance business written by
Proformance exceeds 2.5 to 1 during a specified period, Sentry Insurance is
obligated to pay to Proformance such additional sums of money as necessary, up
to an aggregate limit of $1,250,000, to reduce the premium-to-surplus ratio for
the Sentry Insurance business written by Proformance to not less than 2.5 to 1.
As of the date of this prospectus we have determined that no amount is
currently recoverable.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the transaction, NAIA agreed to provide general agency services
to the transferred Sentry Insurance customers.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Metropolitan Property and Casualty Replacement Carrier Transaction</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;8, 2003, NAHC and Proformance consummated a replacement
carrier transaction with Met P&#038;C pursuant to which Met P&#038;C agreed to not renew
its personal lines insurance business (except for the Specialty Vehicle
Automobile Program) produced by independent agents in New Jersey upon normal
policy expiration dates and Proformance agreed to offer replacement policies
with substantially similar coverages and rates to the non-renewed Met P&#038;C
policyholders, and to be responsible for any statutory or regulatory
obligations that flow from the transfer of the business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to their agreement, Proformance offered all agents terminated by
Met P&#038;C as a result of this transaction, full or limited agency contracts with
Proformance under terms and conditions no less favorable than the terms and
conditions of such agents&#146; contracts with Met P&#038;C.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of this replacement carrier transaction, Proformance agreed, with
respect to any Met P&#038;C policy renewed by Proformance pursuant to this
transaction, not to impose an overall rate increase greater than 15% per year
for three years subject to a maximum aggregate rate increase of 52%. Met P&#038;C
agreed to support the business renewed by Proformance by making a payment (on
an after-tax basis) to Proformance totaling $6,660,000 which was paid at
closing. In addition, at closing Met P&#038;C purchased nonvoting common stock of
NAHC for $10,000,000.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Met P&#038;C replacement carrier transaction, Met P&#038;C
and NAHC entered into a share repurchase agreement, dated as of December&nbsp;8,
2003. See &#147;Certain Relationships and Related Party Transactions &#151;
Metropolitan Property and Casualty Share Repurchase Agreement.&#148;


<P align="left" style="font-size: 10pt"><B>Products</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>High Proformance Policy</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We attempt to attract and retain policyholders who are better insurance
risks with a &#147;packaged&#148; insurance product, which we refer to as the &#147;High
Proformance Policy&#148; or &#147;HPP.&#148; HPP is a comprehensive and differentiated policy
which may contain the following property and casualty coverages purchased by
individuals:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>private passenger automobile insurance, including bodily injury and
property damage liability, uninsured motorist coverage, personal injury
protection, extended medical payments, comprehensive fire and theft,
collision, rental reimbursement, towing and labor, and miscellaneous
electronic device and mobile telephone coverages;</TD>
</TR>

</TABLE>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>homeowners and condominium insurance coverage, including various
endorsements for extended coverage for eligible property and liability
exposures;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>personal excess (&#147;umbrella&#148;) liability insurance as an additional
line of coverage; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>personal specialty property lines covering jewelry, furs, fine
arts, cameras, electronic data process equipment, boats, yachts and
other high value items.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The target market for our HPP is middle income and upper-middle income
applicants. We believe customers will continue to be attracted to the
convenience of buying all of their personal insurance coverages under one
policy from one company, and the benefit of comprehensive coverage designed not
to leave gaps or create overlaps in coverage. We believe this design enhances
our renewal retention, provides convenient premium payment and improves our
loss ratios. Our historical underwriting experience further indicates that the
policyholders who purchase their auto and homeowners coverage from the same
carrier are better risks than policyholders who purchase only one kind of
coverage or the other.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Policyholders may purchase HPP coverage that initially includes only
either the private passenger automobile coverage or the homeowners coverage.
The policyholder may add the other coverages at their convenience as their
existing policies for this other coverage expire. Many of our competitors do
not offer a packaged policy and of the few who do, they do not offer the
flexibility of sequentially adding coverage during the life of the policy. We
believe that others have been slow to introduce packaged policies in New Jersey
because they are trying to reduce market share and because it is difficult to
convert a policy processing system designed to handle single coverage policies
into a system that can handle packaged policies.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our HPP coverage excludes mold, mildew and pollution.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Products</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also offer commercial lines insurance products including commercial
automobile, commercial general liability, and commercial excess liability.
Specifically, we underwrite commercial automobile liability and physical damage
and commercial inland marine for risks insuring up to ten vehicles. In
addition, we offer commercial liability, commercial inland marine and
commercial excess liability to our commercial automobile policyholders.
Predominantly, Proformance underwrites commercial automobile liability and
physical damage for small to medium business &#147;mainstreet&#148; policyholders which
we regard as high frequency/low severity risks.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have recently initiated underwriting of a new commercial line of
business designed to insure commercial property exposures on an &#147;all risk&#148;
basis. We have just commenced this effort and have no business written as of
the date of this prospectus, nor do we expect to have material amount of this
business in the foreseeable future.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below shows our direct written premiums in each of our product
lines for the periods indicated and the portions of our total direct written
premiums each product line represented.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>Years Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>Three Months Ended March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Direct Written Premiums</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Private passenger auto</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,813,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">53.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87,757,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">76.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">135,859,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">83.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,500,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">83.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,315,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84.5</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Commercial auto</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,452,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,775,345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,402,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,422,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,574,967</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Homeowners</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,322,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,959,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,579,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,055,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,868,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,169,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,132,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,338,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">666,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">742,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,757,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">114,624,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">163,178,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,644,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,501,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An emerging issue in the insurance industry is mold liability and property
coverage under homeowners and similar property-related policies. Property
damage as a result of mold is uncommon in New Jersey, unlike in the southern
sections of the United States, most notably Texas. Although our High
Proformance Policies exclude mold coverage, some of our other products include
such coverage. Generally, insurance policies exclude mold coverage unless it
is the result of a covered loss. In the prior two years, we are aware of 2
claims under our policies, totaling less than $1,000 that involve mold
liability as a result of a covered loss.


<P align="center" style="font-size: 10pt">51
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Distribution</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Independent Agent Relationships</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We distribute our products exclusively through licensed and contracted
independent agents. All of our agents have entered into agency agreements. We
have two types of independent agents, Partner Agents and Replacement Carrier
Service Agents.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Partner Agents</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Partner
Agents are our independent agents who have purchased NAHC
common stock with a minimum purchase price of $50,000. As of March&nbsp;31, 2004,
our Partner Agents, including those that are directors of our
Company, owned in the aggregate approximately 38.7% of
our outstanding
common stock on a fully diluted basis. Following this offering our
Partner Agents (assuming full exercise of the underwriters&#146;
over-allotment option) will own in the aggregate
approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our
outstanding common stock on a fully diluted basis. None of our Partner
Agents are selling shares of our common stock in this offering. By reason of
their ownership interest in NAHC, we believe that each agent has an incentive
to provide us with more profitable segments of the personal and commercial
lines business in New Jersey. We believe this gives us a competitive advantage
in the market. Currently, there are 97 Partner Agents in 119 locations who
enjoy the privileges of producing new and renewal insurance business in all of
Proformance&#146;s product lines of business and are paid a standard commission. We
intend to continue requiring our agents to purchase shares of our common stock
prior to selling our insurance products.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide Partner Agents with advanced automation tools to enable them to
reduce the redundant operations associated with the personal lines policy
production and servicing process. In addition, 72 Partner Agencies have
qualified for the elite &#147;Custom Agent&#148; designation enabling these agents to
perform some of the basic underwriting and claims processing for additional
compensation, thereby reducing our operating expenses. The Custom Agent&#146;s
underwriting activities are subject to review by our underwriting department
and our Peer Review Committee.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All Partner Agents are eligible to participate in our contingent
commission program, which is based upon the volume and the profitability of the
business produced by the agency. We believe that the Partner Agent system of
distributing our products provides us with a sustainable strategic advantage as
compared to our competitors in the areas of underwriting/risk selection and
operating expense control.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Replacement Carrier Service Agents</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Replacement Carrier Service Agents are those independent agents who became
associated with Proformance through replacement carrier transactions, such as
the Ohio Casualty replacement carrier transaction. Currently, there are
approximately 168 Replacement Carrier Service Agents located in New Jersey. We
converted 50 Replacement Carrier Service Agents who were former OCNJ agents to
Partner Agent status in connection with our private offering of NAHC common
stock in 2003. We may offer additional Replacement Carrier Service Agents the
opportunity to become Partner Agents in the future. In compliance with state
regulations, Replacement Carrier Service Agents are paid the same rate of basic
commission as they were paid by the ceding carrier. Replacement Carrier
Service Agents do not enjoy Proformance&#146;s standard Partner Agent commission
levels, nor do they operate with any of the advanced automation tools available
to the Partner Agents.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We classify our Replacement Carrier Service Agents as &#147;Active&#148; Replacement
Carrier Service Agents, or Active RCS Agents, and Non-Active Replacement
Carrier Service Agents, or Non-Active RCS Agents. We have 27 Active RCS Agents
and 141 Non-Active RCS Agents located in New Jersey. Generally, we recognize a
single location for each of our Replacement Carrier Service Agents. Active RCS
Agents have entered into a limited agency agreement with Proformance and are
authorized to write renewals and selective endorsements of private passenger
auto business. Proformance can discontinue new personal auto business
production by any Active RCS Agent, with or without cause, with 90&nbsp;days advance
written notice to the Active RCS Agent. Non-Active RCS Agents are authorized
to provide limited agency services to the transferred policyholders, but are
not authorized to produce any new business for Proformance.


<P align="center" style="font-size: 10pt">52
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Agency Agreements</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our Partner Agents have entered into Partner Agent agency
agreements which define the duties and obligations of Proformance and each
Partner Agent. Under the agency agreement, an agent who is a licensed New
Jersey insurance agent agrees to purchase shares of NAHC common stock and
become an independent contractor selling Proformance&#146;s products in exchange for
commissions. The agency agreement can be terminated by either party upon 90
days&#146; written notice and will automatically terminate if the insurance agent
loses its license, sells its business (provided<I>, </I>that Proformance, may at its
discretion, offer an agency agreement to the successor if it meets its
suitability requirements) or in the event of fraud, insolvency, abandonment,
gross negligence or willful misconduct of the agent.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Share Repurchase Agreements</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All Partner Agents are also required to enter into a share repurchase
agreement with NAHC. Each share repurchase agreement restricts the Partner
Agent&#146;s transfer of shares. The Partner Agent may not transfer the shares for
a period of two years from the date of the share repurchase agreement without
NAHC&#146;s prior written consent, which consent may be withheld in NAHC&#146;s sole
discretion. If subsequent to the two-year holding period, the Partner Agent
desires to transfer shares to a third party, NAHC has the priority right to
purchase all or any portion of the shares from the Partner Agent at the price
and pursuant to the terms set forth in the share repurchase agreement. If such
shares are not purchased by NAHC, the Partner Agent is free for a period of six
months to transfer all of his or her shares. In the event that the agency
agreement is terminated for any reason, including by reason of breach, default,
voluntary termination by the agency or voluntary termination by Proformance,
the Partner Agent is obligated to offer the shares for sale to NAHC. If the
shares are not purchased by NAHC, the Partner Agent is free to transfer the
unpurchased shares for a period of six months.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All shares which are subject to repurchase by NAHC may be repurchased at a
price equal to the greater of (i)&nbsp;the book value of the shares and (ii)&nbsp;the
purchase price of the shares as of the date of the original acquisition of the
shares by the Partner Agent. In the event the repurchase of shares by NAHC is
due to a termination of the agency agreement as a result of default by the
agent, agency&#146;s loss of license, fraud, abandonment, insolvency, gross
negligence or willful misconduct by the Partner Agent, then the purchase price
shall be the lesser of (i)&nbsp;and (ii)&nbsp;above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each share repurchase agreement terminates five years from the date of its
execution. Following termination, NAHC retains a right of first refusal with
respect to a Partner Agent&#146;s shares which obligates the Partner Agent to offer
to NAHC the right to purchase any shares which the Partner Agent desires to
transfer to any third party, on the same terms as offered to such third party.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Peer Review Committee</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance has established a Peer Review Committee which monitors the
underwriting and risk selection activities of Partner Agents. The Peer Review
Committee currently consists of five Partner Agents. The members of the
Committee generally serve for one-year terms and are appointed by Proformance&#146;s
senior management team. It is our expectation that all Partner Agents will
have the opportunity to serve on the Committee at some point. The Committee
evaluates the performance of the Partner Agents to ensure compliance with our
underwriting guidelines and marketing plans and can refer any issues to
management of Proformance. Management of Proformance further evaluates the
issues and can take certain actions regarding the Partner Agent under review,
including, but not limited to, terminating the Partner Agent and forcing the
sale of NAHC&#146;s stock back to NAHC pursuant to the terms of the share repurchase
agreement. At each meeting of the Board of Directors of Proformance, the
Committee reports any meetings it has held and any actions it has taken. The
Committee met twice in 2003 and has met once in 2004 as of the date of this
prospectus.


<P align="center" style="font-size: 10pt">53
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Marketing</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Strategy</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that in the New Jersey personal lines property and casualty
insurance industry there is a strong relationship between the policyholder and
the independent agent. Therefore, we view the independent agents as our
customers. As a result, our marketing efforts focus on developing strong
interdependent relationships with our Partner Agents and providing them with
the resources to write profitable business. We believe that our ability to
develop strong and mutually beneficial relationships with our agents is
paramount to our success and will enable us to capture a larger portion of our
agents&#146; aggregate business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal marketing strategies are:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To offer a range of products, which we believe enables our agents
to meet the insurance needs of their clients who meet our target
criteria;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To price our products competitively, including offering discounts
when and where appropriate for policyholders seeking to place all of
their primary property and casualty insurance coverage with one
carrier;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To offer agents competitive commissions, with incentives for
placing their more profitable business with us; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To provide a level of support and service that enhances the agents&#146;
ability to do business with their clients and with us while reducing
operating costs, providing us with an ability to maintain our
competitive pricing position.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Agent Commissions and Incentive Plans</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We employ several programs designed to compensate and provide incentives
to our Partners Agents to produce increasing volumes of profitable business for
us.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Agent Commission Rates</I>. We pay agent commissions on new and
renewal business which we believe are competitive in our marketplace.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Contingent Commission Plan</I>. Our contingent commission plan rewards
our Partner Agents by providing annual incentives based on profit,
growth and product mix of the business produced by each Partner Agent.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Custom Agency Plan</I>. Our Custom Agents are our Partner Agents that
participate in the Custom Agency Plan. The Custom Agency Plan enables
Custom Agents to perform some of the basic underwriting, claims
processing and other functions for additional compensation. Currently,
approximately 74% of our Partner Agents participate in the Custom
Agency Plan.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Volume Incentives</I>. We often provide qualifying Partner Agents with
volume incentives. We negotiate volume incentives with Partner Agents
individually, which we generally use to promote specific new business.
We employ various volume incentive strategies, such as commission
overrides and fee payments per application.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Investment Incentive</I>. All of our Partner Agents are shareholders
of NAHC. By reason of their ownership interest in NAHC, we believe
that each agent has an incentive to provide us with more profitable
segments of the personal and commercial lines business in New Jersey.</TD>
</TR>

</TABLE>



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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Service and Support</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that the level and quality of service and support we provide to
our agents helps differentiate us from other insurers. First, we currently
have three field representatives that monitor and assist our agents. In
addition, we provide our agents with software applications along with programs
and services designed to strengthen and expand their marketing, sales and
service capabilities. Our Custom Agency Plan allows certain agencies to sell
new or service existing policyholders in a real-time environment by providing
the agents with certain access to our underwriting, claims and policy
information. We believe that the array of services we offer to our agents adds
significant value to their business and enhances their capabilities. We are an
Associate Member of the Professional Insurance Agents Association of New
Jersey, and we support the Independent Insurance Agents and Brokers of New
Jersey.


<P align="left" style="font-size: 10pt"><B>Underwriting</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our underwriting department currently consists of 16 underwriters who are
supported by underwriting assistants and other policy administration personnel.
The underwriting department is responsible for pricing of our policies,
management of the risk selection process and monitoring of our various books of
business. Our underwriting department has two divisions, one for our personal
lines business and one for our commercial lines business. Our personal lines
underwriting division consists of seven teams. Each team services designated
independent agencies on a rotating basis.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Agent Underwriting Authority</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Custom Agents are equipped with advanced automation tools to enable
the agency to perform the initial underwriting services. Agents are provided
access to electronic version of underwriting manuals, which include updated
guidelines for acceptable risks, commission levels and product pricing. This
process enables our agents to perform certain underwriting and administrative
services on our behalf thereby reducing our operating expenses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriting activities of the Custom Agents are reviewed by our
underwriting department on a daily basis. The software employed by our
underwriting department identifies for our underwriting personnel any business
underwritten by our Custom Agents which does not meet certain criteria
predetermined by our underwriting department. Our underwriting department may
then take appropriate actions in regards to such business underwritten,
including amending or canceling the policies in accordance with applicable laws
and regulation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Use of &#147;Credit Scoring&#148;</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As permitted under New Jersey insurance laws and regulations, we employ
&#147;insurance scoring&#148; (sometimes referred to as &#147;credit scoring&#148;) in underwriting
our homeowners policies and our commercial lines policies. We use credit
bureaus to obtain insurance scores for individuals who apply for our homeowners
or commercial lines coverage.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An insurance score is a measure of a person&#146;s financial responsibility
based on historical credit experience. The theory behind insurance scoring is
that individuals with higher scores are less likely to incur insured losses
than those with lower credit scores. We do not rely solely on credit scores to
determine whether to provide coverage to an applicant or in determining the
coverage price. Rather, we use credit scores as an ancillary underwriting tool
which assists us in evaluating the underwriting risk of our applicants.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that using credit scores to evaluate the underwriting risk of
our applicants in connection with our homeowners and commercial lines coverage
improves our underwriting results and increases our profitability.


<P align="center" style="font-size: 10pt">55
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Claims</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our claims department processes all claims that arise out of our insurance
policies. We currently have in excess of 100 employees in our claims
department. Processing automation has streamlined much of our claims function.
We receive claims from our policyholders either through our agents or directly
through our 1-800 toll free telephone number.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Claims received by our agents are forwarded to our claims department
through our claims systems. As agents receive calls from claimants, our
software permits the agent to immediately send information related to the
claims directly to us. Once we receive this information, the claim is directed
to the appropriate internal adjuster responsible for investigating the claim to
determine liability. We believe this process results in a shorter time period
from when the claimant first contacts the agent to when the claimant receives a
claim payment, while enabling the agents to build credibility with their
clients by responding to claims in a timely and efficient manner.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required under New Jersey insurance laws and regulations, a portion of
our claims department consists of a special investigative unit, which employs
nine individuals responsible for identifying and investigating potential fraud
and misrepresentation by claimants. All of our claims adjusters are carefully
trained to identify certain factors in the claims handling process that
indicate a potentially fraudulent claim or the presence of misrepresentation in
the application or claims process. If a claims adjuster identifies any such
factor, he or she is required to notify our investigative unit. A member of
our investigative unit investigates the claim further to determine whether the
claim is fraudulent or whether the claimant made a misrepresentation in the
application or claims process. We believe the effectiveness of our
investigative unit enables us to reduce the number of improper claims and
produce more profitable underwriting results.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we rely on Riverview&#146;s case management and medical treatment
cost containment to ensure cost-efficient service in the treatment of auto
accident victims and reduce our claims expenses. See &#147;Business&#151;Other
Subsidiaries&#151;Riverview Professional Services, Inc.&#148;


<P align="left" style="font-size: 10pt"><B>Reserves</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Significant periods of time can elapse between the occurrence of an
insured loss, the reporting of the loss to the insurer and the insurer&#146;s final
payment of that loss. To recognize liabilities for unpaid losses, insurers
establish reserves as balance sheet liabilities representing estimates of
amounts needed to pay reported and unreported losses and the expenses
associated with investigating and paying the losses, or loss adjustment
expenses. We review our reserves internally on a quarterly basis. We are
required by law to annually obtain a certification from a qualified actuary
that our loss and loss adjustment expenses reserves are reasonable.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When a claim is reported, claims personnel establish a &#147;case reserve&#148; for
the estimated amount of the ultimate payment. The amount of the reserve is
primarily based upon an evaluation of the type of claim involved, the
circumstances surrounding each claim and the policy provisions relating to the
loss. The estimate reflects informed judgment of such personnel based on
general insurance reserving practices and on the experience and knowledge of
the claims personnel. During the loss adjustment period, these estimates are
revised as deemed necessary by our claims department based on subsequent
developments and periodic reviews of the cases.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with industry practice, we also maintain reserves for
estimated losses incurred but not yet reported. Incurred but not yet reported
reserves are determined in accordance with commonly accepted actuarial
reserving techniques on the basis of our historical information and experience.
We make adjustments to incurred but not yet reported reserves quarterly to
take into account changes in the volume of business written, claims frequency
and severity, our mix of business, claims processing and other items that can
be expected to affect our liability for losses and loss adjustment expenses
over time.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When reviewing reserves, we analyze historical data and estimate the
impact of various loss development factors, such as our historical loss
experience and that of the industry, legislative enactments, judicial
decisions, legal developments in imposition of damages, and changes and trends
in general economic conditions, including the effects of inflation. There is
no precise method, however, for evaluating the impact of any specific factor on
the


<P align="center" style="font-size: 10pt">56
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">adequacy of reserves, because the eventual development of reserves is
affected by many factors. After taking into account all relevant factors, we
believe that our provision for unpaid losses and loss adjustment expenses at
December&nbsp;31, 2003 is adequate to cover the ultimate net cost of losses and
claims incurred as of that date. The ultimate liability may be greater or less
than reserves. Establishment of appropriate reserves is an inherently
uncertain process, and there can be no certainty that currently established
reserves will prove adequate in light of subsequent actual experience. To the
extent that reserves are inadequate and are strengthened, the amount of such
increase is treated as a charge to earnings in the period that the deficiency
is recognized.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents information on changes in the reserve for
losses and loss adjustment expenses of Proformance for the years ended December
31, 2002 and December&nbsp;31, 2003 and the three months ended March&nbsp;31, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(in thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Reserves for losses and loss adjustment
expenses, beginning period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,201</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less reinsurance recoverable on unpaid losses
and loss adjustment expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26,718</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,431</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,329</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net reserves for losses and loss adjustment
expenses, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,872</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Incurred losses and loss adjustment expenses,
related to:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,710</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Prior period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">663</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total incurred losses and loss adjustment
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,373</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Paid losses and loss adjustment expenses
related to:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,574</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Prior period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,944</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total paid losses and loss adjustment Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,518</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net reserves for losses and loss adjustment
expenses, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,727</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Plus reinsurance recoverables on unpaid
losses and loss adjustment expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,499</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Reserves for losses and loss adjustment
expenses, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">139,226</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of changes in estimates of insured events in prior years,
incurred losses in prior years increased by approximately $0.7&nbsp;million for the
three months ended March&nbsp;31, 2004 and $0.1&nbsp;million and $8.6&nbsp;million,
respectively, for the years ended December&nbsp;31, 2003 and 2002. In the first
three months of 2004, we experienced favorable weather and our claims frequency
was down and claim severity was constant. The incurred losses related to prior
years of $0.1&nbsp;million in 2003 included a commutation of a reinsurance agreement
 of $0.2&nbsp;million which was offset by favorable loss development on prior
accident year reserves. The incurred losses related to prior years in
2002 were because of higher than expected losses on private passenger
automobile business and commercial auto business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents the development of reserves, net of
reinsurance, for calendar years 1995 through 2003. The top line of the table
shows the reserves at the balance sheet date for each of the indicated years.
This represents the estimated amounts of losses and loss adjustment expenses
for claims arising in all years that were unpaid at the balance sheet date,
including losses that had been incurred but not yet reported to us. The upper
portion of the table shows the cumulative amounts paid as of the end of each
successive year with respect to those claims. The lower portion of the table
shows the re-estimated amount of the previously recorded reserves based on
experience as of the end of each succeeding year, including cumulative payments
made since the end of the respective year. The estimate changes as more
information becomes known about the payments, frequency and


<P align="center" style="font-size: 10pt">57
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">severity of claims for individual years. Favorable loss development,
shown as a cumulative redundancy in the table, exists when the original reserve
estimate is greater than the re-estimated reserves at December&nbsp;31, 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information with respect to the cumulative development of gross reserves
(that is, without deduction for reinsurance ceded) also appears at the bottom
portion of the table.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In evaluating the information in the table, it should be noted that each
amount entered incorporates the effects of all changes in amounts entered for
prior periods. Thus, if the 1998 estimate for a previously incurred loss was
$150,000 and the loss was reserved at $100,000 in 1994, the $50,000 deficiency
(later estimate minus original estimate) would be included in the cumulative
redundancy (deficiency)&nbsp;in each of the years 1995-1998 shown in the table. It
should further be noted that the table does not present accident or policy year
development data. In addition, conditions and trends that have affected the
development of liability in the past may not necessarily recur in the future.
Accordingly, it is not appropriate to extrapolate future redundancies or
deficiencies from the table.


<P align="center" style="font-size: 10pt">58
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>As of and for the Year Ended December&nbsp;31,<BR>
($ in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1995</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1996</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1997</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1998</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>As Originally Estimated</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">112,872</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>As Re-estimated as of December&nbsp;31, 2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,872</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Liability Re-estimated as of:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">One Year Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Two Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,881</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Three Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Four Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,762</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Five Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Six Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,273</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Seven Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Eight Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cumulative Deficiency</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>(Redundancy)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cumulative Amounts Paid as of :</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">One Year Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,147</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Two Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Three Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Four Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Five Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,857</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Six Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,844</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Seven Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Eight Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Percentage of initially estimated liability</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Liability Re-estimated as of:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">One Year Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">99</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">113</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">110</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">102</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">116</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">126</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">137</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">129</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Two Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">122</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">151</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">118</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">110</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">137</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">145</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">166</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Three Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">141</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">169</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">124</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">123</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">153</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">165</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Four Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">163</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">172</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">135</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">135</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">167</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Five Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">165</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">187</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">145</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">140</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Six Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">163</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">190</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">143</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Seven Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">164</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">188</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Eight Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">164</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cumulative Deficiency</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>(Redundancy)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">64</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">88</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">43</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">40</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">67</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">65</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">66</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">29</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Net Loss and Loss Adjustment Cumulative
Paid as
a Percentage of Initially Estimated
Liability</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cumulative Amounts Paid as of :</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">One Year Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">61</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">56</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">45</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">42</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">55</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">59</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">48</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Two Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">65</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">103</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">84</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">71</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">87</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">96</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">97</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Three Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">121</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">137</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">101</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">101</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">122</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">125</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Four Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">144</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">152</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">123</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">121</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">142</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Five Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">156</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">176</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">133</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">125</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Six Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">160</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">179</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">136</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Seven Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">163</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">183</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Eight Years Later</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">162</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table is a reconciliation of net liability to gross
liability for losses and loss adjustment expenses:


<P align="center" style="font-size: 10pt"><B>As of and for the Year Ended December&nbsp;31,<BR>
($ in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1995</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1996</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1997</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1998</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>As Originally Estimated</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net Liability shown above</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">112,872</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Add Reinsurance Recoverables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,329</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gross Liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,050</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,201</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">59
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
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    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1995</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1996</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1997</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1998</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>As Re-estimated as of December&nbsp;31, 2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net Liability Shown Above</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,872</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Add Reinsurance Recoverables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,329</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gross Liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,268</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,201</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003, 2002 and 2001, our reserve reviews indicated that reserves
established in prior years were lower than necessary, and so in those years we
strengthened $0.1&nbsp;million, $8.6&nbsp;million and $8.9&nbsp;million, respectively, of
previously established reserves for losses and loss adjustment
expenses because of higher than expected losses on private passenger
automobile, automobile physical damage and commercial automobile
liability. The incurred losses related to prior years of
$0.1&nbsp;million in 2003 included the impact of a commutation of a
reinsurance contract which was offset by favorable loss development
on prior accident year reserves. We
strengthened reserves for prior years by $0.7&nbsp;million in the first three months
of 2004. Proformance&#146;s reserves have shown a deficiency in every year since
1995.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of our focus on core business lines since our founding in
1994, we believe we have no exposure to asbestos or environmental pollution
liabilities, except for what we believe is a small amount of liability with
respect to underground storage tanks pursuant to our homeowners policies.


<P align="left" style="font-size: 10pt"><B>Reinsurance</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Third Party Reinsurance Program</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The use of reinsurance has been an important part of our business
strategy. As is customary in the industry, we reinsure with other insurance
companies a portion of our potential liability under the policies we have
underwritten, thereby protecting us against an unexpectedly large loss or a
catastrophic occurrence that could produce large losses. Reinsurance involves
an insurance company transferring (ceding)&nbsp;a portion of its exposure on
insurance underwritten by it to another insurer (reinsurer). The reinsurer
assumes a portion of the exposure in return for a share of the premium.
Reinsurance does not legally discharge an insurance company from its primary
liability for the full amount of the policies, but it does make the reinsurer
liable to the company for the reinsured portion of any loss realized.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are very selective in choosing our reinsurers, seeking only those
companies that we consider to be financially stable and adequately capitalized.
The collectibility of reinsurance is largely a function of the solvency of the
reinsurers. As of December&nbsp;31, 2003, our largest
reinsurance recoverables/receivables were
due from the following unaffiliated reinsurers, with their respective A.M. Best
rating indicated below:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="73%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Reinsurance</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3"><B>Recoverables/<BR>Receivables</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>A.M. Best<BR>Rating(1)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>($ in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Scor Re</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">B&#043;&#043;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Odyssey Re</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">A</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Berkley Insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">A</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">PMA Capital Insurance Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">B&#043;&#043;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">American Reinsurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">A&#043;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Folksamerica Re</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">A</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Ratings are as of July&nbsp;13, 2004.</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Mayfair Reinsurance Company Limited</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After September&nbsp;11, 2001, the third party reinsurance market changed
dramatically. In renewing our reinsurance program for 2002 and 2003, we faced
a market that continued to harden, with reduced availability and coverage
limits and increased prices. Due to these and other factors, we concluded that
our third party reinsurance program historically had not been maximizing our
profits or strengthening our financial position. In response, on November&nbsp;7,
2003 we formed Mayfair Reinsurance Company Limited. See &#147;Business&#151;Other
Subsidiaries&#151;Mayfair Reinsurance Company Limited.&#148;


<P align="center" style="font-size: 10pt">60
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Terrorism Risk Insurance Act of 2002</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Terrorism Risk Insurance Act of 2002, which we refer to as TRIA, was
signed into law on November&nbsp;26, 2002. The intent of this legislation is to
provide federal assistance to the insurance industry in order to meet the needs
of commercial insurance policyholders with the potential exposure for losses
due to acts of terrorism. This law requires insurers writing certain lines of
property and casualty insurance to offer coverage against certain acts of
terrorism causing damage within the United States or to United States flagged
vessels or aircraft. In return, the law requires the federal government to
indemnify such insurers for 90% of insured losses resulting from covered acts
of terrorism subject to a premium-based deductible. The law will expire
automatically at the end of 2005. Effective February&nbsp;28, 2003, we issued
policy endorsements for all commercial policyholders to comply with TRIA after
obtaining approval of the Commissioner.


<P align="left" style="font-size: 10pt"><B>Investments</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We invest according to guidelines devised by an internal investment
committee, comprised of management of Proformance and a non-employee director
of NAHC, focusing on what we believe are investments that will produce an
acceptable rate of return given the risk being assumed. Our investment
portfolio is managed by the investment officer at Proformance with oversight
from our Chief Financial Officer and the assistance of outside investment
advisors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our objectives are to seek the highest total investment return consistent
with prudent risk level by investing in a portfolio comprised of high quality
investments including common stock, convertible securities, bonds and money
market funds in accordance with the asset classifications set forth in
Proformance&#146;s Investment Policy Statement Guidelines and Objectives.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance&#146;s portfolio must be managed in accordance with New Jersey
insurance statutory requirements and guidelines which restrict our investment
options. In addition, the terms of the Ohio Casualty replacement carrier
transaction also limit us in our investment of assets through 2004 as specified
in the Investment Policy Statement Guidelines and Objectives.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Investment Policy Statement Guidelines and Objectives include the
following restrictions on investments:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No more than 5% of the portfolio can be invested in single
investment or issuer (investments that are backed by the full faith and
backing of the United States are exempt from the issuer restriction);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>With respect to investments in equity securities, such investments:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>must not exceed 25% of policyholders surplus,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>must not exceed the lower of 60% of the total portfolio
or the maximum permitted by New Jersey insurance regulations,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>must not exceed the lower of 20% of total portfolio in
convertible securities or the maximum permitted by New Jersey
insurance regulations,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>invested in any one sector/industry group of the
economy by reference to the S&#038;P 500 Index must be no more than
10% of portfolio, and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in American Depository Receipts or foreign stocks must
not exceed a maximum of 10% of portfolio;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All investments must be denominated in U.S. dollar;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">61
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All fixed income investments must be rated by the NAIC. In
addition (a)&nbsp;average maturity of fixed income portfolio may not exceed
10&nbsp;years and the weighted average credit quality of the portfolio must
be rated at least &#147;Baa&#148; by Moody&#146;s or at least &#147;BBB&#043;&#148; by Standard &#038;
Poor&#146;s Ratings Services, which we refer to as Standard &#038; Poor&#146;s, and
(b)&nbsp;the portfolio must have a target duration of 3.5&nbsp;years, but can
range between 3 and 4&nbsp;years (with the exception that the 10-15&nbsp;year
municipal bonds may have duration of 8.5&nbsp;years); and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Proformance may not make investments in (a)&nbsp;unincorporated
businesses, (b)&nbsp;private placements, (c)&nbsp;direct mortgages, (d)&nbsp;foreign
currency denominated securities, (e)&nbsp;financial guarantees, (f)
commodities, puts, calls, options, futures or any securities tied to
derivatives, (g)&nbsp;guaranteed investment contracts or (h)&nbsp;commercial
paper rated below &#147;A-1&#148; by Standard &#038; Poor&#146;s or &#147;P-1&#148; by Moody&#146;s.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table reflects the composition of our investment portfolio
at December&nbsp;31, 2001, 2002 and 2003 and March&nbsp;31, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>As of December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>As of March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of Portfolio</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of Portfolio</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of Portfolio</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>% of Portfolio</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Fixed Income Securities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">U.S. Treasury securities and
obligations of U.S. Government
agencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,669,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">39.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61,206,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">35.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">92,081,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">49.5</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Obligations of states and
political subdivisions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,139,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,004,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mortgage-backed securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,316,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,022,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,991,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,187,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Corporate and other securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,095,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,996,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,643,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,228,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total fixed income securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,761,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,468,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161,979,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Equity Securities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Preferred stocks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,308,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,467,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Common stocks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">611,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,508,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,285,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,086,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">611,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,508,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,553,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Total Investments</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,362,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">73,976,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">170,572,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">186,053,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal risks inherent in holding mortgage-backed securities and
other pass-through securities are prepayment and extension risks, which affect
the timing of when cash flows will be received. When interest rates decline,
mortgages underlying mortgage-backed securities tend to be prepaid more rapidly
than anticipated, causing early repayments. When interest rates rise, the
underlying mortgages tend to be prepaid at a slower rate than anticipated,
causing the principal repayments to be extended. Although early prepayments
may result in acceleration of income from recognition of any unamortized
discount, the proceeds typically are reinvested at a lower current yield,
resulting in a net reduction of future investment income.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table reflects our investment results for each year in the
three-year period ended December&nbsp;31, 2003 and for the three months ended March
31, 2004:


<P align="center" style="font-size: 10pt"><B>Investment Results</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Three Months<BR>Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31, 2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average invested assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,367,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,283,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,828,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">178,128,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,085,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,593,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,258,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,184,013</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net effective yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net realized capital gains (losses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">346,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(55,219</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,372,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">676,981</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Effective yield including realized
capital gains (losses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.6</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">62
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table indicates the composition of our fixed income security
portfolio (at carrying value) by rating as of March&nbsp;31, 2004:


<P align="center" style="font-size: 10pt"><B>Composition of Fixed Income Security Portfolio<BR>
by Rating</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">U.S. Government and Government Agency Fixed Income Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">92,081,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">53.4</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Aaa/Aa</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,230,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,189,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Baa</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ba</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">172,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moody&#146;s rating system utilizes nine symbols to indicate the relative
investment quality of a rated bond. &#147;Aaa&#148; rated bonds are judged to be of the
best quality and are considered to carry the smallest degree of investment
risk. &#147;Aa&#148; rated bonds are also judged to be of high quality by all standards.
Together with &#147;Aaa&#148; rated bonds, these bonds comprise what are generally known
as high grade bonds. Bonds rated &#147;A&#148; possess many favorable investment
attributes and are considered to be upper medium grade obligations. &#147;Baa&#148;
rated bonds are considered as medium grade obligations; they are neither highly
protected nor inadequately secured. Bonds rated &#147;Ba&#148; or lower (those rated
&#147;B&#148;, &#147;Caa&#148;, &#147;Ca&#148; and &#147;C&#148;) are considered to be too speculative to be of
investment quality.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Securities Valuation Office of the NAIC evaluates all public and
private bonds purchased as investments by insurance companies. The Securities
Valuation Office assigns one of six investment categories to each security it
reviews. Category 1 is the highest quality rating and Category 6 is the
lowest. Categories 1 and 2 are the equivalent of investment grade debt as
defined by rating agencies such as Standard &#038; Poor&#146;s and Moody&#146;s, while
Categories 3-6 are the equivalent of below investment grade securities.
Securities Valuation Office ratings are reviewed at least annually. At March
31, 2004, all of our fixed maturity investments were rated Category 1, the
highest rating assigned by the Securities Valuation Office.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table indicates the composition of our fixed income security
portfolio (at carrying value) by time to maturity as of March&nbsp;31, 2004.


<P align="center" style="font-size: 10pt"><B>Composition of Fixed Income Security Portfolio<BR>
by Maturity</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31, 2004</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">1&nbsp;year or less</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,022,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">23.8</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Over 1&nbsp;year through 5&nbsp;years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,310,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Over 5&nbsp;years through 10&nbsp;years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,680,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Over 10&nbsp;years through 20&nbsp;years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78,926,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Over 20&nbsp;years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">375,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Asset-backed securities(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,187,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">172,500,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<HR size="1" noshade align="left" width="15%">

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><SUP>(1)</SUP>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actual maturities of asset-backed securities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. Prepayment rates are determined
by a number of factors that cannot be predicted with certainty, including the
relative sensitivity of the underlying mortgages or other collateral to changes
in interest rates, a variety of economic, geographic and other factors, and the
repayment priority of the securities in the overall securitization structures.
</DIV>

<P align="center" style="font-size: 10pt">63
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B>Competition</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The property and casualty insurance business is highly competitive and
most established companies in the field have greater financial resources,
larger and more experienced agency organizations, and longer relationships with
agency and sales organizations and insureds than we can expect to have for a
number of years. As a result, established insurance companies have many
competitive advantages over us. We compete with both large national writers
and smaller regional companies.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our competitors include other companies which, like us, serve the
independent agency market, as well as companies which sell insurance directly
to customers. Direct writers may have certain competitive advantages over
agency writers, including increased name recognition, loyalty of the customer
base to the insurers rather than to independent agencies and, potentially,
lower cost structures. A material reduction in the amount of business
independent agents sell would adversely affect us. In the past, competition in
the New Jersey personal auto market has included significant price competition,
and there can be no assurance that these conditions will not recur. We and
others compete on the basis of product portfolio, product pricing, and the
commissions and other cash and non-cash incentives provided to agents.
Although a number of national insurers that are much larger than us do not
currently compete in a material way in the New Jersey property and casualty
market, if one or more of these companies decide to aggressively enter the
market it could have a material adverse effect on us. These companies include
some that would be able to sustain significant losses in order to acquire
market share, as well as others which use distribution methods that compete
with the independent agent channel. There can be no assurance that we will be
able to compete effectively against these companies in the future.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal competitor which serves the independent agency market and
offers a packaged personal lines property and casualty insurance product, is
Encompass Insurance (an affiliate of Allstate Insurance). Other competitors
include First Trenton and Palisades Insurance. In addition, we compete with
companies such as Chubb Insurance that also offer a packaged personal lines
property and casualty insurance product.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the Ohio Casualty replacement carrier transaction, Proformance
entered into a non-competition agreement with OCIC which prohibits Proformance
from writing any commercial lines insurance policy until December&nbsp;31, 2004
where the expiring policy was issued by Ohio Casualty Group.


<P align="left" style="font-size: 10pt"><B>Ratings</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One of the key comparisons between insurers is the relative rating by A.M.
Best Company. A.M. Best, which rates insurance companies based on factors of
concern to policyholders, currently assigns Proformance a &#147;B (Fair)&#148; rating.
Such rating is the seventh highest rating of 15 rating levels that A.M. Best
assigns to insurance companies, which currently range from &#147;A&#043;&#043; (Superior)&#148; to
&#147;D (Poor).&#148; Publications of A.M. Best indicate that the &#147;B&#148; rating is assigned
to those companies that in A.M. Best&#146;s opinion have a fair ability to meet
their current obligations to policyholders, but are financially vulnerable to
adverse changes in underwriting and economic conditions . In evaluating a
company&#146;s financial and operating performance, A.M. Best reviews the company&#146;s
profitability, leverage and liquidity, as well as its book of business, the
adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its loss reserves, the adequacy of its
surplus, its capital structure, the experience and competence of its management
and its market presence. A.M. Best&#146;s ratings reflect its opinion of an
insurance company&#146;s financial strength, operating performance and ability to
meet its obligations to policyholders and are not evaluations directed to
purchasers of an insurance company&#146;s securities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, Proformance is rated &#147;A&#148; by Demotech, Inc. Demotech provides
financial stability ratings of property and casualty insurers. In addition to
A.M. Best, Demotech is the only other authorized rating agency recognized by
federally insured lending institutions, such as mortgage companies. Mortgage
companies, as a condition to issuing a mortgage, generally require borrowers to
obtain adequate homeowners insurance. The mortgage companies often refer to
Demotech&#146;s financial stability rating prior to issuing a mortgage. We believe
the &#147;A&#148; rating assigned by Demotech is beneficial in connection with our
homeowners and other lines of business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Publications of Demotech indicate that its rating process provides an
objective baseline for assessing the solvency of an insurer. A Demotech
financial stability rating summarizes its opinion as to the


<P align="center" style="font-size: 10pt">64
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">insurer&#146;s ability to insulate itself from the business cycle that exists
in the general economy as well as the underwriting cycle that exists in the
industry.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An &#147;A&#148; rating is Demotech&#146;s third highest rating out of six possible
rating classifications for insurers with complete financial data. An &#147;A&#148;
rating is assigned to insurers that in Demotech&#146;s opinion possess exceptional
financial stability related to maintaining positive surplus as regards
policyholders, regardless of the severity of a general economic downturn or
deterioration in the insurance cycle.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our A.M. Best and our Demotech ratings are subject to change and are not
recommendations to buy, sell or hold securities. Any future decrease in our
ratings could affect our competitive position.


<P align="left" style="font-size: 10pt"><B>Properties</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are headquartered at 4 Paragon Way, Freehold, New Jersey. NAHC leases
approximately 45,000 square feet of office space for a term ending June&nbsp;1,
2009. NAHC&#146;s subsidiaries share the cost of this space under the cost sharing
agreement that they entered into with NAHC. We anticipate leasing an
additional 25,000 square feet of space at 3 Paragon Way, Freehold, New Jersey
in the third quarter of 2004.


<P align="left" style="font-size: 10pt"><B>Employees</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2004, we had 261 employees, of which 214 were employed by
Proformance, 40 were employed by Riverview, 5 were employed by NAIA and 2 were
employed by NAHC. None of our employees is represented by a labor union or is
covered by a collective bargaining agreement. We have not experienced any
labor disputes or work stoppages and we consider our employee relations to be
good.


<P align="left" style="font-size: 10pt"><B>Legal Proceedings</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proformance is party to a number of lawsuits arising in the ordinary
course of its insurance business. We believe that the ultimate resolution of
these lawsuits will not, individually or in the aggregate, have a material
adverse effect on our financial condition. Other than these lawsuits, we are
not involved in any legal proceedings.


<P align="left" style="font-size: 10pt"><B>Supervision and Regulation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>New Jersey</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the regulation of the New Jersey property and casualty
market described above, our insurance subsidiary, Proformance, is subject to
comprehensive regulation by the Department of Banking and Insurance of New
Jersey, of which the Commissioner is the senior official. The Commissioner is
appointed by the Governor, with the advice and consent of the Senate, and
serves at the pleasure of the Governor. We are subject to the authority of the
Commissioner in many areas of our business under New Jersey law. We must
comply with regulations involving:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>transactions between an insurance company and any of its affiliates;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the payment of dividends;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the acquisition of an insurance company or of any company controlling an insurance company;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>approval or filing of premium rates and policy forms;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>solvency standards;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>minimum amounts of capital and policyholders&#146; surplus which must be maintained;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limitations on types and amounts of investments;</TD>
</TR>

</TABLE>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>restrictions on the size of risks which may be insured by a single company;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limitation of the right to cancel or non-renew policies in some lines;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>regulation of the right to withdraw from markets or terminate involvement with agencies;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requirements to participate in residual markets;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>licensing of insurers and agents;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>deposits of securities for the benefit of policyholders;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reporting with respect to our financial condition including the
adequacy of our reserves and provisions for unearned premium;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>unfair trade and claim practices; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the type of accounting we must use.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, examiners from the New Jersey Department of Banking and
Insurance perform periodic financial and market conduct examinations of
insurance companies. Such regulation is generally intended for the protection
of policyholders rather than securityholders. We were most recently examined
for the 3-year period ending 2000 and a new examination is set to begin
shortly. The examiners made no material findings as a result of the 1998-2000
examination.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Insurance Holding Company Regulation</I>. Our principal operating subsidiary,
Proformance, is an insurance company, and therefore we are subject to certain
laws and regulations in New Jersey regulating insurance holding company
systems. These laws require that we file annually a registration statement
with the Commissioner that discloses the identity, financial condition, capital
structure, ownership and management of each entity within our corporate
structure and any transactions among the members of our holding company system.
In some instances, we must obtain the prior approval of the Commissioner for
material transactions between our insurance subsidiary and other members of our
holding company system. These holding company statutes also require, among
other things, prior approval of the payment of extraordinary dividends or
distributions and any acquisition of control of a domestic insurer.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Insurance Regulation&nbsp;Concerning Dividends</I>. We rely on dividends from
Proformance for our cash requirements. The insurance holding company law of
New Jersey requires notice to the Commissioner of any dividend to the
shareholders of an insurance company. Proformance may not make an
&#147;extraordinary dividend&#148; until 30&nbsp;days after the Commissioner has received
notice of the intended dividend and has not objected or has approved it in such
time. An extraordinary dividend is defined as any dividend or distribution
whose fair market value together with that of other distributions made within
the preceding 12&nbsp;months exceeds the greater of 10% of the insurer&#146;s surplus as
of the preceding December&nbsp;31, or the insurer&#146;s net income (excluding realized
capital gains) for the 12-month period ending on the preceding December&nbsp;31, in
each case determined in accordance with statutory accounting practices. Under
New Jersey law, an insurer may pay dividends that are not considered
extraordinary only from its unassigned funds, also known as its earned surplus.
The insurer&#146;s remaining surplus must be both reasonable in relation to its
outstanding liabilities and adequate to its financial needs following payment
of any dividend or distribution to shareholders. As of the date of this
prospectus, Proformance is not permitted to pay any dividends without the
approval of the Commissioner as it has negative unassigned surplus as a result
of the impact of its replacement carrier transactions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Acquisition of Control of a New Jersey Domiciled Insurance Company</I>. New
Jersey law requires prior approval by the Commissioner of any acquisition of
control of an insurance company that is domiciled in New Jersey. That law
presumes that control exists where any person, directly or indirectly, owns,
controls, holds the power to vote or holds proxies representing 10% or more of
our outstanding voting stock. Even persons who do not acquire beneficial
ownership of more than 10% of the outstanding shares of our common stock may be
deemed to


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">have acquired control if the Commission determines that control exists in
fact. Any purchaser of shares of common stock representing 10% or more of the
voting power of our capital stock will be presumed to have acquired control of
our New Jersey insurance subsidiary unless, following application by that
purchaser, the Commissioner determines that the acquisition does not constitute
a change of control or is otherwise not subject to regulatory review. These
requirements may deter, delay, or prevent transactions affecting the control of
or the ownership of our common stock, including transactions that could be
advantageous to our shareholders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Protection against Insurer Insolvency</I>. New Jersey law requires that
property and casualty insurers licensed to do business in New Jersey
participate in the New Jersey Property-Liability Insurance Guaranty
Association, which we refer to as NJPLIGA. NJPLIGA must pay any claim up to
$300,000 of a policyholder of an insolvent insurer if the claim existed prior
to the declaration of insolvency or arose within 90&nbsp;days after the declaration
of insolvency. Members of NJPLIGA are assessed the amount NJPLIGA deems
necessary to pay its obligations and its expenses in connection with handling
covered claims. Subject to certain exceptions, assessments are made in the
proportion that each member&#146;s net direct written premiums for the prior
calendar year for all property and casualty lines bear to the corresponding net
direct written premiums for NJPLIGA members for the same period. By statute,
no insurer in New Jersey may be assessed in any year an amount greater than 2%
of that insurer&#146;s net direct written premiums for the calendar year prior to
the assessment. In 2003, Proformance was assessed approximately $0.5&nbsp;million,
as our portion of the losses due to insolvencies of certain insurers. We
anticipate that there will be additional assessments from time to time relating
to insolvencies of various insurance companies. We are allowed to re-coup
these assessments from our policyholders over time until we have recovered all
such payments.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Risk-Based Capital Requirements</I>. The NAIC has adopted a formula and model
law to implement risk-based capital requirements for most property and casualty
insurance companies, which are designed to determine minimum capital
requirements and to raise the level of protection that statutory surplus
provides for policyholder obligations. The risk-based capital formula for
property and casualty insurance companies measures three major areas of risk
facing property and casualty insurers: (i)&nbsp;underwriting, which encompasses the
risk of adverse loss developments and inadequate pricing; (ii)&nbsp;declines in
asset values arising from market and/or credit risk; and (iii)&nbsp;off-balance
sheet risk arising from adverse experience from non-controlled assets,
guarantees for affiliates or other contingent liabilities and reserve and
premium growth. Under New Jersey law, insurers having less total adjusted
capital than that required by the risk-based capital calculation will be
subject to varying degrees of regulatory action, depending on the level of
capital inadequacy.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The risk-based capital law provides four levels of regulatory action. The
extent of regulatory intervention and action increases as the level of total
adjusted capital to risk-based capital falls. The first level, the company
action level as defined by the NAIC, requires an insurer to submit a plan of
corrective actions to the Commissioner if total adjusted capital falls below
200% of the risk-based capital amount. The regulatory action level as defined
by the NAIC requires an insurer to submit a plan containing corrective actions
and requires the Commissioner to perform an examination or other analysis and
issue a corrective order if total adjusted capital falls below 150% of the
risk-based capital amount. The authorized control level, as defined by the
NAIC, authorizes the Commissioner to take whatever regulatory actions he or she
considers necessary to protect the best interest of the policyholders and
creditors of the insurer and the public, which may include the actions
necessary to cause the insurer to be placed under regulatory control (<I>i.e.</I>,
rehabilitation or liquidation) if total adjusted capital falls below 100% of
the risk-based capital amount. The fourth action level is the mandatory
control level as defined by the NAIC, which requires the Commissioner to place
the insurer under regulatory control if total adjusted capital falls below 70%
of the risk-based capital amount.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The formulas have not been designed to differentiate among adequately
capitalized companies that operate with higher levels of capital. Therefore,
it is inappropriate and ineffective to use the formulas to rate or to rank
these companies. As of the date of this prospectus, Proformance had total
adjusted capital in excess of amounts requiring company or regulatory action at
any prescribed risk-based capital action level. As
described in Note&nbsp;12 to our Consolidated Financial Statements
and footnote&nbsp;7 to the Selected Historical Financial data,
subsequent to the filing of Proformance&#146;s statutory annual
statements for the year ended December&nbsp;31, 2003, management
identified certain adjustments which, if known at the time, would
have impacted the amounts as previously filed. Management has
concluded that had such adjustments been made at the time of the
filing of Proformance&#146;s statutory financial statements,
Proformance&#146;s risk-based capital levels would have continued to
be in excess of the amount that would require any corrective action
on our part. See
&#147;Business&#151;Supervision and Regulation.&#148;

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>NAIC IRIS Ratios</I>. The NAIC has developed a set of financial relationships
or &#147;tests&#148; know as the Insurance Regulatory Information System that were
designed for early identification of companies which may require special
attention or action by insurance regulatory authorities. Insurance companies
submit data annually to the NAIC which analyzes the data against defined &#147;usual
ranges.&#148; Generally, an insurance company will become


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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">subject to regulatory scrutiny if it falls outside the usual ranges of
four or more of the ratios. As of December&nbsp;31, 2003, Proformance fell outside
of the usual ranges of five ratios. However, we are not subject to regulatory
action based on our falling outside the ranges with respect to those ratios.
We believe the rapid increase in premium and surplus as a result of the
replacement carrier transactions we have entered into was the primary reason we
fell outside the usual ranges for these tests. This is further supported by
the fact that the NAIC, in the &#147;Statistical Phase&#148; portion of its information
guide, acknowledges that rapid increases in premium and surplus may result in
an insurer falling outside the usual ranges of the ratios. Management has concluded that
had the adjustments to Proformance&#146;s statutory financial
statements described in Note&nbsp;12 to our Consolidated Financial
Statements and footnote&nbsp;7 to the Selected Historical Financial
Data been made at the time of the filing of
Proformance&#146;s statutory financial statements, Proformance would
have continued to fall outside of the usual ranges of the same five
ratios. The impact of these adjustments would not have caused
Proformance to fall outside of the usual ranges for the other IRIS
ratios. There can be no
assurance that Proformance will fall within the usual ranges of those five
ratios or satisfy the other ratios in the future. In the event that
Proformance fails to satisfy a sufficient number of these ratios, it could
become subject to regulatory scrutiny which could have a negative effect on our
operations.

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Surplus and Capital Requirements. </I>The Commissioner has the discretionary
authority, in connection with the ongoing licensing of Proformance, to limit or
prohibit the ability of Proformance to issue new policies if, in the
Commissioner&#146;s judgment, Proformance is not maintaining a minimum amount of
surplus or is in hazardous financial condition. We do not believe that the
current or anticipated levels of statutory surplus of Proformance,
including the impact of the adjustments described in Note&nbsp;12 to
our Consolidated Financial Statements and footnote&nbsp;7 to the
Selected Historical Financial Data, present a
material risk that the Commissioner would limit the amount of new policies
Proformance may issue.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Regulation of Investments. </I>Proformance is subject to laws and regulations
that require diversification of its investment portfolio and limit the amount
of investments in certain asset categories, such as below investment grade
fixed income securities, equity real estate, other equity investments and
derivatives. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as non-admitted
assets for purposes of measuring surplus, and, in some instances, would require
divestiture of such non-complying investments. We believe that investments
made by Proformance comply with these laws and regulations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Bermuda</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Bermuda Restrictions on Dividend Payments</I>. Bermuda legislation imposes
limitations on the dividends that Mayfair may pay. Under the Bermuda Insurance
Act 1978, Mayfair is required to maintain a specified solvency margin and a
minimum liquidity ratio and is prohibited from declaring or paying any
dividends if doing so would cause Mayfair to fail to meet its solvency margin
and its minimum liquidity ratio. Under the Insurance Act, Mayfair is
prohibited from paying dividends of more than 25% of its total statutory
capital and surplus at the end of the previous fiscal year unless it files an
affidavit stating that the declaration of such dividends will not cause it to
fail to meet its solvency margin and minimum liquidity ratio. The Insurance
Act also prohibits Mayfair from declaring or paying dividends without the
approval of the Bermuda Monetary Authority if Mayfair fails to meet its
solvency margin and minimum liquidity ratio on the last day of the previous
fiscal year. Additionally, under the Bermuda Companies Act 1981, Mayfair may
declare or pay a dividend only if it has no reasonable grounds for believing
that it is, or would after the payment be, unable to pay its liabilities as
they become due, or that the realizable value of its assets would thereby be
less than the aggregate of its liabilities and its issued share capital and
share premium accounts.


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="111"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>MANAGEMENT</B>



<P align="left" style="font-size: 10pt"><B>Directors and Executive Officers</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below sets forth certain information concerning the directors
and executive officers of NAHC and Proformance as of the date of this
prospectus.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="32%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Age</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">James V. Gorman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">53</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board of Directors and
Chief Executive Officer of NAHC and
Proformance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">F.P. &#147;Skip&#148; Campion
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">66</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice Chairman and Director of NAHC and
Director of Proformance</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Peter A. Cappello, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">50</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of NAHC and Chief Financial
Officer of Proformance
</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Cynthia L. Codella
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">54</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Secretary and Executive Vice
President of Proformance and NAHC</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Gregory T. Doyle
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">44</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of Proformance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Andrew C. Harris
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of NAHC and Proformance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">John A. Latimer
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of Proformance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thomas M. Mulhare
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">56</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of NAHC</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Douglas G. Olson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">64</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of Proformance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Frank J. Prudente
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">37</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President&#151;Corporate Finance
and Treasurer of NAHC</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">John E. Scanlan
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">48</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President of Proformance</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Thomas J. Sharkey, Sr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of NAHC and Proformance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Steven V. Stallone
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">42</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of NAHC and Proformance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Candace L. Straight
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">56</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of Proformance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Daniel J. Taylor
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">53</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director of Proformance</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>James V. Gorman</I>: Mr.&nbsp;Gorman was elected Chairman of the board of each of NAHC
and Proformance in 1994. Since 1994, Mr.&nbsp;Gorman has served as Chief Executive
Officer of each of NAHC and Proformance. From 1987 to 1993, Mr.&nbsp;Gorman served
as President and Chief Executive Officer of Home State Insurance Company, as
well as Chairman and/or President of two affiliated insurance companies, Quaker
City Insurance Company and New York Merchant Bankers Mutual Fire Insurance
Company. From 1986 to 1987, Mr.&nbsp;Gorman served as Vice President of Marketing
for the Personal Insurance Division of the Reliance Insurance Company. From
1984 to 1985, Mr.&nbsp;Gorman was Director of the Market Development Group for
Colonial Penn Group. From 1982 to 1984, Mr.&nbsp;Gorman was Manager of Product and
Market Development for Continental Insurance Company. From 1974 to 1982, he
served in various management capacities with Kemper Insurance Companies. Mr.
Gorman has worked in the insurance industry in excess of 30&nbsp;years. Mr.&nbsp;Gorman
was awarded the Distinguished Insurance Award for 1994-1995 by the Professional
Insurance Agents of New Jersey (PIANJ).


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Frank &#147;Skip&#148; P. Campion</I>: Mr.&nbsp;Campion was elected Vice Chairman of NAHC in June
2004. From 1997 to 2004, Mr.&nbsp;Campion served as the President and Treasurer of
each of NAHC and Proformance. Since 1994, Mr.&nbsp;Campion has served as a director
of each of NAHC and Proformance. Since 1965, Mr.&nbsp;Campion has been Chief
Executive Officer of Connelly, Campion, Wright, Inc., an independent insurance
agency. From 1992 to 1993, Mr.&nbsp;Campion served as the President of the PIANJ.
In 1983, Mr.&nbsp;Campion became a director of the New Jersey Automobile Full
Insurance Underwriting Association. Mr.&nbsp;Campion has served as a director of
the Independent Insurance Agents Association, and was Trustee of the Medical
Center of Ocean County. Mr.&nbsp;Campion was awarded the Henry A. Franz Memorial
Award as &#147;Insurance Man of the Year&#148; for the State of New Jersey in 1985, and
the PIANJ Agent of the year award in 1997. Mr.&nbsp;Campion holds the Chartered
Property Casualty Underwriter professional designation.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Peter A. Cappello, Jr.</I>: Mr.&nbsp;Cappello has served as a director of NAHC since
1994. Mr.&nbsp;Cappello was elected Chief Financial Officer of Proformance in July
2002. From 2001 to 2002, Mr.&nbsp;Cappello served as a salesman for R&#038;R Marketing,
L.L.C. From 1995 to 2000, Mr.&nbsp;Cappello served as Senior Vice President, Senior
Loan Officer and


<P align="center" style="font-size: 10pt">69
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">director of First State Bank. From 1980 to 2000, Mr.&nbsp;Cappello served as a
commercial loan officer for SI Bank and Trust. He has managed independent
agent and premium finance programs for insurance agencies located throughout
New Jersey.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Cynthia L. Codella</I>: Ms.&nbsp;Codella has served as Secretary of each of NAHC and
Proformance and Executive Vice President of each of NAHC and Proformance since
January&nbsp;1999. From 1996 to 1998, Ms.&nbsp;Codella served as the Deputy Commissioner
of Insurance in the New Jersey Department of Banking and Insurance. She had
been employed in the insurance industry for 24&nbsp;years before being appointed
Deputy Commissioner. From 1991 to 1996, Ms.&nbsp;Codella served as Vice President
of Claims for the First Trenton Indemnity Company. Prior to that time, for 19
years, Ms.&nbsp;Codella served in various management capacities with the Travelers
Insurance Company, including National Director of LITFAX, (a subsidiary
providing litigation support to defendant companies in the Agent Orange
litigation) as well as District Manager of the Northeast Regional Environmental
Claim Division. From 2000 to 2001, Ms.&nbsp;Codella served as chairwoman of the
Insurance Council of New Jersey, the state&#146;s insurance trade organization. Ms.
Codella currently serves on the board of directors and executive committee for
the Insurance Council of New Jersey.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Gregory T. Doyle</I>: Mr.&nbsp;Doyle has served as a director of Proformance since
2003. Mr.&nbsp;Doyle is currently the principal consultant for a number of
reinsurance carriers. Mr.&nbsp;Doyle has nearly 20&nbsp;years of experience in the
insurance and reinsurance fields. From 2000 to 2003, Mr.&nbsp;Doyle was Executive
Vice President of Guy Carpenter &#038; Co., the reinsurance division of the Marsh &#038;
McLennan Companies. From 1985 to 2000, Mr.&nbsp;Doyle served as Executive Vice
President of the American Re Corporation in Princeton, New Jersey. Mr.&nbsp;Doyle
holds the Chartered Property Casualty Underwriter (CPCU)&nbsp;designation.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Andrew C. Harris</I>: Mr.&nbsp;Harris has served as a director of each of NAHC and
Proformance since 2002 and 2000, respectively. Since 1985, Mr.&nbsp;Harris has been
Chief Executive Officer of Liberty Insurance Associates, Inc. of Millstone
Township, New Jersey. Mr.&nbsp;Harris holds professional designations from the
Insurance Institutes of America (ARM), American Institute of Chartered Property
Casualty Underwriters (CPCU)&nbsp;and PIANJ. Mr.&nbsp;Harris is a member of the
Independent Insurance Agents of New Jersey, the CPCU Society and the PIANJ, of
which he is a former president.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>John A. Latimer</I>: Mr.&nbsp;Latimer has served as a director of Proformance since
March&nbsp;2004. Since 1991, Mr.&nbsp;Latimer has been the Vice President and General
Counsel of the Barclay Group, an Insurance and Financial Services firm of
Riverton, New Jersey. Mr.&nbsp;Latimer also has served as the President of the J.S.
Braddock Agency since 2000. Mr.&nbsp;Latimer serves as Vice President and director
of PIANJ.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Thomas M. Mulhare</I>: Mr.&nbsp;Mulhare has served as a director of NAHC since June
2004. Since April&nbsp;2003, Mr.&nbsp;Mulhare has been an officer/audit partner in
charge of the insurance industry services at Amper, Politziner &#038; Mattia, an
accounting and consulting firm in Edison, New Jersey. From May&nbsp;2002 to January
2003, Mr.&nbsp;Mulhare served as a Managing Director of Navigant Consulting. Prior
to that time, for over 30&nbsp;years, Mr.&nbsp;Mulhare was a partner at Arthur Anderson,
LLP. Mr.&nbsp;Mulhare is a CPA licensed in New Jersey.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Douglas G. Olson</I>: Dr.&nbsp;Olson has served as a director of Proformance since
1998. Since 2000, Dr.&nbsp;Olson has served as the President of Olson and
Associates, LLC, a consulting firm based in Philadelphia, PA. Dr.&nbsp;Olson served
as Managing Director of the Providence Washington Insurance Group from 1989 to
1993 and as a partner at Snyder &#038; Co. <B>, </B>an investment banking company, from
1993 to 2000. From 1969 to 1985, Dr.&nbsp;Olson was a professor of management at
the Wharton School.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Frank J. Prudente</I>: Mr.&nbsp;Prudente has served as Treasurer of NAHC since June of
2004, and Executive Vice President-Corporate Finance of NAHC since April&nbsp;2003.
From June&nbsp;2002 to April&nbsp;2003, Mr.&nbsp;Prudente served as Executive Vice President
and Chief Financial Officer of Gulf Insurance Group, a specialty insurer based
in New York City. From December&nbsp;1993 to May&nbsp;2002, Mr.&nbsp;Prudente, a CPA licensed
in New York and New Jersey was a manager and a partner at Arthur Andersen LLP. Previously,
Mr.&nbsp;Prudente was an auditor with Talagen Corporation from October&nbsp;1991 to
December&nbsp;1993 and Deloitte &#038; Touche LLP from September&nbsp;1989 to October&nbsp;1991.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>John E. Scanlan</I>: Mr.&nbsp;Scanlan has served as Senior Vice President of
Proformance since September&nbsp;1999. He has over 17&nbsp;years of industry experience
in underwriting, marketing and administration. Prior to 1999, for 12&nbsp;years,
Mr.


<P align="center" style="font-size: 10pt">70
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Scanlan served in a variety of front-line and managerial positions with General
Accident Insurance Company. Mr.&nbsp;Scanlan holds the CPCU designation.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Thomas J. Sharkey, Sr.</I>: Mr.&nbsp;Sharkey has served as a director of each of NAHC
and Proformance since 2003 and 2001, respectively. Since 2000, Mr.&nbsp;Sharkey has
served as the Chairman of Fleet Insurance Services, a full service brokerage
based in Summit, New Jersey. From 1990 to 2000, Mr.&nbsp;Sharkey was a principal of
Meeker, Sharkey Financial Services. Mr.&nbsp;Sharkey holds the Chartered Life
Underwriter (CLU)&nbsp;designation.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Steven V. Stallone</I>: Mr.&nbsp;Stallone has served as a director of each of NAHC and
Proformance since 1994. Since 1993, Mr.&nbsp;Stallone has served as Vice President
in the private client group for the Bank/Trust Market for Blackrock Capital
Management Corporation, an Investment Management firm. From 1988 to 1993, Mr.
Stallone was Assistant Vice President and Manager of Conestoga Mutual Funds for
Meridian Bancorp. From 1987 to 1988, he was the Treasurer&#146;s Compliance
Coordinator for the Chubb Corporation. Mr.&nbsp;Stallone holds Series&nbsp;7 and 63
Securities Licenses.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Candace L. Straight</I>: Ms.&nbsp;Straight has served as a director of Proformance
since March&nbsp;2004. Since 1997, Ms.&nbsp;Straight has served as a self-employed
investment banking consultant specializing in the insurance industry. From
1987 to 1996, Ms.&nbsp;Straight serves as a principal of Head Company, a merchant
banking firm specializing in the insurance industry, in New York, New York.
Ms.&nbsp;Straight currently serves as a director of Neuberger and Berman Mutual
Funds, Summit Global Partners as well as Providence Washington Insurance
Company.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Daniel J. Taylor</I>: Mr.&nbsp;Taylor has served as a director of Proformance since
1996. Since 1974, Mr.&nbsp;Taylor has served as the Senior Vice President of the
Anderson Insurance Agency of Manahawkin and Beach Haven, New Jersey. Mr.
Taylor is a member of the PIANJ as well as the Independent Insurance Agents.
Mr.&nbsp;Taylor holds the Certified Insurance Counselor professional designation.
Mr.&nbsp;Taylor currently serves as the Director of the South Ocean County Chamber
of Commerce. Prior to joining the Proformance board, Mr.&nbsp;Taylor served as the
chairman of the peer review committee for Proformance.


<P align="left" style="font-size: 10pt"><B>Family Relationships</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;James V. Gorman and Steven V. Stallone are cousins.


<P align="left" style="font-size: 10pt"><B>Board of Directors</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NAHC&#146;s has seven members on its board of directors. The directors are
divided into three classes and serve for staggered three year terms. Our
initial Class&nbsp;I directors, whose term expires in 2005, are Mr.&nbsp;Stallone and Mr.
Sharkey, Sr. Our initial Class&nbsp;II directors, whose term expires in 2006, are
Mr.&nbsp;Cappello and Mr.&nbsp;Harris. Our Initial Class&nbsp;III directors, whose term
expires in 2007, are Mr.&nbsp;Gorman, Mr.&nbsp;Campion and Mr.&nbsp;Mulhare.


<P align="left" style="font-size: 10pt"><B>Board Committees</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon completion of this offering, NAHC&#146;s board of directors will appoint
an audit committee, a compensation committee and a nominating and corporate
governance committee, all of which will consist of independent directors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Audit Committee</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The audit committee will oversee NAHC&#146;s corporate accounting and financial
reporting process. The audit committee will evaluate the independent auditors
qualifications, independence and performance; determine the engagement of the
independent auditors; approve the retention of the independent auditors to
perform any proposed permissible non-audit services; monitor the rotation of
partners of the independent auditors on the engagement team as required by law;
review NAHC&#146;s financial statements; review NAHC&#146;s critical accounting policies
and estimates; and discuss with management and the independent auditors the
results of the annual audit and the review of NAHC&#146;s quarterly financial
statements. The audit committee will include a member of the board of
directors that qualifies as a financial expert under the Securities and
Exchange Commission rules implementing Section&nbsp;407 of the


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Sarbanes-Oxley Act of 2002. NAHC intends for the composition of its audit
committee to meet the requirements for independence under the current
requirements of the Sarbanes-Oxley Act of 2002, the Nasdaq National Market and
Securities and Exchange Commission rules and regulations. NAHC believes that
the functioning of its audit committee will comply with the applicable
requirements of the Sarbanes-Oxley Act of 2002, the Nasdaq National Market and
SEC rules and regulations. NAHC intends to comply with future requirements to
the extent they become applicable to NAHC.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Compensation Committee</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NAHC&#146;s compensation committee will make recommendations to the board of
directors concerning salaries and incentive compensation for its officers and
employees and administer its employee benefit plans.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Compensation Committee Interlocks and Insider Participation</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The compensation levels of our executive officers are currently determined
by Mr.&nbsp;Gorman and Mr.&nbsp;Harris. Upon completion of this offering, our board of
directors will appoint a compensation committee as described above. None of
our executive officers has served as a director or member of the compensation
committee, or other committee serving an equivalent function, of any entity of
which an executive officer has served as a member of our board of directors or
is expected to serve as a member of our compensation committee.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Nominating and Corporate Governance Committee</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NAHC&#146;s nominating and corporate governance committee will identify
individuals qualified to become members of the board of directors and recommend
such persons to be nominated to the board for election as directors at the
annual meeting of shareholders. The nominating and corporate governance
committee will also be responsible for reviewing with the board the requisite
skills and criteria for new board members as well as the composition of the
board as a whole. The nominating and corporate governance committee will
review the qualifications and backgrounds of all directors and nominees
(without regard to whether a nominee has been recommended by shareholders), as
well as the overall composition of the board, and recommend a slate of
directors to be nominated for election at the annual meeting of shareholders,
or, in the case of a vacancy on the board, recommend a director to be elected
by the board to fill such vacancy.


<P align="left" style="font-size: 10pt"><B>Director Compensation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our employee and non-employee directors each receives $500 for each board
meeting and each committee meeting attended. Following this offering, each
director who is also our employee will not receive any compensation for serving
as a director, and each director who is not our employee will receive an annual
retainer to be determined by the board. We will reimburse our non-employee
directors for reasonable travel expenses incurred in connection with their
services as directors.


<P align="left" style="font-size: 10pt"><B>Management Compensation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Executive Compensation</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information with respect to compensation
earned by NAHC&#146;s and Proformance&#146;s named executive officers for the fiscal year
ended December&nbsp;31, 2003.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>Summary Compensation Table</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Annual Compensation</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Long Term Compensation<BR>Awards</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>All Other</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Principal Position</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Salary</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Bonus</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares Underlying Options</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation(1)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">James V. Gorman<BR>
Chairman of the Board of Directors
and Chief Executive Officer of NAHC
and Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">274,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,876</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cynthia L. Codella<BR>
Secretary and Executive Vice
President of <BR>Proformance and NAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">204,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">90,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,865</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Frank J. Prudente<BR>
Executive Vice President&#151;Corporate
Finance and Treasurer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">237,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">70,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Peter A. Cappello, Jr<BR>
Director of NAHC and Chief
Financial Officer of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">173,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,988</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">John E. Scanlan<BR>
Senior Vice President of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">175,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,860</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Represents discretionary matching contributions made by us to the
accounts of each of the named executive officers under our 401(k) plan.</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the options to purchase shares of our
common stock granted to each of the named executive officers listed in the
Summary Compensation Table during the year ended December&nbsp;31, 2003.


<P align="center" style="font-size: 10pt"><B>Option Grants in Last Fiscal Year</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="36%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>Individual Grants</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total Options</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Potential Realizable Value at</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Granted to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>($ per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Assumed Annual Rates of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options Granted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Employees in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock Price Appreciation For</B></TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Principal Position</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(#)(1)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Share)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expiration Date</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Option Term($)(2)</B><HR size="1" noshade></TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>0%</B><HR size="1" noshade></TD>
    <TD nowrap align="center"><B>5%</B><HR size="1" noshade></TD>
    <TD nowrap align="center"><B>10%</B><HR size="1" noshade></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Frank J. Prudente<BR>
Executive Vice
President-Corporate
Finance and Treasurer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">263.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap>April 14, 2014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>

<P>
<HR size="1" width="18%" align="left" noshade>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the applicable option grant agreement, these options are
subject to a three-year, cliff-vesting schedule and are scheduled to become
fully vested on April&nbsp;14, 2007. However, these options are also subject to
accelerated vesting under specified circumstances, and upon completion of this
offering, such options will become fully vested and immediately exercisable
without regard to the vesting schedule described in the preceding sentence. In
addition, Mr.&nbsp;Prudente has entered into a transfer restriction agreement with
us imposing certain transfer limitations with respect to shares of our common
stock issued upon the exercise of these options. This transfer restriction
agreement will be terminated upon the completion of this offering.
</DIV>

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Potential
realizable values are computed by (i)&nbsp;multiplying the number of
shares of our common stock underlying the options granted by an
assumed initial offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; per share (the
midpoint of the range set forth on the cover of this prospectus),
(ii)&nbsp;assuming that the aggregate stock value derived from that
calculation compounds at an annual rate of 0%, 5% and 10% over the
life of the respective options and (iii)&nbsp;subtracting from that
result the aggregate option exercise price. The 5% and 10% assumed
annual rates of stock price appreciation are mandated by the SEC and
do not represent our estimate or projection of future prices of our
common stock.


<P align="center" style="font-size: 10pt">73
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">valuations were calculated is consistent with the requirements of Statement of
Financial Accounting Standards No.&nbsp;123, <I>Accounting for Stock-Based
Compensation</I>.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the number and value of shares or our
common stock underlying unexercised options held by each of our named executive
officers listed in the Summary Compensation Table as of December&nbsp;31, 2003.


<P align="center" style="font-size: 10pt"><B>Aggregated Option Exercises and Fiscal Year-End Options</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Number of Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Shares Underlying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Unexercised Options at</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Value of Unexercised</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>the End of 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>In-The-Money Options</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Acquired On<BR>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(#)(1)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>at the End of 2003(2)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Principal Position</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(#)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Realized ($)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercisable</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unexercisable</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercisable</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unexercisable</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">James V. Gorman</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Chairman of the Board</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">of Directors and Chief</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Executive Officer of</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">NAHC and Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cynthia L. Codella</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Secretary and Executive</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:0px">Vice President of<BR>
Proformance and NAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Frank J. Prudente</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:0px">Executive Vice
President&#151;<BR>Corporate
Finance and <BR>Treasurer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Peter A. Cappello, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Director of NAHC and</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Chief Financial Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">John E. Scanlan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:0px">Senior Vice President
of<BR> Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>

<P>
<HR size="1" width="18%" align="left" noshade>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The options reflected in this table are subject to accelerated vesting
under specified circumstances and upon completion of this offering such options
will become fully vested and immediately exercisable.
</DIV>

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The value of in-the-money options at December&nbsp;31, 2003 represents the
difference between the exercise price of such options and the fair value of our
common stock as of December&nbsp;31, 2003. There was no public trading market for
our common stock at December&nbsp;31, 2003. Accordingly, these values have been
calculated based on an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share, the midpoint of the price range set forth on the cover page of this
prospectus, less the per share exercise price, multiplied by the number of
shares underlying the options. The actual value of in-the-money options will
depend upon the trading price of our common stock on the date of sale of the
underlying common stock and may be higher or lower than the amount set forth in
the table above.


<P align="left" style="font-size: 10pt"><B>Employment-Related Agreements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to enter into employment agreements with each of Messrs.&nbsp;Gorman,
Cappello, Prudente and Scanlan and Ms.&nbsp;Codella. The initial term of the
agreements will be three years, with automatic one-year extensions beginning on the
first anniversary of the agreements and each successive anniversary thereafter.
The automatic extension of the agreements may be terminated with at least 90
days&#146; prior written notice from the executive or us.


<P align="center" style="font-size: 10pt">74
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Under the agreements, Messrs.&nbsp;Gorman, Cappello, Prudente and Scanlan and
Ms.&nbsp;Codella will be entitled to receive annual base salaries of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; , $
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and $ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, respectively, subject to annual
review and increase by our board of directors in its sole discretion. The
agreements will provide for an annual bonus to be paid to the executives in an
amount to be determined from year to year by our board of directors in its sole
discretion. Each executive will be entitled to participate in our employee and
fringe benefit plans and each executive will also be entitled to receive
periodic equity awards as determined by our board of directors in its sole
discretion.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the agreements, we may terminate the employment of the executive at
any time and for any reason by providing the executive 30&nbsp;days&#146; prior written
notice. The employment of each executive will also be automatically terminated
upon the death or permanent &#147;Disability&#148; (as defined in the agreements) of the
executive. Upon termination of the executive by us without &#147;Cause&#148; or by the
executive for &#147;Good Reason&#148; (each as defined in the agreements), the executive
will be entitled to receive his or her base salary and a continuation of health
care coverage, subject to reduction or elimination upon the executive&#146;s
attainment of subsequent employment, for a period of two years following the
executive&#146;s termination of employment, provided that an executive with an
employment agreement who has stock options to purchase fewer than 500 shares of
our common stock will be entitled to such benefits for the then-remaining term
of his employment agreement if such period is greater than two years.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of a termination of the executive&#146;s employment by us without
&#147;Cause&#148; or by the executive for &#147;Good Reason&#148; following a &#147;Change in Control&#148;
(each as defined in the agreements) of the Company, the executive will be
entitled to: (a)&nbsp;a lump-sum cash payment equal to three times the sum of (i)
the executive&#146;s then-current base salary plus (ii)&nbsp;the executive&#146;s average
annual bonus for the three years preceding the date of termination; (b)&nbsp;a
continuation of health care coverage for a period of two years following the
date of termination, subject to reduction or elimination upon the executive&#146;s
attainment of subsequent employment; and (c)&nbsp;full vesting of all restricted
stock, stock option and share unit awards. To the extent that the severance
payments and benefits payable under the agreements would cause an executive to
be liable for excise taxes by reason of Section&nbsp;280G of the Internal Revenue
Code, the executive will be entitled to additional &#147;gross up&#148; payments to
indemnify for the effect of the excise taxes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The agreements contain non-competition covenants that prohibit the
executives from competing against us in all states in which we conduct business
during the period of employment and for a period of two years following
termination of employment with respect to all property-casualty insurance lines

in which we are involved at the time of termination. The agreements also
contain non-solicitation provisions that prohibit the executives from actively
soliciting our employees, customers or suppliers during the period of
employment and for a period of two years following termination of employment.
The executives are also subject to confidentiality restrictions that protect
our proprietary information, developments and other intellectual property.


<P align="left" style="font-size: 10pt"><B>Indemnity Agreements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into indemnification agreements with each of our directors
and executive officers which provide for indemnification against judgments,
fines, amounts paid in settlement and other liabilities and expenses, to the
fullest extent permitted by law. The indemnification is available, provided
that such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to our best interest, and with respect to any
criminal proceeding, if such person had no reasonable cause to believe such
conduct was unlawful.


<P align="left" style="font-size: 10pt"><B>2004 Stock and Incentive Plan</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has adopted our 2004 Stock and Incentive Plan for
the purpose of providing a vehicle for compensating our key personnel by giving
them the opportunity to acquire a proprietary interest in our common stock by
receiving equity-based incentive compensation. The plan is an &#147;omnibus&#148; stock
incentive plan that provides for the grant of stock options, stock appreciation
rights, restricted stock, stock units and other equity-based incentive awards.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Reservation of Shares</I></B><I>. </I>The maximum number of shares of our common stock
that may be subject to awards under the plan is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares. Shares of
our common stock issued and sold under the plan may be either authorized but
unissued shares or shares held in our treasury. To the extent that any award
payable in shares of our common stock is forfeited, cancelled, returned to us
for failure to satisfy vesting requirements or upon the


<P align="center" style="font-size: 10pt">75
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">occurrence of other forfeiture events, or otherwise terminates without
payment being made thereunder, the shares of our common stock covered thereby
will no longer be charged against the foregoing maximum share limitations and
may again be made subject to awards under the plan. In addition, any shares of
our common stock exchanged by a participant or withheld from a participant as
full or partial payment to us of the exercise price or the tax withholding upon
exercise or payment of an award will be returned to the number of shares of
common stock available for issuance under the plan. Any awards settled in cash
will not be counted against the share limitations under the plan. In the event
of recapitalizations, reclassifications or other specified events affecting us
or shares of our common stock, appropriate and equitable adjustments may be
made to the number and kind of shares of our common stock available for grant,
as well as to other maximum limitations under the plan, and the number and kind
of shares of our common stock or other rights and prices under outstanding
awards.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Administration</I></B><I>. </I>The plan is administered by the compensation committee of
our board of directors. Our compensation committee will, to the extent deemed
necessary or advisable by our board of directors, be constituted so each
committee member will satisfy the requirements for (i)&nbsp;an &#147;independent
director&#148; under rules adopted by the Nasdaq Stock Market, (ii)&nbsp;a &#147;non-employee
director&#148; for purposes of Rule&nbsp;16b-3 under the Securities Exchange Act of 1934
and (iii)&nbsp;an &#147;outside director&#148; under Section 162(m) of the Code. Subject to
the limitations set forth in the plan, the compensation committee has the
authority to determine the persons to whom awards are granted, the types of
awards to be granted, the time at which awards will be granted, the number of
shares of our common stock, units or other rights subject to each award, the
exercise, base or purchase price of an award, the time or times at which the
award will become vested, exercisable or payable, the performance criteria,
performance goals and other conditions of an award, and the duration of the
award. The compensation committee will have the right, from time to time, to
delegate to one or more of our executive officers the authority of the
compensation committee to grant and determine the terms and conditions of
awards, subject to certain limitations. Any awards under the plan made to
non-employee members of our board of directors must be approved by the full
board of directors.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Eligibility</I></B><I>. </I>Awards under the plan may be granted to any of our or our
subsidiaries&#146; current or prospective employees, officers, directors,
consultants or insurance agents. Recipients of awards will be selected from
time to time by the compensation committee in its sole discretion.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Stock Options</I></B><I>. </I>Stock options granted under the plan may be issued as
either incentive stock options (within the meaning of Section&nbsp;422 of the Code),
or as non-qualified options. The exercise price of an option will be
determined by the compensation committee, provided that the exercise price per
share will not be less than the fair market value of a share of our common
stock on the date of the grant of the option. The compensation committee will
determine the vesting and/or exercisability requirements and the term of
exercise of each option, including the effect of termination of employment or
service of a participant. The maximum term of a stock option will be ten years
from the date of grant. The maximum number of shares of our common stock that
may be covered under options granted under the plan to any participant in any
calendar year is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock. The plan prohibits
&#147;repricing&#148; or the cancellation, substitution or amendment of an option for the
purpose of reducing the exercise price of a previously granted option, except
for equitable adjustments for changes in our corporate structure, as described
above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Stock Appreciation Rights</I></B><I>. </I>A stock appreciation right may be granted
either in tandem with an option or without a related option. A stock
appreciation right entitles the participant, upon exercise, to receive a
payment based on the excess of the fair market value of a share of our common
stock on the date of exercise over the base price of the right, multiplied by
the number of shares of our common stock as to which the right is being
exercised. The base price may not be less than the fair market value of a
share of our common stock on the date of grant. The compensation committee
will determine the vesting requirements and the term of exercise of each stock
appreciation right, including the effect of termination of employment or
service of a participant. The maximum term of a stock appreciation right will
be ten years from the date of grant. The maximum number of shares of our
common stock that may be subject to stock appreciation rights granted under the
plan to any participant during any calendar year is shares of our
common stock. Stock appreciation rights may be payable in cash or in shares of
our common stock or in a combination of both. The plan prohibits the
&#147;repricing&#148; of stock appreciation rights, as described above for stock options.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Restricted Stock Awards</I></B>. A restricted stock award represents shares of
our common stock that are issued subject to restrictions on transfer and
vesting requirements as determined by the compensation committee. Vesting


<P align="center" style="font-size: 10pt">76
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">requirements may be based on the continued employment of the participant
for specified time periods and on the attainment of specified business
performance goals established by the compensation committee. Subject to the
transfer restrictions and vesting requirements of the award, the participant
will have the same rights as one of our shareholders, including all voting and
dividend rights, during the restriction period, unless the compensation
committee determines otherwise at the time of the grant. The maximum number of
shares of our common stock that may be subject to restricted stock awards
granted under the plan to any participant during any calendar year is
shares of our common stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Stock Units</I></B><I>. </I>An award of stock units provides the participant the right
to receive a payment based on the value of a share of our common stock. Stock
units may be subject to vesting requirements, restrictions and conditions to
payment as the compensation committee determines are appropriate. Vesting
requirements may be based on the continued employment of the participant for a
specified time period or on the attainment of specified business performance
goals established by the compensation committee. A stock unit award may also
be granted on a fully vested basis, with a deferred payment date. Stock unit
awards are payable in cash or in shares of our common stock or in a combination
of both. Stock units may also be granted together with related dividend
equivalent rights. The maximum number of shares of our common stock that may
be subject to stock units granted under the plan to any participant during any
calendar year is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Stock Awards</I></B><I>. </I>A stock award represents shares of our common stock that
are issued free of restrictions on transfer and free of forfeiture conditions
and to which the participant is entitled all incidents of ownership. A stock
award may be granted for past services, in lieu of bonus or other cash
compensation, directors&#146; fees or for any other valid purpose as determined by
the compensation committee. The maximum number of shares of our common stock
that may be subject to stock awards granted under the plan to any participant
during any calendar year is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Section&nbsp;</I></B><B><I>162(m)</I></B><B><I> Awards</I></B><I>. </I>Awards of options and stock appreciation rights
granted under the plan are intended by their terms to qualify for the
performance-based compensation exception under Section 162(m) of the Code. In
addition, the compensation committee may grant awards of restricted stock,
stock units or stock awards that are intended to qualify for the
performance-based compensation exception under Section 162(m) of the Code.
Under Section&nbsp;162(m), the terms of the award must state, in terms of an
objective formula or standard, the method of computing the amount of
compensation payable under the award, and must preclude discretion to increase
the amount of compensation payable under the terms of the award (but may give
the compensation committee discretion to decrease the amount of compensation
payable). For each such award, the performance criteria upon which the payment
or vesting may be based will be limited to one or more of the following
performance measures, which may be applied with respect to us, any of our
subsidiaries or any of our business units: &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. The foregoing
performance criteria will have any reasonable definitions that the compensation
committee may specify, which may include or exclude any items specified by the
compensation committee, including but not limited to any or all of the
following items: discontinued operations, extraordinary, unusual or
non-recurring items, effects of accounting changes, effects of currency or
interest rate fluctuations, effects of financing activities, changes in tax
rates, expenses for restructuring or productivity initiatives, litigation
losses, non-operating items, effects of acquisitions or divestitures and
changes of law or regulation affecting our business. The foregoing performance
measures may be determined on an absolute basis or relative to internal goals
or relative to levels attained in prior years, or related to other companies or
indices, or as ratios expressing relationships between two or more performance
measures.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Effect of Change In Control</I></B><I>. </I>The compensation committee may, in an award
agreement, provide for the effect of a &#147;change in control&#148; (as defined in the
plan) on an award. These provisions may include the acceleration of vesting of
an award, the elimination or modification of performance or other conditions,
the extension of the time for exercise or realizing gain from an award, the
acceleration of payment, cash settlement of an award or other adjustments that
the compensation committee considers appropriate. Unless otherwise provided by
the compensation committee and set forth in the applicable award agreement,
upon a change in control, (i)&nbsp;each outstanding option and stock appreciation
right, to the extent that it has not otherwise become vested and exercisable,
will automatically become fully and immediately vested and exercisable, without
regard to any otherwise applicable vesting requirement, (ii)&nbsp;each restricted
stock award will become fully and immediately vested and all forfeiture and
transfer restrictions thereon will lapse, and (iii)&nbsp;each outstanding stock unit
award and stock award will become immediately and fully vested and payable.



<P align="center" style="font-size: 10pt">77
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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Term; Amendment and Termination</I></B><I>. </I>The plan will become effective upon the
effective date of our initial public offering and will have a term of ten years
from the date of adoption by our board of directors. Our board of directors
may terminate or amend the plan at any time, subject to shareholder approval
under certain circumstances. No termination or amendment of the plan will
adversely affect the rights of a participant under any previously granted
award.


<P align="left" style="font-size: 10pt"><B>Annual Bonus Plan</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has adopted an annual bonus plan to promote our
interests by motivating superior performance by our executive officers and
other key employees with annual bonus opportunities based upon corporate and
individual performance. The compensation committee has the authority to
administer the plan, to determine the criteria for the payment of bonuses under
the plan and to approve the amounts of all bonus payments to executive
officers. All of our executive officers, as designated by the compensation
committee, and certain other of our select employees, as designated by our
Chief Executive Officer, are eligible to participate in the plan. Participants
will generally receive their bonuses in the form of a lump sum cash payment,
but the compensation committee may provide that a participant receive a portion
of the annual bonus in stock units or other equity-based compensation. In the
event of a participant&#146;s termination of employment for any reason prior to the
payment of annual bonuses for the year, the participant will forfeit any
entitlement to a bonus, unless otherwise provided by the compensation
committee. The compensation committee may provide for pro-rata or other bonus
payments to be made in the event of death, disability or under other
circumstances. In the event of a &#147;Change in Control&#148; (as defined in the plan),
each participant will receive a prorated award based on the period of service
and applicable performance through the date of the Change in Control. The plan
will become effective for the 2005 fiscal year and will have an indefinite
term. Our board of directors has the authority to amend, suspend or terminate
the plan at any time.


<P align="left" style="font-size: 10pt"><B>401(k) Plan</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have established and maintained a retirement savings plan under Section
401(k) of the Internal Revenue Code of 1986, as amended, which we refer to as
the Code, to cover our eligible employees. The Code allows eligible employees
to defer a portion of their compensation, within prescribed limits, on a tax
deferred basis through contributions to the 401(k) plan. Our 401(k) plan is
intended to constitute a qualified plan under Section 401(a) of the Code and
its associated trust is intended to be exempt from federal income taxation
under Section 501(a) of the Code. Our 401(k) plan permits us to make
discretionary matching contributions on behalf of eligible employees and we
provide a company match to employee contributions up to a maximum of 4% of the
employee&#146;s salary. Our discretionary contributions vest immediately. Our
discretionary matching contributions to the 401(k) plan totaled
$67,318 in
2001, $127,730 in 2002 and $149,760 in 2003.


<P align="left" style="font-size: 10pt"><B>Other Employee Benefits Plans</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also established and provide all eligible employees with several
other health and welfare plans, including: medical and vision benefits,
long-term disability insurance and life insurance.


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</DIV>

<P align="center" style="font-size: 10pt"><B>CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We describe below the material transactions we have entered into with
parties that are related to our company. The following summary of the Share
Repurchase Agreement with James V. Gorman, the Investor Rights Agreement and
the Metropolitan Property and Casualty Share Repurchase Agreement is qualified
in its entirety by the provisions of such agreements and does not purport to
describe all of the terms of such agreements.


<P align="left" style="font-size: 10pt"><B>Share Repurchase Agreement with James V. Gorman</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NAHC has entered into a share repurchase agreement with James V. Gorman,
Chairman and Chief Executive Officer of NAHC and Proformance. Pursuant to the
terms of Mr.&nbsp;Gorman&#146;s share repurchase agreement, he may sell up to an
aggregate of 10,000 of his shares of common stock of NAHC solely to licensed
New Jersey insurance agents determined by Proformance&#146;s Peer Review Committee
and the board of directors of NAHC to be acceptable agents for Proformance in
their reasonable discretions, in private transactions to be negotiated between
Mr.&nbsp;Gorman and the prospective new agents. Mr.&nbsp;Gorman may not sell more than
1,000 shares to any new agent. Mr.&nbsp;Gorman may not sell any shares beyond the
10,000 shares described above to any third party without offering such shares
first to NAHC. Mr.&nbsp;Gorman has informed us that he has no present intention to
exercise the foregoing rights.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If NAHC desires to issue common shares to a prospective agent, pursuant to
the share repurchase agreement, Mr.&nbsp;Gorman shall have the first option to sell
up to 1,000 shares to such agent. If Mr.&nbsp;Gorman declines to sell shares to the
agent, NAHC shall be free for a period of six months to issue up to 1,000
shares to such agent. Mr.&nbsp;Gorman has informed us that he has no present
intention to exercise the foregoing rights.


<P align="left" style="font-size: 10pt"><B>Investor Rights Agreement</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;James V. Gorman, NAHC and OCIC entered into an Investor Rights Agreement,
dated as of December&nbsp;18, 2001, in connection with the Ohio Casualty replacement
carrier transaction. See &#147;Business&#151;Recent Transactions&#151;Ohio Casualty
Replacement Carrier Transaction.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Investor Rights Agreement, OCIC, Mr.&nbsp;Gorman and NAHC have
certain rights with respect to the shares of NAHC, including:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Preemptive Right</I>: If NAHC issues any equity securities, OCIC has a
right of first offer in proportion to OCIC&#146;s then current ownership
interest in NAHC. NAHC may, however, issue securities free of OCIC&#146;s
preemptive right, in certain circumstances, including shares of common
stock issued by NAHC in certain qualified public offerings, such as
this offering.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>First Offer Right</I>: If OCIC desires to transfer its equity
securities, NAHC and Mr.&nbsp;Gorman have a right of first offer to purchase
all, but not less than all such shares, with NAHC having priority over
Mr.&nbsp;Gorman to purchase all such shares. Any transferee of
OCIC&#146;s shares must agree to become a party to and be bound by the terms of the
Investor Rights Agreement. Pursuant to the terms of the Investor
Rights Agreement, the foregoing restriction does not apply to the shares of our common stock acquired in this offering.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Right of Co-Sale</I>: So long as Mr.&nbsp;Gorman owns at least 10% of the
common stock of NAHC on a fully diluted basis, OCIC shall have the
right to sell its allocable share of equity securities in any sale by
Mr.&nbsp;Gorman of equity securities. Certain transfers may be made by Mr.
Gorman free from the restrictions set forth above, including any
transfer of common stock by Mr.&nbsp;Gorman in connection with this
offering. Mr.&nbsp;Gorman is not selling or otherwise transferring
any shares of common stock of NAHC in connection with this offering.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Registration Rights </I>- NAHC may not grant any shareholder or
proposed shareholder registration rights, unless the same rights are
afforded to OCIC with respect to its shares of NAHC.
</TD>
</TR>
</TABLE>

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</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, pursuant to the Investor Rights Agreement, OCIC had a right
to require NAHC to redeem all equity securities of NAHC owned by OCIC for fair
market value at any time (i)&nbsp;on or after December&nbsp;18, 2006 or (ii)&nbsp;prior to
December&nbsp;18, 2006 if NAHC delivers notice to OCIC that NAHC is engaging in
certain transactions, including, but not limited to, a public offering of
equity securities of NAHC, such as this offering. As more fully described
under &#147;Business&#151;Recent Transactions&#151;Ohio Casualty Replacement Carrier
Transaction,&#148; on July&nbsp;10, 2004, we entered into an agreement with OCNJ and OCIC
pursuant to which, among other things, OCIC agreed to waive any
rights it has, had or may have under the Investor Rights Agreement. As part of the agreement with OCNJ
and OCIC, subject to certain exceptions, we have granted OCIC the right, on
three occasions following the expiration of the 180-day lock-up period in the
lock-up agreement OCIC entered into in connection with this offering, to demand
that we file a registration statement with respect to the resale by OCIC of any
shares of NAHC common stock owned by OCIC which are not sold as part of this
offering.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NAHC is also prohibited from taking certain actions with respect to its
common stock without extending such benefits to all classes of common stock,
such as subdividing, combining, paying dividends or providing any other benefit
for preference to any shares.


<P align="left" style="font-size: 10pt"><B>Ohio Casualty Non-Competition Agreement</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also as part of the Ohio Casualty replacement carrier transaction,
Proformance entered into a non-competition agreement with OCIC which prohibits
Proformance from writing any commercial lines insurance policy until December
31, 2004 where the expiring policy was issued by Ohio Casualty Group.


<P align="left" style="font-size: 10pt"><B>Metropolitan Property and Casualty Share Repurchase Agreement.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the replacement carrier transaction between Met P&#038;C and
NAHC entered into a share repurchase agreement, dated as of December&nbsp;8, 2003.
Under the share repurchase agreement, Met P&#038;C may not transfer shares for a
period of two years from the date of the share repurchase agreement without
NAHC&#146;s prior written consent, which consent may be withheld in NAHC&#146;s sole
discretion. If subsequent to the two-year holding period and prior to an
initial public offering of NAHC&#146;s common stock, Met P&#038;C desires to transfer
shares to a third party, NAHC has the right to purchase all such shares from
Met P&#038;C at the price and pursuant to the terms set forth in the Agreement.
NAHC&#146;s right of first offer will terminate upon completion of this offering.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If prior to an initial public offering of NAHC&#146;s common stock, Mr.&nbsp;Gorman
proposes, in a single transaction or series of related transactions, to
transfer for value common stock representing at least 10% of the outstanding
common stock of NAHC on a fully diluted basis, Met P&#038;C shall have the right,
subject to certain exceptions, to have included in such proposed transfer its
pro rata portion of the common stock to be so transferred at the same per share
price and for the same consideration that Mr.&nbsp;Gorman proposes to sell the
common stock to be so transferred. Met P&#038;C&#146;s co-sale right will terminate upon
completion of this offering.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If at any time prior to December&nbsp;8, 2008, NAHC shall issue or sell any
shares of common stock without consideration or for consideration per share
less than the purchase price per share paid by Met P&#038;C for its shares of common
stock, then Met P&#038;C shall have the right to purchase for the same purchase
price per share paid by the party to whom NAHC has issued or sold shares of its
common stock, such additional common stock as would be needed to maintain Met
P&#038;C&#146;s ownership percentage of common stock immediately prior to the issuance or
sale of such additional common stock.


<P align="left" style="font-size: 10pt"><B>Payments to Insurance Agencies Affiliated with Certain of Our Directors</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the years ended December&nbsp;31, 2003, 2002 and 2001 and the three months
ended March&nbsp;31, 2004, Proformance paid to Connelly-Campion-Wright Insurance
Agency commissions of $287,986, $138,317, $116,966 and $165,738, respectively.
Mr.&nbsp;Campion, Vice Chairman of our board of directors, is Chief Executive
Officer of Connelly-Campion-Wright Insurance Agency.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the years ended December&nbsp;31, 2003, 2002 and 2001 and the three months
ended March&nbsp;31, 2004, Proformance paid to Liberty Insurance Associates, Inc.
commissions of $220,605, $160,414, $127,265 and $80,119,


<P align="center" style="font-size: 10pt">80
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">respectively. Mr.&nbsp;Harris, a member of our board of directors, is Chief
Executive Officer of Liberty Insurance Associates.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the years ended December&nbsp;31, 2003, 2002 and 2001 and the three months
ended March&nbsp;31, 2004, Proformance paid to Fleet Insurance Services commissions
of $104,941, $116,434, $150,528 and $52,255, respectively. Mr.&nbsp;Sharkey, a
member of our board of directors, is Chairman of Fleet Insurance Services.


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<DIV style="font-family: 'Times New Roman',Times,serif">
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<A name="113"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PRINCIPAL AND SELLING SHAREHOLDERS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information regarding the
beneficial ownership of our common stock as of the date hereof by:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each person that owns beneficially more than 5% of the outstanding shares of our common stock;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each director, director nominee and named executive officer;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the selling shareholder; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all of our directors, director nominees and executive officers as a group.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as stated below, each holder listed below has sole investment and
voting power with respect to the shares of common stock beneficially owned by
the holder. As of March&nbsp;31, 2004, there were 122 holders of record of shares
of our common stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise stated, the business address for each beneficial owner
below is 4 Paragon Way, Freehold, NJ 07728.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have had certain relationships with the OCIC, the selling shareholder
in this offering. See &#147;Certain Relationships and Related Party
Transactions&#151;Investor Rights Agreement&#148; and &#147;Certain Relationships and Related
Party Transactions&#151;Ohio Casualty Non-Competition Agreement.&#148;

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares to Be</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent After</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Address of Beneficial Owner</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before Offering(1)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Offering</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sold in Offering</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>After Offering</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Offering</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">James V. Gorman(2)<BR>
Chairman of the Board of Directors<BR>
and Chief Executive Officer of NAHC<BR>
and Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">33.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">The Ohio Casualty Insurance Company<BR>
9450 Seward Road<BR>
Fairfield, OH 45015</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Metropolitan Property and Casualty<BR>
Insurance Company<BR>
700 Quaker Lane<BR>
Warwick, RI 02886</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">F.P. &#147;Skip&#148; Campion(3)<BR>
Vice Chairman and Director of NAHC<BR>
and Director of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Peter A. Cappello, Jr.(4)<BR>
Director of NAHC and Chief<BR>
Financial Officer of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,612</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cynthia L. Codella(5)<BR>
Secretary and Executive Vice<BR>
President of NAHC and Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gregory T. Doyle<BR>
Director of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Andrew C. Harris(6)<BR>
Director of NAHC and Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">John A. Latimer<BR>
Director of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Thomas M. Mulhare<BR>
Director of NAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Douglas G. Olson(7)<BR>
Director of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Frank J. Prudente(8)<BR>
Executive Vice President&#151;Corporate<BR>
Finance and Treasurer of NAHC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">John E. Scanlan(9)<BR>
Senior Vice President of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Thomas J. Sharkey, Sr.<BR>
Director of NAHC and Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">82
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent Before</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares to Be</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent After</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name and Address of Beneficial Owner</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before Offering(1)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Offering</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sold in Offering</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>After Offering</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Offering</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Steven V. Stallone(10)<BR>
Director of NAHC and Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Candace L. Straight<BR>
Director of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Daniel J. Taylor(11)<BR>
Director of Proformance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Directors, director nominees and named<BR>
executive officers as a group</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Less than 1%.</TD>
</TR>

</TABLE>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(1)&nbsp;The shares reflected in this column include all shares issuable pursuant to
outstanding options held by such shareholders (but not of any other
shareholder) as such options are subject to
accelerated vesting under specified circumstances and upon completion of this
offering such options will become fully vested and immediately exercisable.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(2)&nbsp;Includes options to purchase 4,700 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(3)&nbsp;Includes options to purchase 4,700 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(4)&nbsp;Includes options to purchase 1,400 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(5)&nbsp;Includes options to purchase 1,500 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(6)&nbsp;Includes options to purchase 100 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(7)&nbsp;Includes options to purchase 200 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(8)&nbsp;Includes options to purchase 1,000 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(9)&nbsp;Includes options to purchase 300 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(10)&nbsp;Includes options to purchase 1,400 shares of our common stock, all of
which are fully vested and exercisable or will become fully vested and
exercisable upon consummation of this offering.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(11)&nbsp;Includes options to purchase 350 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.


<P align="center" style="font-size: 10pt">83
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="114"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>DESCRIPTION OF CAPITAL STOCK</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The following description of certain provisions of our amended and
restated Certificate of Incorporation, our amended and restated By-Laws, and of
the New Jersey Business Corporation Act is necessarily general and does not
purport to be complete. This summary is qualified in its entirety by reference
in each case to the applicable provisions of our Certificate of Incorporation
and By-Laws, which are filed as exhibits to this registration statement and to
the provisions of New Jersey law.</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the time of the closing of this offering our authorized capital stock
will
be&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of which shall be common stock, no par
value per share, and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of which shall be preferred stock, no par value
per share.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding preference stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by our board of directors out of funds legally available. See
&#147;Dividend Policy.&#148; In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
preference stock, if any, then outstanding. The common stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. Pursuant to its share
repurchase agreement, Met P&#038;C has certain anti-dilution rights. See &#147;Certain
Relationships and Related Party Transactions&#151;Metropolitan Property and Casualty
Share Repurchase Agreement.&#148; All outstanding shares of common stock to be
outstanding upon the completion of this offering will be fully paid and
non-assessable.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors will have the authority following the closing of
this offering to issue preferred stock in one or more series and to fix the
number of shares constituting any such series and the designations, powers,
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by shareholders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Certain Provisions of Our Certificate and By-Laws and of New Jersey Law</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A number of provisions of our Certificate of Incorporation and our By-Laws
deal with matters of corporate governance and the rights of shareholders. The
following discussion is a general summary of select provisions of our
Certificate of Incorporation, our By-Laws and certain New Jersey laws that
might be deemed to have a potential &#147;anti-takeover&#148; effect. These provisions
may have the effect of discouraging a future takeover attempt which is not
approved by our board of directors but which individual shareholders may deem
to be in their best interest or in which shareholders may be offered a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also make the removal
of the incumbent board of directors or management more difficult.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Common Stock</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our unissued shares of authorized common stock will be available for
future issuance without additional shareholders approval, except as required by
the rules of the Nasdaq National Market. While the authorized but unissued
shares are not designed to deter or prevent a change of control, under some
circumstances we could use the authorized but unissued shares to create voting
impediments or to frustrate persons seeking to effect a takeover or otherwise
gain control of us by, for example, issuing those shares in private placements
to purchasers who might side with our board of directors in opposing a hostile
takeover bid.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Preferred Stock</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The existence of authorized but unissued preferred stock could reduce our
attractiveness as a target for an unsolicited takeover bid since we could, for
example, issue shares of the preferred stock to parties that might oppose


<P align="center" style="font-size: 10pt">84
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">such a takeover bid or issue shares of the preferred stock containing
terms the potential acquiror may find unattractive. Such preferred stock could
also have the right to vote separately as a class with respect to a merger,
take-over or other significant corporate transactions. This ability may have
the effect of delaying or preventing a change of control, may discourage bids
for our common stock at a premium over the market price of our common stock,
and may adversely affect the market price of, and the voting and the other
rights of the holders of, our common stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Classified Board of Directors and Related Provisions</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Certificate of Incorporation provides that our board of directors
shall be divided into three classes of directors (each class containing
approximately one-third of the total number of directors) serving staggered
three-year terms. As a result, approximately one-third of our board of
directors will be elected each year. This classified board provision will
prevent a third party who acquires control of a majority of our outstanding
voting stock from obtaining control of our board of directors until the second
annual shareholder meeting following the date the acquiror obtains the
controlling interest. The number of directors constituting our board of
directors is determined from time to time by our board of directors. Our
Certificate of Incorporation also provides that directors may be removed only
for &#147;cause&#148; and by the affirmative vote of the holders of a majority of all
outstanding voting stock entitled to vote. This provision, in conjunction with
the provisions of our Certificate of Incorporation authorizing our board of
directors to fill vacancies on the board, will prevent shareholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>No Shareholder Action by Written Consent; Special Meetings</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Certificate of Incorporation provides that shareholder action can be
taken only at an annual or special meeting of shareholders and cannot be taken
by written consent in lieu of a meeting. Our Certificate of Incorporation also
provides that, except as otherwise required by law, special meetings of the
shareholders can only be called by a majority of our entire board of directors
or by the Chief Executive Officer and President. Shareholders may not call a
special meeting or require that our board of directors call a special meeting
of shareholders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Advance Notice Requirements for Shareholder Proposals and Director
Nominees.</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our By-Laws provide that, if one of our shareholders desires to submit a
proposal or nominate persons for election as directors at an annual
shareholders&#146; meeting, the shareholder shall deliver written notice to our
Secretary not less than 90 nor more than 120&nbsp;days prior to the first
anniversary of the preceding year&#146;s annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30&nbsp;days before or
more than 60&nbsp;days after such anniversary date, notice by the shareholder to be
timely shall be so delivered not less than 90&nbsp;days nor more than 120&nbsp;days prior
to such annual meeting or ten days following the day on which public
announcement of the date of such meeting is first made. Such shareholder&#146;s
notice shall set forth (A)&nbsp;as to any such business that the shareholder
proposes to bring before the meeting, a brief description of such business, the
reasons for conducting such business at the meeting, any material interest of
such shareholder in such business and the beneficial owner, if any, on whose
behalf the proposal is made; (B)&nbsp;as to each person whom the shareholder
proposes to nominate for election as a director, all information relating to
such person that would be required to be disclosed in a solicitation of proxies
for the election of such person as a director pursuant to Regulation&nbsp;14A under
the Securities Exchange Act of 1934 (including such person&#146;s written consent to
being named in the proxy statement as a nominee and to serving as a director if
so elected); and (C)&nbsp;as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf of the proposal or nomination is made (1)&nbsp;the
name and address of such shareholder, as they appear on our books, and of such
beneficial owner, and (2)&nbsp;the class and number of our shares which are owned
beneficially and of record by such shareholder and such beneficial owner.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Voting Requirements on Amending Our Certificate of Incorporation or
By-Laws</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Certificate of Incorporation and our By-Laws provide that amendments
to certain provisions of our By-Laws, including those relating to shareholder
proposals, classified board, removal of directors, calling special meetings and
no shareholder action by written consent, must be approved by both our board of
directors and by the vote, at a regular or special shareholders meeting, of the
holders of at least two-thirds of the votes entitled to be cast


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<P align="left" style="font-size: 10pt">by the holders of all our capital stock then entitled to vote. All other
amendments to our By-Laws require either: (i)&nbsp;approval by a majority of our
entire board of directors (without shareholder consent) or (ii)&nbsp;the vote, at a
regular or special shareholders&#146; meeting, of the holders of at least two-thirds
of the votes entitled to be cast by the holders of all our capital stock then
entitled to vote.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Business Combination Statute</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The New Jersey Shareholders Protection Act, NJSA 14A:10A-1 et seq., which
we refer to as New Jersey Act, prohibits certain New Jersey corporations, such
as us following this offering, from entering into certain &#147;business
combinations&#148; with an &#147;interested shareholder&#148; (any person who is the
beneficial owner of 10% or more of such corporation&#146;s outstanding voting
securities) for five years after such person became an interested shareholder,
unless the business combination or the interested shareholder&#146;s acquisition of
stock was approved by the corporation&#146;s board of directors prior to such
interested shareholder&#146;s stock acquisition date. After the five-year waiting
period has elapsed, a business combination between such corporation and an
interested shareholder will be prohibited unless the business combination is
approved by the holders of at least two-thirds of the voting stock not
beneficially owned by the interested shareholder, or unless the business
combination satisfies the New Jersey Act&#146;s fair price provision intended to
provide that all shareholders (other than the interested shareholders) receive
a fair price for their shares.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The New Jersey Act defines &#147;business combination&#148; to include, the
following transactions between a corporation and an interested shareholder or
such interested shareholder&#146;s affiliates; (1)&nbsp;the merger or consolidation of
the corporation with the interested shareholder or any corporation that after
the merger or consolidation would be an affiliate or associate of the
interested shareholder, (2)&nbsp;any sale, lease, exchange, mortgage, pledge,
transfer or other disposition to or with the interested shareholder, which has
an aggregate market value equal to 10% or more of the aggregate market value of
all of the assets, outstanding stock or income of the corporation or its
subsidiaries; (3)&nbsp;the issuance or transfer to the interested shareholder of any
stock of the corporation having an aggregate market value equal to or greater
than 5% of the corporation&#146;s outstanding stock; (4)&nbsp;the adoption of a plan or
proposal for the liquidation or dissolution of the corporation proposed by the
interested shareholder; (5)&nbsp;any reclassification of securities proposed by the
interested shareholder, that has the effect, directly or indirectly, of
increasing any class or series of stock that is owned by the interested
shareholder; and (6)&nbsp;the receipt by the interested shareholder of any loans or
other financial assistance from the corporation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The New Jersey Act does not apply to certain business combinations,
including those with persons who acquired 10% or more of the voting power of
the corporation prior to the time the corporation was required to file periodic
reports pursuant to the Exchange Act or prior to the time the corporation&#146;s
securities began to trade on a national securities exchange.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Limitations on Director Liability</I></B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article&nbsp;12 of our Certificate of Incorporation provides that the no
director shall be liable to us or our shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability for breach of the
director&#146;s duty of loyalty to us or our shareholders, for acts or omissions not
in good faith or which involve a knowing violation of law, or for any act or
omission which results in receipt by the director of an improper personal
benefit.


<P align="left" style="font-size: 10pt"><B>Transfer Agent and Registrar</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.


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<P align="center" style="font-size: 10pt"><B>SHARES ELIGIBLE FOR FUTURE SALE</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon completion of the offering, we will have a total of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;common
shares outstanding. All of
the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
( &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares if the
underwriters exercise the over-allotment option in full) sold in the offering
will be freely tradeable without restriction or further registration under the
Securities Act by persons other than our &#147;affiliates.&#148; The remaining
shares are &#147;restricted securities&#148; as defined in Rule&nbsp;144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
the exemptions contained in Rule&nbsp;144. Under the Securities Act, an &#147;affiliate&#148;
of a company is a person that directly or indirectly controls, is controlled
by, or is in common control with that company.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, under Rule&nbsp;144, a person (or persons whose shares are
aggregated), including any person who may be deemed our affiliate, is entitled
to sell within any three-month period, a number of restricted securities that
does not exceed the greater of 1% of the then outstanding shares of common
stock and the average weekly trading volume in the over-the-counter market
during the four calendar weeks preceding each such sale, provided that at least
one year has elapsed since such shares were acquired from us or any affiliate
of ours and certain manner of sale, notice requirements and requirements as to
availability of current public information about us are satisfied. Any person
who is deemed to be our affiliate must comply with the provisions of Rule&nbsp;144
(other than the one-year holding period requirement) in order to sell shares of
common stock which are not restricted securities (such as shares acquired by
affiliates either in this offering or through purchases in the open market
following this offering). In addition, under Rule&nbsp;144(k), a person who is not
our affiliate, and who has not been our affiliate at any time during the 90
days preceding any sale, is entitled to sell such shares without regard to the
foregoing limitations, provided that at least two years have elapsed since the
shares were acquired from us or any affiliate of ours.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, our officers and directors (including Mr.&nbsp;Gorman), the selling
shareholder, and certain of our other shareholders, including Met P&#038;C, have
agreed, subject to specified exceptions, not to dispose of or hedge our and
their shares without the prior written consent of Citigroup Global Markets Inc.
during the period of 180&nbsp;days following the date of this prospectus. See
&#147;Underwriting.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;10, 2004, we entered into an agreement with the selling
shareholder, OCIC, pursuant to which we agreed, among other things, that
following the expiration of the 180-day lock-up period discussed above, we will
use commercially reasonable efforts to facilitate a secondary public offering
by OCIC of the shares of NAHC common stock owned by OCIC which are not sold as
part of this offering. In addition, subject to certain exceptions, we have
granted OCIC the right, on three occasions following the expiration of the
180-day lock-up period, to demand that we file a registration statement with
respect to the resale by OCIC of any shares of NAHC common stock owned by OCIC
which are not sold as part of this offering. See &#147;Business&#151;Recent
Transactions&#151;Ohio Casualty Replacement Carrier Transaction.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, following the consummation of this offering, we intend to
file one or more registration statements on Form S-8 under the Securities Act
to register shares of our common stock issued or reserved for issuance under
our 2004 Stock and Incentive Plan. Subject to the exercise of issued and
outstanding options, shares registered under the registration statement on Form
S-8 will be available for sale into the public markets unless such shares are
subject to vesting restrictions with us or the lock-up restrictions described
above.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No prediction can be made as to the effect, if any, future sales of
shares, or the availability of shares for future sales, will have on the market
price of our common stock prevailing from time to time. The sale of
substantial amounts of our common stock in the public market, or the perception
that such sales could occur, could harm the prevailing market price of our
common stock.


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<P align="center" style="font-size: 10pt"><B>MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX<BR>
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS OF COMMON STOCK</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a non-U.S. holder that acquires our common stock pursuant to this
offering. The discussion is based on provisions of the Internal Revenue Code
of 1986, as amended (the &#147;Code&#148;), applicable U.S. Treasury regulations
promulgated thereunder and administrative and judicial interpretations, all as
in effect on the date of this prospectus, and all of which are subject to
change, possibly on a retroactive basis. The discussion is for general
information only. The discussion is limited to non-U.S. holders that hold our
common stock as a &#147;capital asset&#148; within the meaning of Section&nbsp;1221 of the
Code (generally, property held for investment). As used in this discussion,
the term &#147;non-U.S. holder&#148; means a beneficial owner of our common stock that is
not, for U.S. federal income tax purposes:


<P>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an individual who is a citizen or resident of the United States;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporation or partnership (including any entity treated as a
corporation or partnership for U.S. federal income tax purposes)
created or organized in or under the laws of the United States or any
State of the United States or the District of Columbia, other than a
partnership treated as foreign under U.S. Treasury regulations;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an estate the income of which is includible in gross income for
U.S. federal income tax purposes regardless of its source; or</TD>
</TR>

</TABLE>


<P>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a trust (1)&nbsp;if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons have
authority to control all substantial decisions of the trust, or (2)
that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This discussion does not consider:


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    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. federal gift tax consequences, or U.S. state or local or non-U.S. tax consequences;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>specific facts and circumstances that may be relevant to a
particular non-U.S. holder&#146;s tax position, including, if the non-U.S.
holder is a partnership that the U.S. tax consequences of holding and
disposing of our common stock may be affected by certain determinations
made at the partner level;</TD>
</TR>

</TABLE>


<P>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the tax consequences for the shareholders, partners, or
beneficiaries of a non-U.S. holder;</TD>
</TR>

</TABLE>


<P>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all of the U.S. federal tax considerations that may be relevant to
a non-U.S. holder in light of its particular circumstances or to
non-U.S. holders that may be subject to special treatment under U.S.
federal tax laws, such as financial institutions, insurance companies,
tax-exempt organizations, certain trusts, hybrid entities, certain
former citizens or residents of the United States, holders subject to
U.S. federal alternative minimum tax, broker-dealers, and traders in
securities; or</TD>
</TR>

</TABLE>


<P>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>special tax rules that may apply to a non-U.S. holder that holds
our common stock as part of a &#147;straddle,&#148; &#147;hedge,&#148; &#147;conversion
transaction,&#148; &#147;synthetic security,&#148; or other integrated investment.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Prospective investors are urged to consult their own tax advisors
regarding the U.S. federal, state, local, and non-U.S. income and other tax
considerations with respect to owning and disposing of shares of our common
stock.</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Dividends</B>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As previously discussed, we do not anticipate paying dividends on our
common stock in the foreseeable future. See &#147;Dividend Policy.&#148; If we pay
dividends on our common stock, those payments will constitute dividends for
U.S. federal income tax purposes to the extent paid from our current or
accumulated earnings and profits, as


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<P align="left" style="font-size: 10pt">determined under U.S. federal income tax principles. To the extent those
dividends exceed our current and accumulated earnings and profits, the
dividends will constitute a return of capital and first reduce the non-U.S.
holder&#146;s basis, but not below zero, and then will be treated as gain from the
sale of stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will have to withhold U.S. federal income tax at a rate of 30%, or a
lower rate under an applicable income tax treaty, from the gross amount of the
dividends paid to a non-U.S. holder, unless the dividend is effectively
connected with the conduct of a trade or business of the non-U.S. holder within
the United States, or if an income tax treaty applies, attributable to a
permanent establishment of the non-U.S. holder within the United States. Under
applicable U.S. Treasury regulations, a non-U.S. holder (including, in certain
cases of non-U.S. holders that are entities, the owner or owners of such
entities) will be required to satisfy certain certification requirements in
order to claim a reduced rate of withholding pursuant to an applicable income
tax treaty. Non-U.S. holders should consult their tax advisors regarding their
entitlement to benefits under a relevant income tax treaty.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends that are effectively connected with a non-U.S. holder&#146;s conduct
of a trade or business in the United States or, if an income tax treaty
applies, attributable to a permanent establishment in the United States, are
taxed on a net income basis at the regular graduated U.S. federal income tax
rates in the same manner as if the non-U.S. holder were a resident of the
United States. In such cases, we will not have to withhold U.S. federal income
tax if the non-U.S. holder complies with applicable certification and
disclosure requirements. In addition, a &#147;branch profits tax&#148; may be imposed at
a 30% rate, or a lower rate under an applicable income tax treaty, on dividends
received by a foreign corporation that are effectively connected with the
conduct of a trade or business in the United States.


<P align="left" style="font-size: 10pt"><B>Gain on Disposition of Common Stock</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A non-U.S. holder generally will not be subject to U.S. federal income tax
or any withholding thereof with respect to gain realized on a sale or other
disposition of our common stock unless one of the following applies:


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    <TD width="1%">&nbsp;</TD>
    <TD>the gain is effectively connected with the non-U.S. holder&#146;s
conduct of a trade or business in the United States or, alternatively,
if an income tax treaty applies, is attributable to a permanent
establishment maintained by the non-U.S. holder in the United States;
in these cases, the non-U.S. holder will generally be taxed on its net
gain derived from the disposition at the regular graduated rates and in
the manner applicable to U.S. persons and, if the non-U.S. holder is a
foreign corporation, the &#147;branch profits tax&#148; described above may also
apply;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the non-U.S. holder is an individual who is present in the United
States for 183&nbsp;days or more in the taxable year of the disposition and
meets certain other requirements; in this case, the non-U.S. holder
will be subject to a 30% tax on the gain derived from the disposition;
or</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we are or have been a United States real property holding
corporation, or &#147;USRPHC,&#148; for U.S. federal income tax purposes at any
time during the shorter of the five-year period ending on the date of
disposition or the period that the non-U.S. holder held our common
stock; in this case, the non-U.S. holder may be subject to U.S. federal
income tax on its net gain derived from the disposition of our common
stock at regular graduated rates. If we are, or were to become, a
USRPHC, gain realized upon disposition of our common stock by a
non-U.S. holder that did not directly or indirectly own more than 5% of
our common stock during the shorter of the five-year period ending on
the date of disposition or the period that the non-U.S. holder held our
common stock generally would not be subject to U.S. federal income tax,
provided that our common stock is &#147;regularly traded on an established
securities market&#148; within the meaning of Section&nbsp;897(c)(3) of the Code.
We believe that we are not currently, and we do not anticipate
becoming in the future, a USRPHC.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>Federal Estate Tax</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock owned or treated as owned by an individual who is a non-U.S.
holder at the time of death will be included in the individual&#146;s gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.


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<P align="left" style="font-size: 10pt"><B>Information Reporting and Backup Withholding Tax</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We must report annually to the IRS and to each non-U.S. holder the amount
of dividends paid to that holder and the tax withheld from those dividends.
These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable income tax treaty. Copies of the
information returns reporting those dividends and withholding may also be made
available under the provisions of an applicable income tax treaty or agreement
to the tax authorities in the country in which the non-U.S. holder is a
resident.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under some circumstances, U.S. Treasury regulations require backup
withholding and additional information reporting on reportable payments on
common stock. The gross amount of dividends paid to a non-U.S. holder that
fails to certify its non-U.S. holder status in accordance with applicable U.S.
Treasury regulations generally will be reduced by backup withholding at the
applicable rate (currently 28%).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The payment of the proceeds of the sale or other disposition of common
stock by a non-U.S. holder to or through the U.S. office of any broker, U.S. or
non-U.S., generally will be reported to the IRS and reduced by backup
withholding, unless the non-U.S. holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds from the disposition of common stock by
a non-U.S. holder to or through a non-U.S. office of a non-U.S. broker will not
be reduced by backup withholding or reported to the IRS, unless the non-U.S.
broker has certain enumerated connections with the United States. In general,
the payment of proceeds from the disposition of common stock by or through a
non-U.S. office of a broker that is a U.S. person or has certain enumerated
connections with the United States will be reported to the IRS and may be
reduced by backup withholding unless the broker receives a statement from the
non-U.S. holder that certifies its status as a non-U.S. holder under penalties
of perjury or the broker has documentary evidence in its files that the holder
is a non-U.S. holder.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules from a payment to a non-U.S. holder can be
refunded or credited against the non-U.S. holder&#146;s U.S. federal income tax
liability, if any, provided that the required information is furnished to the
IRS in a timely manner. These backup withholding and information reporting
rules are complex and non-U.S. holders are urged to consult their own tax
advisors regarding the application of these rules to them.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The foregoing discussion of U.S. federal income and estate tax
considerations is not tax advice and is not based on an opinion of counsel.
Accordingly, each prospective non-U.S. holder of our common stock should
consult that holder&#146;s own tax advisor with respect to the federal, state, local
and non-U.S. tax consequences of the ownership and disposition of our common
stock.</B>


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<P align="center" style="font-size: 10pt"><B>UNDERWRITING</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Citigroup Global Markets Inc. is acting as the sole bookrunning manager of
the offering, and, together with&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, are acting as representatives of the
underwriters named below. Subject to the terms and conditions stated in the
underwriting agreement dated the date of this prospectus, each underwriter
named below has agreed to purchase, and we and the selling shareholder have
agreed to sell to that underwriter, the number of shares set forth opposite the
underwriter&#146;s name.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Underwriter</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>of Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Citigroup Global Markets Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>
<TR valign="bottom">

<TD align="left" valign="top"><DIV style="margin-left:20px; text-indent:-10px">Total</DIV></TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="4" noshade>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriters propose to offer some of the shares directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not to exceed $&nbsp;&nbsp;per share. The underwriters may allow,
and dealers may reallow, a concession not to exceed $&nbsp;&nbsp;per share on
sales to other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and
the other selling terms. The representatives have advised us that the
underwriters do not intend sales to discretionary accounts to exceed 5% of the
total number of shares of our common stock offered by them.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and the selling shareholder have granted to the underwriters an option,
exercisable for 30&nbsp;days from the date of this prospectus, to purchase up to
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional shares of common stock at the public offering price less the
underwriting discount. The underwriters may exercise the option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent the option is exercised, each underwriter must purchase a number
of additional shares approximately proportionate to that underwriter&#146;s initial
purchase commitment.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, our officers and directors, the selling shareholder and certain of our
other shareholders have agreed that, for a period of 180&nbsp;days from the date of
this prospectus, we and they will not, without the prior written consent of
Citigroup Global Markets, Inc., dispose of or hedge any shares of our common
stock or any securities convertible into or exchangeable for our common stock,
except if such shareholder is a partnership, to a partner, if an individual, by
gift, will or intestate succession, or a transfer to an affiliate. In any such
case, such transfer will be subject to certain conditions, including that each
transferee execute an agreement that the shares are subject to a lock-up
agreement, and there be no further transfer of shares, except in accordance
with the lock-up agreement. Citigroup in its sole discretion may release any
of the securities subject to these lock-up agreements at any time without
notice.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each underwriter has represented, warranted and agreed that:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>it has not offered or sold and, prior to the expiry of a period of
six months from the closing date, will not offer or sell any shares
included in this offering to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995;
</TD>
</TR>
</TABLE>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>it has only communicated and caused to be communicated and will
only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning of
section 21 of the Financial Services and Markets Act 2000 (&#147;FSMA&#148;))
received by it in connection with the issue or sale of any shares
included in this offering in circumstances in which section 21(1) of
the FSMA does not apply to us;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>it has complied and will comply with all applicable provisions of
the FSMA with respect to anything done by it in relation to the shares
included in this offering in, from or otherwise involving the United
Kingdom; and</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the offer in The Netherlands of the shares included in this
offering is exclusively limited to persons who trade or invest in
securities in the conduct of a profession or business (which include
banks, stockbrokers, insurance companies, pension funds, other
institutional investors and finance companies and treasury departments
of large enterprises).</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares will be
determined by negotiations between us and the representatives. Among the
factors considered in determining the initial public offering price will be our
record of operations, our current financial condition, our future prospects,
our markets, the economic conditions in and future prospects for the industry
in which we compete, our management, and currently prevailing general
conditions in the equity securities markets, including current market
valuations of publicly traded companies considered comparable to our company.
We cannot assure you, however, that the prices at which the shares will sell in
the public market after this offering will not be lower than the initial public
offering price or that an active trading market in our common stock will
develop and continue after this offering.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have applied to have our common stock included for quotation on the
Nasdaq National Market under the symbol &#147;NAHC.&#148;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the underwriting discounts and commissions that
we and the selling shareholder are to pay to the underwriters in connection
with this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters&#146; option to purchase additional shares of common
stock.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid by NAHC</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid by Selling Shareholder</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>No Exercise</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Full Exercise</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>No Exercise</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Full Exercise</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Per Share<BR>
Total
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$<BR>
$
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$<BR>
$
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$<BR>
$</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the offering, Citigroup Global Markets Inc., on behalf
of the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve syndicate sales
of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
&#147;Covered&#148; short sales are sales of shares made in an amount up to the number of
shares represented by the underwriters&#146; over-allotment option. In determining
the source of shares to close out the covered syndicate short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Transactions to close out
the covered syndicate short position involve either purchases of the common
stock in the open market after the distribution has been completed or the
exercise of the over-allotment option. The underwriters may also make &#147;naked&#148;
short sales of shares in excess of the over-allotment option. The underwriters
must close out any naked short position by purchasing shares of common stock in
the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the shares in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
bids for or purchases of shares in the open market while the offering is in
progress.


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<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Citigroup Global Markets Inc. repurchases shares originally sold by that
syndicate member in order to cover syndicate short positions or make
stabilizing purchases.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any of these activities may have the effect of preventing or retarding a
decline in the market price of the common stock. They may also cause the price
of the common stock to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriters may
conduct these transactions on the Nasdaq National Market or in the
over-the-counter market, or otherwise. If the underwriters commence any of
these transactions, they may discontinue them at any time.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate that our portion of the total expenses of this offering will
be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of the underwriters have performed investment banking and
advisory services for us from time to time for which they have received
customary fees and expenses. The underwriters may, from time to time, engage
in transactions with and perform services for us in the ordinary course of
their business. For example, approximately $93&nbsp;million of our investment
assets currently are held in four non-discretionary brokerage accounts with
Smith Barney, an affiliate of Citigroup Global Markets Inc. We believe the
fees and commissions payable for services in connection with these accounts are
customary.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters. The representatives may agree
to allocate a number of shares to underwriters for sale to their online
brokerage account holders. The representatives will allocate shares to
underwriters that may make Internet distributions on the same basis as other
allocations. In addition, shares may be sold by the underwriters to securities
dealers who resell shares to online brokerage account holders.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and the selling shareholder have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make
because of any of those liabilities.


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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="118"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>LEGAL MATTERS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The validity of the shares of common stock offered hereby will be passed
upon by Patricia M. Forsyth, General Counsel of Proformance Insurance Company.
Dewey Ballantine LLP, New York, New York is also representing us in this
offering. Certain legal matters in connection with the issuance of the common
stock to be sold in the offering will be passed upon for the underwriters by
LeBoeuf, Lamb, Greene &#038; MacRae, L.L.P., a limited liability partnership
including professional corporations, New York, New York. LeBoeuf, Lamb, Greene
&#038; MacRae, L.L.P. has in the past performed services for us.

<DIV align="left">
<A name="119"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>EXPERTS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements of NAHC and its subsidiaries as of
December&nbsp;31, 2003 and 2002 and for each of the three years in the period ended
December&nbsp;31, 2003 included in this prospectus and the related financial
statement schedules included elsewhere in this registration statement have been
audited by Deloitte &#038; Touche LLP, an independent registered public accounting
firm, as stated in their report appearing herein and elsewhere in this
registration statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.

<DIV align="left">
<A name="120"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>CHANGE OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;22, 2004, the Executive Committee of our Board of Directors
approved replacing the firm of WithumSmith&#043;Brown, PC as our independent
accountants with the firm of Deloitte &#038; Touche LLP for the fiscal years ended
December&nbsp;31, 2001, 2002 and 2003. Our engagement of Deloitte &#038; Touche LLP was
effective as of May&nbsp;14, 2004. The decision to change independent accountants
was recommended and approved by the Board of Directors as the Board viewed it
as desirable in anticipation of our initial public offering to have our
financial statements audited by a large internationally recognized accounting
firm such as Deloitte &#038; Touche LLP.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reports of WithumSmith&#043;Brown, PC on our financial statements for each
of the two fiscal years ended December&nbsp;31, 2003 and December&nbsp;31, 2002,
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
These financial statements have been subsequently restated in
connection with the audit referred to in the preceeding paragraph.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During our two most recent fiscal years and in the subsequent interim
periods, we have had no disagreements with WithumSmith&#043;Brown, PC on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope and procedure, which if not resolved to the satisfaction of
WithumSmith&#043;Brown, PC would have caused WithumSmith&#043;Brown, PC to make reference
to the matter in their report.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During our two most recent fiscal years and in the subsequent interim
periods, we have had no reportable events (as the term is described in Item
304(a)(1)(v) of Regulation&nbsp;S-K).


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to our engagement of Deloitte &#038; Touche LLP, we had not consulted
with Deloitte &#038; Touche LLP during our two most recent fiscal years or during
the three months ended March&nbsp;31, 2004 regarding: (a)&nbsp;either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our financial
statements, and neither a written report nor oral advice were provided that
Deloitte &#038; Touche LLP concluded was an important factor considered by us in
reaching a decision as to the accounting, auditing or financial reporting
issue, or (b)&nbsp;any matter that was the subject of either a disagreement or a
reportable event.

<DIV align="left">
<A name="121"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>WHERE YOU CAN FIND MORE INFORMATION</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act of 1933, as amended with respect
to the common stock offered in this prospectus. This prospectus, filed as part
of the registration statement, does not contain all of the information set
forth in the registration statement and its exhibits and schedules, portions of
which have been omitted as permitted by the rules and regulations of the
Securities and Exchange Commission. For further information about us and our
common


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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">stock, we refer you to the registration statement and to its exhibits and
schedules. Statements in this prospectus about the contents of any contract,
agreement or other document are not necessarily complete and, in each instance,
we refer you to the copy of such contract, agreement or document filed as an
exhibit to the registration statement, with each such statement being qualified
in all respects by reference to the document to which it refers. Anyone may
inspect the registration statement and its exhibits and schedules without
charge at the public reference facilities the Securities and Exchange
Commission maintains at 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain copies of all or any part of these materials from the SEC upon the
payment of certain fees prescribed by the Securities and Exchange Commission.
You may obtain further information about the operation of the Securities and
Exchange Commission&#146;s Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. You may also inspect these reports and
other information without charge at a web site maintained by the Securities and
Exchange Commission. The address of this site is http://www.sec.gov.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon completion of this offering, we will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
and will be required to file reports, proxy statements and other information
with the Securities and Exchange Commission. You will be able to inspect and
copy these reports, proxy statements and other information at the public
reference facilities maintained by the Securities and Exchange Commission at
the address noted above. You also will be able to obtain copies of this
material from the Public Reference Room of the Securities and Exchange
Commission as described above, or inspect them without charge at the Securities
and Exchange Commission&#146;s web site. We intend to furnish our shareholders with
annual reports containing consolidated financial statements audited by an
independent accounting firm.


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>National Atlantic
Holdings Corporation and Subsidiaries</B>


<P align="center" style="font-size: 10pt"><B>Table of Contents</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="92%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Page(s)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom" style="background: #eeeeee">
<TD><DIV style="margin-left:10px; text-indent:-10px"><B>Consolidated
Financial Statement:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Report of Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated
Balance Sheets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
<TD><DIV style="margin-left:20px; text-indent:-10px">March&nbsp;31,
2004 (Unaudited) and December&nbsp;31, 2003
and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated
Statements of Operations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Three months
ended March&nbsp;31, 2004 and 2003 (Unaudited) and years ended
December&nbsp;31, 2003, 2002 and 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated
Statements of Comprehensive Income (Loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Three months
ended March&nbsp;31, 2004 and 2003 (Unaudited) and years ended
December&nbsp;31, 2003, 2002 and 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated
Statements of Changes in Stockholders&#146; Equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Three months
ended March&nbsp;31, 2004 and 2003 (Unaudited) and years ended
December&nbsp;31, 2003, 2002 and 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated
Statements of Cash Flows:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Three months
ended March&nbsp;31, 2004 and 2003 (Unaudited) and years ended
December&nbsp;31, 2003, 2002 and 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-8</TD>
    <TD>&nbsp;</TD>
</TR>



<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-1
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>



<P align="left" style="font-size: 10pt">To the Board of Directors,<BR>
National Atlantic Holdings Corporation and Subsidiaries


<P align="left" style="font-size: 10pt">We have audited the accompanying consolidated balance sheets of National
Atlantic Holdings Corporation and Subsidiaries (the &#147;Company&#148;) as of December
31, 2003 and 2002 and the related consolidated statements of operations,
comprehensive income (loss), changes in stockholders&#146; equity and cash flows for
each of the three years in the period ended December&nbsp;31, 2003. These financial
statements are the responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.



<P align="left" style="font-size: 10pt">We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



<P align="left" style="font-size: 10pt">In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December&nbsp;31,
2003 and 2002, and the results of its operations and its cash flows for each of
the three years in the period ended December&nbsp;31, 2003, in conformity with
accounting principles generally accepted in the United States of America.



<P align="left" style="font-size: 10pt">/s/ Deloitte &#038; Touche LLP



<P align="left" style="font-size: 10pt">Parsippany, New Jersey<BR>
July&nbsp;19, 2004


<P align="center" style="font-size: 10pt">F-2
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC
HOLDINGS CORPORATION AND SUBSIDIARIES<BR>
CONSOLIDATED BALANCE SHEETS<BR>
(in thousands, except share data)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="69%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proforma</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>see note 15</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investments: (Note 2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fixed maturities available-for-sale (amortized cost $130,799 in 2003 and
$67,179 in 2002)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">144,481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">130,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">67,871</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Short-term investments (cost $31,569 in 2003 and $4,597 in 2002)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Equity securities (cost $8,117 in 2003 and $1,673 in 2002)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,508</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186,054</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,376</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">850</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Premiums receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,855</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Reinsurance recoverable on paid and unpaid losses (Note 4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,118</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Reinsurance receivable (Note 4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Prepaid reinsurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,422</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Receivable from Ohio Casualty, a related party (Note 3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,767</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Receivable from Sentry (Note 3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred acquisition costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,538</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and
equipment  &#151; Net (Note 7)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,082</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">920</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred taxes (Note 6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,145</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Federal income taxes recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,318</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,590</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">288,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">269,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">161,557</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Liabilities and Stockholders&#146; Equity:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unpaid losses and loss adjustment expenses (Note 5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">139,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,472</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unearned premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,018</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accounts payable and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,545</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Reinsurance payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred revenue from related party (Note 3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,917</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred revenue (Note 3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred income taxes (Note 6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">State income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,098</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">219,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143,050</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Common stock, Class&nbsp;A, no par value (100,000 shares authorized;
63,901 shares issued as of December&nbsp;31, 2003 and 2002, respectively)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Common stock, Class&nbsp;B, no par value (100,000 shares authorized;
51,029 and 38,529 shares issued as of December&nbsp;31, 2003 and 2002, respectively)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,382</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Retained earnings (accumulated deficit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(225</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">50,730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,507</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">288,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">269,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">161,557</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">The accompanying notes are an integral part of the
consolidated financial statements.

<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
(in thousands, except earnings per share data)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>For the years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Revenue:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net premiums earned</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">145,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">730</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,085</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Realized gains (losses)&nbsp;on
investments  - net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Replacement carrier revenue from
related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Replacement carrier revenue from
unrelated party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">929</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,075</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Costs and Expenses:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Loss and loss adjustment expenses
incurred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,338</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Acquisition expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,523</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other operating and general expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,684</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total costs and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,545</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,470</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Provision (benefit)&nbsp;for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,606</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Net Income (Loss)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)&nbsp;per share Common
Stock  - Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">185.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)&nbsp;per share Common
Stock  - Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">62.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">162.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">The accompanying notes are an integral part of the
consolidated financial statements.



<P align="center" style="font-size: 10pt">F-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES<BR>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)<BR>
(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>For the years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other comprehensive income  - net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net holding gains arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">321</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Reclassification adjustment for realized
(gains)
losses included in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(354</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(43</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(179</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total other comprehensive (loss)
income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(291</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Comprehensive Income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,722</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">The accompanying notes are an integral part of the consolidated financial statements.



<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES<BR>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS&#146; EQUITY<BR>
For the years ended December&nbsp;31, 2003, 2002 and 2001<BR>
(in thousands, except share data)</B>


<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Receivable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Class A</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Class B</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Earnings</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>for</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Securities</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Comprehensive</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stockholders&#146;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deficit)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Issued</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Income (Loss)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Equity</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance at January
1, 2001</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">($2,368</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">($192</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,207</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of Class
B Common Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,864</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">($6,864</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other
comprehensive
income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance at December
31, 2001</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,232</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(50</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,015</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Exchange of Class
A for Class&nbsp;B
Common Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,050</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(53</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of Class
B Common Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of stock
options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">706</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unamortized
deferred
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(589</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(589</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other
comprehensive
income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance at December
31, 2002</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,382</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(225</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,507</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of Class
B Common Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,457</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of Stock
Options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">736</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unamortized
deferred
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(552</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(552</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of
2002 options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">235</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other
comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(291</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(291</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance at December
31, 2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,248</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,017</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other
comprehensive
income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,659</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance at March
31, 2004
(unaudited)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,924</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">The accompanying notes are an integral part
of the consolidated financial statements.



<P align="center" style="font-size: 10pt">F-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>For the three months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>ended March 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>For the years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>CASH FLOWS FROM OPERATING ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Adjustment to reconcile net income to net cash provided
(used in)
operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(99</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(50</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">285</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Amortization of premium/discount on bonds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">837</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Realized (losses)&nbsp;gains on investment sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(677</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,373</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(346</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Realized (losses)&nbsp;gains on fixed asset sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Realized (losses)&nbsp;gains on premium write offs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Changes in:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Premiums receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,189</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,364</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,271</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,134</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Reinsurance recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(255</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,228</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,310</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Reinsurance receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,050</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Prepaid reinsurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,906</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,183</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Receivable from Ohio Casualty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(233</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(53</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,767</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Receivable from Sentry</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,625</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Guarantee fund receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Deferred acquisition costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,430</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,904</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(176</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,707</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">770</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Accrued interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(71</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(104</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,051</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(678</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Federal income taxes recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,168</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">482</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,274</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,449</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">305</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Unpaid losses and loss adjustment expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,383</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Deferred revenue from related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,046</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(875</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Unearned premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,042</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,785</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Reinsurance payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,664</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,419</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,256</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,215</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(693</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net cash provided by (used in) operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,994</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,695</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>CASH FLOWS FROM INVESTING ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(474</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(821</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(201</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of fixed maturity investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(43,039</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,560</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(131,225</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56,735</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,424</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Sales and maturities of fixed income investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,638</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,138</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(415</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,282</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,927</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(858</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Sales of equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">675</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of short-term investments  - net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,553</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23,979</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26,984</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(556</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,957</TD>
    <TD nowrap>)</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:50px; text-indent:-10px">Net cash (used in) provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,465</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40,941</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(96,975</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55,148</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,873</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>CASH FLOWS FROM FINANCING ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Change in notes payable&#151;net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,683</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(107</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from issuance of common stock&#151;net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net (decrease)&nbsp;increase in cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">986</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,947</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,252</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,884</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">571</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents @ beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,921</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents @ end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,492</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash paid during the year for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">694</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes paid (received)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(608</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1,088</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">The accompanying notes are an integral part of the
consolidated financial statements.



<P align="center" style="font-size: 10pt">F-7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B>



<P align="center" style="font-size: 10pt"><B>YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001</B>



<P align="left" style="font-size: 10pt"><B>1. Nature of Operations and Significant Accounting Policies</B>



<P align="left" style="font-size: 10pt">National Atlantic Holdings Corporation (NAHC)&nbsp;and Subsidiaries (the Company)
was incorporated in New Jersey, on July&nbsp;29, 1994. The Company is a holding
company for Proformance Insurance Company (Proformance), its wholly-owned
subsidiary. Proformance is domiciled in the State of New Jersey and writes
property and casualty insurance, primarily personal auto. NAHC&#146;s initial
capitalization was pursuant to private placement offerings. The initial
stockholders paid $50 per share for 65,400 shares of Class&nbsp;A common stock.



<P align="left" style="font-size: 10pt">On February&nbsp;14, 1995 the Board of Directors approved the offering of up to
15,000 shares at $100 per share of nonvoting Class&nbsp;B common stock. At the end
of 1995, 6,584 shares were issued at $100 per share to new agents and at 105 %
of the net book value to the officers and directors under a one-time stock
purchase program. The average per share price for both issuances of this Class
B common stock was approximately $88 per share. On April&nbsp;7, 1995, the
Certificate of Incorporation was amended to authorize the issuance of up to
100,000 shares of nonvoting common stock.



<P align="left" style="font-size: 10pt">NAHC also has a controlling interest (80&nbsp;percent) in Niagara Atlantic Holdings
Corporation and Subsidiaries (Niagara), which is a New York corporation.
Niagara was incorporated on December&nbsp;29, 1995. The remaining interest (20
percent) is owned by New York agents. Niagara was established as a holding
company in order to execute a surplus debenture and service agreement with
Capital Mutual Insurance (CMI). As of June&nbsp;5, 2000, CMI has gone into
liquidation and is under the control of the New York State Insurance
Department. CMI is no longer writing new business and therefore neither is
Niagara. Niagara had $0 equity value as of December&nbsp;31, 2003 and 2002. NAHC
has no remaining obligations as it relates to the agreement.



<P align="left" style="font-size: 10pt">In addition, NAHC has another wholly owned subsidiary, Riverview Professional
Services, Inc., which was established in 2002 for the purpose of providing case
management and medical cost containment services to Proformance and other
unaffiliated clients.



<P align="left" style="font-size: 10pt">In December&nbsp;2001, NAHC established National Atlantic Financial Corporation
(NAFC), to offer general financing services to its agents and customers. In
November&nbsp;2003, NAFC established a wholly owned subsidiary, Mayfair Reinsurance
Company Limited, for the purpose of assuming reinsurance business as a
retrocessionaire from third party reinsurers of Proformance and providing
reinsurance services to unaffiliated clients.



<P align="left" style="font-size: 10pt">Another wholly owned subsidiary of NAHC is National Atlantic Insurance Agency,
Inc. (NAIA), which was incorporated on April&nbsp;5, 1995. The Company purchased all
1,000 shares of NAIA&#146;s authorized common stock at $1 per share. NAIA obtained
its license to operate as an insurance agency in December&nbsp;1995. The agency
commenced operations on March&nbsp;20, 1996. The primary purpose of this entity is
to service any direct business written by Proformance and to provide services
to agents and policyholders acquired as part of replacement carrier
transactions.



<P align="center" style="font-size: 10pt">F-8
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<P align="left" style="font-size: 10pt">The significant accounting policies followed by the Company in the preparation
of the accompanying consolidated financial statements are as follows:



<P align="left" style="font-size: 10pt"><B><I>Basis of Presentation</I></B><B>&#151;</B>The accompanying financial statements have been prepared
in conformity with accounting principles generally accepted in the United
States of America (GAAP)&nbsp;which differ materially from statutory accounting
practices prescribed or permitted for insurance companies by regulatory
agencies. All significant intercompany transactions and balances have been
eliminated.



<P align="left" style="font-size: 10pt"><B><I>Segment Disclosure</I></B><B>- </B>We manage and report our business as a single segment based
upon several factors. Historically, on average in excess of 90% of our total
consolidated revenues are generated by our insurance subsidiary Proformance
Insurance Company. In addition, although Proformance writes both personal line
and commercial line business, we consider those operating segments as one
operating segment due to the fact that the nature of the products are similar
and they share the same distribution system.



<P align="left" style="font-size: 10pt"><B><I>Use of Estimates</I></B>&#151;The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, 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. The primary estimates made by management involve the
establishment of reserves for losses and loss adjustment expenses. Actual
results could differ from those estimates.



<P align="left" style="font-size: 10pt"><B><I>Cash and Cash Equivalents</I></B>&#151;For purposes of the statements of cash flows, the
Company considers short-term investments with an initial maturity of three
months or less to be cash equivalents.



<P align="left" style="font-size: 10pt"><B><I>Property and Equipment</I></B><I>&#151;</I>Property and equipment are stated at cost. Depreciation
and amortization is provided under the straight-line method based upon the
following estimated useful lives:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="92%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Estimated</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Life (Years)</B></TD>
</TR>

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<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Automobiles</DIV></TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Computer software and electronic data equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amortized over the remaining life of the lease from the date placed in
service.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">Major replacements of, or improvements to, property and equipment are
capitalized. Minor replacements, repairs and maintenance are charged to expense
as incurred. Upon retirement or sale, the cost of the assets disposed and the
related accumulated depreciation and amortization are removed from the accounts
and any resulting gain or loss is recorded in operations. The recoverable
value of property and equipment assets are evaluated at least annually.



<P align="left" style="font-size: 10pt"><B><I>Investments</I></B><I>&#151;</I>Fixed maturity investments which may be sold in response to, among
other things, changes in interest rates, prepayment risk, income tax strategies
or liquidity needs, are classified
as available-for-sale and are carried at market value. Equity securities are
also carried at market value. Changes in market value for fixed maturity
investments and equity securities are credited or charged to stockholders&#146;
equity as other comprehensive income (loss). Short-term securities



<P align="center" style="font-size: 10pt">F-9
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<P align="left" style="font-size: 10pt">are carried
at cost, which approximates market value. Market values are generally based on
quoted market prices. Realized investment gains and losses are recorded on the
specific identification method. All security transactions are recorded on a
trade date basis.



<P align="left" style="font-size: 10pt">The Company considers a number of factors in the evaluation of whether a
decline in value is other-than-temporary including: (a)&nbsp;the financial condition
and near term prospects of the issuer; (b)&nbsp;the Company&#146;s ability and intent to
retain the investment for a period of time sufficient to allow for an
anticipated recovery in value; and (c)&nbsp;the period and degree to which the
market value has been below cost. A fixed maturity security is
other-than-temporarily impaired if it is probable that the Company will not be
able to collect all the amounts due under the security&#146;s contractual terms.
Equity investments are impaired when it becomes apparent that the Company will
not recover its cost over the expected holding period. These adjustments are
recorded as realized investment losses.



<P align="left" style="font-size: 10pt"><B><I>Concentration of Credit Risk</I></B>&#151;Financial instruments which potentially subject
the Company to concentrations of credit risk include cash balances and
marketable debt securities. The Company places its temporary cash investments
with creditworthy financial institutions. The Company holds bonds and notes
issued by the United States government and corporations. By policy, these
investments are kept within limits designed to prevent risks caused by
concentration. Consequently, as of December&nbsp;31, 2003, the Company does not
believe it has significant concentrations of credit risks. The Company is
exposed to a concentration of credit risk with respect to amounts due from
reinsurers. Management monitors the financial condition of their reinsurers and
additional collateral is requested as needed.



<P align="left" style="font-size: 10pt"><B><I>Deferred Policy Acquisition Costs</I></B>&#151;Deferred acquisition costs, which consist of
commissions and other underwriting expenses, are costs that vary with and are
directly related to the underwriting of new policies and are deferred and
amortized over the period in which the related premiums are earned.
Anticipated investment income is considered in the determination of the
recoverability of deferred acquisition costs.



<P align="left" style="font-size: 10pt">Amortized deferred acquisition costs for the years ended December&nbsp;31, 2003,
2002 and 2001 were $26,380,984, $15,128,220 and $5,522,877, respectively.



<P align="left" style="font-size: 10pt"><B><I>Insurance Liabilities/Reserves for Losses and Loss Adjustment Expenses</I></B>&#151;The
provision for unpaid losses and loss adjustment expenses includes individual
case estimates, principally on the basis of reports received from claim
adjusters engaged by the Company, for losses reported prior to the close of the
year and estimates with respect to incurred but not reported (IBNR)&nbsp;losses and
loss adjustment expenses, net of anticipated salvage and subrogation. The
method of making such estimates and for establishing the resulting reserves is
continually reviewed and updated, and adjustments resulting therefrom are
reflected in current operations. The estimates are determined by management and
are based upon industry data relating to loss and loss adjustment expense
ratios as well as the Company&#146;s historical data. The unpaid losses and unpaid
loss adjustment expenses presented in these financial statements have not been
discounted.



<P align="left" style="font-size: 10pt">This liability is subject to the impact of changes in claim severity, frequency
and other factors which may be outside of the Company&#146;s control. Despite the
variability inherent in such estimates, management believes that the liability
for unpaid losses and loss adjustment expenses is adequate and represents its
best estimate of the ultimate cost of investigating, defending and
settling claims. However, the Company&#146;s actual future experience may not
conform to the assumptions inherent in the determination of this liability.
Accordingly, the ultimate settlement of




<P align="center" style="font-size: 10pt">F-10
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<P align="left" style="font-size: 10pt">these losses and the related loss
adjustment expenses may vary significantly from the amounts included in the
accompanying financial statements.



<P align="left" style="font-size: 10pt"><B><I>Recognition of Premium Revenues</I></B>&#151;Premiums written or assumed are earned on a
daily pro-rata basis over the estimated life of the policy or reinsurance
contract. Unearned premiums are established and represent the portion of net
premiums which is applicable to the unexpired terms of policies in force.



<P align="left" style="font-size: 10pt"><B><I>Recognition of Replacement Carrier Revenues</I></B>&#151;Revenue from replacement carrier
contracts is recognized pro-rata over the period as the Company completes the
obligations under the terms of the agreement, typically the renewal option
period of the policyholders ranging from six months to a year, as required
pursuant to the terms of the contract. Certain replacement carrier contracts
require additional consideration to be paid to the Company based on an
evaluation of premiums written to surplus. The calculation is performed and
related revenue is recognized as earned annually pursuant to the terms of the
contract. See note 3.



<P align="left" style="font-size: 10pt"><B><I>Accounting for Reinsurance</I></B>&#151;The Company accounts for reinsurance in conformity
with Statement of Financial Accounting Standards No.&nbsp;113, <I>Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts. </I>This
standard requires the Company to report assets and liabilities relating to
reinsured contracts gross of the effects of reinsurance. The standard also
establishes the conditions required for a contract with a reinsurer to be
accounted for as reinsurance and prescribes accounting and reporting standards
for such contracts.



<P align="left" style="font-size: 10pt">The Company contracts with insurance companies, which assume portions of the
risk undertaken. The Company remains the primary obligee to the extent any
reinsurer is unable to meet its obligations under the existing reinsurance
agreements. The reinsurance contracts are accounted for on a basis consistent
with that used in the accounting of the direct policies issued by the Company.



<P align="left" style="font-size: 10pt"><B><I>Income Taxes&#151;</I></B>The Company files a consolidated federal tax return. Under the
tax allocation agreement, current federal income tax expense (benefit)&nbsp;is
computed on a separate return basis and provides that members shall make
payments (receive reimbursements) to the extent that their income (losses and
other credit) contributes to (reduces)&nbsp;consolidated federal income tax expense.
The member companies are reimbursed for the tax attributes they have generated
when utilized in the consolidated return.



<P align="left" style="font-size: 10pt">The Company recognizes taxes payable or refundable for the current year, and
deferred taxes for the future tax consequences of differences between the
financial reporting and tax basis of assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years the temporary differences between the carrying
amounts of assets and liabilities for finance reporting purposes and the
amounts used for income tax purposes are expected to reverse.



<P align="left" style="font-size: 10pt"><B><I>Stock Options</I></B>&#151;The Company adopted Statement of Financial Accounting Standards
No.&nbsp;123, <I>Accounting for Stock-Based Compensation </I>(SFAS 123), in 1996. Under the
provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value based method or continue measuring
compensation expenses for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No.&nbsp;25, <I>Accounting for Stock
Issued
to Employees </I>(APB 25) and related interpretations. In December&nbsp;2002, the FASB
issued SFAS No.&nbsp;148 which amended the disclosure requirements of SFAS No.&nbsp;123
to require prominent




<P align="center" style="font-size: 10pt">F-11
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<P align="left" style="font-size: 10pt">disclosures in financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
on reported results. The Company has elected to continue using the intrinsic
value method (APB No.&nbsp;25) to account for stock based compensation plans.



<P align="left" style="font-size: 10pt">The following table presents the Company&#146;s pro forma net income (loss)&nbsp;for the
years ended December&nbsp;31, assuming the Company had used the fair value method
(SFAS No.&nbsp;123) to recognize compensation expense with respect to its options:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(unaudited)<BR>Three months ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Years ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)  - as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,017,417</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,166,681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,155,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,006,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864,395</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Plus: Compensation expense recorded
against income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">419,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deduct: Total stock-based employee
compensation expense determined
under fair value method for all awards,
net of related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(123,149</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(59,002</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(418,559</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(130,973</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(553</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,014,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,166,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,156,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,993,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864,948</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income per weighted average shareholding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic  - as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">185.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic  - proforma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">185.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted  - as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">62.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">162.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted  - proforma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">62.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">162.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">77.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">The above pro forma information has been determined as if the Company had
accounted for its employees&#146; stock options under the fair value method. The
fair value of the options was estimated at the date of grant using the
Black-Scholes option-pricing model with a volatility factor assumed to be zero
percent and the following weighted average assumptions:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Risk-free interest yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.0</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average life</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">3 Years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">3 Years</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">3 Years</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">The weighted average fair value of options granted whose exercise price was
equal to the market price of the stock on the date of grant during the years
ended December&nbsp;31, 2003, 2002 and 2001 was $0, $0 and $61,132, respectively.



<P align="left" style="font-size: 10pt">The weighted average fair value of options granted whose exercise price was
less than the market price of the stock on the date of grant during the years
ended December&nbsp;31, 2003, 2002 and 2001 was $1,000,000, $734,800 and $0,
respectively. The weighted average exercise price of options granted whose
exercise price was less than market price of the stock on the date of grant was
$263.98 and $25.91 and $0, respectively.




<P align="center" style="font-size: 10pt">F-12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">Option pricing models require the input of highly subjective assumptions.
Because the Company&#146;s employee stock has characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management&#146;s opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.



<P align="left" style="font-size: 10pt"><B><I>Retirement Plans</I></B>&#151;The Company has a contributory savings plan for salaried
employees meeting certain service requirements, which qualifies under Section
401(k) of the Internal Revenue Code of 1986. Retirement plan expense for the
year ended December&nbsp;31, 2003, 2002 and 2001 amounted to $149,760, $127,730 and
$67,318, respectively.

<P align="left" style="font-size: 10pt"><B><I>Unaudited Interim
Statements</I></B>&#151;The interim consolidated financial statements
as of March&nbsp;31, 2004, and for the three months ended,
March&nbsp;31, 2004 and 2003 and the financial data and other
information for these periods disclosed in these notes to the
consolidated financial statements are unaudited. In the opinion of
management, the Company has made all adjustments,
consisting primarily of normal recurring accruals, necessary for a
fair presentation of the financial condition of the Company as of
March&nbsp;31, 2004, the results of operations, comprehensive income
(loss), changes in stockholders&#146; equity and cash flows for the
three-month periods ended March&nbsp;31, 2004 and 2003, as presented
in the accompanying unaudited interim financial statements.

<P align="left" style="font-size: 10pt"><B>2. INVESTMENTS</B>



<P align="left" style="font-size: 10pt">The amortized cost and estimated market value of the investment portfolio,
classified by category, as of December&nbsp;31, 2003 are as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Estimated</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amortized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Market</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gains</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Losses)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed maturities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">U.S. Government,
government agencies
and authorities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,633,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(338,138</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,313,392</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State, local government
and agencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,261,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,281,161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Industrial and miscellaneous</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,903,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(205,222</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,814,909</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total fixed maturities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,798,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">154,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(543,360</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,409,462</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other Investments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Short-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,117,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">763,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(288,038</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593,084</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">170,485,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">917,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(831,398</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">170,571,991</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">The amortized cost and estimated market value of the investment portfolio,
classified by category, as of December&nbsp;31, 2002 are as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Estimated</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amortized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Market</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gains</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Losses)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed maturities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">U.S. Government,
government agencies
and authorities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,071,671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">175,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,246,805</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State, local government
and agencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,661,642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17,662</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,686,306</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Industrial and miscellaneous</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,445,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">511,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18,527</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,938,178</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total fixed maturities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,178,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">728,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36,189</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,871,289</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other Investments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Short-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,363</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,673,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(232,817</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,507,693</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">73,449,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">796,073</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(269,006</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">73,976,345</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">The fair value of available-for-sale securities at December&nbsp;31, 2003, by
contractual maturity, are shown below. Expected maturities may differ from
stated maturities because issuers may have the right to call or prepay certain
obligations with or without prepayment penalties.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="71%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Due in one year or less</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,212,235</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Due in one year through five years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,225,758</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Due in five years through ten years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,107,077</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Due in ten through twenty years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,450,768</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Due in over twenty years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,413,624</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">130,409,462</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">As of December&nbsp;31, 2003 and 2002, the Company held no investments that were
below investment grade or not rated by an independent rating agency.



<P align="left" style="font-size: 10pt">The Company has placed securities on deposit having a fair value of $208,724
and $209,170 at December&nbsp;31, 2003 and 2002 respectively in order to comply with
New Jersey state insurance regulatory requirements.



<P align="center" style="font-size: 10pt">F-14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">Sales of fixed maturity and equity securities for the periods ended December&nbsp;31
are shown below:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proceeds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">75,990,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,890,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,313,474</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross realized gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,802,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">388,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross realized losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(430,213</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(78,393</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,718</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">No other-than-temporary impairments were recognized for the periods ended
December&nbsp;31, 2003, 2002 and 2001.



<P align="left" style="font-size: 10pt">The components of net investment income earned were as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Years Ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,199,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,675,194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,140,110</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Dividend income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">312,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,950</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,512,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,713,816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,153,060</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(254,790</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(120,938</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(68,104</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net investment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,257,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,592,878</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,084,956</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B><I>Adoption of New Accounting Pronouncements </I></B><B>- </B>Effective December&nbsp;31, 2003, the
Company adopted the disclosure requirements of Emerging Issues Task Force
(&#147;EITF&#148;) Issue No.&nbsp;03-01, <I>The Meaning of Other-Than-Temporary Impairment and
Its Applications of Certain Investments</I>. Under the consensus, disclosures are
required for unrealized losses on fixed maturity and equity securities
accounted for under SFAS No.&nbsp;115, <I>Accounting for Certain Investment in Debt and
Equity Securities</I>, which are classified as either available-for-sale or
held-to-maturity. The disclosure requirements include quantitative information
regarding the aggregate amount of unrealized losses and the associated fair
value of the investments in an unrealized loss position, segregated into time
periods for which the investments have been in an unrealized loss position.
The consensus also requires certain qualitative disclosures about the holdings
in an unrealized loss position in order to provide additional information that
the Company considered in concluding that the unrealized losses were not
other-than-temporary. The recognition and impairment guidance of this Issue
should be applied to other-than-temporary impairment evaluations in reporting
periods beginning after June&nbsp;15, 2004. Management is in the process of
assessing the impact of adopting the recognition and measurement guidance of
EITF Issue No.&nbsp;03-01.



<P align="left" style="font-size: 10pt">Fixed maturity securities having an unrealized loss of $543,360, a fair value
of $14,211,383 and an amortized cost of $14,754,743 as of December&nbsp;31, 2003
have been in a continuous unrealized loss position for less than twelve months.




<P align="center" style="font-size: 10pt">F-15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">Equity and preferred securities having an unrealized loss of $288,038, a fair
value of $2,786,840 and an amortized cost of $3,074,878 as of December&nbsp;31, 2003
have been in a continuous unrealized loss position for less than twelve months.



<P align="left" style="font-size: 10pt">The Company&#146;s gross unrealized losses represented 0.5% of cost or amortized
cost of the investment portfolio. Fixed maturities represented 77% of the
investment portfolio and 65% of the unrealized losses as of December&nbsp;31, 2003.
There were no securities that were in an unrealized loss position for twelve
months or more as of December&nbsp;31, 2003.



<P align="left" style="font-size: 10pt">The fixed income securities in an unrealized loss position are primarily above
investment grade securities with extended maturity dates, which have been
adversely impacted by the increase in interest rates after the purchase date.
As part of the ongoing security monitoring process by the Company&#146;s investment
manager and investment committee, it was concluded that there were no
other-than-temporary impairments of the portfolio as of December&nbsp;31, 2003. It
is the management&#146;s position with the committee&#146;s confirmation that the
securities that are temporarily impaired are of quality and continue to pay in
accordance with their contractual terms with the expectation that they will
continue to do so.



<P align="left" style="font-size: 10pt">The evaluation for other-than-temporary impairments is a quantitative and
qualitative process, which is subject to risks and uncertainties in the
determination of whether declines in the fair value of investments are
other-than-temporary. The risks and uncertainties include changes in general
economic conditions, the issuer&#146;s financial condition or near term recovery
prospects and the effects of changes in interest rates.



<P align="center" style="font-size: 10pt">F-16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">The changes in net unrealized investment gains (losses)&nbsp;were as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Fixed Maturities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at January&nbsp;1,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">456,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(7,207</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(69,512</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unrealized investment gains (losses)&nbsp;during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,081,738</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">703,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,401</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">367,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(239,123</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32,096</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at December&nbsp;31,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(256,974</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">456,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(7,207</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net change in unrealized investment gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(713,947</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">464,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">62,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Equity Securities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at January&nbsp;1,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(109,109</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(42,437</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(122,885</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unrealized investment gains (losses)&nbsp;during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">641,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(99,988</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,891</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(217,945</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,443</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at December&nbsp;31,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">313,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(109,109</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(42,437</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net change in unrealized investment gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">423,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(66,672</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80,448</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">Net realized gains (losses)&nbsp;were as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed maturities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,546,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">592</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">388,199</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(173,902</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55,811</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,717</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,372,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(55,219</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">346,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>3. REPLACEMENT CARRIER TRANSACTIONS</B>



<P align="left" style="font-size: 10pt"><B>Ohio Casualty</B>



<P align="left" style="font-size: 10pt">On December&nbsp;18, 2001 the Company entered into a replacement carrier agreement
with Ohio Casualty Insurance Company (OCIC)&nbsp;and Ohio Casualty of New Jersey,
Inc. (OCNJ)&nbsp;pursuant to where OCNJ would transfer to Proformance the obligation
to offer renewals for all of OCNJ&#146;s New Jersey private passenger automobile
business, effective March&nbsp;18, 2002. In accordance with the agreement, OCNJ
ceased issuing private passenger automobile policies in the State of New
Jersey. As part of the withdrawal, Proformance became the replacement carrier
for OCNJ,




<P align="center" style="font-size: 10pt">F-17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">providing OCNJ&#146;s policyholders with a guaranteed option to renew their policies
over a twelve month period. OCNJ retains all rights and responsibilities
related to policies issued by OCNJ and is responsible to issue any endorsements
in the ordinary course of business prior to the renewal date. The policies
renew every six months. As part of the transaction, OCNJ paid Proformance
$41,100,000, of which $500,000 was paid at the contract date and $40,600,000
was paid in twelve equal monthly installments of $3,833,333, with the first
payment due on March&nbsp;18, 2002.


<P align="left" style="font-size: 10pt">In connection with this transaction, OCIC acquired a 19.71&nbsp;percent interest (at
the time of the transaction) in the Company by purchasing 20,185 shares of
Class&nbsp;B nonvoting common stock. The Company valued the stock issued as part of
the transaction at $13,500,000, based on a valuation performed for the Company.
The remaining $27,600,000 was earned evenly as replacement carrier revenue
over the twelve month period beginning on March&nbsp;18, 2002, consistent with the
terms of the contract.


<P align="left" style="font-size: 10pt">In addition, as part of the agreement, there is also a provisional amount due
to the Company pursuant to which OCNJ will pay to the Company up to $15,600,000
of additional consideration as necessary to reduce the premium-to-surplus ratio
to 2.5 to 1 on the renewal business for a three year period based on
calculations performed at each calendar year-end. For the years ended December
31, 2003 and 2002, the Company recognized additional consideration of
$6,820,000 and $0, respectively, as replacement carrier revenue in accordance
with the terms of the contract.


<P align="left" style="font-size: 10pt">At December&nbsp;31, 2003 and 2002, amounts due from OCNJ relating to the
transaction amounted to $6,820,000 and $6,766,667, respectively. Deferred
revenue relating to the contract amounted to $5,916,987 at December&nbsp;31, 2002.


<P align="left" style="font-size: 10pt"><B>Metropolitan Property and Casualty Insurance Company</B>


<P align="left" style="font-size: 10pt">On September&nbsp;2, 2003, the Company entered into a replacement carrier agreement
with Metropolitan Property and Casualty Insurance Company (Met) pursuant to
which Met would transfer to Proformance the obligation to offer renewals for
all of Met&#146;s New Jersey personal lines business, effective January&nbsp;1, 2004. In
accordance with the agreement, Met ceased issuing new personal lines policies
in the State of New Jersey. As part of the withdrawal, Proformance became the
replacement carrier for Met, providing Met&#146;s policyholders with a guaranteed
option to renew their policies over a six month period. As part of the
transaction, Met was required to pay Proformance consideration of $10,090,909
and purchase 10,000 shares of class B nonvoting stock for $10,000,000, which
represented a 9% interest at the time of the transaction, based upon the
Company&#146;s valuation. The $10,090,909 has all been considered deferred revenue
at December&nbsp;31, 2003 and will be earned evenly over the six month period
beginning on January&nbsp;1, 2004.


<P align="left" style="font-size: 10pt"><B>Sentry Insurance Company</B>


<P align="left" style="font-size: 10pt">The Company entered into a replacement carrier agreement on March&nbsp;14, 2003 with
Sentry Insurance Mutual Company (Sentry) pursuant to which Sentry would
transfer to Proformance the obligation to offer renewals for all of Sentry&#146;s
New Jersey personal lines business, effective December&nbsp;30, 2003. In accordance
with the agreement, Sentry ceased issuing new personal lines policies in the
State of New Jersey. As part of the withdrawal, Proformance became the
replacement carrier for Sentry, providing Sentry&#146;s policyholders with a
guaranteed option to renew their policies over a twelve month period. As part
of the transaction, Sentry was required to pay the Company $3,500,000 in four
equal quarterly installments of $875,000 with the first payment on October&nbsp;23,
2003. The replacement carrier revenue will be earned evenly over the



<P align="center" style="font-size: 10pt">F-18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">twelve
month period beginning on January&nbsp;1, 2004, the date that the first notices of
renewal to each policyholder were processed and issued.


<P align="left" style="font-size: 10pt">In addition, as part of the agreement, there is also a provisional amount due
to the Company pursuant to which Sentry will pay to the Company up to
$1,250,000 of additional consideration as necessary to reduce the
premium-to-surplus ratio to 2.5 to 1 on the renewal business for a three year
period based on calculations preformed at each calendar year-end. At December
31, 2003, the Company has determined that no amount is currently recoverable.


<P align="left" style="font-size: 10pt">At December&nbsp;31, 2003 amounts due from Sentry relating to the transaction
amounted to $2,625,000. Deferred revenue relating to the contract amounted to
$3,500,000 at December&nbsp;31, 2003.


<P align="left" style="font-size: 10pt"><B>4. REINSURANCE ACTIVITY</B>


<P align="left" style="font-size: 10pt">In the ordinary course of business, the Company reinsures certain risks with
other companies. Such arrangements serve to limit the Company&#146;s maximum loss
from catastrophes, large risks and unusually hazardous risks. To the extent
that any reinsuring company is unable to meet its obligations, the Company
would be liable for its respective participation in such defaulted amounts. The
Company does not require or hold any collateral to secure the amounts
recoverable. In addition the Company does not have any reinsurance treaties
with retroactive adjustments or contingent commissions.


<P align="left" style="font-size: 10pt">For the years ended December&nbsp;31, 2003, 2002 and 2001, the Company reinsured its
business through various excess of loss reinsurance agreements and catastrophe
reinsurance agreements. The various excess of loss agreements provide
protection for losses and loss adjustment expenses in excess of $250,000 per
occurrence. Effective on July&nbsp;1, 2003, the Company entered into a Multiple Line
Loss Ratio Excess of loss treaty. Under the terms of the treaty the Company
retains the risk up to an ultimate net loss ratio of 80&nbsp;percent of subject
written premiums in force for the one six month term of the contract. The
reinsurer assumes the risk for 11&nbsp;percent of subject premiums in excess of 80
percent up to a maximum of $15,000,000. Any losses exceeding the reinsurers
liability remains the liability of the company.


<P align="left" style="font-size: 10pt">Under the terms of the contract, the Company is entitled to an experience
rating adjustment based on reinsurance premiums paid net of ceding commissions
and reinsurers margin, which is determined by a specific formula outline in the
contract. The ceding enterprise should recognize an asset and the assuming
enterprise should recognize a liability to the extent that any cash (or other
consideration) would be payable from the assuming enterprise to the ceding
enterprise based on experience to date under the contract. The Company commuted
the contract effective December&nbsp;31, 2003. Accordingly, as of December&nbsp;31, 2003,
the Company accrued for a reinsurance receivable which was received on May&nbsp;28,
2004 in the amount of $10,050,000. In connection with this commutation, the
Company recognized the amounts received as a decrease in ceded premium of
$10,050,000.




<P align="center" style="font-size: 10pt">F-19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">A summary of reinsurance transactions are as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2001</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Written</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Earned</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Written</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Earned</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Written</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Earned</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Direct</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">163,178,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">158,409,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">114,624,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,418,626</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,757,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">47,971,847</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,719,644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,693,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,546,694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,544,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,993</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Gross</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,898,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160,103,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,170,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,963,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,810,719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,025,840</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ceded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,665,730</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,759,585</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,739,145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,503,364</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,312,146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,594,094</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">149,232,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">145,344,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">111,431,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76,459,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,498,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,431,746</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Reinsurance assumed relates to mandated premiums from the New Jersey Commercial
Auto Insurance Procedure.


<P align="left" style="font-size: 10pt">The Company reported reinsurance recoverables on paid losses and loss
adjustment expenses of $5,017,349, $3,687,466 and $2,397,637 at December&nbsp;31,
2003, 2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">The Company also reported reinsurance recoverables on unpaid losses and loss
adjustment expenses of approximately $21,329,000, $19,431,000 and $26,718,000
at December&nbsp;31, 2003, 2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">Incurred losses and loss adjustment expenses ceded to reinsurers totaled
$16,822,000, $16,172,000 and $14,305,000 at December&nbsp;31, 2003, 2002 and 2001,
respectively.


<P align="left" style="font-size: 10pt">Reinsurance recoverables on ceded paid and unpaid losses, loss adjustment
expenses and ceded unearned premiums and reinsurance receivable from individual
reinsurers in excess of 3&nbsp;percent of the Company&#146;s equity were as follows for
the year ended December&nbsp;31 (000&#146;s omitted):


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gerling Global Reinsurance Corp. of America</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,087</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Scor Reinsurance Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">American Reinsurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,772</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Odyssey America Reinsurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,652</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">In 2002, the Company commuted an aggregate stop loss treaty with Odyssey
American Reinsurance. The commutation was initiated and accrued for in December
2002 and the return premium was received on March&nbsp;7, 2003 in the amount of
$3,379,500. The commutation was recognized as a decrease in ceded premium.


<P align="left" style="font-size: 10pt">In 2003, the Company commuted all treaties held with Gerling Global Reinsurance
Corporation (Gerling), due to credit downgrades and the financial deterioration
of Gerling. In March&nbsp;2003, The Company received $6,200,000 from Gerling in
full settlement of their liability. The Company recognized the amount received
as a reduction of reinsurance recoverables, ceded loss and loss adjustment
expense reserves in the amount of $2,047,612, $3,805,535 and $346,853,
respectively (thereby increasing net losses and loss adjustment expenses
incurred) in the current year. The Company also decreased its net loss and
loss adjustment expenses paid (thereby decreasing net losses and loss
adjustment expenses incurred) to recognize the effect of releasing Gerling from
its obligations under the treaties. The Company recorded a net loss of
$235,999 on the transaction.




<P align="center" style="font-size: 10pt">F-20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt"><B>5. RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES</B>


<P align="left" style="font-size: 10pt">The changes in unpaid losses and loss adjustment expenses are summarized as
follows (000&#146;s omitted):


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance as of beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,350</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less reinsurance recoverable on unpaid losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,431</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26,718</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,961</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net balance as of beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,389</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Incurred related to:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,400</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Prior period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,938</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total incurred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,338</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Paid related to:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,168</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Prior period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,545</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,713</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net balance as of December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Plus reinsurance recoverable on unpaid losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,329</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,718</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance as of December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,732</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">As a result of changes in estimates of insured events in prior years, incurred
losses in prior years increased by approximately $76,000 in 2003, $8,630,000 in
2002 and $8,938,000 in 2001 because of higher than anticipated losses on the
private passenger automobile, automobile physical damage and commercial
automobile liability, as well as reserve strengthening during 2002 and 2001.
The incurred losses related to prior years of $76,000 in 2003 included the
previously discussed, Gerling commutation loss of $235,999 which was offset by
favorable loss development on prior accident year reserves.


<P align="left" style="font-size: 10pt"><B><I>Environmental Reserves </I></B><I>- </I>The Company&#146;s exposure to environmental claims arises
solely from the sale of Homeowners policies. The exposure to environmental
claims which may also be referred to as &#147;pollution,&#148; &#147;hazardous waste,&#148; or
&#147;environmental impairment liability&#148; was due to leakage of underground fuel
storage tanks, which contaminated the surrounding soil and ground water.


<P align="left" style="font-size: 10pt">The Company establishes full case reserves for all reported environmental
claims. Reserves for losses incurred but not reported (IBNR)&nbsp;include a
provision for development of reserves on reported losses. The Company&#146;s IBNR
reserves are established based on a review of a number of actuarial analyses.




<P align="center" style="font-size: 10pt">F-21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">The table balance represents the loss activity related to environmental
exposures for the periods ended December&nbsp;31, 2003, 2002 and 2001 (000&#146;s
omitted):


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Environmental, Gross of Reinsurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Beginning Reserves -  including case, bulk and IBNR, and
LAE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Losses and LAE incurred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">849</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Calendar year payments for losses and LAE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">549</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Ending reserves - including case, bulk and IBNR, and LAE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">471</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Environmental, net of reinsurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Beginning Reserves - including case, bulk and IBNR, and
LAE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Losses and LAE incurred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Calendar year payments for losses and LAE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">385</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Ending reserves - including case, bulk and IBNR, and LAE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><B>6. INCOME TAXES</B>


<P align="left" style="font-size: 10pt">The Company and its subsidiaries file a consolidated Federal income tax return.


<P align="left" style="font-size: 10pt">The components of the provision (benefit)&nbsp;for income taxes on income for the
years ended December&nbsp;31, 2003, 2002 and 2001 are as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Taxes on income before income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">457,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(606,294</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,531,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,014,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,000,094</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,989,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,014,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,606,388</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">The components of deferred tax assets and deferred tax liabilities are as
follows for the years ending December&nbsp;31, 2003 and 2002:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">20% UPR adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,160,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,896,510</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Loss reserve discount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,424,851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,488,005</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">685</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Bad debt reserve</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,045</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unrealized losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">282,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,462</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Incentive stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,018</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Charitable contribution carryover</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,099</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Loss on NJ CAIP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">453,220</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">NOL carryforward</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">904,821</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">GAAP reserve differentials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,400,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,706,900</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred tax assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,728,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,793,765</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred tax liability:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred acquisistion costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,962,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,902,754</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrual of bond discount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,727</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred revenues - special surplus funds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,702,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,372,224</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unrealized gains</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">312,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">270,665</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Due &#038; Accrued dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,051</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,346</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrued income reinsurance recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,817,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,963,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,648,767</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net deferred tax income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(8,235,652</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,144,998</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">The income tax rate reconciliation for the years ended December&nbsp;31, 2003, 2002
and 2001 is as follows (000&#146;s omitted):


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pre Tax Net Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(10,470</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income Tax Statutory Rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,560</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.00</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Tax Exempt Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(230</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.79</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.09</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.53</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">DRD</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.19</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.07</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proration</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.15</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.02</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.09</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Life insurance expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.09</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">State taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.37</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Release of valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,161</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-9.66</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(105</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.36</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.87</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">-0.04</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Subtotal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.27</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">25.07</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,606</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.44</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign tax credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total income tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.27</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">25.07</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,606</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34.44</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">Income tax provision in 2002 was less than the amount of tax computed using the
statutory tax rate primarily due to the reduction in the valuation allowance
for deferred tax assets. The valuation allowance of $1,161,000 was originally
recorded in 2000 and related to net operating losses arising from the Niagara
subsidiary. Due to Niagara&#146;s history of losses it was determined that it was
more likely than not that the asset would not be recovered. However, due to
the tax law changes enacted in 2002 that allowed for a 5&nbsp;year carry-back of the
net operating losses generated in 2001, the Niagara net operating loss was
fully utilized in 2002.


<P align="left" style="font-size: 10pt">In 2001, net operating losses of $1,274,894 were used and $3,428,748 of losses
were carried forward to 2002. Of these losses carried forward, $767,511 were
used in 2002 leaving a remaining loss carry forward of $2,661,237 which was
fully utilized in 2003.


<P align="left" style="font-size: 10pt"><B>7. PROPERTY AND EQUIPMENT</B>


<P align="left" style="font-size: 10pt">Property and equipment consisted of the following at December&nbsp;31:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Automobiles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">264,682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">93,945</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Computer Software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,834</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Furniture &#038; fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">560,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">497,973</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,047</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Electronic data equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,629,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,475,902</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,616,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,142,701</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less: Accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,534,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,222,600</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,081,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">920,101</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Depreciation and amortization expense amounted to $312,351, $285,250 and
$183,885 in 2003, 2002 and 2001, respectively.


<P align="left" style="font-size: 10pt"><B>8. CAPITAL TRANSACTIONS</B>


<P align="left" style="font-size: 10pt">As discussed in Note 3, the Company issued 10,000 shares of Class&nbsp;B common
stock to Met for $10,000,000.


<P align="left" style="font-size: 10pt">On August&nbsp;1, 2003 the company made a private offering to certain former
personal lines agents of OCNJ. The offering was of up to 5,000 shares at $1,000
per share of nonvoting Class&nbsp;B common stock. At the end of 2003, 2,500 shares
were issued at $1,000 per share to the former agents of OCNJ.


<P align="left" style="font-size: 10pt">During 2002, the Company cancelled 1,050 shares of Class&nbsp;A Common Stock and
reissued 1,050 shares of Class&nbsp;B Common Stock.


<P align="left" style="font-size: 10pt">As discussed further in Note 3, the company sold 20,185 shares of Class&nbsp;B
Non-voting Common shares to OCIC which was valued by the Company at $13,500,000
at the time of the transaction. This represented 19.71&nbsp;percent of the
outstanding shares of the Company at December&nbsp;18, 2001.




<P align="center" style="font-size: 10pt">F-24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">Pursuant to an investor rights agreement entered into between OCIC and NAHC on
December&nbsp;18, 2001, OCIC had a right to require NAHC to redeem all equity
securities of NAHC owned by OCIC for fair market value at any time (i)&nbsp;on or
after December&nbsp;18, 2006 or (ii)&nbsp;prior to December&nbsp;18, 2006 if NAHC delivers
notice of a change in control event as defined in the agreement. On July&nbsp;10,
2004, OCIC and NAHC entered into an agreement which would facilitate the sale
by OCIC of shares of common stock of NAHC owned by OCIC that have an aggregate
value of equal to at least 10% of the aggregate value of all shares of common
stock sold by NAHC as part of an initial public offering. In exchange for the foregoing, OCIC agreed to waive its
redemption right. As such, the related common stock is considered permanent
capital.


<P align="left" style="font-size: 10pt"><B>9. STOCK OPTIONS</B>


<P align="left" style="font-size: 10pt">During 1995, the Company developed a stock option plan for key management
employees and directors. Options are exercisable when the earliest of the
following events occur: three years from date of issuance, date of retirement
or expiration of the Director&#146;s term, date of change of control, or the date of
an offering of its shares through an initial public offering. The options
expire 10&nbsp;years after the date of grant. The options are also nontransferable
and contain further restrictions imposed after the options have vested. If
options are exercised then the shareholders cannot transfer their shares unless
the transfer is permitted by the Company and the Company has first right to
purchase all or any of the shares offered for sale. These restrictions have
been taken into account when determining the fair value of the stock.


<P align="left" style="font-size: 10pt">The following table summarizes information with respect to stock options
outstanding as of December&nbsp;31:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance Outstanding at January&nbsp;1, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85.55</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance Outstanding at December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80.90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.91</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance Outstanding at December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76.77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">263.98</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance Outstanding at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">88.74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-25
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Weighted average fair value of options granted (per option)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,000.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">668.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">42.16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">The following table summarizes information about stock options outstanding at
December&nbsp;31, 2003:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="32%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="13"><B>Options Outstanding</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Options Exercisable</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Range of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Life</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Prices</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(in years)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Options</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:40px; text-indent:-10px">$25.91</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:20px; text-indent:-10px">42.16 - 55.63</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.89</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:10px; text-indent:-10px">107.46 - 124.37</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112.82</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:30px; text-indent:-10px">263.98</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">263.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD align="center"><DIV style="margin-left:40px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">88.74</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85.55</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center"><DIV style="margin-left:40px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">The number of exercisable stock options outstanding at December&nbsp;31, 2003, 2002
and 2001 were 12,100, 12,100 and 10,750, respectively.


<P align="left" style="font-size: 10pt">Compensation expense recorded in connection with the options issued during 2003
was $184,005 for the year ended December&nbsp;31, 2003. The unamortized deferred
compensation in connection with these options was $552,015 as of December&nbsp;31,
2003.


<P align="left" style="font-size: 10pt">Compensation expense recorded in connection with the options issued during 2002
was $235,432 and $117,717 for the years ended December&nbsp;31, 2003 and 2002,
respectively. The unamortized deferred compensation in connection with these
options was $353,150 and 588,582 as of December&nbsp;31, 2003 and 2002,
respectively.


<P align="left" style="font-size: 10pt">The company is not authorized to grant additional options.


<P align="left" style="font-size: 10pt"><B>10. CONTINGENCIES AND COMMITMENTS:</B>


<P align="left" style="font-size: 10pt"><B><I>Litigation</I></B>&#151;The Company is subject to legal proceedings and claims which arise
in the ordinary course of its business. The Company accounts for such activity
through the establishment of unpaid claims and claim adjustment expense
reserves. Management does not believe that the outcome of any of those matters
will have a material adverse effect on the Company&#146;s financial position,
operating results or cash flows.


<P align="left" style="font-size: 10pt"><B><I>Operating Leases</I></B>&#151;The Company has entered into a seven-year lease agreement for
the use of office space and equipment. The most significant obligations under
the lease terms are the reimbursement of the Company&#146;s share of the operating
expenses of the premises, which include real estate taxes, repairs and
maintenance, utilities, and insurance. Net rent expense for 2003, 2002 and 2001
was $743,200, $475,710 and $342,500, respectively.




<P align="center" style="font-size: 10pt">F-26
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">Aggregate minimum rental commitments of the Company as of December&nbsp;31, 2003 are
as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="63%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">694,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">694,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">694,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">694,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">694,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2009 and thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">636,350</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,107,350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">In connection with the lease agreement, the Company executed a letter of credit
in the amount of $300,000 as security for payment of the base rent.


<P align="left" style="font-size: 10pt"><B><I>Guarantee fund and assessment</I></B>&#151;The Company is subject to guaranty fund and other
assessments by the State of New Jersey. The Company collects from its
policyholders an amount that represents the anticipated liability for guaranty
fund and other assessments, which represents management&#146;s best estimate of the
liability.


<P align="left" style="font-size: 10pt">New Jersey law requires that property and casualty insurers licensed to do
business in New Jersey participate in the New Jersey Property-Liability
Insurance Guaranty Association (which we refer to as NJPLIGA). Members of
NJPLIGA are assessed the amount NJPLIGA deems necessary to pay its obligations
and its expenses in connection with handling covered claims. Subject to
certain exceptions, assessments are made in the proportion that each member&#146;s
net direct written premiums for the prior calendar year for all property and
casualty lines bear to the corresponding net written premiums for NJPLIGA
members for the same period. NJPLIGA notifies the insurer of the assessment to
the policyholders as a percentage of premiums. The Company records the amounts
received as a liability and remit the amounts to NJPLIGA when billed. The
Company collects these amounts on behalf of the NJPLIGA and there is no income
statement impact.


<P align="left" style="font-size: 10pt">In 2003, Proformance was assessed $407,947, as its portion of the losses due to
insolvencies of certain insurers. We anticipate that there will be additional
assessments from time to time relating to insolvencies of various insurance
companies. We are allowed to re-coup these assessments from our policyholders
over time until we have recovered all such payments.


<P align="left" style="font-size: 10pt">A summary of guarantee fund transactions are as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>at December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">486,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">382,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">171,749</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">124,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-27
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>11. OTHER COMPREHENSIVE INCOME (LOSS)</B>




<P align="left" style="margin-left:3%; font-size: 10pt">The tax effect of other comprehensive income is as follows for the years
ended December&nbsp;31:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before Tax</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Tax</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net of Tax</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Effect</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net holding gains arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">95,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(32,468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">63,027</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less reclassification adjustment for net
realized gains included in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(536,218</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(353,904</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(440,723</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">149,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(290,877</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before Tax</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Tax</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net of Tax</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Effect</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2002</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net holding gains arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">670,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(230,043</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">440,937</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less reclassification adjustment for net
realized gains included in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(67,665</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(43,429</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">603,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(205,807</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">397,508</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before Tax</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Tax</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net of Tax</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Effect</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2001</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net holding gains arising during the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">486,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(165,566</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">321,393</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less reclassification adjustment for net
realized gains included in net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(270,667</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(178,640</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">216,292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(73,539</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">142,753</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-28
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>12. STATUTORY SURPLUS</B>


<P align="left" style="font-size: 10pt">Proformance, which is domiciled in New Jersey, prepares its statutory financial
statements in accordance with accounting principles and practices prescribed or
permitted by the New Jersey Department of Banking and Insurance, the
recognized authority for determining solvency under the New Jersey insurance
law. The commissioner of the New Jersey Department of Banking and Insurance
has the right to permit other practices that may deviate from prescribed
practices. Prescribed statutory accounting practices are those practices that
are incorporated directly or by reference in state laws, regulations, and
general administrative rules applicable to all insurance enterprises domiciled
in New Jersey. Permitted statutory accounting practices that are not
prescribed may differ from company to company within a state, and may change in
the future.


<P align="left" style="font-size: 10pt">Generally accepted accounting principles differ in certain respects from the
accounting practices prescribed or permitted by insurance regulatory
authorities (statutory basis). Based on amounts included in the original
filings of the annual statements for the respective years, statutory surplus
including the effects of the prescribed and permitted practices, was
approximately $58,245,092, $37,106,900 and $7,640,486 at December&nbsp;31, 2003,
2002 and 2001, respectively.


<P align="left" style="font-size: 10pt">Subsequent to the original filing of the annual statement, management
identified certain adjustments which, if recorded properly at the time, would
have impacted the amounts as filed. Such amounts would have reduced statutory
surplus by $536,550, $11,747,413 and $4,882,151 at December&nbsp;31, 2003, 2002 and
2001, respectively.


<P align="left" style="font-size: 10pt">The Company&#146;s statutory financial statements are presented on the basis of
accounting practices prescribed or permitted by the New Jersey Department of
Banking and Insurance. New Jersey has adopted the National Association of
Insurance Commissioners&#146; statutory accounting practices as its statutory
accounting practices, except that it has retained the prescribed practice of
writing off goodwill immediately to statutory surplus in the year of
acquisition. In addition, the commissioner of the New Jersey Department of
Banking and Insurance has the right to permit other specific practices that may
deviate from prescribed practices.


<P align="left" style="font-size: 10pt"><B>13. DIVIDENDS FROM SUBSIDIARIES</B>


<P align="left" style="font-size: 10pt">The funding of the cash requirements of National Atlantic Holdings Corporation
is primarily provided by cash dividends from its subsidiaries. Dividends paid
by Proformance are restricted by regulatory requirements of the State of New
Jersey. Generally, the maximum dividend that may be paid without prior
regulatory approval is limited to the greater of 10&nbsp;percent of statutory
surplus (shareholders&#146; equity on a statutory basis) or 100&nbsp;percent of net
income (excluding realized capital gains) for the prior year. Dividends
exceeding these limitations can be made subject to approval by state insurance
departments. In addition, dividends must be paid from unassigned funds which
must not reflect a deficit. In addition, Bermuda legislation imposes
limitations on the dividends that Mayfair may pay, based on minimum capital and
solvency requirements. No insurance subsidiary dividends were paid in the
periods ending December&nbsp;31, 2003, 2002 and 2001 as the unassigned funds were
$(21,572,922), $(25,523,205) and $(2,172,619), respectively. The non-insurance
subsidiaries paid cash dividends to National Atlantic Holdings Corporation of
$2.2&nbsp;million and $0 in 2003 and 2002, respectively.


<P align="left" style="font-size: 10pt"><B>14. FAIR VALUE OF FINANCIAL INSTRUMENTS</B>


<P align="left" style="font-size: 10pt">SFAS No.&nbsp;107, <I>Disclosure About Fair Value of Financial Instruments</I>, requires
the Company to disclose the estimated fair value of financial instruments, both
assets and liabilities, recognized




<P align="center" style="font-size: 10pt">F-29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">and not recognized in the consolidated
balance sheets for which it is practical to estimate fair value.


<P align="left" style="font-size: 10pt">The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:


<P align="left" style="font-size: 10pt"><B><I>Cash and Short Term Investments</I></B><I>. </I>For short- term instruments, the carrying
amount is a reasonable estimate of fair value.


<P align="left" style="font-size: 10pt"><B><I>Investment in Securities</I></B><I>. </I>For investments in securities, fair values are based
on quoted market prices or dealer quotes, if available. If a quoted market
price is not available, fair value is estimated using quoted market prices for
similar securities.


<P align="left" style="font-size: 10pt">The statement value and estimated fair value of financial instruments at
December&nbsp;31 are as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2002</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Statement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Statement</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Estimated</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed maturity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">130,409,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">130,409,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">67,871,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">67,871,289</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Short-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,597,363</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,507,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,507,693</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><B>15. PROFORMA EQUITY</B>


<P align="left" style="font-size: 10pt">Upon any change of control of the company all options immediately vest. This
proforma assumes all options convert to Class&nbsp;B common stock with the receipt
of $1.4&nbsp;million in cash.


<P align="left" style="font-size: 10pt"><B>16. NET EARNINGS PER SHARE</B>


<P align="left" style="font-size: 10pt">Basic net income per share is computed based on the weighted average number of
shares outstanding during the year. Diluted net income per share includes the
dilutive effect of outstanding share options, using the treasury stock method.
Under the treasury stock method, exercise of options is assumed with the
proceeds used to purchase common stock at the average price for the period.
The difference between the number of shares assumed issued and the number of
shares purchased represents the dilutive shares.




<P align="center" style="font-size: 10pt">F-30
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except for share data):


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(unaudited)<BR>Three months ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Income applicable to common stockholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Weighted average common shares - basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,918</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,966</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Weighted average common shares - diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,918</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic Earnings Per Share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">185.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted Earnings per Share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">62.11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">162.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(82.78</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">For the year ended December&nbsp;31, 2001 the Company had a net loss of $6,864,395.
Based on 82,918 shares, basic net loss per common share was $82.78. The effect
of including potential common shares in the denominator of the diluted earnings
per-share calculation would have an anti-dilutive effect as the Company had a
loss from continuing operations. Although the inclusion of those shares may
have a dilutive effect on basic per-share amounts, no potential common shares
may be included in the diluted per share computation when a loss from
continuing operations or net loss is reported. The total outstanding options at
December&nbsp;31, 2001 were 13,550. If the treasury stock method had been applied
based on market value at that time, the effect would have been anti-dilutive,
resulting in (12,452) dilutive potential common shares.


<P align="left" style="font-size: 10pt"><B>17. NOTES PAYABLE</B>


<P align="left" style="font-size: 10pt">On December&nbsp;4, 1997, the Company entered into a loan agreement with Gerling
Global Reinsurance Company of America (Gerling). The amount of the
indebtedness was $3,000,000 and was written at a variable interest rate. The
Base Rate was the six month Libor rate plus an applicable margin of 7%. The
term of the obligation was six years in full with semi-annual payments of
interest only. The following principal payments were required on December 4 of
each year starting in 2000; $600,000, $720,000, $840,000 and $840,000. At
December&nbsp;31, 2000, the Company was unable to make the scheduled principal
repayment. On January&nbsp;11, 2001, Gerling agreed to modify the loan agreement,
delaying the principal repayments for one year. In return for that
forbearance, the Company agreed to increase the interest rate by 2&nbsp;percentage
points. In addition, Gerling agreed to allow the Company to postpone the
initial principal payment scheduled for December&nbsp;2001 until January&nbsp;2002, when
payment was made.


<P align="left" style="font-size: 10pt">The outstanding principal balance of this obligation as of December&nbsp;31, 2001
was $3,000,000; the loan was paid in full in December of 2002.


<P align="left" style="font-size: 10pt">On December&nbsp;30, 1997, the Company entered into a loan agreement with the
National Cooperative Bank (NCB). The amount of the indebtedness was $3,000,000
and the interest rate was fixed at closing based on the 5&nbsp;year US Treasury
index plus 400 basis points for the first (5)&nbsp;years, and then the 5&nbsp;year
treasury index plus 390 basis points for the balance of the term. The




<P align="center" style="font-size: 10pt">F-31
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">term of
the loan was 11&nbsp;years with interest only paid quarterly for the first year.
Quarterly principal reductions of $210,000 were to commence January of 2000 and
continue to and including January of 2008 with a final principal payment of
$1,110,000 plus all accrued interest on January&nbsp;1, 2009. As of December&nbsp;31,
2001, the outstanding principal balance of this obligation was $2,392,782; the
loan was paid in full in March of 2002.


<P align="left" style="font-size: 10pt">Interest expense related to these obligations was $691,529 in 2001 and $338,725
in 2002.



<P align="center" style="font-size: 10pt">F-32
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><HR size="1" noshade width="100%">



<P align="center" style="font-size: 14pt"><B>Shares</B>



<P align="center" style="font-size: 24pt"><B>National Atlantic Holdings Corp.</B>



<P align="center" style="font-size: 14pt"><B>Common Stock</B>



<P align="center" style="font-size: 14pt"><B>&#091;LOGO&#093;</B>



<P>
<HR noshade width="26%" align="center" size="1">
<P>




<P align="center" style="font-size: 14pt">PROSPECTUS



<P align="center" style="font-size: 14pt">, 2004



<P>
<HR noshade width="26%" align="center" size="1">
<P>




<P align="center" style="font-size: 18pt"><B>Citigroup</B>



<P align="center" style="font-size: 10pt"><HR size="1" noshade width="100%">




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>PART II. INFORMATION NOT REQUIRED IN PROSPECTUS</B>



<P align="left" style="font-size: 10pt"><B>ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the expenses payable by the Registrant in
connection with the issuance and distribution of the shares being registered
hereby. All of such expenses are estimates, other than the Securities and
Exchange Commission Registration Fee, the National Association of Securities
Dealers, Inc. filing fee and the Nasdaq National Market listing fee.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Securities and Exchange Commission Registration Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,503</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">National Association of Securities Dealers, Inc. Filing Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Transfer Agent&#146;s Fees*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Printing Costs*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Legal Fees*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accounting Fees*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Transfer Agent Fees*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Blue Sky Fees*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">NASDAQ Listing Fees*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Total</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">To be filed by amendment</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt"><B>ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;14A:2-7(3) of the New Jersey Business Corporation Act, which we
refer to as the NJBCA, permits New Jersey corporations to eliminate or limit
the liability of directors to the corporation or its shareholders for breach of
any duty owed to the corporation or its shareholders, except for any breach of
duty based upon an act or omission (a)&nbsp;in breach of such director&#146;s duty of
loyalty to the corporation or its shareholders (b)&nbsp;not in good faith or
involving a knowing violation of law or (c)&nbsp;resulting in receipt by the
directors of an improper personal benefit.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;14A:3-5 of the NJBCA permits each New Jersey business corporation
to indemnify a &#147;corporate agent&#148; against expenses and liability in connection
with any proceeding involving the corporate agent by reason of his being or
having been such a corporate agent, other than a proceeding by or in the right
of the corporation (unless the corporate agent shall have been adjudged not
liable to the corporation or shall have been adjudged liable, but in view of
all the circumstances in the case, the court in which such proceeding was
brought shall determine that such corporate agent is fairly and reasonably
entitled to indemnity), if such actions were taken in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal proceeding, if
he or she had no reasonable cause to believe his or her conduct was unlawful.
Such indemnification may be made by the corporation only as authorized in a
specific case upon a determination (by the board of directors of the
corporation, a committee thereof, independent legal counsel via a written
opinion or by the shareholders (if the certificate of incorporation or bylaws
of the corporation, or a resolution of the board of directors or a resolution
of the shareholders so directs) that indemnification is proper because the
corporate agent has met the applicable standard of conduct. The NJBCA defines
a &#147;corporate agent&#148; as any person who is or was a director, officer, employee
or agent of the indemnifying corporation or of any constituent corporation
absorbed by the indemnifying corporation in a consolidation or merger and any
person who is or was a director, officer, trustee, employee or agent of any
other enterprise, serving as such at the request of the indemnifying
corporation, or of any such constituent corporation, or the legal
representative of any such director, officer, trustee, employee or agent. To
the extent that a corporate agent has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in NJBCA
Section&nbsp;14A:3-5(2) or (3), or in defense of any claim, issue or matter therein,
he or she shall be indemnified by the corporation against expenses in
connection therewith. Such expenses may be paid by the corporation in advance
of the final disposition of the action, suit or proceeding as authorized by the
board of directors of the corporation upon receipt of an undertaking to repay
the advance if it is ultimately determined that such person is not entitled to
indemnification.


<P align="center" style="font-size: 10pt">II-1
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our amended and restated Certificate of Incorporation provides that the
our directors will not be personally liable to us or our shareholders for
monetary damages resulting from breaches of their fiduciary duty as directors,
except for liability for any breach of duty based upon an act or omission which
is either (a)&nbsp;in breach of the director&#146;s duty of loyalty to us or our
shareholders, (b)&nbsp;not in good faith or involves a knowing violation of law, or
(c)&nbsp;results in the director&#146;s receipt of an improper benefit.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;14A:3-5(9) of the NJBCA provides that any corporate agent may be
insured by insurance purchased and maintained by the corporation against any
expenses incurred in any proceeding and any liabilities asserted against him or
her in his or her capacity as a corporate agent, whether or not the corporation
would have the power to indemnify him or her against any such expenses and
liabilities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into indemnification agreements with each of our directors
and executive officers which provide for indemnification against judgments,
fines, amounts paid in settlement and other liabilities and expenses, to the
fullest extent permitted by law. The indemnification is available, provided
that such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to our best interest, and with respect to any
criminal proceeding, if such person had no reasonable cause to believe such
conduct was unlawful.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain insurance that provides for indemnification of our officers
and directors and certain other persons against liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the underwriting agreement in connection with this offering, the
underwriters will agree to indemnify our officers, directors and controlling
persons against certain liabilities, including liabilities under the Securities
Act of 1933 under certain conditions and with respect to certain limited
information.


<P align="left" style="font-size: 10pt"><B>ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the three years preceding this registrations statement, NAHC made
the following sales of unregistered securities:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Issued and sold to our agents (former personal automobile agents of
OCNJ) an aggregate of 2,500 shares of nonvoting common stock of NAHC
for an aggregate purchase price of $2,500,000 on August&nbsp;1, 2003, as
required under the December&nbsp;18, 2001 agreement between NAHC and OCNJ.
These securities were issued in reliance on the exemption from
registration provided by Section&nbsp;4(2) and Regulation&nbsp;D, Rule&nbsp;506, under
the Securities Act.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Issued and sold 10,000 shares of nonvoting common stock of NAHC for
an aggregate purchase price of $10,000,000 on December&nbsp;8, 2003 to Met
P&#038;C. These securities were issued in reliance on the exemption from
registration provided by Section&nbsp;4(2) and Regulation&nbsp;D, Rule&nbsp;506, under
the Securities Act.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Issued and sold 20,185 shares of nonvoting common stock of NAHC for
an aggregate purchase price of $500,000 on December&nbsp;18, 2001 to OCIC.
These securities were issued in reliance on the exemption from
registration provided by Section&nbsp;4(2) and Regulation&nbsp;D, Rule&nbsp;506, under
the Securities Act.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;The following exhibits are filed herewith:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit<BR>Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">1.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Underwriting Agreement*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Amended and Restated Certificate of Incorporation of the Registrant*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Amended and Restated Bylaws of the Registrant*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Certificate for the Common Stock*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">5.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Opinion of Patricia M. Forsyth, General Counsel of Proformance Insurance Company*</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">
Form of Agency Agreements between Proformance Insurance Company and
Partner Agents of
Proformance Insurance Company</DIV></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Form of Agency Agreements between
Proformance Insurance Company and Active Replacement Carrier Service
Agents of Proformance Insurance Company</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:10px; text-indent:-10px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Form of Limited Agency Agreements between Proformance Insurance
Company and Non-Active Replacement Carrier Service Agents of
Proformance Insurance Company</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Replacement Carrier Agreement,
dated December&nbsp;18, 2001, among the Registrant, Proformance
Insurance Company and Ohio Casualty of New Jersey, Inc.</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Investor
Rights Agreement, dated December&nbsp;18, 2001, among the Registrant,
The Ohio Casualty
Insurance Company and James V. Gorman</DIV></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Non-Competition Agreement, dated
December&nbsp;18, 2001, among the Registrant, Proformance Insurance
Company, The Ohio Casualty Insurance Company and Ohio Casualty of New
Jersey</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">
Letter Agreement, dated July&nbsp;10, 2004, among the Registrant,
Proformance Insurance Company and The Ohio Casualty Insurance
Company and Ohio Casualty of New Jersey</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Share
Repurchase Agreement, dated October&nbsp;25, 1994, between James V.
Gorman and the Registrant
</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Replacement Carrier Agreement,
dated December&nbsp;8, 2003, between the Registrant and Metropolitan Property and Casualty Insurance Company
</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Share Repurchase Agreement, dated
December&nbsp;8, 2003, between the Registrant and Metropolitan Property and Casualty Insurance Company
</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Replacement Carrier Agreement,
dated March&nbsp;14, 2003, between Performance Insurance Company and
Sentry Insurance Company</DIV></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">
Limited Assignment Distribution Agreement, effective January&nbsp;1,
2004, between Proformance Insurance Company and The Clarendon
National Insurance Company</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">
Limited Assignment Distribution Agreement, effective January&nbsp;1,
2004, between Proformance Insurance Company and AutoOne Insurance
Company</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>



<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">2004
Stock and Incentive Plan of the Registrant*</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National Atlantic Holdings Corp. Annual Bonus Plan*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Employment
Agreement, dated , 2004, between the Registrant and James V.
Gorman*</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Employment
Agreement, dated , 2004, between the Registrant and Peter A.
Cappello, Jr.*</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Employment
Agreement, dated , 2004, between the Registrant and Frank J.
Prudente*</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Employment
Agreement, dated , 2004, between the Registrant and John E.
Scanlan*</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Employment Agreement, dated , 2004, between the Registrant and Cynthia L. Codella*
</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">16.1
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Letter,
dated July&nbsp;15, 2004, from WithumSmith&#043;Brown, PC, the
Registrant&#146;s former accountants, to the Securities and Exchange
Commission</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Registrant*
</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px">Consent
of Patricia M. Forsyth, General Counsel of Proformance Insurance
Company (contained in her opinion filed as Exhibit&nbsp;5.1
hereto)*</DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Deloitte &#038; Touche LLP</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power of Attorney (included on the signature page of this registration statement)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">To be filed by amendment</TD>
</TR>

</TABLE>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Financial Statement Schedules

<DIV align="center">
<TABLE style="font-size: pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="77%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;I
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Summary of Investments &#151; Other than Investments in
Affiliates</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;II
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Condensed Financial Information of Registrant (Balance
Sheets, Statements of Income, Statements of Cash Flows)</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;III
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supplementary Insurance Information</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;IV
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Reinsurance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Schedule&nbsp;VI
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Supplementary Information Concerning Property and
Casualty Insurance Operations</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-3
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>ITEM 17. UNDERTAKINGS.</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned registrant hereby undertakes that:


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule&nbsp;430A and contained in a form of
prospectus filed by the registrant pursuant to Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial <I>bona fide </I>offering thereof.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of the its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.


<P align="center" style="font-size: 10pt">II-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="113"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>SIGNATURES</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Freehold, State of New
Jersey, on July&nbsp;7, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">NATIONAL ATLANTIC HOLDINGS CORP.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" colspan="3">By: /s/ James V. Gorman</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" colspan="2"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" colspan="3">Name: James V. Gorman</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top" colspan="3"><DIV style="margin-left:30px; text-indent:-30px">Title: Chairman of the Board of Directors
and Chief Executive Officer</DIV></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">POWER OF ATTORNEY



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints James V. Gorman and Frank J.
Prudente, and each of them acting individually, his or her true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to sign any and all registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and any other regulatory authority, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Signature</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Title</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" nowrap valign="top">/s/ James V. Gorman<BR>
<HR size="1" noshade>
James V. Gorman</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
Chairman of the Board of<BR>
Directors and Chief<BR>
Executive Officer (Principal<BR>
Executive Officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July 7, 2004</TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">/s/ Frank J. Prudente<BR>
<HR size="1" noshade>
Frank J. Prudente</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
Executive Vice<BR>
President&#151;Corporate Finance<BR>
(Principal Financial and<BR>
Accounting Officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July 7, 2004</TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">/s/ Peter A. Cappello, Jr.<BR>
<HR size="1" noshade>
Peter A. Cappello, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July 7, 2004</TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">/s/ F.P. Campion<BR>
<HR size="1" noshade>
F.P. Campion</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 21, 2004</TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">/s/ Andrew C. Harris<BR>
<HR size="1" noshade>
Andrew C. Harris</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 16, 2004</TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">/s/ Thomas J. Sharkey, Sr.<BR>
<HR size="1" noshade>
Thomas J. Sharkey, Sr.</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 28, 2004</TD>
</TR>

<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">/s/ Steven V. Stallone<BR>
<HR size="1" noshade>
Steven V. Stallone</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 21, 2004</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Signature</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Title</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="padding-top: 1em">
    <TD align="center" nowrap valign="top">/s/ Thomas M. Mulhare<BR>
<HR size="1" noshade>
Thomas M. Mulhare</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 23, 2004</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left">
<A name="124"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Exhibit Index</B>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit<BR>Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">1.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Underwriting Agreement*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Amended and Restated Certificate of Incorporation of the Registrant*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Amended and Restated Bylaws of the Registrant*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Stock Certificate for the Common Stock*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">5.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Opinion of Patricia M. Forsyth, General Counsel of Proformance Insurance Company*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Agency Agreements between Proformance Insurance Company and Partner Agents of
Proformance Insurance Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Agency Agreements between Proformance Insurance Company and Active Replacement Carrier
Service Agents of Proformance Insurance Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Limited Agency Agreements between Proformance Insurance Company and Non-Active
Replacement Carrier Service Agents of Proformance Insurance Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Replacement Carrier Agreement, dated December&nbsp;18, 2001, among the Registrant, Proformance
Insurance Company and Ohio Casualty of New Jersey, Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investor Rights Agreement, dated December&nbsp;18, 2001, among the Registrant, The Ohio Casualty
Insurance Company and James V. Gorman</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Non-Competition Agreement, dated December&nbsp;18, 2001, among the Registrant, Proformance
Insurance Company, The Ohio Casualty Insurance Company and Ohio Casualty of New Jersey</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letter Agreement, dated July&nbsp;10, 2004, among the Registrant, Proformance Insurance Company and
The Ohio Casualty Insurance Company and Ohio Casualty of New Jersey</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Repurchase Agreement, dated October&nbsp;25, 1994, between James V. Gorman and the Registrant</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Replacement Carrier Agreement, dated December&nbsp;8, 2003, between the Registrant and Metropolitan
Property and Casualty Insurance Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Share Repurchase Agreement, dated December&nbsp;8, 2003, between the Registrant and Metropolitan
Property and Casualty Insurance Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Replacement Carrier Agreement, dated March&nbsp;14, 2003, between Proformance Insurance Company and
Sentry Insurance</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Limited Assignment Distribution Agreement, effective January&nbsp;1, 2004, between Proformance
Insurance Company and The Clarendon National Insurance Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Limited Assignment Distribution Agreement, effective January&nbsp;1, 2004, between Proformance
Insurance Company and AutoOne Insurance Company</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2004 Stock and Incentive Plan of the Registrant*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National Atlantic Holdings Corp. Annual Bonus Plan*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement, dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004, between the Registrant and James V. Gorman*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement, dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004, between the Registrant and Peter A. Cappello, Jr.*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement, dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004, between the Registrant and Frank J. Prudente*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement, dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004, between the Registrant and John E. Scanlan*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement, dated &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2004, between the Registrant and Cynthia L. Codella*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">16.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Letter, dated July&nbsp;15, 2004, from WithumSmith&#043;Brown, PC, the Registrant&#146;s former accountants,
to the Securities and Exchange Commission</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Registrant*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Patricia M. Forsyth, General Counsel of Proformance Insurance Company (contained in
her opinion filed as Exhibit&nbsp;5.1 hereto)*</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Deloitte &#038; Touche LLP</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power of Attorney (included on the signature page of this registration statement)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">To be filed by amendment</TD>
</TR>

</TABLE>




<P align="center" style="font-size: 10pt">II-7
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>



<P align="left" style="font-size: 10pt">To the Board of Directors<BR>
National Atlantic Holdings Corporation and Subsidiaries

<P align="left" style="font-size: 10pt">We have audited the consolidated financial statements of National Atlantic
Holdings Corporation and Subsidiaries as of December&nbsp;31, 2003 and 2002, and for
each of the three years in the period ended December&nbsp;31, 2003, and have issued
our report thereon dated July&nbsp;19, 2004. Our audits also included the financial
statement schedules of National Atlantic Holdings Corporation and Subsidiaries.
These financial statement schedules are the responsibility of the Company&#146;s
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.


<P align="left" style="font-size: 10pt">/s/ Deloitte &#038; Touche LLP



<P align="left" style="font-size: 10pt">Parsippany, New Jersey<BR>
July&nbsp;19, 2004


<P align="center" style="font-size: 10pt">S-1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>SCHEDULE I</B>



<P align="center" style="font-size: 10pt"><B>SUMMARY OF INVESTMENTS &#150; OTHER THAN INVESTMENTS IN AFFILIATES</B>



<P align="center" style="font-size: 10pt"><B>(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>As of December 31, 2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost/</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount at</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amortized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>which shown</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Type of Investment</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>on Balance Sheet</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed Maturities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">U.S Government, government agencies
and authorities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,633,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,313,392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,313,392</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State, local government and agencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,261,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,281,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,281,161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Industrial and miscellaneous</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,903,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,814,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,814,909</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Total fixed maturities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,798,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,409,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,409,462</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common and preferred stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,117,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593,084</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Total equity securities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,117,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593,084</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,593,084</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Short-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Total other investments</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,569,445</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><B>Total investments</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">170,485,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">170,571,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">170,571,991</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">S-2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>SCHEDULE II</B>



<P align="center" style="font-size: 10pt"><B>CONDENSED FINANCIAL INFORMATION OF REGISTRANT</B>



<P align="center" style="font-size: 10pt"><B>BALANCE SHEETS</B>



<P align="center" style="font-size: 10pt"><B>(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Assets:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Investment in subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,815</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">FIT recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">731</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fixed assets, net of depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Intercompany receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">986</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,555</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Liabilities and capital:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Intercompany payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,025</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,048</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,048</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Stockholders&#146; equity:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Capital stock, class A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,002</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Capital stock, class B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,382</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Retained earnings (accumulated deficit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(225</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">348</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,507</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total liabilitites and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,555</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Note: Dividends payable from Proformance Insurance Company, a significant
subsidiary, are restricted by the State of New Jersey Department of Banking and
Insurance.




<P align="center" style="font-size: 10pt">S-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>SCHEDULE II</B>



<P align="center" style="font-size: 10pt"><B>CONDENSED FINANCIAL INFORMATION OF REGISTRANT</B>



<P align="center" style="font-size: 10pt"><B>STATEMENTS OF OPERATIONS</B>



<P align="center" style="font-size: 10pt"><B>(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Income</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost and Expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Salary Expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,881</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">557</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss before federal income taxes and equity in net
income (loss)&nbsp;of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,392</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,881</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(531</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income tax expense (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">299</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss before equity in net income (loss)&nbsp;of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,292</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,735</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(830</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity in net income (loss)&nbsp;of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,034</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">S-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>SCHEDULE II</B>



<P align="center" style="font-size: 10pt"><B>CONDENSED FINANCIAL INFORMATION</B>



<P align="center" style="font-size: 10pt"><B>STATEMENTS OF CASH FLOWS</B>



<P align="center" style="font-size: 10pt"><B>(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Years ended December 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash flows from operating activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net earnings (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,864</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Undistributed net (income)&nbsp;loss of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,448</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,742</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,034</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gain on sale of fixed asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(25</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Changes in current assets and liabilities - net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(902</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(392</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net cash (used in) provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,194</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,214</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash flows from investing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Capital contributions to subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,675</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(702</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Sale of equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">268</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Dividends received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net cash (used in) provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,007</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(202</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">268</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash flows from financing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Sale of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Issuance of note</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">290</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Payment of note</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net cash provided by (used in ) financing
activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">790</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net (decrease)&nbsp;increase in cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(156</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">S-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>SCHEDULE III</B>



<P align="center" style="font-size: 10pt"><B>SUPPLEMENTARY INSURANCE INFORMATION</B>



<P align="center" style="font-size: 10pt"><B>For the year ended December&nbsp;31, 2003, 2002 and 2001</B>



<P align="center" style="font-size: 10pt"><B>(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Reserves</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>for</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unpaid</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Losses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Policy</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and Loss</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Acquisition</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Adjustment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unearned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Earned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Investment</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Costs</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expense</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Premiums</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Premiums</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Income</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and Casualty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">145,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,258</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">145,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,258</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2002</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and Casualty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,593</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,593</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2001</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and Casualty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,085</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,085</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<BR clear="all"><DIV align="right" style="font-size: 10pt">[Additional columns below]</DIV><P align="left" style="font-size: 10pt">[Continued from above table, first column(s) repeated]

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Losses and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Losses and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deferred</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Adjustment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Policy</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expenses</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Acquisition</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Written</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Incurred</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Costs</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expenses</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Premiums</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and Casualty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">108,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">149,233</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">108,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">149,233</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2002</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and Casualty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">111,431</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">69,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">111,431</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2001</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and Casualty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,499</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28,338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,499</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">S-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>SCHEDULE IV</B>



<P align="center" style="font-size: 10pt"><B>REINSURANCE</B>



<P align="center" style="font-size: 10pt"><B>For the year ended December&nbsp;31, 2003, 2002 and 2001</B>



<P align="center" style="font-size: 10pt"><B>(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ceded to</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Assumed</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Amount</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>From Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Assumed to</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Companies</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Companies</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">For the year ended December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and casualty insurance premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">158,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">145,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.17</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">158,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">145,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.17</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">For the year ended December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and casualty insurance premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.33</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.33</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">For the year ended December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and casualty insurance premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">47,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.21</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Premiums</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">47,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.21</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">S-7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES</B>



<P align="center" style="font-size: 10pt"><B>SCHEDULE VI</B>



<P align="center" style="font-size: 10pt"><B>SUPPLEMENTARY INFORMATION CONCERNING PROPERTY</B>



<P align="center" style="font-size: 10pt"><B>AND CASUALTY INSURANCE OPERATIONS</B>



<P align="center" style="font-size: 10pt"><B>(in thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Losses and loss adjustment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid losses and</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Expenses incurred related to:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Loss adjustment</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Current Year</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Prior Years</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expenses</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Years ended December&nbsp;31,
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">108,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61,292</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,464</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,713</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="center" style="font-size: 10pt">S-8
</DIV>


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FORM S-1
Table of Contents
AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 2004
REGISTRATION NO.
333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
NATIONAL ATLANTIC HOLDINGS CORP.
(Exact name of Registrant as specified in its charter)
New Jersey
6331
22-3316586
(State or other jurisdiction of
(Primary Standard Industrial
(I.R.S. Employer
incorporation or organization)
Classification Code Number)
Identification No.)
4 Paragon Way
Freehold, NJ 07728
(732) 665-1100
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
James V. Gorman
Chairman and Chief Executive Officer
National Atlantic Holdings Corp.
4 Paragon Way
Freehold, NJ 07728
(732) 665-1100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies To:
Jonathan L. Freedman, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Michael Groll, Esq.
Sheri Bloomberg, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-5389
Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after this registration statement becomes
effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.
o
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
o
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Proposed Maximum
Amount of
Securities to be Registered
Aggregate Offering Price(1)(2)
Registration Fee
Common Stock, no par value per share
$
75,000,000
$
9,503
(1)
Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457 under the Securities Act of
1933, as amended.
(2)
Includes shares to be sold by the selling shareholder
identified herein and shares subject to the underwriters'
over-allotment option.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section 8(a)
of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a)
,
may determine.
Table of Contents
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION,
DATED JULY 30, 2004
PROSPECTUS
[LOGO]
Shares
National Atlantic Holdings Corp.
Common Stock
$
per share
We are selling      shares of our common stock and the selling
shareholder named in this prospectus is selling      shares. We will not
receive any proceeds from the sale of the shares by the selling shareholder.
We and the selling shareholder have granted the underwriters an option to
purchase up to      additional shares of common stock to cover
over-allotments.
This is the initial public offering of our common stock. We currently
expect the initial public offering price to be between $      and $      per
share. We have applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "NAHC."
Investing in our common stock involves risks. See "Risk Factors"
beginning on page 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Per share
Total
Public Offering Price
$
$
Underwriting Discount
$
$
Proceeds to National Atlantic Holdings Corp. (before expenses)
$
$
Proceeds to Selling Shareholder (before expenses)
$
$
The underwriters expect to deliver the shares to purchasers on or about      ,
2004.
Citigroup
, 2004
Table of Contents
[ARTWORK]
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
TABLE OF CONTENTS
Page
Summary
1
Risk Factors
9
Cautionary Statement Concerning Forward Looking Statements
21
Use of Proceeds
22
Capitalization
23
Dilution
24
Dividend Policy
25
Selected Historical Financial Data
26
Management's Discussion and Analysis of Financial Condition and Results of Operations
28
Business
40
Management
69
Certain Relationships and Related Party Transactions
79
Principal and Selling Shareholders
82
Description of Capital Stock
84
Shares Eligible for Future Sale
87
Material United States Federal Income and Estate Tax Considerations for Non-United States
Holders of Common Stock
88
Underwriting
91
Legal Matters
94
Experts
94
Change of Independent Registered Public Accountants
94
Where You Can Find More Information
94
Index to Consolidated Financial Statements
F-1
FORM OF AGENCY AGREEMENTS
FORM OF AGENCY AGREEMENTS
FORM OF LIMITED AGENCY AGREEMENTS
REPLACEMENT CARRIER AGREEMENT
INVESTOR RIGHTS AGREEMENT
NON-COMPETITION AGREEMENT
LETTER AGREEMENT
SHARE REPURCHASE AGREEMENT
REPLACEMENT CARRIER AGREEMENT
SHARE REPURCHASE AGREEMENT
REPLACEMENT CARRIER AGREEMENT
LIMITED ASSIGNMENT DISTRIBUTION AGREEMENT
LIMITED ASSIGNMENT DISTRIBUTION AGREEMENT
LETTER
CONSENT OF DELOITTE & TOUCHE LLP
Until      , 2004 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
Table of Contents
SUMMARY
This summary highlights information about National Atlantic Holdings
Corp., its subsidiaries and the offering. In this prospectus, "NAHC" refers to
National Atlantic Holdings Corp., "we," "us," and "our" refer to National
Atlantic Holdings Corp. and its consolidated subsidiaries, and "Proformance"
refers to Proformance Insurance Company, a wholly-owned insurance subsidiary of
NAHC. Because this is a summary, it may not contain all the information you
should consider before investing in our common stock. You should carefully
read this entire prospectus.
National Atlantic Holdings Corp.
We are a provider of personal lines property and casualty insurance,
predominantly automobile insurance, in the State of New Jersey. We have been
able to capitalize on what we consider an attractive opportunity in the New
Jersey insurance market through our extensive knowledge of the New Jersey
insurance market and regulatory environment, our business model that requires
many of our independent agents to retain an ownership stake in our company, our
packaged product that offers auto, homeowners and other personal lines
coverage, and our insurance related services businesses.
As of December 31, 2003, our insurance subsidiary, Proformance Insurance
Company, was the tenth largest and the fastest growing provider of private
passenger auto insurance in New Jersey, based on direct written premiums of
companies writing more than $5 million of premiums annually over the past three
years, according to A.M. Best Company, Inc., which we refer to as A.M. Best.
From 1999 through 2003, we experienced a 42.0% compound annual growth rate, as
our direct written premiums for all lines of business we write, including
homeowners and commercial lines, increased from $40.2 million in 1999 to $163.2
million in 2003. As of March 31, 2004, our shareholders' equity was $61.0
million up from shareholders' equity of $8.1 million as of December 31, 1999,
reflecting a 60.7% compound annual growth rate.
We believe the current conditions in the New Jersey property and casualty
insurance market represent an attractive opportunity for us. According to
estimates of the U.S. Bureau of Economic Analysis and Bureau of the Census, New
Jersey had the second highest per capita personal income in 2003 of the 50
states. According to A.M. Best:
•
private passenger auto direct written premiums in New Jersey for
2003 were $5.7 billion (ranking sixth among the states and having grown
26.5% since 1999); and
•
total property and casualty direct written premiums in New Jersey
for 2003 were $14.0 billion (ranking eighth among the states and having
grown 41.9% since 1999).
We believe that these market conditions provide us with the opportunity to
profitably grow our business.
As other insurers have reduced their share or withdrawn from the New
Jersey private passenger auto insurance market in recent years, as a result of
numerous factors, especially the regulatory environment, we have expanded our
business both organically and through replacement carrier transactions where we
serve as the replacement carrier to offer insurance coverage upon renewal of
the withdrawing carrier's policies. We have entered into four replacement
carrier transactions and intend to opportunistically consider others if they
meet our profitability and growth objectives.
We distribute our products exclusively through licensed independent
agents, many of whom are our Partner Agents who have purchased a minimum of
$50,000 of the common stock of NAHC. As of March 31, 2004, our Partner Agents,
including those that are directors of our company, owned in the aggregate
approximately 38.7% of our outstanding common stock on a fully diluted basis.
Following this offering (assuming full exercise of the underwriters'
over-allotment option) our Partner Agents will own in the aggregate
approximately       % of our outstanding common stock on a fully diluted basis.
None of our Partner Agents are selling shares of our common stock in this
offering. We believe that requiring our Partner Agents to maintain an
ownership interest in our company provides them with an incentive to write on
our behalf the more profitable segments of the personal and
1
Table of Contents
commercial lines business they produce in New Jersey. We intend to
continue requiring our agents to purchase shares of our common stock prior to
selling our insurance products.
Proformance, founded in 1994, provides comprehensive packaged personal
lines property and casualty insurance. Our packaged personal lines policy,
which we call our "High Proformance Policy," contains coverages for private
passenger automobile, homeowners, personal excess ("umbrella") liability, and
personal specialty property lines insurance covering jewelry, furs, fine arts,
cameras, electronic data process equipment, boats, yachts and other high value
items. We believe that our packaged personal lines product provides several
advantages over non-packaged alternatives, including administrative expense
savings, lower loss ratios, increased customer convenience and higher
policyholder retention. Proformance also offers commercial lines products,
predominantly commercial automobile liability and physical damage for small to
medium business "mainstreet" policyholders which we regard as high
frequency/low severity risks.
Our non-insurance subsidiaries provide Proformance and third parties with
a variety of services. Most of the services provided by our non-insurance
subsidiaries generate fee-for-service income. Our non-insurance subsidiaries
include:
•
Riverview Professional Services, Inc
.
(Riverview)
, which we formed
in 2002, provides case management and medical treatment cost
containment to ensure cost-efficient service in the treatment of auto
accident victims and reduced claims expenses for Proformance.
Riverview is also a third party claims administrator providing claims
handling services.
•
National Atlantic Insurance Agency, Inc. (NAIA)
, which we formed in
1995, provides services to "orphan" policyholders no longer serviced by
their independent agents and policyholders acquired as part of our
replacement carrier transactions.
Our other insurance subsidiary, Mayfair Reinsurance Company Limited
(Mayfair), was formed in 2003 as a Bermuda licensed reinsurance company to
assume reinsurance business as a retrocessionaire from third party reinsurers
of Proformance, and provide other potentially profitable small reinsurance
facilities to third parties.
Our Competitive Strengths
Our Agency Relationships
. Proformance distributes its products through
licensed independent agents most of whom are required to maintain an ownership
interest in NAHC. We believe this provides each such agent with an incentive
to write on our behalf its more profitable personal and commercial lines
business in New Jersey.
Our Experienced, Dedicated and Knowledgeable Management Team
. As of March
31, 2004, our executive management team and directors owned in the aggregate
approximately 33.8% of our outstanding common stock on a fully diluted basis.
Following this offering our executive management team will own in the aggregate
approximately      % of our outstanding common stock on a fully diluted basis.
None of our directors or officers are selling shares of our common stock in
this offering. The executive management team, led by our Chairman and Chief
Executive Officer, James V. Gorman, has an average of over 20 years of property
and casualty insurance carrier experience. Our management team has
demonstrated an ability to operate successfully within the regulated New Jersey
property and casualty insurance market.
Our Knowledge of the New Jersey Market and Regulatory Environment
. We
believe our knowledge of, experience with, and the relationships we have
developed in, the New Jersey property and casualty insurance market provide us
with an advantage over our competitors, especially large, national insurers not
primarily focused on New Jersey. In addition to organically growing our
business, we have expanded our market share by entering into replacement
carrier transactions pursuant to which we agree to act as the replacement
carrier for renewals of insurance policies of insurers that decided to withdraw
from the New Jersey automobile insurance market. Our replacement carrier
transactions provided us with improved economies of scale and enabled us to
increase capital and surplus while increasing premium volume at rates that
cannot be achieved through organic growth of insurance policies sold on an
individual basis.
2
Table of Contents
Our Ability to Offer Policyholders the Convenience of Our Packaged High
Proformance Policy
. We believe our target customers are attracted to the
convenience of buying all of their personal insurance coverages under one
policy from one company. Our primary insurance product is our High Proformance
Policy. Our High Proformance Policy is a "packaged" product that may include
deluxe homeowners, private passenger automobile, personal excess liability and
personal inland marine insurance coverages. Our historical underwriting
experience indicates that the policyholders who purchase their auto and
homeowners coverage from the same carrier are better risks than policyholders
who purchase only one kind of coverage or the other.
Our Focus on Reducing Underwriting Costs and Claims Expenses
. We believe
that our ability to operate efficiently and reduce underwriting costs and
claims expenses enables us to price our products competitively and improve our
profitability.
Our Ability to Take Advantage of the Services Provided By Our
Non-Insurance Subsidiaries.
We are able to take advantage of the services
provided by our non-insurance subsidiaries. In particular Riverview provides
services that facilitate cost-effective treatment of auto accident victims and
reduce claims expenses. NAIA operates as a full service insurance agency that
receives the same commission structure as our Partner Agents.
Our Growth Strategies
Our goal is to grow our business and maximize shareholder value through
the following strategies:
Focusing on the New Jersey Market
. We will continue to focus our business
on the New Jersey property and casualty insurance market where we believe we
are able to achieve a competitive advantage through our knowledge and expertise
of the market and regulatory environment.
Capturing a Larger Share of Our Agents' Business
. We intend to maintain
and further develop our strong independent agent relationships by providing our
agents with a broader portfolio of insurance products and technology services.
We believe this will enable us to capture a growing share of the insurance
business written by our agents, including the amount of commercial lines
business provided to small to medium business "mainstreet" policyholders.
Converting Single Coverage Policies into Our Packaged Policies and
Opportunistically Growing Our Business through Replacement Carrier
Transactions
.
We intend to continue to grow our homeowners and non-auto
insurance businesses, principally by endorsing additional coverages on policies
which currently cover only automobile insurance. We plan to convert the
policies transferred to us as part of the replacement carrier transactions,
which were primarily only automobile insurance, into our packaged High
Proformance Policies. In addition, as opportunities arise we will enter into
replacement carrier and other transactions which we determine are consistent
with our objectives.
Marketing the Services of Our Non-Insurance Subsidiaries to Third Parties
.
We intend to selectively market to third parties the services provided by
Riverview, and will market the services of NAIA to our agents who, in exchange
for our service to the designated policyholders of that agent, will receive a
commission from us lower than our normal commission.
Certain Risks
Our ability to capitalize on our business strengths and implement our
strategies entails risks. Because we focus exclusively on New Jersey, we are
subject to prevailing regulatory, economic, demographic, competitive, weather
and other conditions in New Jersey. These conditions may have a
disproportionate effect on us, compared to insurers that conduct business in
multiple states. In addition, because we are primarily a private passenger
automobile insurance carrier, negative developments in the economic,
competitive or regulatory conditions affecting the private passenger automobile
insurance industry would have a disproportionate effect on us, compared to more
diversified insurers that also sell other types of property and casualty
insurance products. For a further discussion of these and other risks we face,
see "Risk Factors."
3
Table of Contents
Our principal executive offices are located at 4 Paragon Way, Freehold, NJ
07728. Our telephone number is (732) 665-1100.
4
Table of Contents
The Offering
Common stock offered by us
shares
Common stock offered by The Ohio Casualty
Insurance Company, as selling shareholder
shares
Common stock outstanding after the offering
shares
Over-allotment option
We have granted the
underwriters an option
to purchase up
to         
additional shares of
common stock to cover
over-allotments and the
selling shareholder has
granted the underwriters
an option to purchase up
to          additional
shares of common stock
to cover
over-allotments.
Proposed NASDAQ symbol
NAHC
Use of proceeds
We will receive net
proceeds from the
initial public offering
of approximately $         
million, or $         
million if the
underwriters exercise in
full their
over-allotment option.
We intend to use the
proceeds from the
offering to provide
additional capital to
our operating
subsidiaries and for
general corporate
purposes.
We will not receive any
proceeds from the sale
of shares of common
stock by the selling
shareholder in this
offering.
Dividend policy
We intend to retain all
future earnings to fund
the development and
growth of our business.
Although we paid a 5%
stock dividend on our
common stock in 1997, we
have not paid cash
dividends on our common
stock in the past and
currently do not intend
to pay any cash
dividends on our common
stock in the foreseeable
future.
Any payment of dividends
will be at the
discretion of our board
of directors. Our
ability to pay dividends
is dependent upon, among
other things, the
availability of
dividends from our
subsidiaries, including
our insurance
subsidiaries,
Proformance and Mayfair. The ability of
Proformance to pay
dividends to us is
restricted by New Jersey
insurance law and the
ability of Mayfair to
pay dividends to us is
restricted by Bermuda
law. See
"Business—Supervision
and Regulation."
The common stock to be outstanding immediately after the offering includes
the conversion of            shares of our outstanding nonvoting common stock
into            shares of our voting common stock immediately prior to this
offering. The foregoing information is based upon            shares outstanding
as of      , and includes            shares issuable upon exercise of
outstanding stock options as of such date, all of which become fully vested and
exercisable upon consummation of this offering at a weighted average exercise
price of            per share.
5
Table of Contents
Except as otherwise indicated, all information in this prospectus assumes
a            for            stock split effected      , 2004 and assumes no
exercise of the underwriters' over-allotment option.
6
Table of Contents
Summary Historical Financial Data
The following tables set forth our summary historical financial data as of
and for each of the five years ended December 31, 2003 and as of and for the
three months ended March 31, 2004 and 2003. We derived the data as of December
31, 2003 and 2002, and for each of the three years in the period ended December
31, 2003, from our consolidated financial statements that have been subject to
audit and are included elsewhere in this prospectus. We derived the data as of
December 31, 2001, 2000 and 1999, and for the years ended December 31, 2000 and
1999, from our consolidated financial statements that have been subject to
audit and are not included in this prospectus. The summary historical income
statement data for the three months ended March 31, 2003 and 2004 and the summary
historical consolidated balance sheet data as of March 31, 2003
and 2004 have been
derived from our unaudited interim consolidated financial statements included
elsewhere in this prospectus. In
the opinion of our management, the unaudited financial data as of and for the
three months ended March 31, 2003 and 2004 presented in the tables below
reflects all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of our financial position and results of operations as
of the dates and for the periods indicated. Results for the interim periods
are not necessarily indicative of results to be expected for the entire year.
We have prepared the summary historical consolidated financial data, other
than the statutory data, in conformity with accounting principles generally
accepted in the United States of America, or GAAP. We have derived the
statutory data from the annual statements of our insurance subsidiary,
Proformance, filed with the New Jersey Department of Banking and Insurance
prepared in accordance with statutory accounting practices, which vary in
certain respects from GAAP.
The summary historical financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Selected Historical Financial Data," and our
consolidated financial statements and accompanying notes included elsewhere in
this prospectus.
Three Months Ended
Year Ended December 31,
March 31,
1999
2000
2001
2002
2003
2003
2004
Income Statement Data:
Direct written premiums(1)
$
40,179,542
$
43,645,962
$
49,757,470
$
114,624,256
$
163,178,887
$
37,644,905
$
46,501,464
Net written premiums(1)
21,706,952
23,235,238
25,498,573
111,431,805
149,232,801
38,376,518
43,659,986
Net earned premiums(1)
21,400,280
21,807,617
25,431,746
76,459,887
145,344,004
33,192,226
36,401,572
Replacement carrier
revenue from related party(2)
—
—
—
21,683,013
12,736,987
5,916,987
5,045,455
Replacement carrier
revenue from unrelated party
—
—
—
—
—
—
875,000
Investment income
1,089,162
1,166,980
1,084,956
1,592,878
4,257,672
729,707
1,184,013
Net realized
investment gains (losses)
111,025
504,214
346,482
(55,219
)
1,372,557
(29,130
)
676,981
Other income
112,068
318,178
211,526
564,492
929,467
333,795
496,693
Total income
22,712,535
23,796,989
27,074,710
100,245,051
164,640,687
40,143,585
44,679,714
Losses and loss
adjustment expenses(3)
16,707,695
20,145,118
28,338,038
69,491,015
108,122,636
22,720,944
25,263,346
Underwriting, operating
and
related expenses
8,376,056
10,662,124
9,207,455
18,732,828
27,373,122
6,528,817
7,039,245
Total expenses
25,083,751
30,807,242
37,545,493
88,223,843
135,495,758
29,249,761
32,301,591
Income (loss) before
income taxes
(2,371,216
)
(7,010,253
)
(10,470,783
)
12,021,208
29,144,929
10,893,824
12,378,123
Income tax expense
(benefit)
(926,885
)
(1,324,968
)
(3,606,388
)
3,014,570
9,989,133
3,727,143
3,360,706
Net income
(loss)(6)
$
(1,444,331
)
$
(5,685,285
)
$
(6,864,395
)
$
9,006,638
$
19,155,796
$
7,166,681
$
9,017,417
Basic Earnings per Share
$
(18.16
)
$
(69.75
)
$
(82.78
)
$
87.93
$
185.16
$
69.97
$
78.46
Diluted
Earnings per Share
$
(18.16
)
$
(69.75
)
$
(82.78
)
$
78.05
$
162.73
$
62.11
$
69.80
7
Table of Contents
As of and for the
Three Months Ended
As of and for the Year Ended December 31,
March 31
1999
2000
2001
2002
2003
2003
2004
Balance Sheet Data:
Total cash &
investments
$
20,771,198
$
25,821,448
$
22,852,936
$
92,351,876
$
179,695,660
$
127,389,051
$
196,164,033
Total assets
56,994,747
66,585,692
78,260,317
161,556,865
269,367,709
200,759,563
288,270,579
Losses and loss
adjustment expenses
reserves
27,055,351
37,350,251
56,732,620
85,472,264
134,200,870
100,557,063
139,226,030
Debt(4)
4,900,000
5,790,000
5,682,782
—
—
—
—
Total liabilities
$
48,851,873
$
64,379,130
$
82,275,796
$
143,050,275
$
219,119,619
$
175,512,785
$
227,346,895
Total shareholders'
equity(5)(6)
$
8,131,547
$
2,206,562
$
(4,015,479
)
$
18,506,590
$
50,248,090
$
25,246,778
$
60,923,684
Statutory Data(7):
Policyholders' surplus (at period end)
$
9,039,405
$
6,007,495
$
7,640,486
$
37,106,900
$
58,245,092
$
40,147,763
$
57,957,075
Loss ratio(3)
78.1
%
92.4
%
84.0
%
78.9
%
88.0
%
71.8
%
73.2
%
Expense ratio(3)
26.8
33.2
28.2
21.0
20.6
23.8
21.9
Combined ratio(3)
104.9
%
125.6
%
112.2
%
99.9
%
108.6
%
95.6
%
95.1
%
(1)     The primary driver for a
significant portion of our growth from 2002 through 2003 was an
agreement entered into on December 18, 2001 with The Ohio Casualty Insurance Company, which we
refer to as OCIC, and Ohio Casualty of New Jersey, Inc., which we refer to as
OCNJ, to become a replacement carrier pursuant to which OCNJ would transfer to
Proformance the obligation to offer renewals for all of OCNJ's New Jersey
private passenger automobile business effective March 18, 2002. In connection
with this transaction our direct written premiums, net written premiums and net
earned premiums increased from $49.8 million, $25.5 million
and $25.4 million,
respectively, for the year ended December 31, 2001, to $163.2 million, $149.2
 million and $145.3 million, respectively, for the year ended December 31, 2003.
In addition total assets, losses and loss adjustment expense reserves, as well
as total shareholders' equity, increased from $78.3 million, $56.7 million and
$(4.0) million, respectively as of December 31, 2001 to $269.4 million, $134.2
million and $50.2 million, respectively as of December 31, 2003. See
"Business—Recent Transactions."
(2)     We recorded replacement carrier revenue related to the OCIC agreement
referred to above in the amount of $21.7 million and $12.7 million for the
years ended December 31, 2002 and 2003, respectively which contributed to
increasing total shareholders' equity from $18.5 million as of December 31,
2002 to $50.2 million for the year ended December 31, 2003. See
"Business—Recent Transactions."
(3)     The loss ratio, when calculated on a statutory basis, is the ratio of
losses and loss adjustment expenses to net earned premiums. The expense ratio,
when calculated on a statutory accounting basis, is the ratio of underwriting
expenses to net written premiums. The expense ratio, when calculated on a GAAP
basis, differs from the statutory method specifically as it related to policy
acquisition expenses. Policy acquisition expenses are expensed as incurred
under the statutory accounting method. However, for GAAP, policy acquisition
expenses are deferred and amortized over the period in which the related
premiums are earned. The combined ratio is the sum of the loss ratio and the
expense ratio. Management considers the statutory methods for calculating the
loss, expense and combined ratios to compare our performance to benchmarks used
by rating agencies and regulatory bodies that monitor the insurance industry.
(4)     In 1997, we entered into two separate loan agreements. In March of 2002,
one of the loans was paid in full and in December of 2002 the remaining loan
was paid in full.
(5)     On October 21, 2003 and December 8, 2003, respectively, we entered into two
additional replacement carrier agreements with Sentry Insurance and Met P&C,
whereby we agreed to become the replacement carrier for the personal lines
business of each entity in New Jersey. We received $0.9 million and will
receive an additional $2.6 million in 2004 from Sentry Insurance, which has
been recorded as deferred revenue as of December 31, 2003. We received $20.1
million ($10.1 million recorded as deferred revenue as of December 31, 2003 and
$10.0 million in the form of a capital contribution) from Met P&C. In
connection with these transactions we recorded $5.9 million of replacement
carrier transaction revenue for the three months ended March 31, 2004 as we
began the process of fulfilling our obligations under the terms of each of
these respective contracts. See "Business—Recent Transactions.
(6)     In connection with the
financial reporting as of and for the year ended December 31,
2001, certain adjustments were made to reduce net income and shareholder's
equity as of January 1, 2001 by $1.0 million. The
summary historical financial information presented as of and for the
year ended December 31, 2000 has been adjusted accordingly to
reflect the impact of such adjustments from that which was derived
from our Consolidated Financial Statements that had
been subject to audit by Arthur Andersen LLP.
(7)     As set forth in Note 12
to our Consolidated Financial Statements, subsequent to the filing of
Proformance's statutory annual statements for the year ended December 31,
2003, management identified certain adjustments which, if known at
the time, would have impacted the amounts as previously filed. Such amounts
would have reduced statutory surplus by $0.5 million, $11.7 million and
$4.9 million at December 31, 2003, 2002 and 2001,
respectively. In accordance with statutory reporting requirements,
these corrections will be reported as an opening surplus adjustment
in the 2004 statutory filing.
Further, the insurance
ratios would have been adjusted as follows:
As of December 31,
2001
2002
2003
Loss ratio
111.4
%
91.4
%
74.3
%
Expense ratio
28.6
%
20.8
%
19.0
%
Combined
ratio
140.0
%
112.2
%
93.3
%
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RISK FACTORS
An investment in our common stock involves a number of risks. Before
making an investment in our common stock, you should carefully consider the
following risks, as well as the other information contained in this prospectus,
including our consolidated financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Additional risks and certainties not currently known to us, or
risks that we currently deem immaterial, may also impair our business
operations. Any of the risks described below could result in a significant or
material adverse effect on our results of operations or financial condition.
As a result, the trading price of our common stock could decline and you may
lose all or part of your investment.
Because we are primarily a private passenger automobile insurance carrier, our
business may be adversely affected by conditions in this industry.
Approximately 85% of our direct gross written premiums for the year ended
December 31, 2003 were generated from private passenger automobile insurance
policies. As a result of our focus on that line of business, negative
developments in the economic, competitive or regulatory conditions affecting
the private passenger automobile insurance industry could have a material
adverse effect on our results of operations and financial condition. In
addition, these developments would have a disproportionate effect on us,
compared to more diversified insurers that also sell a larger proportion of
other types of property and casualty insurance products.
Because we write insurance only in New Jersey, our business may be adversely
affected by conditions in New Jersey.
All of our direct written premiums are generated in New Jersey. Our
revenues and profitability are therefore subject to prevailing regulatory,
economic, demographic, competitive, weather and other conditions in New Jersey.
Changes in any of these conditions could make it more costly or difficult for
us to conduct our business. Adverse regulatory developments in New Jersey,
which could include, among others, fundamental changes in the design or
implementation of the New Jersey insurance regulatory framework, could have a
material adverse effect on our results of operations and financial condition.
In addition, these developments would have a disproportionate effect on us,
compared to insurers which conduct operations in multiple states.
We have exposure to claims related to severe weather conditions, which may
result in an increase in claims frequency and severity.
We are subject to claims arising out of severe weather conditions, such as
rainstorms, snowstorms and ice storms, that may have a significant effect on
our results of operations and financial condition. The incidence and severity
of weather conditions are inherently unpredictable. There is generally an
increase in claims frequency and severity under the private passenger
automobile insurance we write when severe weather occurs because a higher
incidence of vehicular accidents and other insured losses tend to occur in
severe weather conditions. In addition, we have exposure to an increase in
claims frequency and severity under the homeowners and other property insurance
we write because property damage may result from severe weather conditions.
Because some of our insureds live near the New Jersey coastline, we also
have a potential exposure to losses from hurricanes and major coastal storms
such as Nor'easters. Although we purchase catastrophe reinsurance to limit our
exposure to these types of natural catastrophes, in the event of a major
catastrophe resulting in losses to us in excess of $50 million, our losses
would exceed the limits of our reinsurance coverage.
Some of our subsidiaries are in their early stages of development and a
substantial amount of management time and attention and financial resources may
be necessary to continue to grow their respective businesses.
Riverview, NAIA and Mayfair are all in their early stages of development.
Companies in their initial stages of operations face significant business and
financial risks and may suffer significant losses. A substantial amount of
management time and attention and financial resources may be necessary to
continue to grow the businesses of these subsidiaries.
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If we are not able to attract and retain independent agents, it could adversely
affect our business.
We market our insurance solely through independent agents. We must
compete with other insurance carriers for the business of independent agents.
Some of our competitors offer a larger variety of products, lower prices for
insurance coverage or higher commissions. Changes in commissions, services or
products offered by our competitors could make it harder for us to attract and
retain independent agents to sell our insurance products.
Established competitors with greater resources may make it difficult for us to
market our products effectively and offer our products at a profit.
The property and casualty insurance business is highly competitive and
many of our competitors have substantially greater financial and other
resources than us. Our competitors may offer a broader range of products or
offer competing products at lower prices. We compete with both large national
writers and smaller regional companies. Further, our competitors include other
companies which, like us, serve the independent agency market, as well as
companies which sell insurance directly to customers. Direct writers of
property and casualty insurance may have certain competitive advantages over
agency writers of property and casualty insurance, including increased name
recognition, loyalty of the customer base to the insurer rather than to an
independent agency and lower cost structures. A material reduction in the
amount of business independent agents sell would directly and negatively affect
our profitability and our ability to compete with insurers that do not rely
solely on the independent agency market to sell their products.
In the past, competition in the New Jersey personal auto insurance market
has included significant price competition and there can be no assurance that
these conditions will not recur. Further, we and others compete on the basis
of the commissions and other cash and non-cash incentives provided to agents.
Although a number of national insurers that are much larger than we are do not
currently compete in a material way in the New Jersey personal auto insurance
market, if one or more of these companies decide to aggressively enter the
market it could reduce our share of the New Jersey market and thereby have a
material adverse effect on us. These companies include some that would be able
to sustain significant losses in order to acquire market share, as well as
others which use distribution methods that compete with the independent agent
channel we utilize.
Our results may fluctuate as a result of cyclical changes in the personal auto
insurance industry.
The personal auto insurance industry is historically cyclical in nature.
The industry has been characterized by periods of price competition and excess
capacity followed by periods of high premium rates and shortages of
underwriting capacity. Downturns in the business cycle would likely have a
negative impact on our revenues.
The continued threat of terrorism and ongoing military and other actions may
result in decreases in our net income, revenue and assets under management and
may adversely affect our investment portfolio.
The continued threat of terrorism, both within the United States and
abroad, and the ongoing military and other actions and heightened security
measures in response to these types of threats, may cause significant
volatility and declines in the equity markets in the United States, Europe and
elsewhere, loss of life, property damage, additional disruptions to commerce
and reduced economic activity. Actual terrorist attacks could cause losses
from insurance claims related to the property and casualty insurance operations
of Proformance, as well as a decrease in Proformance's surplus and net income
and our consolidated shareholders' equity, net income and/or revenue. The
Terrorism Risk Insurance Act of 2002 requires that some coverage for terrorist
acts be offered by primary property and casualty insurers such as Proformance
and provides federal assistance for recovery of claims through 2005.
In addition, some of the assets in our investment portfolio may be
adversely affected by declines in the equity markets and economic activity
caused by the continued threat of terrorism, ongoing military and other actions
and heightened security measures. We cannot predict at this time whether and
the extent to which industry sectors in which we maintain investments may
suffer losses as a result of potential decreased commercial and economic
activity, or how any such decrease might impact the ability of companies within
the affected industry sectors to pay interest or principal on their securities,
or how the value of any underlying collateral might be affected.
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We cannot assure you that the threats of future terrorist-like events in
the United States and abroad or military actions by the United States will not
have a material adverse effect on our business, financial condition or results
of operations.
We have a principal shareholder who has the ability to exert significant
influence over our operations, including controlling the election of directors.
Prior to this offering, James V. Gorman beneficially owned approximately
30.4% of the total outstanding common stock of NAHC on a fully diluted basis.
After this offering, Mr. Gorman will own approximately      % of the total
outstanding common stock (all of which will be voting common stock) of NAHC on
a fully diluted basis. Mr. Gorman is not selling shares of our common stock in
this offering. Mr. Gorman is also Chairman of the Board of Directors and Chief
Executive Officer of NAHC and Proformance. Until such time as Mr. Gorman sells
or disposes all or most of the common stock he holds, he would have the ability
to exert significant influence over our policies and affairs, including
election of our directors and significant corporation transactions. Mr.
Gorman's interests may differ from the interests of our other shareholders,
including those who purchase shares in this offering.
As a holding company, NAHC is dependent on the results of operations of its
operating subsidiaries, particularly Proformance.
NAHC is a company and a legal entity separate and distinct from its
subsidiaries, including Proformance. As a holding company without significant
operations of its own, the principal sources of NAHC's funds are dividends and
other distributions from its subsidiaries. Our rights, and consequently your
rights as shareholders, to participate in any distribution of assets of
Proformance are subject to prior claims of policyholders, creditors and
preferred shareholders, if any, of Proformance. Consequently, our ability to
pay debts, expenses and cash dividends to our shareholders may be limited.
The payment of dividends and other distributions to NAHC by Proformance is
regulated by New Jersey insurance law and regulations. In general, dividends
in excess of prescribed limits are deemed "extraordinary" and require prior
insurance regulatory approval. See "Business—Supervision and
Regulation—Insurance Regulation Concerning Dividends." As of the date of this
prospectus, Proformance is not permitted to pay any dividends without the
approval of the Commissioner as it has negative unassigned surplus as a result
of its replacement carrier transactions.
We are subject to comprehensive regulation by New Jersey and our ability to
earn profits may be restricted by these regulations.
General Regulation
We are subject to regulation by the New Jersey Department of Banking and
Insurance, and we must obtain prior approval for certain corporate actions. We
must comply with laws and regulations involving:
•
transactions between an insurance company and any of its affiliates;
•
the payment of dividends;
•
the acquisition of an insurance company or of any company controlling an insurance company;
•
approval or filing of premium rates and policy forms;
•
solvency standards;
•
minimum amounts of capital and policyholders' surplus which must be maintained;
•
limitations on types and amounts of investments;
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•
restrictions on the size of risks which may be insured by a single company;
•
limitation of the right to cancel or non-renew policies in some lines;
•
regulation of the right to withdraw from markets or terminate involvement with agencies;
•
requirements to participate in residual markets;
•
licensing of insurers and agents;
•
deposits of securities for the benefit of policyholders;
•
reporting with respect to our financial condition, including the
adequacy of our reserves and provisions for unearned premiums;
•
unfair trade and claims practices; and
•
the type of accounting we must use.
In addition, insurance department examiners from New Jersey perform
periodic financial and market conduct examinations of insurance companies.
Such regulation is generally intended for the protection of policyholders
rather than security holders.
New Jersey Property-Liability Insurance Guaranty Association.
New Jersey
law requires that property and casualty insurers licensed to do business in New
Jersey participate in the New Jersey Property-Liability Insurance Guaranty
Association, which we refer to as NJPLIGA. NJPLIGA must pay any claim up to
$300,000 of a policyholder of an insolvent insurer if the claim existed prior
to the declaration of insolvency or arose within 90 days after the declaration
of insolvency. Members of NJPLIGA are assessed the amount NJPLIGA deems
necessary to pay its obligations and its expenses in connection with handling
covered claims. Subject to certain exceptions, assessments are made in the
proportion that each member's net direct written premiums for the prior
calendar year for all property and casualty lines bear to the corresponding net
direct written premiums for NJPLIGA members for the same period. By statute,
no insurer in New Jersey may be assessed in any year an amount greater than 2%
of that insurer's net direct written premiums for the calendar year prior to
the assessment. In 2003, Proformance was assessed approximately $0.5 million,
as its portion of the losses due to insolvencies of certain insurers. We
anticipate that there will be additional assessments from time to time relating
to insolvencies of various insurance companies. Although we are allowed to
re-coup these assessments from our policyholders over time until we have
recovered all such payments, the effect of these assessments could reduce our
profitability in any given period and limit our ability to grow our business.
Risk-Based Capital Standards.
Proformance is subject to risk-based
capital standards and other minimum capital and surplus requirements imposed
under the laws of the State of New Jersey. These risk-based capital standards,
based upon the Risk-Based Capital Model Act adopted by the National Association
of Insurance Commissioners, which we refer to as the NAIC, require Proformance
to report its results of risk-based capital calculations to the New Jersey
Department of Banking and Insurance and the NAIC.
Failure to meet applicable risk-based capital requirements or minimum
statutory capital requirements could subject Proformance to further examination
or corrective action imposed by state regulators, including limitations on our
writing of additional business or engaging in financing activities, state
supervision or even liquidation. Any changes in existing risk-based capital
requirements or minimum statutory capital requirements may require us to
increase our statutory capital levels, which we may be unable to do. As of the
date of this prospectus, Proformance maintained a risk-based capital level in
excess of the amount that would require any corrective actions on our
part. As described in Note 12 to our Consolidated Financial
Statements and footnote 7 to the Summary Historical Financial
Data, subsequent to the filing of Proformance's statutory annual statements for the
year ended December 31, 2003, management identified certain
adjustments which, if known at the time, would have impacted the
amounts as previously filed. Management has concluded that had such adjustments
been made at the time of the filing of Proformance's statutory
financial statements, Proformance's risk-based capital levels would
have continued to be in excess of the amount that would require any
corrective action on our part. See "Business—Supervision and Regulation."
IRIS Ratios.
The NAIC has developed a set of financial relationships or
"tests" known as the Insurance Regulatory Information System that were designed
to assist state insurance regulators in the early identification of
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companies which may require special attention or action. Insurance
companies submit data annually to the NAIC which analyzes the data against
defined "usual ranges." Generally, an insurance company will become subject to
regulatory scrutiny if it falls outside the usual ranges of four or more of the
ratios. As of December 31, 2003, Proformance fell outside of the usual ranges
of five ratios. However, we are not subject to regulatory action based on our
falling outside the ranges with respect to those ratios. We believe the rapid
increase in premium and surplus as a result of the replacement carrier
transactions we have entered into was the primary reason we fell outside the
usual ranges for these tests. This is further supported by the fact that the
NAIC, in the "Statistical Phase" portion of its information guide, acknowledges
that rapid increases in premium and surplus may result in an insurer falling
outside the usual ranges of the ratios. Management has concluded that
had the adjustments to Proformance's statutory financial
statements described in Note 12 to our Consolidated Financial
Statements and footnote 7 to the Summary Historical Financial
Data been made at the time of the filing of
Proformance's statutory financial statements, Proformance would
have continued to fall outside of the usual ranges of the same five
ratios. The impact of these adjustments would not have caused
Proformance to fall outside of the usual ranges for the other IRIS
ratios. There can be no assurance that Proformance will fall within the usual ranges of those five ratios or satisfy
the other ratios in the future. In the event that Proformance fails to satisfy
a sufficient number of these ratios, it could become subject to regulatory
scrutiny which could have a negative effect on our operations.
Because we are unable to predict with certainty changes in the political,
economic or regulatory environments in New Jersey in the future, there can be
no assurance that existing insurance-related laws and regulations will not
become more restrictive in the future or that new restrictive laws or
regulations will not be enacted and, therefore, it is not possible to predict
the potential effects of these laws and regulations on us. See
"Business—Supervision and Regulation."
New Jersey Personal Auto Insurance Regulation
General
. We are subject to extensive regulation of the private passenger
automobile insurance industry in New Jersey. Such regulation is primarily for
the benefit and protection of insurance policyholders rather than shareholders,
and could change at any time. Thus, government regulation, which is subject to
change, could significantly limit our profitability and may conflict with the
interests of our shareholders.
FAIR Act/AICC Act
. The New Jersey legislature adopted the Fair Automobile
Insurance Reform Act of 1990 which created a difficult insurance market
environment and led to many insurers exiting or reducing their auto insurance
market share in New Jersey. To curtail the rising costs of automobile
insurance to consumers in New Jersey, the New Jersey legislature adopted the
Automobile Insurance Cost Reduction Act of 1998 which negatively affected the
profitability of automobile insurers in New Jersey. In an attempt to improve
the New Jersey auto insurance environment, on June 9, 2003, the Governor of New
Jersey signed into law the New Jersey Automobile Insurance Competition & Choice
Act, which we refer to as the AICC Act. The AICC Act was enacted to bring new
competition to the New Jersey auto insurance markets and to provide consumers
with choices for auto insurance. Regulatory changes adopted under this new
legislation include, but are not limited to, establishing a seven-year
(replacing a three-year) look-back period for an excess-profits determination;
phasing out the auto insurance "take all comers" requirement (which required
insurers to cover virtually all applicants); increasing the annual "expedited"
rate filing statewide average rate change maximum from 3% to 7%; requiring
insurers to provide three premium scenarios illustrating the effect of
different coverage choices to new applicants; establishing the Special
Automobile Insurance Policy for low income individuals; and establishing an
Insurance Fraud Detection Reward Program to assist in the prosecution of
insurance frauds and permit enhanced cancellation of policies due to frauds.
We cannot be certain how these legislative changes or future legislative
changes will affect our operations, nor can we be sure whether any additional
legislation would reverse the effect of the AICC Act. The impact of these
legislative changes and additional legislative changes, if any, could reduce
our profitability and limit our ability to grow our business.
Excess Profits.
Each insurer in New Jersey is required to file an annual
report which includes a calculation of statutory profits on private passenger
automobile business. If the insurer has excess statutory profits as determined
by a prescribed formula, the insurer is required to submit a plan for the
approval of the Commissioner of Banking and Insurance of the State of New
Jersey (whom we refer to as the Commissioner) to refund or credit the excess
profits to policyholders. Prior to the AICC Act, the calculation of statutory
profits was based on the three-year period immediately prior to the report, and
the amount of profit an insurer could earn without being considered excess was
limited to 3.5% of its earned premium. The AICC Act extended the time period
for the calculation of statutory profits from three years to seven years to
take into account market fluctuations over a longer period of time. The AICC
Act also changed the basis for determining allowable profits from earned
premium to policyholder surplus. The amount of profit an insurer can now earn
without being considered excess is 12% of policyholder
13
Table of Contents
surplus. As of December 31, 2003, we did not exceed the excess profit
threshold in respect of any prior lookback period.
"Take All Comers."
Since 1992, with very few exceptions, auto insurers
were not permitted to refuse coverage to an eligible applicant. Under this
"take all comers" requirement, insurers could not refuse to issue a policy to
an applicant who was deemed to be eligible in that the applicant had not been
convicted of serious motor vehicle infractions such as driving while
intoxicated or vehicular homicide in the past three years. The AICC Act phases
out the "take all comers" requirement over five years, to become inoperative on
January 1, 2009. Also, the AICC Act provides for an exemption from the "take
all comers" requirement for insurers that increase their private passenger auto
insurance non-fleet exposures by certain amounts. The exemption criteria are
applied every six months to determine if the insurer remains exempt. Insurers
that increased their private passenger auto insurance non-fleet exposures by 5%
during the one-year period ending on January 1, 2004 are exempt from the "take
all comers" requirement for the subsequent six-month period, at which time the
5% standard is applied to determine if the insurer remains exempt. Insurers
that increase their private passenger auto insurance non-fleet exposures by the
following amounts will also be exempt from the "take all comers" requirement,
subject to review every six months: 4% in the one-year period ending January
1, 2005, 3% in the one-year period ending January 1, 2006, 2% in the one-year
period ending January 1, 2007, and 1% in the one-year period ending January 1,
2008.
As of the date of this prospectus, Proformance has filed with the New
Jersey Department of Banking and Insurance its required certification
indicating it is exempt from the "take all comers" provision in all regions
where it markets as it has satisfied the foregoing criteria. There can be no
assurance that Proformance's certification will be approved by the New Jersey
Department of Banking and Insurance or, if the certification is approved, that
Proformance will continue to satisfy these criteria and maintain its exemption
in the future. In the event that it fails to meet the exemption criteria,
Proformance will be subject to the "take all comers" requirement until it again
satisfies the exemption criteria or until the "take all comers" requirement
expires on January 1, 2009, which could have a negative effect on our results
of operations and financial condition. In addition, in the event that the
market share of applicants eligible to participate in New Jersey's Personal
Automobile Insurance Plan exceeds 10% of the total New Jersey auto insurance
market share, Proformance's exemptions would cease and it would be subject to
the "take all comers" requirement, which could have a negative effect on our
results of operations and financial condition.
Urban Enterprise Zones
. New Jersey law requires auto insurers to have the
same proportionate share of business in designated "urban enterprise zones"
across the state as is equal to their proportionate share of the auto insurance
market in the state as a whole. If an insurer does not achieve its quota, it
may be assigned business by the state to fill the quota, which business tends
to be unprofitable. Proformance currently satisfies its quota in each urban
enterprise zone primarily as a result of voluntary writings and the influx of
policies from our replacement carrier transactions. There can be no assurance
that Proformance will continue to satisfy its quota in the future, in which
case it may be assigned business by the state, which could have a negative
effect on our results of operations and financial condition.
Our failure to maintain a commercially acceptable financial strength rating
would significantly and negatively affect our ability to implement our business
strategies successfully.
A.M. Best has currently assigned Proformance a "B (Fair)" rating. A "B"
rating is A.M. Best's seventh highest rating out of 15 possible rating
classifications for insurance companies. A "B" rating is assigned to insurers
that in A.M. Best's opinion have a fair ability to meet their current
obligations to policyholders, but are financially vulnerable to adverse changes
in underwriting and economic conditions. A.M. Best bases its ratings on
factors that concern policyholders and not upon factors concerning investor
protection. An important factor in an insurer's ability to compete effectively
is its A.M. Best rating. Proformance's A.M. Best rating is lower than those of
some of its competitors.
In addition, Proformance is rated "A" by Demotech, Inc. Demotech provides
financial stability ratings of property and casualty insurers. In addition to
A.M. Best, Demotech is the only other authorized rating agency recognized by
federally insured lending institutions, such as mortgage companies. Mortgage
companies, as a condition to issuing a mortgage, generally require borrowers to
obtain adequate homeowners insurance. The mortgage companies often refer to
Demotech's financial stability rating prior
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Table of Contents
to issuing a mortgage. We believe the "A" rating assigned by Demotech is
beneficial in connection with our homeowners business.
Publications of Demotech indicate that its rating process provides an
objective baseline for assessing the solvency of an insurer. A Demotech
financial stability rating summarizes its opinion as to the insurer's ability
to insulate itself from the business cycle that exists in the general economy
as well as the underwriting cycle that exists in the industry.
An "A" rating is Demotech's third highest rating out of six possible
rating classifications for insurers with complete financial data. An "A"
rating is assigned to insurers that in Demotech's opinion possess exceptional
financial stability related to maintaining positive surplus as regards
policyholders, regardless of the severity of a general economic downturn or
deterioration in the insurance cycle.
Our A.M. Best and our Demotech ratings are subject to change and are not
recommendations to buy, sell or hold securities. Any future decrease in our
ratings could affect our competitive position. See "Business—Ratings."
Our losses and loss adjustment expenses may exceed our reserves, which could
significantly affect our business.
The reserves for losses and loss adjustment expenses that we have
established are estimates of amounts needed to pay reported and unreported
claims and related expenses based on facts and circumstances known to us as of
the time we established the reserves. Reserves are based on historical claims
information, regulatory change, court decision, industry statistics and other
factors. The establishment of appropriate reserves is an inherently uncertain
process. If our reserves are inadequate and are strengthened, we would have to
treat the amount of such increase as a charge to our earnings in the period
that the deficiency is recognized. As a result of these factors, there can be
no assurance that our ultimate liability will not materially exceed our
reserves and have a negative effect on our results of operations and financial
condition.
Due to the inherent uncertainty of estimating reserves, it has been
necessary, and may over time continue to be necessary, to revise estimated
future liabilities as reflected in our reserves for claims and policy expenses.
In 2003, 2002 and 2001, our reserve reviews indicated that our reserves
established in prior years were lower than necessary, and so in those years we
strengthened $0.1 million, $8.6 million and $8.9 million, respectively, of
previously established reserves for losses and loss adjustment
expenses. The incurred losses related to prior years of
$0.1 million in 2003 included a commutation loss of
$0.2 million which was offset by favorable loss development on
prior accident year reserves. We
strengthened reserves for prior years by $0.7 million in the first three months
of 2004. Proformance's reserves have shown a deficiency in every year since
1995.
The historic development of reserves for losses and loss adjustment
expenses may not necessarily reflect future trends in the development of these
amounts. Accordingly, it is not appropriate to extrapolate redundancies or
deficiencies based on historical information. See "Business—Reserves."
Changes in insurance industry practices and regulatory, judicial and consumer
conditions and class action litigation are continually emerging in the
automobile insurance industry, and these new issues could adversely impact our
revenues or our methods of doing business.
As automobile insurance industry practices and regulatory, judicial and
consumer conditions change, unexpected and unintended issues related to
pricing, claims, coverages, financing and business practices may emerge. For
example, one emerging issue in New Jersey relates to the judicial
interpretation of New Jersey's no-fault and uninsured motorist statutes. The
resolution and implication of these issues can have an adverse effect on our
business by changing the way we price our products, by extending coverage
beyond our underwriting intent, or by increasing the size of claims.
Recent court decisions and legislative activity may increase our exposure
for litigation claims. In some cases, substantial non-economic, treble or
punitive damages may be sought. The loss of even one claim, if it results
15
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in a significant punitive damages award, could significantly worsen our
financial condition or results of operations. This risk of potential liability
may make reasonable settlements of claims more difficult to obtain.
If we lose key current personnel or are unable to recruit new personnel, our
ability to implement our business strategy could be delayed or hindered.
Our future
success depends significantly upon the efforts of certain key
management personnel, including James V. Gorman, Chairman and Chief Executive
Officer of NAHC and Proformance. We maintain a $2.5 million key man life
insurance policy on Mr. Gorman, as well as on other of our senior executives,
the proceeds of which are payable to us. On or prior to the
consummation of this offering, we intend to enter into employment
agreements with James V. Gorman, Peter A. Cappello, Jr., Cynthia L. Codella,
Frank J. Prudente, and John E. Scanlan. Although we are not aware of any
impending departures or retirements, the loss of key personnel could prevent us
from fully implementing our business strategy and could significantly and
negatively affect our financial condition and results of operations. As we
continue to grow, we will need to recruit and retain additional qualified
management personnel, and our ability to do so will depend upon a number of
factors, such as our results of operations and prospects and the level of
competition then prevailing in the market for qualified personnel.
Market fluctuations and changes in interest rates can have significant and
negative effects on our investment portfolio.
Our results of
operations depend in part on the performance of our
invested assets. As of March 31, 2004, 91.7% of our investment portfolio was
invested in fixed income securities and 7.3% was invested in equity securities.
As of March 31, 2004, approximately 53.4% of our fixed income security
portfolio was invested in U.S. government and government agency fixed income
securities, approximately 41.9% was invested in fixed income securities rated
"Aaa"/"Aa" by Moody's Investor Service, which we refer to as Moody's, and
approximately 4.7% was invested in fixed income securities rated "A" by
Moody's. Certain risks are inherent in connection with fixed income securities
including loss upon default and price volatility in reaction to changes in
interest rates and general market factors. For example, the fair value of our
fixed income securities can fluctuate depending on changes in interest rates.
Accordingly, changes in interest rates may result in fluctuations in the income
from, and the valuation of, our fixed income investments. Large investments
losses would significantly decrease our asset base, thereby affecting our
ability to underwrite new business. For the three months ended March 31, 2004,
2.7% or $1.2 million of our total income was derived from our invested assets.
This represented 4.0% of our income before income tax for the same period.
See "Business—Investments."
We may not be able to successfully alleviate risk through reinsurance
arrangements which could cause us to reduce our premiums written in certain
lines or could result in losses and we are subject to credit risk with respect
to our reinsurers.
In order to reduce risk and to increase our underwriting capacity, we have
previously purchased third party reinsurance. Although we expect to decrease
our use of third party reinsurance in the future, we expect to purchase
additional third party reinsurance in the future. The availability and the
cost of reinsurance protection is subject to market conditions, which are
outside of our control. As a result, we may not be able to successfully
alleviate risk through these arrangements. For example, if reinsurance
capacity for homeowners risks were reduced as a result of terrorist attacks or
other causes, we may seek to reduce the amount of homeowners business we write.
In addition, we are subject to credit risk with respect to our reinsurance
because the ceding of risk to reinsurers does not relieve us of our liability
to our policyholders. A significant reinsurer's insolvency, inability or
unwillingness to make payments under the terms of a reinsurance treaty could
have a material adverse effect on our results of operations and financial
condition.
Because we intend to reduce our use of third party reinsurance, we will retain
more risk, which could result in more losses.
We currently use third party reinsurance primarily to increase our
underwriting capacity and to reduce our exposure to losses. See
"Business—Reinsurance." Since we intend to reduce our use of third party
reinsurance in the future, we will retain more gross premiums written over
time, but will also retain more of the related losses.
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Reducing our reinsurance will increase our risk and exposure to losses,
which could have a material adverse effect on our financial condition and
results of operations.
There are anti-takeover provisions contained in our organizational documents
and in laws of the state of New Jersey that could delay or impede the removal
of our directors and management and could make a merger, tender offer or proxy
contest involving us more difficult, or could discourage a third party from
attempting to acquire control of us, even if such a transaction were beneficial
to the interest of our shareholders.
Our organizational documents and the New Jersey Business Corporation Act
contain certain provisions that could delay or impede the removal of directors
and management and could make a merger, tender offer or proxy contest involving
us more difficult, or could discourage a third party from attempting to acquire
control of us, even if such a transaction were beneficial to the interest of
our shareholders. Our organizational documents have authorized
            
shares of preferred stock, which we could issue without further shareholder
approval and upon such terms and conditions, and having such rights, privileges
and preferences, as our board of directors may determine. The issuance of
preferred stock may have the effect of delaying or preventing a change of
control. For example, if in the due exercise of its fiduciary obligations, our
board of directors were to determine that a takeover proposal is not in our
best interests, our board of directors could cause shares of preferred stock to
be issued without shareholder approval in one or more private offerings or
other transactions that might dilute the voting or other rights of the proposed
acquirer or insurgent shareholder or shareholder group. We have no current
plans to issue any preferred stock. Such preferred stock could also have the
right to vote separately as a class with respect to a merger, take-over or
other significant corporate transactions. In addition, our organizational
documents provide for a classified board of directors with staggered terms,
provide that directors may be removed only for "cause", prohibit shareholders
from taking action by written consent, prohibit shareholders from calling a
special meeting of shareholders and require advance notice of nominations for
election to the board of directors or for proposing business that can be acted
upon by shareholders. These provisions could delay or impede the removal of
directors and management and could make a merger, tender offer or proxy contest
involving us more difficult.
We are also subject to Section 14A:10A-4 of the New Jersey Shareholders
Protection Act, which we refer to as the Protection Act, which prohibits
certain New Jersey corporations from engaging in business combinations
(including mergers, consolidations, significant asset dispositions and certain
stock issuances) with any "interested shareholder" (defined to include, among
others, any person that becomes a beneficial owner of 10% or more of the
affected corporation's voting power) for five years after such person becomes
an interested shareholder, unless the business combination is approved by the
board of directors of the corporation prior to the date the shareholder became
an interested shareholder. In addition, Section 14A:10A-5 of the Protection
Act prohibits any business combination at any time with an interested
shareholder other than a transaction (i) that is approved by the board of
directors of the corporation prior to the date the interested shareholder
became an interested shareholder, or (ii) that is approved by the affirmative
vote of the holders of two-thirds of the voting stock not beneficially owned by
the interested shareholder, or (iii) in which the corporation's common
shareholders receive payment for their shares that meets certain "fair price"
standards prescribed in the statute. These provisions could have the effect of
delaying, deferring or preventing a change in control of us and prevent our
shareholders from receiving the benefit of any premium over the market price of
our common stock offered by a bidder in a potential takeover. Even in the
absence of a takeover attempt, the existence of these provisions may adversely
affect the prevailing market price of our common stock if they are viewed as
discouraging takeover attempts in the future.
The New Jersey insurance law prohibits any person from acquiring control
of us, and thus indirect control of Proformance, without the prior approval of
the Commissioner. That law presumes that control exists where any person,
directly or indirectly, owns, controls, holds the power to vote or holds
proxies representing 10% or more of our outstanding voting stock. Even persons
who do not acquire beneficial ownership of more than 10% of the outstanding
shares of our voting stock may be deemed to have acquired such control if the
Commissioner determines that such control exists in fact. Therefore, any
person seeking to acquire a controlling interest in us would face regulatory
obstacles which could delay, deter or prevent an acquisition that shareholders
might consider in their best interests.
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Table of Contents
We may require additional capital in the future, which may not be available or
may only be available on unfavorable terms.
Our future capital requirements depend on many factors, including our
ability to write new business successfully and to establish premium rates and
reserves at levels sufficient to cover losses. Our additional needs for
capital will depend on our actual claims experience, especially with respect to
any catastrophic events. Any equity or debt financing, if available at all,
may be on terms that are not favorable to us. In the case of equity
financings, dilution to our shareholders could result, and in any case such
securities may have rights, preferences and privileges that are senior to those
of the shares offered pursuant to this prospectus. If we cannot obtain
adequate capital on favorable terms or at all, we could be forced to curtail
our growth or reduce our assets.
We rely on our information technology and telecommunication systems, and the
failure of these systems could materially and adversely affect our business.
Our business is highly dependent upon the successful and uninterrupted
functioning of our information technology and telecommunication systems. We
rely on these systems to support our direct and indirect marketing operations
and our agents' basic underwriting and claim-processing efforts, as well as to
process new and renewal business, provide customer service, make claims
payments, and facilitate collections and cancellations. These systems also
enable us to perform actuarial and other modeling functions necessary for
underwriting and rate development. The failure of these systems could
interrupt our operations or materially impact our ability to evaluate and write
new business. We are currently in the process of converting to a new claims
system. There is no assurance that we will successfully complete this process
or that we will not experience implementation delay, operation disruption or
system failure in connection with this transition. In addition, because our
information technology and telecommunications systems interface with and depend
on third party systems, we could experience service denials if demand for such
service exceeds capacity or such third party systems fail or experience
interruptions. If sustained or repeated, a system failure or service denial
could compromise our ability to write and process new and renewal business,
provide customer service or pay claims in a timely manner. This could result
in a material adverse effect on our business.
We may experience difficulty in attracting and retaining qualified independent
directors in the increasingly regulated corporate governance environment.
Upon completion of this offering, we will be subject to the independent
director requirements of the Sarbanes-Oxley Act of 2002, which we refer to as
the Sarbanes-Oxley Act, SEC rules and the Nasdaq corporate governance rules.
Upon completion of this offering, our board intends to designate an audit
committee, a compensation committee and a nominating and corporate governance
committee consisting solely of independent directors. Independent directors
are generally individuals, other than our employees, officers or their family
members or shareholders who hold more than a 10% interest in us, who do not
have a material relationship with us and have not received certain compensation
or other payments from us in previous years. The ultimate determination of
independence, however, is made by our board of directors on a case-by-case
basis based on all relevant facts and circumstances. We may experience
difficulty in attracting and retaining qualified independent directors,
particularly those with financial expertise in the insurance industry, to
respond to the increasing regulation of public companies. If we are unable to
attract or retain independent directors prior to the compliance deadlines
stipulated by the various regulations, we may be faced with delisting of our
common stock or a violation of the Sarbanes-Oxley Act.
Future sales of shares of our common stock by our existing shareholders,
officers or employees in the public market, or the possibility or perception of
such future sales, could adversely affect the market price of our stock.
James V. Gorman
currently owns approximately 30.4% of the total outstanding
common stock of NAHC on a fully diluted basis. Mr. Gorman is not selling
shares of our common stock in this offering. The Ohio Casualty Insurance
Company, which we refer to as OCIC, the selling shareholder in this offering,
currently owns approximately 15.5% of the total outstanding common stock of NAHC
on a fully diluted basis. OCIC is selling a significant amount, but not all,
of its shares in this offering. Metropolitan Property and Casualty Insurance ,
which we refer to as Met P&C, currently owns approximately 7.7% of the total
outstanding common stock of NAHC on a
18
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fully diluted basis. Met P&C is not selling shares in this offering.
After the offering, Mr. Gorman, OCIC and Met P&C will own approximately      %,
      % and      %, respectively, of the common stock of NAHC (all of which will be
voting stock) on a fully diluted basis, assuming the underwriters do not
exercise their over-allotment option.
No prediction can be made as to the effect, if any, that future sales of
shares by our existing shareholders, or the availability of shares for future
sale, will have on the prevailing market price of our common stock from time to
time. For instance, following the completion of this offering, we intend to
file one or more registration statements on Form S-8 under the Securities Act
to register shares of our common stock issued or reserved for issuance under
our 2004 Stock and Incentive Plan. Subject to the exercise of issued and
outstanding options, shares registered under the registration statement on Form
S-8 will be available for sale into the public markets unless such shares are
subject to vesting restrictions with us or the lock-up restrictions described
below.
Our officers and directors, including Mr. Gorman, and certain of our
shareholders, including OCIC and Met P&C, have agreed, subject to specified
exceptions, not to sell their shares without the prior written consent of
Citigroup Global Markets Inc. during the period of 180 days following the date
of this prospectus. See "Underwriting."
On July 10, 2004, we entered into an agreement with the selling
shareholder, OCIC and OCNJ, pursuant to which we agreed, among other things,
that following the expiration of the 180-day lock-up period discussed above, we
will use commercially reasonable efforts to facilitate a secondary public
offering by OCIC of the shares of NAHC common stock owned by OCIC which are not
sold as part of this offering. In addition, subject to certain exceptions, we
have granted OCIC the right, on three occasions following the expiration of the
180-day lock-up period relating to this offering, to demand that we file a
registration statement with respect to the resale by OCIC of any shares of NAHC
common stock owned by OCIC which are not sold as part of this offering. See
"Business—Recent Transactions—Ohio Casualty Replacement Carrier Transaction."
Sales of substantial amounts of our common stock in the public market by
our existing shareholders, including by OCIC in the secondary offering, if
consummated, or pursuant to OCIC's exercise of its demand registration rights
or the possibility or perception that such sales could occur, could cause the
prevailing market prices for our common stock to decrease. If such sales
reduce the market price of our common stock, our ability to raise additional
capital in the equity markets may be adversely affected.
Because there has been no prior public market for our common stock, there can
be no assurance that a public market will develop.
Prior to this offering, there has been no public market for our common
stock and there can be no assurance that an active trading market will develop
and continue upon completion of this offering or that the market price for our
common stock will not decline below the initial public offering price. The
initial public offering price will be determined through negotiations between
us and the underwriters. The initial public offering price of our common stock
will be based on numerous factors and may not be indicative of the market price
for our common stock after the initial public offering. Among the factors
considered in determining the initial public offering price will be our record
of operations, our current financial condition, our future prospects, our
markets, the economic conditions in and future prospects for the industry in
which we compete, our management, and currently prevailing general conditions
in the equity securities markets, including current market valuations of
publicly traded companies considered comparable to our company. We cannot
assure you, however, that the prices at which the shares will sell in the
public market after this offering will not be lower than the initial public
offering price or that an active trading market in our common stock will
develop and continue after this offering.
Because we do not intend to pay dividends, you will not receive funds without
selling shares.
We have never declared or paid any cash dividends on our capital stock and
do not intend to pay cash dividends in the foreseeable future. We intend to
invest our future earnings, if any, to fund our growth. In addition, our
ability to pay dividends is dependent upon, among other things, the
availability of dividends from our subsidiaries, including Proformance. The
ability of Proformance to pay dividends to us is restricted by New Jersey
insurance law. See "Business—Supervision and Regulation." As of the date of
this prospectus, Proformance is not permitted to pay any dividends without the
approval of the Commissioner as it has negative unassigned surplus as a
19
Table of Contents
result of the impact of its replacement carrier transactions. We also
cannot assure that you will receive a return on your investment when you sell
your shares or that you will not lose all or part of your investment.
As a new investor, you will incur immediate and substantial dilution as a
result of this offering.
The initial public offering price per share is higher than our net
tangible book value per share. As a result, investors purchasing common stock
in this offering will incur immediate and substantial dilution of their
investment. Based upon the issuance and sale of            million shares of
common stock at an assumed initial public offering price of $        per share
(the midpoint of the price range set forth on the cover page of this
prospectus), investors will incur immediate dilution of approximately $        in
the net tangible book value per share purchased in this offering. See
"Dilution."
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Table of Contents
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus may include forward-looking
statements which reflect our current views with respect to future events and
financial performance. These statements include forward-looking statements
both with respect to the insurance sector in general and us specifically.
Statements which include the words "expect," "intend," "plan," "believe,"
"project," "anticipate," "will," and similar statements of a future or
forward-looking nature identify forward-looking statements for purposes of the
federal securities laws or otherwise. These forward-looking statements may
include, among other things:
•
statements and assumptions relating to future growth, earnings,
earnings per share and other financial performance measures, as well as
management's short-term and long-term performance goals;
•
statements relating to the anticipated effects on results of
operations or financial condition from recent and expected developments
or events;
•
statements relating to our business and growth strategies; and
•
any other statements or assumptions that are not historical facts.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in these
statements. We believe that these factors include but are not limited to those
described under "Risk Factors" above. We undertake no obligation to publicly
update or review any forward-looking statement, whether as a result of new
information, future developments or otherwise.
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Table of Contents
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$        million, based on an assumed initial public offering price of $       
per share (the midpoint of the price range set forth on the cover page of
this prospectus) and after deducting estimated underwriting discounts and
estimated offering expenses we must pay in connection with this offering. If
the underwriters exercise in full their over-allotment option, we estimate that
our net proceeds from this offering will be approximately $        million.
We intend to use the proceeds from the offering to provide approximately $        
of additional capital to our operating subsidiaries and for general
corporate purposes.
We will not receive any proceeds from the sale of shares of common stock
by the selling shareholder in this offering.
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CAPITALIZATION
The following table sets forth our capitalization at March 31, 2004 on an
actual basis and as adjusted to give effect to the offering contemplated by
this prospectus, based upon an assumed initial public offering price of $
per share (the midpoint of the price range set forth on the cover page of this
prospectus), after deducting estimated underwriting discounts and estimated
offering expenses we must pay and assuming that the underwriters'
over-allotment option is not exercised.
This table should be read in conjunction with the consolidated financial
statements and the accompanying notes appearing elsewhere in this prospectus.
As of March 31, 2004
Actual
As Adjusted
Shareholders' Equity:
Common stock, Class A
$
3,002,206
$
—
Common stock, Class B
28,257,710
—
Common stock(1)
—
Retained earnings
27,948,417
Accumulated other comprehensive income
1,715,351
Total Shareholders' Equity
$
60,923,684
$
Total Capitalization
$
60,923,684
(1)     Immediately prior to the consummation of this offering, all of our
outstanding Class A and Class B common stock will be converted into one class
of voting common stock.
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Table of Contents
DILUTION
At March 31, 2004, our net tangible book value was approximately $61.0
million, or $530.7 per share of common stock. As used below, our net tangible
book value per share of common stock represents shareholders' equity divided by
the number of shares of common stock outstanding. After giving effect to the
issuance of shares of our common stock (at an assumed initial public
offering price of $          per share of common stock, the midpoint of the
price range set forth on the cover page of this prospectus, and after deducting
estimated underwriting discounts and estimated offering expenses we must pay
and assuming that the underwriters' over-allotment option is not exercised),
and the application of the estimated net proceeds therefrom, as set forth in
"Use of Proceeds," our net tangible book value as of March 31, 2004, would have
been $        million, or $          per share of common stock. This amount
represents an immediate increase of $          per share of common stock to the
existing shareholders and an immediate dilution of
$        per share of
common stock issued to the new investors purchasing stock offered hereby at the
initial public offering price. The following table illustrates this per share
accretion:
Initial public offering price per share of common stock
$
Net tangible book value per share of common stock before the offering
$
Increase attributable to the offering
$
Net tangible book value per share of common stock after the offering
$
Dilution per share of common stock to new investors after the offering
$
The following table sets forth the number of our shares of common stock
issued, the total consideration paid and the average price per share of common
stock paid by all existing shareholders and new investors purchasing shares in
the offering, after giving effect to the issuance of            shares of common
stock in the offering at an assumed initial public offering price of $        
per share (after deducting estimated underwriting discounts and estimated
offering expenses we must pay and assuming that the underwriters'
over-allotment option is not exercised).
Shares Issued
Total Consideration
Average
Price Per
Number
Percent
Amount
Percent
Share
Existing shareholders
%
$
%
$
New investors
Total
100
%
$
100
%
$
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Table of Contents
DIVIDEND POLICY
We intend to retain all future earnings to fund the development and growth
of our business. Although we paid a 5% stock dividend on our common stock in
1997, we have never paid cash dividends in the past and do not intend to pay
any cash dividends on our common stock in the foreseeable future.
Any payment of dividends will be at the discretion of our board of
directors. Our ability to pay dividends is dependent upon, among other things,
the availability of dividends from our subsidiaries, including our insurance
subsidiaries, Proformance and Mayfair. The ability of Proformance to pay
dividends to us is restricted by New Jersey insurance law. As of the date of
this prospectus, Proformance is not permitted to pay any dividends without the
approval of the Commissioner as it has negative unassigned surplus as a result
of the impact of its replacement carrier transactions. In addition, the
payment of dividends and other distributions by Mayfair is regulated by Bermuda
insurance law and regulations. See "Business — Supervision and Regulation."
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Table of Contents
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth our selected historical financial data as
of and for each of the five years ended December 31, 2003 and as of and for the
three months ended March 31, 2004 and 2003. We derived the data as of December
31, 2003 and 2002, and for each of the three years in the period ended December
31, 2003, from our consolidated financial statements that have been subject to
audit and are included elsewhere in this prospectus. We derived the data as of
December 31, 2001, 2000 and 1999, and for the years ended December 31, 2000 and
1999, from our consolidated financial statements that have been subject to
audit and are not included in this prospectus. The selected historical income
statement data for the three months ended March 31, 2003 and 2004 and the selected
historical consolidated balance sheet data as of March 31, 2003
and 2004 have been
derived from our unaudited interim consolidated financial statements included
elsewhere in this prospectus. In the opinion of our management, the unaudited financial data as
of and for the three months ended March 31, 2003 and 2004 presented in the
tables below reflects all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of our financial position and
results of operations as of the dates and for the periods indicated. Results
for the interim periods are not necessarily indicative of results to be
expected for the entire year.
We have prepared the selected historical consolidated financial data,
other than the statutory data, in conformity with GAAP. We have derived the
statutory data from the annual statements of our insurance subsidiary,
Proformance, filed with the New Jersey Department of Banking and Insurance
prepared in accordance with statutory accounting practices, which vary in
certain respects from GAAP.
The selected historical financial data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and
accompanying notes included elsewhere in this prospectus.
Three Months Ended
Year Ended December 31,
March 31,
1999
2000
2001
2002
2003
2003
2004
Income Statement Data:
Direct written premiums(1)
$
40,179,542
$
43,645,962
$
49,757,470
$
114,624,256
$
163,178,887
$
37,644,905
$
46,501,464
Net written premiums(1)
21,706,952
23,235,238
25,498,573
111,431,805
149,232,801
38,376,518
43,659,986
Net earned premiums(1)
21,400,280
21,807,617
25,431,746
76,459,887
145,344,004
33,192,226
36,401,572
Replacement carrier
revenue from related party(2)
—
—
—
21,683,013
12,736,987
5,916,987
5,045,455
Replacement carrier
revenue from unrelated party
—
—
—
—
—
—
875,000
Investment income
1,089,162
1,166,980
1,084,956
1,592,878
4,257,672
729,707
1,184,013
Net realized investment
gains (losses)
111,025
504,214
346,482
(55,219
)
1,372,557
(29,130
)
676,981
Other income
112,068
318,178
211,526
564,492
929,467
333,795
496,693
Total income
22,712,535
23,796,989
27,074,710
100,245,051
164,640,687
40,143,585
44,679,714
Losses and loss
adjustment expenses(3)
16,707,695
20,145,118
28,338,038
69,491,015
108,122,636
22,720,944
25,263,346
Underwriting, operating
and related expenses
8,376,056
10,662,124
9,207,455
18,732,828
27,373,122
6,528,817
7,039,245
Total expenses
25,083,751
30,807,242
37,545,493
88,223,843
135,495,758
29,249,761
32,301,591
Income (loss) before
income taxes
(2,371,216
)
(7,010,253
)
(10,470,783
)
12,021,208
29,144,929
10,893,824
12,378,123
Income tax expense
(benefit)
(926,885
)
(1,324,968
)
(3,606,388
)
3,014,570
9,989,133
3,727,143
3,360,706
Net income
(loss)(6)
$
(1,444,331
)
$
(5,685,285
)
$
(6,864,395
)
$
9,006,638
$
19,155,796
$
7,166,681
$
9,017,417
Basic
Earnings per Share
$
(18.16
)
$
(69.75
)
$
(82.78
)
$
87.93
$
185.16
$
69.97
$
78.46
Diluted
Earnings per Share
$
(18.16
)
$
(69.75
)
$
(82.78
)
$
78.05
$
162.73
$
62.11
$
69.80
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As of and for the
Three Months Ended
As of and for the Year Ended December 31,
March 31
1999
2000
2001
2002
2003
2003
2004
Balance Sheet Data:
Total cash &
investments
$
20,771,198
$
25,821,448
$
22,852,936
$
92,351,876
$
179,695,660
$
127,389,051
$
196,164,033
Total assets
56,994,747
66,585,692
78,260,317
161,556,865
269,367,709
200,759,563
288,270,579
Losses and loss
adjustment
expenses reserves
27,055,351
37,350,251
56,732,620
85,472,264
134,200,870
100,557,063
139,226,030
Debt(4)
4,900,000
5,790,000
5,682,782
—
—
—
—
Total liabilities
$
48,851,873
$
64,379,130
$
82,275,796
$
143,050,275
$
219,119,619
$
175,512,785
$
227,346,895
Total
shareholders'
equity(5)(6)
$
8,131,547
$
2,206,562
$
(4,015,479
)
$
18,506,590
$
50,248,090
$
25,246,778
$
60,923,684
Statutory
Data(7):
Policyholders'
surplus (at period
end)
$
9,039,405
$
6,007,495
$
7,640,486
$
37,106,900
$
58,245,092
$
40,147,763
$
57,957,075
Loss ratio(3)
78.1
%
92.4
%
84.0
%
78.9
%
88.0
%
71.8
%
73.2
%
Expense ratio(3)
26.8
33.2
28.2
21.0
20.6
23.8
21.9
Combined ratio(3)
104.9
%
125.6
%
112.2
%
99.9
%
108.6
%
95.6
%
95.1
%
(1) The
primary driver for a significant portion of our growth from 2002
through 2003 was an agreement entered into on December 18, 2001 with OCIC and OCNJ, to become a replacement carrier pursuant to
which OCNJ would transfer to Proformance the obligation to offer renewals for
all of OCNJ's New Jersey private passenger automobile business effective March
18, 2002. In connection with this transaction our direct written premiums, net
written premiums and net earned premiums increased from $49.8 million, $25.5
million and $25.4 million, respectively, for the year ended December 31, 2001,
to $163.2 million, $149.2 million and $145.3 million, respectively, for the
year ended December 31, 2003. In addition total assets, losses and loss
adjustment expense reserves, as well as total shareholders' equity, increased
from $78.3 million, $56.7 million and $(4.0) million, respectively as of
December 31, 2001 to $269.4 million, $134.2 million
and $50.2 million,
respectively as of December 31, 2003. See "Business — Recent Transactions."
(2) We recorded replacement carrier revenue related to the OCIC agreement
referred to above in the amount of $21.7 million and $12.7 million for the
years ended December 31, 2002 and 2003, respectively which contributed to
increasing total shareholders' equity from $18.5 million as of December 31,
2002 to $50.2 million for the year ended December 31, 2003. See "Business —
Recent Transactions."
(3) The loss ratio, when calculated on a statutory basis, is the ratio of
losses and loss adjustment expenses to net earned premiums. The expense ratio,
when calculated on a statutory accounting basis, is the ratio of underwriting
expenses to net written premiums. The expense ratio, when calculated on a GAAP
basis, differs from the statutory method specifically as it related to policy
acquisition expenses. Policy acquisition expenses are expensed as incurred
under the statutory accounting method. However, for GAAP, policy acquisition
expenses are deferred and amortized over the period in which the related
premiums are earned. The combined ratio is the sum of the loss ratio and the
expense ratio. Management considers the statutory methods for calculating the
loss, expense and combined ratios to compare our performance to benchmarks used
by rating agencies and regulatory bodies that monitor the insurance industry.
(4) In 1997, we entered into two separate loan agreements. In March of 2002,
one of the loans was paid in full and in December of 2002 the remaining loan
was paid in full.
(5) On October 21, 2003 and December 8, 2003, respectively, we entered into two
additional replacement carrier agreements with Sentry Insurance and Met P&C,
whereby we agreed to become the replacement carrier for the personal lines
business of each entity in New Jersey. We received $0.9 million and will
receive an additional $2.6 million in 2004 from Sentry Insurance, which has
been recorded as deferred revenue as of December 31, 2003. We received $20.1
million ($10.1 million recorded as deferred revenue as of December 31, 2003 and
$10.0 million in the form of a capital contribution) from Met P&C. In
connection with these transactions we recorded $5.9 million of replacement
carrier transaction revenue for the three months ended March 31, 2004 as we
began the process of fulfilling our obligations under the terms of each of
these respective contracts. See "Business — Recent Transactions.
(6) In
connection with the financial reporting as of and for the year ended
December 31, 2001, certain adjustments were made to reduce net
income and shareholder's equity as of January 1, 2001 by
$1.0 million. The selected historical financial information
presented as of and for the year ended December 31, 2000 has
been adjusted to reflect the impact of such adjustments from that
which was derived from our Consolidated Financial
Statements that had been subject to audit by Arthur Andersen LLP.
(7) As set forth in note 12
to our Consolidated Financial Statements, subsequent to the filing of
Proformance's statutory annual statements for the year ended December 31,
2003, management identified certain adjustments which, if known at
the time, would have impacted the amounts as previously filed. Such amounts
would have reduced statutory surplus by $0.5 million,
$11.7 million and
$4.9 million at December 31, 2003, 2002 and 2001,
respectively. In accordance with statutory reporting requirements,
these corrections will be reported as an opening surplus adjustment
in the 2004 statutory filing.
Further the insurance
ratios would have soon adjusted as follows:
As of December 31,
2001
2002
2003
Loss ratio
111.4
%
91.4
%
74.3
%
Expense ratio
28.6
%
20.8
%
19.0
%
Combined
ratio
140.0
%
112.2
%
93.3
%
27
Table of Contents
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the accompanying notes that appear
elsewhere in this prospectus. It contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward looking statements as a result of
various factors, including those discussed below and elsewhere in this
prospectus, particularly under the heading "Risk Factors."
Overview
We are a provider of personal lines property and casualty insurance,
predominantly automobile insurance, in the State of New Jersey. We have been
able to capitalize upon what we consider an attractive opportunity in the New
Jersey insurance market through:
•
our extensive knowledge of the New Jersey insurance market and
regulatory environment;
•
our business model that requires many of our independent agents to
retain an ownership stake in our company;
•
our packaged product that offers auto, homeowners and other personal lines coverage; and
•
our insurance related services businesses.
As of December 31, 2003, our insurance subsidiary, Proformance Insurance
Company, was the tenth largest and the fastest growing provider of private
passenger auto insurance in New Jersey, based on direct written premiums of
companies writing more than $5 million of premiums annually over the past three
years, according to A.M. Best. From 1999 through 2003, we experienced a 42.0%
compound annual growth rate, as our direct written premiums for all lines of
business we write, including homeowners and commercial lines, increased from
$40.2 million in 1999 to $163.2 million in 2003. As of March 31, 2004, our
shareholders' equity was $61.0 million up from shareholders' equity of $8.1
million as of December 31, 1999, reflecting a 60.7% compound annual growth
rate.
We manage and report our business as a single segment based upon several
factors. Historically, on average, in excess of 90% of our total consolidated
revenues were generated by Proformance. In addition, although Proformance
writes both personal line and commercial line insurance business we consider
those operating lines as one segment due to the fact that the nature of the
products are similar and they share the same distribution system.
Our revenues are derived principally from the following:
•
net premiums earned, which are the difference between the premiums
we earn from sales of automobile insurance policies and the portion of
those premiums that we cede to our reinsurers;
•
net investment income we earn on invested assets; and
•
revenue associated with replacement carrier transactions.
Our expenses consist predominately of the following:
•
losses and loss adjustment expenses, including estimates for losses
and loss adjustment expenses incurred during the period and changes in
estimates from prior periods, less the portion of those insurance
losses and loss adjustment expenses that we cede to our reinsurers;
28
Table of Contents
•
commissions and other underwriting expenses, which consist of
commissions we pay to agents, premium taxes and company expenses
related to the production and underwriting of insurance policies, less
ceding commissions that we receive under our reinsurance contracts; and
•
other operating and general expenses, which include general and
administrative expenses, depreciation and other expenses.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires
us to make estimates and assumptions that affect amounts reported in our
financial statements. As additional information becomes available, these
estimates and assumptions are subject to change and thus impact amounts
reported in the future. We have identified below three accounting policies
that we consider to be critical due to the amount of judgment and uncertainty
inherent in the application of these policies.
Loss and Loss Adjustment Expenses Reserves
Significant periods of time can elapse between the occurrence of an
insured loss, the reporting to us of that loss and our final payment of that
loss. To recognize liabilities for unpaid losses, we established reserves as
balance sheet liabilities. Our reserves represent actuarially determined best
estimates of amounts needed to pay reported and unreported losses and the
expenses of investigating and paying those losses, or loss adjustment expenses.
Every quarter, we review our previously established reserves and adjust them,
if necessary.
When a claim is reported, claims personnel establish a "case reserve" for
the estimated amount of ultimate payment. The amount of the reserve is
primarily based upon an evaluation of the type of claim involved, the
circumstances surrounding each claim and the policy provisions relating to the
loss. The estimate reflects informed judgment of such personnel based on
general insurance reserving practices and on the experience and knowledge of
the claims personnel. During the loss adjustment period, these estimates are
revised as deemed necessary by our claims department based on subsequent
developments and periodic reviews of the cases.
In accordance with industry practice, we also maintain reserves for
estimated losses incurred but not yet reported. Incurred but not yet reported
reserves are determined in accordance with commonly accepted actuarial
reserving techniques on the basis of our historical information and experience.
We review and make adjustments to incurred but not yet reported reserves
quarterly.
When reviewing reserves, we analyze historical data and estimate the
impact of various loss development factors, such as our historical loss
experience and that of the industry, trends in claims frequency and severity,
our mix of business, our claims processing procedures, legislative enactments,
judicial decisions, legal developments in imposition of damages, and changes
and trends in general economic conditions, including the effects of inflation.
A change in any of these factors from the assumptions implicit in our estimate
can cause our actual loss experience to be better or worse than our reserves,
and the difference can be material. There is no precise method, however, for
evaluating the impact of any specific factor on the adequacy of reserves,
because the eventual development of reserves and currently established reserves
may not prove adequate in light of subsequent actual experience. To the extent
that reserves are inadequate and are strengthened, the amount of such increase
is treated as a charge to earnings in the period that the deficiency is
recognized. To the extent that reserves are redundant and are released, the
amount of the release is a credit to earnings in the period that redundancy is
recognized.
The changes we have recorded in our reserves in the past three years
illustrate the uncertainty of estimating reserves. In 2003, 2002 and 2001, our
reserve reviews indicated that our reserves established in prior years were
lower than necessary, and so in those years we strengthened $0.1 million, $8.6
million and $8.9 million, respectively, of previously established reserves for
losses and loss adjustment expenses. The incurred losses related to
prior years of $0.1 million in 2003 included a commutation loss
of $0.2 million which was offset by favorable loss development
on prior accident year reserves. We strengthened reserves for prior years
by $0.7 million in the first three months of 2004. Proformance's reserves have
shown a deficiency in every year since 1995. It is not appropriate to
extrapolate future favorable or unfavorable development of reserves from this
past experience. For further information, see "Business — Reserves."
29
Table of Contents
Investment Accounting Policy — Impairment
Effective December 31, 2003, we adopted Emerging Issue Task Force Issue
No. 03-01,
The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments
, or EITF 03-01. Under the consensus, disclosures are
required for unrealized losses on fixed maturity and equity securities
accounted for under SFAS No. 115,
Accounting for Certain Investments in Debt
and Equity Securities
, or SFAS No. 115, that are classified as either
available-for-sale or held-to-maturity. The disclosure requirements include
quantitative information regarding the aggregate amount of unrealized losses
and the associated fair value of the investments in an unrealized loss
position, segregated into time periods for which the investments have been in
an unrealized loss position. The consensus also requires certain qualitative
disclosures about the unrealized holdings in order to provide additional
information that we consider in concluding that the unrealized losses were not
other-than-temporary. The recognition and impairment guidance of EITF 03-01
should be applied to other-than-temporary impairment evaluations in reporting
periods beginning after June 15, 2004. Such guidance will apply to all of our fixed
income and equity securities for which fair value is below amortized
cost (or cost, as applicable) and for which we are unable to
demonstrate our ability and intent to hold such securities through
the respective recovery periods (i.e., periods necessary for fair
value to recover to amortized cost, or cost, as applicable). We are in the process of assessing the
impact of adopting the recognition and measurement guidance of EITF 03-01.
Our principal investments are in fixed maturities, all of which are
exposed to at least one of three primary sources of investment risk: credit,
interest rate and market valuation. The financial statement risks are those
associated with the recognition of impairments and income, as well as the
determination of fair values. Recognition of income ceases when a bond goes
into default. We evaluate whether impairments have occurred case-by-case.
Management considers a wide range of factors about the security issuer and uses
its best judgment in evaluating the cause and amount of decline in the
estimated fair value of the security and in assessing the prospects for
near-term recovery. Inherent in management's evaluation of the security are
assumptions and estimates about the operations of the issuer and its future
earnings potential. Considerations we use in the impairment evaluation process
include, but are not limited to: (i) the length of time and the extent to
which the market value has been below amortized cost; (ii) the potential for
impairments of securities when the issuer is experiencing significant financial
difficulties; (iii) the potential for impairments in an entire industry sector
or subsection; (iv) the potential for impairments in certain economically
depressed geographic locations; (v) the potential for impairment of securities
where the issuer, series of issuers or industry has a catastrophic type of loss
or has exhausted natural resources; and (vi) other subjective factors,
including concentrations and information obtained from regulators and rating
agencies. In addition, the earnings on certain investments are dependent upon
market conditions, which could result in prepayments and changes in amounts to
be earned due to changing interest rates or equity markets. The determination
of fair values in the absence of quoted market values is based on valuation
methodologies, securities we deem to be comparable and assumptions deemed
appropriate given the circumstances. The use of different methodologies and
assumptions may have a material effect on the estimated fair value amounts.
For additional information on the composition and results of our
investment portfolio see "Business — Investments."
Insurance Ratios
The property and casualty insurance industry uses the combined ratio as a
measure of underwriting profitability. The combined ratio is the sum of the
loss ratio and the expense ratio. The loss ratio is the ratio of losses and
loss adjustment expenses to net earned premiums. The expense ratio, when
calculated on a statutory accounting basis, is the ratio of underwriting
expenses to net written premiums. The expense ratio, when calculated on a GAAP
basis, differs from the statutory method specifically as it relates to policy
acquisition expenses. Policy acquisition expenses are expensed as incurred
under the statutory accounting method. However, for GAAP, policy acquisition
expenses are deferred and amortized over the period in which the related
premiums are earned. The combined ratio reflects only underwriting results and
does not include fee for service income. Underwriting profitability is subject
to significant fluctuations due to competition, catastrophic events, economic
and social conditions and other factors.
Our insurance ratios on a statutory basis for the years ended December 31,
2001, 2002 and 2003 and the three months ended March 31, 2004 and 2003 are
outlined in the following table:
30
Table of Contents
Three Months Ended
Year Ended December 31,
March 31,
2001
2002
2003
2003
2004
Loss ratio
84.0
%
78.9
%
88.0
%
71.8
%
73.2
%
Expense ratio
28.2
%
21.0
%
20.6
%
23.8
%
21.9
%
Combined ratio
112.2
%
99.9
%
108.6
%
95.6
%
95.1
%
As set forth in Note 12
to our Consolidated Financial Statements, subsequent to the filing of
Proformance's statutory annual statements for the year ended December  31, 2003,
management identified certain adjustments which if turnover at the time,
would have impacted the amounts as previously filed. Such amounts would have resulted in the following adjusted ratios.
As of December 31,
2001
2002
2003
Loss ratio
111.4
%
91.4
%
74.3
%
Expense ratio
28.6
%
20.8
%
14.0
%
Combined
ratio
140.0
%
112.2
%
93.3
%
Results of Operations
We have experienced considerable growth in our business commencing in
early 2002 and continuing throughout 2003. Specifically, on December 18, 2001
we entered into an agreement with OCIC and OCNJ to become a replacement carrier
pursuant to which OCNJ would transfer to Proformance the obligation to offer
renewals for all of OCNJ's New Jersey private passenger automobile business
effective March 18, 2002. In connection with this transaction our direct
written premiums, net written premiums and net earned premiums increased from
$49.8 million, $25.5 million and $25.4 million, respectively, for the year
ended December 31, 2001, to $163.2 million, $149.2 million and
 $145.3 million, respectively, for the year ended December 31, 2003,
 increases of 227.7%, 485.1% and 472.0%, respectively, during that period.
 In addition total assets, losses and loss adjustment expense reserves and total
 shareholders' equity increased from $78.3 million, $56.7 million and ($4.0) million, respectively as of
December 31, 2001 to $269.4 million, $134.2 million
and $50.2 million,
respectively as of December 31, 2003, increases of 244.1%,
136.7% and 1355.0%,
respectively during that period. Also as part of this transaction we recorded
replacement carrier revenue in the amount of $21.7 million and $12.7 million
for the years ended December 31, 2002 and 2003, respectively. These
transactions contributed to our increase in shareholders' equity from $18.5
million as of December 31, 2002 to $50.2 million as of December 31, 2003. See
"Business — Recent Transactions."
In addition, on October 21, 2003 and December 8, 2003, respectively, we
entered into two additional replacement carrier agreements with Sentry
Insurance and Met P&C whereby we agreed to become the replacement carrier for
the personal lines business of each entity in New Jersey. We received $0.9
million and will receive an additional $2.6 million in 2004 from Sentry
Insurance, all of which we recorded as deferred revenue as of December 31,
2003. We received $ 20.1 million ($10.1 million as deferred revenue as of
December 31, 2003 and $10.0 million in the form of a capital contribution) from
Met P&C. For the three months ended March 31, 2004, we recorded $5.9 million
of replacement carrier revenue in connection with these transactions. The
deferred revenue associated with both of these transactions, $13.6 million as
of December 31, 2003, will be recognized in 2004 as we complete our obligations
under the terms of each agreement which relates to our obligation to offer
renewals to each Sentry and Met P&C policyholder transferred to Proformance.
The entire balance of deferred revenue will be recognized in 2004 and we do not
expect to record replacement carrier revenue in the future unless we enter into
additional replacement carrier transactions. See "Business — Recent
Transactions."
31
Table of Contents
The table below shows certain of our selected financial results for the
years ended December 31, 2001, 2002 and 2003 and for the three months ended
March 31, 2003 and 2004:
Three Months Ended
Year Ended December 31,
March 31,
2001
2002
2003
2003
2004
(in thousands)
Direct written premiums
$
49,758
$
114,624
$
163,179
$
37,645
$
46,501
Net written premiums
25,499
111,432
149,233
38,377
43,660
Net earned premiums
25,432
76,460
145,344
33,192
36,402
Replacement
carrier revenue from related party
—
21,683
12,737
5,917
5,045
Replacement
carrier revenue from unrelated party
—
—
—
—
875
Investment income
1,085
1,593
4,258
730
1,184
Net realized investment gains (losses)
346
(55
)
1,373
(29
)
677
Other income
212
564
929
334
497
Total income
27,075
100,245
164,641
40,144
44,680
Losses and loss adjustment expenses
28,338
69,491
108,123
22,721
25,263
Acquisition expenses
5,523
15,128
26,381
5,482
6,187
Other operating and general expenses
3,684
3,605
992
1,047
852
Total expenses
37,545
88,224
135,496
29,250
32,302
Income before income taxes
(10,470
)
12,021
29,145
10,894
12,378
Income tax expense
(3,606
)
3,014
9,989
3,727
3,361
Net (loss) income
$
(6,864
)
$
9,007
$
19,156
$
7,167
$
9,017
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31,
2003
Direct Written Premiums.
Direct written premiums for the three months
ended March 31, 2004 increased by $8.9 million, or 23.7%, to $46.5 million from
$37.6 million in the comparable 2003 period. The increase was primarily due to
new business generated by our Partner Agents, the Sentry Insurance replacement
carrier transaction and modest increases in our commercial lines book.
Net Written Premiums.
Net written premiums for the three months ended
March 31, 2004 increased by $5.3 million, or 13.8%, to $43.7 million from $38.4
million in the comparable 2003 period. The increase was due to the increase in
direct written premiums for the same period.
Net Earned Premiums.
Net earned premiums for the three months ended March
31, 2004 increased by $3.2 million, or 9.6%, to
$36.4 million from $33.2
million in the comparable 2003 period. This increase was due to the increase
in net premiums written for the same period.
Replacement Carrier Revenue.
Replacement carrier revenue for the three
months ended March 31, 2004 was $5.9
million compared to $5.9 million in the comparable 2003 period.
Replacement carrier revenue for the first
three months of 2003 was associated with the
Ohio Casualty replacement carrier transaction which was fully recognized by the end
of 2003. The replacement carrier revenue for the first three months of 2004 of
$5.9 million, related only to the Met P&C and Sentry Insurance replacement
carrier transactions that we entered into in the fall of 2003.
Investment Income.
Investment income for the three months ended March 31,
2004 increased by $0.5 million, or 71.4%, to $1.2 million
from $0.7 million in
the comparable 2003 period. The increase was due primarily to an increase in
invested assets to $186.1 million from $118.9 million for the comparable 2003
period. The increase was primarily due to the receipt of $21.0 million in
deferred revenue and capital contributions in connection with the Met P&C and
Sentry Insurance replacement carrier transactions for the same period and is
consistent with the increase in the net premiums written. Our average book
yield to maturity for the three months ended March 31,
32
Table of Contents
2003 and 2004 was 3.5% and 4.5%, respectively. The increase in yield
was due to the purchase of longer term investments and an increase in realized
gains.
Net Realized Investment Gain (Loss).
Net realized investment gain (loss)
for the three months ended March 31, 2004 and 2003 were $0.7 million and $0.0,
respectively.
Losses and Loss Adjustment Expenses.
Losses and loss adjustment expenses
for the three months ended March 31, 2004 increased by
$2.6 million, or 11.5%,
to $25.3 million from $22.7 million in the comparable 2003 period. These
results included prior year reserve strengthening of $0.7 million as of March
31, 2004. Additionally, we experienced decreases in claim frequency due to the
favorable weather experienced in the first three months of 2004, and our claim
severity was flat for the first three months of 2004 compared to 2003. As a
percentage of net premiums earned, losses and loss adjustment expenses incurred
during the first three months of 2004 was 69.4% compared to 68.5% for the
comparable 2003 period. The ratio of net incurred losses, excluding loss
adjustment expenses, to net premiums earned during the first three months of
2004 was 59.6% compared to 56.8% for the comparable 2003 period. The increase
was related to the fact that net earned premiums as a percentage of net written
premiums was 12 percentage points lower in the first three months of 2004 due
to the initial rollover of the Met P&C business.
Acquisition Expenses.
Acquisition expenses for the three months ended
March 31, 2004 increased by $0.7 million, or 12.7%, to
$6.2 million from $5.5
million in the comparable 2003 period. As a percentage of net written
premiums, our acquisition expense ratio for the first three months of 2004 was
14.2% compared to 14.3% for the comparable 2003 period. The increase
in acquisition expenses is due to the increase in net premiums
written in the first three months of 2004 compared to the comparable
period in 2003.
Other Operating and General Expenses.
Other operating and general
expenses for the three months ended March 31, 2004 and 2003 were $0.9 million
and $1.0 million, respectively.
Income Tax
. Income tax for the three months ended March 31, 2004 and 2003
were $3.4 million and $3.7 million, respectively.
Net Income.
Net income after tax for the three months ended March 31,
2004 increased to $9.0 million from $7.2 million for the three months ended
March 31, 2003 as a result of the factors discussed above.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Direct Written Premiums.
Direct written premiums for the year ended
December 31, 2003 increased by $48.6 million, or 42.4%, to $163.2 million from
$114.6 million in the comparable 2002 period. The increase was due to the
direct written premiums generated by the Ohio Casualty replacement carrier
transaction.
Net Written Premiums.
Net written premiums for the year ended December
31, 2003 increased by $37.8 million, or 33.9%, to $149.2 million from $111.4
million in the comparable 2002 period. The increase was due to the increase in
direct written premiums for the same period.
Net Earned Premiums.
Net earned premiums for the year ended December 31,
2003 increased by $68.8 million, or 89.9%, to $145.3 million from $76.5 million
in the comparable 2002 period. This increase was due primarily to the related
increase in net written premiums in connection with the Ohio Casualty
replacement carrier transaction for the same period as well as the impact of a
reinsurance contract that was commuted in early 2004.
Replacement Carrier Revenue.
Replacement carrier revenue for year ended
December 31, 2003 decreased by $9.0 million, or 41.5%, to $12.7 million from
$21.7 million in the comparable 2002 period. The decrease was due to the
completion of the revenue recognition process associated with the Ohio Casualty
replacement carrier transaction which began in early 2002 and was completed
over a 12 month period ending in the first quarter of 2003.
33
Table of Contents
Investment Income.
Net investment income for the year ended December 31,
2003 increased by $2.7 million, or 168.8%, to $4.3 million from $1.6 million in
the comparable 2002 period. The increase was due
primarily to an increase in invested assets to $170.6 million from $73.9
million for the comparable 2002 period. The increase in invested assets was
primarily due to investment of increased direct written premiums of $48.6
million, replacement carrier revenue recognized in connection with the Ohio
Casualty replacement carrier transaction and funds received from Sentry
Insurance and Met P&C in connection with those replacement carrier transactions
for an aggregate of $30.3 million. The average book yield to maturity for the
year ended December 31, 2003 was 3.9% compared to 3.8% in the comparable 2002
period.
Net Realized Investment Gain (Loss).
Net realized investment gain (loss)
for the years ended December 31, 2003 and 2002 were $1.4 million and $(0.1)
million, respectively. As interest rates declined, we sold certain corporate
bonds we considered to be of lower quality and certain other securities and
realized capital gains.
Losses and Loss Adjustment Expenses.
Losses and loss adjustment expenses
for the year ended December 31, 2003 increased by $38.6 million, or 55.5%, to
$108.1 million from $69.5 million in the comparable 2002 period. As a
percentage of net premiums earned, losses and loss adjustment expenses incurred
during 2003 was 74.4% compared to 90.8% for the comparable 2002 period. The
percentage decrease in loss adjustment expenses incurred from the 2002 amount
was due to a strengthening of losses and loss adjustment expense reserves in
respect to prior periods of $8.6 million that was recorded in 2002 because of
higher than expected losses on private passenger automobile business and
commercial automobile business. The ratio of net incurred losses, excluding
loss adjustment expenses, to net premiums earned for the year ended December
31, 2003 was 64.2% compared to 75.7% for the comparable 2002 period.
Acquisition Expenses.
Acquisition expenses for the year ended December
31, 2003 increased by $11.3 million, or 74.8%, to $26.4 million from $15.1
million in the comparable 2002 period. As a percentage of net written
premiums, our acquisition expense ratio for 2003 was 17.7% compared to 13.6%
for the comparable 2002 period. The increase in acquisition expense and
acquisition expense ratio is consistent with the growth of both direct and net
written premiums for the same period.
Other Operating and General Expenses.
Other Operating and General
expenses for the years ended December 31, 2003 and 2002 were $1.0 million and
$3.6 million, respectively. This decrease was due to the expenses incurred in
2002 to expand our infrastructure in connection with the growth in our
business.
Income Tax
. Income tax for the years ended December 31, 2003 and 2002
were $10.0 million and $3.0 million, respectively. The increase in income tax
expense in 2003 was due to the increase in income before tax as a result of the
factors previously mentioned above.
Net Income.
Net income after tax for the year ended December 31, 2003
increased to $19.2 million from $9.0 million for the year ended December 31,
2002 as a result of the factors previously mentioned above.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Direct Written Premiums.
Direct written premiums for the year ended
December 31, 2002 increased by $64.8 million, or 130.1%, to $114.6 million from
$49.8 million in the comparable 2001 period. The increase was due to the
direct written premium generated by the Ohio Casualty replacement carrier
transaction. We commenced the renewal process of the Ohio Casualty rollover
business in the first quarter of 2002.
Net Written Premiums.
Net written premiums for the year ended December
31, 2002 increased by $85.9 million, or 336.9%, to $111.4 million from $25.5
million in the comparable 2001 period. The increase was due to the increase in
direct written premiums for the same period.
Net Earned Premiums.
Net earned premiums for the year ended December 31,
2002 increased by $51.1 million, or 201.2%, to $76.5 million from $25.4 million
in the comparable 2001 period. This increase was due to the related increase
in net written premiums of $25.5 million for the same period in connection with
the Ohio Casualty replacement carrier transaction.
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Replacement Carrier Revenue.
Replacement carrier revenue for year ended
December 31, 2002 increased by $21.7 million to
$21.7 million from $0.0 million in the
comparable 2001 period. The increase was due to the revenue associated with
the Ohio Casualty replacement carrier transaction as we begin to complete our
obligations under the terms of this Agreement to offer renewals to each Ohio
Casualty policyholder transferred to Proformance.
Investment Income.
Net investment income for the year ended December 31,
2002 increased by $0.5 million, or 45.5%, to $1.6 million from $1.1 million in
the comparable 2001 period. The increase was due primarily to an increase in
invested assets to $73.9 million from $19.4 million for the comparable 2001
period. The increase in invested assets was primarily due to the increase in
direct written premiums of $64.8 million and replacement carrier revenue recognized of $21.7
million in connection with the Ohio Casualty replacement carrier transaction.
The average book yield to maturity for the year ended December 31, 2002 was
3.8% compared to 3.6% in the comparable 2001 period.
Net Realized Investment Gain (Loss).
Realized investment gain (loss) for
the years ended December 31, 2002 and 2001 were $(0.1) million and $0.3
million, respectively.
Losses and Loss Adjustment Expenses.
Losses and loss adjustment expenses
for the year ended December 31, 2002 increased by $41.2 million, or 145.6%, to
$69.5 million from $28.3 million in the comparable 2001 period. As a
percentage of net premiums earned, losses and loss adjustment expenses incurred
during 2002 was 90.8% compared to 111.4% for the comparable 2001 period. The
percentage decrease in loss and loss adjustment expenses incurred from the 2001
amount was due to a strengthening of losses and loss adjustment expense
reserves of $8.9 million in respect to prior periods that was recorded in 2001
because of higher than expected losses on private passenger automobile business
and commercial automobile business. The ratio of net incurred losses, excluding
loss adjustment expenses, to net premiums earned for the year ended December
31, 2002 was 75.7% compared to 91.0% for the comparable 2001 period.
Acquisition Expenses.
Acquisition expenses for the year ended December
31, 2002 increased by $9.6 million, or 174.5%, to $15.1 million from $5.5
million in the comparable 2001 period. As a percentage of net written
premiums, our acquisition expense ratio for 2002 was 13.6% compared to 21.6%
for the comparable 2001 period. The decrease in the acquisition expense ratio
from the 2001 ratio was due to the fact that we incurred significant costs in
building the infrastructure to execute the Ohio Casualty replacement carrier
transaction that were incurred in the later part of 2001.
Other Operating and General Expenses.
Operating and general expenses for
the years ended December 31, 2002 and 2001 were $3.6 million and $3.7 million,
respectively.
Income Tax
. Income tax for the years ended December 31, 2002 and 2001
were $3.0 million and $(3.6) million, respectively. The increase in income tax
expense in 2002 compared to an income tax benefit in 2001 was due to the
increase in income before tax as a result of the factors previously mentioned
above.
Net Income.
Net income after tax for the year ended December 31, 2002
increased to $9.0 million from $(6.9) million for the year ended December 31,
2001 as a result of the factors previously mentioned above.
Liquidity and Capital Resources
We are organized as a holding company with all of our operations being
conducted by our insurance subsidiaries, which underwrite the risks associated
with our insurance policies, and our non-insurance subsidiaries, which provide
our policyholders and our insurance subsidiaries a variety of services related
to the insurance policies we provide. We have continuing cash needs for taxes
and administrative expenses. These ongoing obligations are funded with
dividends from our non-insurance subsidiaries. Our taxes are paid by each
subsidiary through an inter-company tax allocation agreement. In addition, a
portion of the proceeds of our sale of common stock to our Partner Agents has
historically been used to pay taxes.
Proformance's primary sources of funds are premiums received, investment
income and proceeds from the sale and redemption of investment securities. Our
non-insurance subsidiaries' primary source of funds is policy
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service revenues. Our subsidiaries use funds to pay operating expenses,
make payments under the tax allocation agreement, and pay dividends to us. In
addition, Proformance uses funds to pay claims and purchase investments.
For the three months ended March 31, 2004 and March 31, 2003 and for the
years ended December 31, 2003, 2002 and 2001, our consolidated cash flow
provided by operations was $13.5 million, $36.0 million, $75.3 million, $62.7
million, and $(3.7) million, respectively. The decrease in cash flow provided
by operations for the three months ended March 31, 2004 as compared to the
three months ended March 31, 2003 was due to the reduction of receivables from
Ohio Casualty in connection with the replacement carrier transaction that
increased cash flow provided by operations for the three months ended March 31,
2003 by $8.8 million. The increase in cash flow from
operations from 2001 to 2003 resulted from general improvement in our results
of operations discussed above.
For the three months ended March 31, 2004 and March 31, 2003 and for the
years ended December 31, 2003, 2002 and 2001, our consolidated cash flow used
for investing activities was $12.5 million, $40.9 million,
$97.0 million, $55.1
million and $(3.9) million, respectively. The primary use of cash for
investing activities for all periods listed relate to the purchase of
investments in connection with the funds received as part of our replacement
carrier transactions as well as the respective increases in premium writings
for those periods.
For the three months ended March 31, 2004 and March 31, 2003 and for the
years ended December 31, 2003, 2002 and 2001, our consolidated cash flow from
financing activities was $(0.0) million, $0.0 million,
$12.5 million, $7.3 million and $0.4
million respectively. The primary source of cash from financing activities
related to the proceeds from the issuance of NAHC's common stock. The amount
for the year ended December 31, 2003 related to the purchase of our stock by
Met P&C as well as a group of former Ohio Casualty agents that elected to
become Partner Agents. The amount for the year ended December 31, 2002 related
to the purchase of our common stock by Ohio Casualty.
The effective duration of our investment portfolio was 7.6 years as of
March 31, 2004. By contrast, our liability duration was approximately 3.5
years as of March 31, 2004. Pursuant to the company's tax planning strategy,
we invested the $40.6 million received from the Ohio Casualty replacement
carrier transaction in long-term bonds in accordance with Treasury Ruling
Regulation 1.362-2, which allows us to defer the payment of income taxes on the
associated replacement carrier revenue until the underlying securities are
either sold or mature. The effective duration of our investment portfolio,
when excluding these securities, is reduced from 7.6 years to 3.5 years.
There are no restrictions on the payment of dividends by our non-insurance
subsidiaries other than customary state corporation laws regarding solvency.
Dividends from Proformance are subject to restrictions relating to statutory
surplus and earnings. See "Business — Supervision and Regulation." As of the
date of this prospectus, Proformance is not permitted to pay any dividends
without the approval of the Commissioner as it has negative unassigned surplus
as a result of the impact of its replacement carrier transactions. Proformance
has not paid any dividends in the past and we do not anticipate that
Proformance will pay dividends in the foreseeable future because we wish to
reduce our reinsurance purchases in order to retain more of the gross premiums
written we generate and seek stronger financial strength ratings for
Proformance, both of which require that the capital of Proformance be
increased. In addition, the payment of dividends and other distributions by
Mayfair is regulated by Bermuda insurance law and regulations. See "Business
— Supervision and Regulation."
Because our non-insurance subsidiaries generate revenues, profits and net
cash flows that are generally unrestricted as to their availability for the
payment of dividends, we expect to use those revenues to service all of our
corporate financial obligations, such as shareholder dividends, if declared.
As of March 31, 2004, we did not have any material commitments for capital
expenditures.
Management believes that the current level of cash flow from operations
provides us with sufficient liquidity to meet our operating needs over the next
12 months. We expect to be able to continue to meet our operating needs after
the next 12 months from internally generated funds. Since our ability to meet
our obligations in the long term (beyond such 12-month period) is dependent
upon such factors as market changes, insurance
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Table of Contents
regulatory changes and economic conditions, no assurance can be given that
the available net cash flow will be sufficient to meet our operating needs.
Unrealized Losses
As of December 31, 2003, fixed maturity securities having an unrealized
loss of $543,360, a fair value of $14,211,383 and an amortized cost of
$14,754,743 were in a continuous unrealized loss position for less than twelve
months. As of March 31, 2004, fixed maturity securities having an unrealized
loss of $417,617, a fair value of $25,363,406 and an amortized cost of
$25,781,023 were in a continuous unrealized loss position for less than twelve
months.
As of December 31, 2003, equity and preferred securities having an
unrealized loss of $288,038, a fair value of $2,786,840 and an amortized cost
of $3,074,878 were in a continuous unrealized loss position for less than
twelve months. As of March 31, 2004, equity and preferred securities having an
unrealized loss of $207,093, a fair value of $4,781,045 and an amortized cost
of $4,988,138 were in a continuous unrealized loss position for less than
twelve months.
Our gross unrealized losses represented 0.5% of cost or amortized cost of
the investment portfolio. Fixed maturities represented 77% of the investment
portfolio and 65% of the unrealized losses as of December 31, 2003. There were
no securities that were in a continuous unrealized loss position for 12 months
or more as of December 31, 2003.
Our fixed income securities in an unrealized loss position are primarily
above investment grade securities with extended maturity dates, which have been
adversely impacted by the increase in interest rates after the purchase date.
As part of our ongoing security monitoring process by our investment manager
and investment committee, it was concluded that there were no
other-than-temporary impairments of the portfolio as of December 31, 2003. We
believe, with the investment committee's confirmation, that securities that are
temporarily impaired that continue to pay principal and interest in accordance
with their contractual terms, will continue to do so.
The evaluation for other-than-temporary impairments is a quantitative and
qualitative process, which is subject to risks and uncertainties in the
determination of whether declines in the fair value of investments are
other-than-temporary. The risks and uncertainties include changes in general
economic conditions, the issuer's financial condition or near term recovery
prospects and the effects of changes in interest rates.
Contractual Obligations
The following table summarizes our long-term contractual obligations and
credit-related commitments as of December 31, 2003.
Contractual Obligations
and Credit-Related Commitments(1)
Less than 1
More than 5
year
1-3 years
3-5 years
years
Total
Operating
Lease Obligations(2)
$
694,200
$
1,388,400
$
1,388,400
$
636,650
$
4,107,350
(1) The
table above excludes our obligations relative to our liability for
unpaid loss and loss adjustment expenses given there is no
contractually specific timeframe in which such obligations are to be
paid.
(2) Represents our minimum rental commitments as of December 31, 2003 pursuant
to our seven-year lease agreement for the use of our office space and equipment
at 4 Paragon Way, Freehold, NJ 07728.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as that term is defined
in applicable SEC rules) that are reasonably likely to have a current or future
material effect on our financial condition, results of operations, liquidity,
capital expenditures or capital resources.
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Quantitative and Qualitative Disclosures about Market Risk
General
Market risk is the risk that we will incur losses due to adverse changes
in market rates and prices. We have exposure to market risk through our
investment activities and our financing activities. Our primary market risk
exposure is to changes in interest rates. We have not entered, and do not plan
to enter, into any derivative financial instruments for trading or speculative
purposes.
Interest Rate Risk
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. Our
fixed maturity investments include U.S. and foreign government bonds,
securities issued by government agencies, obligations of state and local
governments and governmental authorities, corporate bonds and mortgage-backed
securities, most of which are exposed to changes in prevailing interest rates.
All of our investing is done by our insurance subsidiary, Proformance. We
invest according to guidelines devised by an internal investment committee,
comprised of management of Proformance and an outside director of NAHC,
focusing on investments that we believe will produce an acceptable rate of
return given the risks assumed. Our investment portfolio is managed by the
investment officer at Proformance with oversight from our Chief Financial
Officer and the assistance of outside investment advisors. Our objectives are
to seek the highest total investment return consistent with prudent risk level
by investing in a portfolio comprised of high quality investments including
common stock, convertible securities, bonds and money market funds in
accordance with the asset classifications set forth in Proformance's Investment
Policy Statement Guidelines and Objectives.
The tables below show the interest rate sensitivity of our fixed income
and preferred stock financial instruments measured in terms of fair value
(which is equal to the book value for all our securities) for the periods
indicated.
As of December 31, 2002
Fair Value
($ in thousands)
-100 Basis
as of
+100 Basis
Point Change
12/31/2002
Point Change
Fixed maturities and preferred stocks
$
69,615
$
67,871
$
66,126
Cash and cash equivalents
18,376
18,376
18,376
Total
$
87,991
$
86,247
$
84,502
As of December 31, 2003
Fair Value
($ in thousands)
-100 Basis
as of
+100 Basis
Point Change
12/31/2003
Point Change
Fixed maturities and preferred stocks
$
141,912
$
132,718
$
123,524
Cash and cash equivalents
9,124
9,124
9,124
Total
$
151,036
$
141,842
$
132,648
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As of March 31, 2004
Fair Value
($ in thousands)
-100 Basis
as of
+100 Basis
Point Change
3/31/2004
Point Change
Fixed maturities and preferred stocks
$
158,188
$
146,948
$
135,708
Cash and cash equivalents
10,109
10,109
10,109
Total
$
168,297
$
157,057
$
145,817
Equity Risk
Equity risk is the risk that we will incur economic losses due to adverse
changes in the prices of equity securities in our investment portfolio. Our
exposure to changes in equity prices primarily result from our holdings of
common stocks and other equities. As of March 31, 2004, approximately 8% of
our investment portfolio was invested in equity securities. We continuously
evaluate market conditions regarding equity securities. We principally manage
equity price risk through industry and issuer diversification and asset
allocation techniques.
Credit Risk
We have exposure to credit risk as a holder of fixed income securities.
We attempt to manage our credit risk through issuer and industry
diversification. We regularly monitor our overall investment results and
review compliance with our investment objectives and guidelines to reduce our
credit risk. As of March 31, 2004, approximately 53.4% of our fixed income
security portfolio was invested in U.S. government and government agency fixed
income securities, 41.9% was invested in other fixed income securities rated
"Aaa"/"Aa" by Moody's, and 4.7% was invested in fixed income securities rated
"A" by Moody's. As of the date of this prospectus, we do not own any
securities with a rating of less than "A."
We are also subject to credit risks with respect to our third party
reinsurers. Although reinsurers are liable to us to the extent we cede risks
to them, we are ultimately liable to our policyholders on all these risks. As
a result, reinsurance does not limit our ultimate obligation to pay claims to
policyholders and we may not be able to recover claims made to our reinsurers.
Effects of Inflation
We do not believe that inflation has had a material effect on our
consolidated results of operations, except insofar as inflation may affect
interest rates and claim costs. See "Risk Factors — Market fluctuation and
changes in interest rates can have significant and negative effects on our
investment portfolio."
Adoption of New Accounting Pronouncements
Effective December 31, 2003, we adopted the disclosure requirements of
Emerging Issues Task Force Issue No. 03-01,
The Meaning of Other-Than-Temporary
Impairment and Its Applications of Certain Investments
. Under the consensus,
disclosures are required for unrealized losses on fixed maturity and equity
securities accounted for under SFAS No. 115,
Accounting for Certain Investment
in Debt and Equity Securities
, which are classified as either
available-for-sale or held-to-maturity. The disclosure requirements include
quantitative information regarding the aggregate amount of unrealized losses
and the associated fair value of the investments in an unrealized loss
position, segregated into time periods for which the investments have been in
an unrealized loss position. The consensus also requires certain qualitative
disclosures about the holdings in an unrealized loss position in order to
provide additional information that we considered in concluding that the
unrealized losses were not other-than-temporary. The recognition and
impairment guidance of EITF 03-01 should be applied to other-than-temporary
impairment evaluations in reporting periods beginning after
June 15, 2004. Such guidance will apply to all of our fixed
income and equity securities for which fair value is below amortized
cost (or cost, as applicable) and for which we are unable to
demonstrate our ability and intent to hold such securities through
the respective recovery periods (i.e., periods necessary for fair
value to recover to amortized cost, or cost, as applicable). We
are in the process of assessing the impact of adopting the recognition and
measurement guidance of EITF 03-01.
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BUSINESS
Overview
We are a provider of personal lines property and casualty insurance,
predominantly automobile insurance, in the State of New Jersey. We have been
able to capitalize on what we consider an attractive opportunity in the New
Jersey insurance market through our extensive knowledge of the New Jersey
insurance market and regulatory environment, our business model that requires
many of our independent agents to retain an ownership stake in our company, our
packaged product that offers auto, home and other personal lines coverage, and
our insurance-related services businesses.
As of December 31, 2003, our insurance subsidiary, Proformance Insurance
Company, was the tenth largest and the fastest growing provider of private
passenger auto insurance in New Jersey, based on direct written premiums of
companies writing more than $5 million of premiums annually over the past three
years, according to A.M. Best. From 1999 through 2003, we experienced a 42.0%
compound annual growth rate, as our direct written premiums for all lines of
business we write, including homeowners and commercial lines, increased from
$40.2 million in 1999 to $163.2 million in 2003. As of March 31, 2004, our
shareholders' equity was $61.0 million up from shareholders' equity of $8.1
million as of December 31, 1999, reflecting a 60.7 compound annual growth rate.
We believe the current conditions in the New Jersey property and casualty
insurance market represent an attractive opportunity for us. According to
estimates of the U.S. Bureau of Economic Analysis and Bureau of the Census, New
Jersey had the second highest per capita personal income in 2003 of the 50
states. According to A.M. Best, private passenger auto direct written premiums
in New Jersey for 2003 were $5.7 billion (ranking sixth among the states and
having grown 26.5% since 1999). Total property and casualty direct written
premiums in New Jersey for 2003 were $14.0 billion (ranking eighth among the
states and having grown 41.9% since 1999. We believe that these market
conditions provide us with the opportunity to profitably grow our business.
As other insurers have reduced their share or withdrawn from the New
Jersey private passenger auto insurance market in recent years, as a result of
numerous factors that include the regulatory environment, we have expanded our
business through organic growth and through replacement carrier transactions.
Replacement carrier transactions allow insurers to withdraw from the New Jersey
automobile insurance market by finding a replacement carrier, such as
Proformance, that will agree to offer insurance coverage upon renewal of the
withdrawing carriers' policies. We have entered into four replacement carrier
transactions and intend to opportunistically consider others if they meet our
profitability and growth objectives.
We distribute our products exclusively through licensed independent
agents, many of whom are Partner Agents who have purchased a minimum of $50,000
of the common stock of NAHC. By reason of their ownership interest in NAHC, we
believe that each Partner Agent has an incentive to provide us with more
profitable segments of the personal and commercial lines business in New
Jersey. None of our Partner Agents are selling shares of our common stock in
this offering. We provide Partner Agents with advanced automation tools to
reduce expenses, the opportunity to qualify as "Custom Agents" with the ability
to perform some of the basic underwriting and claims processing for additional
compensation, and eligibility to participate in our contingent commission
program which is based upon the volume and the profitability of the business
produced by the agent or agency. We believe that the Partner Agent system of
distributing our products provides us with a sustainable strategic advantage as
compared to our competitors in the areas of underwriting/risk selection and
operating expense control.
Proformance provides comprehensive packaged personal lines property and
casualty insurance. Our packaged personal lines policy, which we call the
"High Proformance Policy" or "HPP," contains coverages for private passenger
automobile, homeowners, personal excess ("umbrella") liability, and personal
specialty property lines insurance covering jewelry, furs, fine arts, cameras,
electronic data process equipment, boats, yachts and other high value items.
We believe that our packaged personal lines product provides several advantages
over non-packaged alternatives, including administrative expense savings, lower
loss ratios, increased customer convenience and higher policyholder retention.
We plan to convert individual policies obtained through replacement carrier
transactions or placed by our Partner Agents with other carriers into our HPP
product.
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Proformance also offers commercial lines products, predominantly
commercial automobile liability and physical damage for small to medium
business "mainstreet" policyholders which we regard as high frequency/low
severity risks. In 2003, commercial auto comprised 8.8% of our direct written
premiums. It is part of our long-term strategy to increase our penetration of
the "mainstreet" commercial market, which in New Jersey is largely controlled
by independent agents. Based upon reports given to us by our Partner and
Active RCS Agents (described below under " — Distribution"), we believe they
write an aggregate of approximately $4.0 billion of New Jersey property and
casualty premiums per annum, of which approximately two-thirds is commercial
lines. We currently write only approximately 4.2% of the total premiums placed
by our Partner and Active RCS Agents. We intend to increase our share of our
agents' total business. In particular, we intend to increase the amount of
commercial lines business we write for "mainstreet" policyholders by capturing
a larger share of this business placed by our Partner and Active RCS Agents.
Our non-insurance subsidiaries provide Proformance and third parties with
a variety of services. Most of the services provided by our non-insurance
subsidiaries generate fee-for-service income. Our non-insurance subsidiaries
include:
•
Riverview
, which provides case management and medical
treatment cost containment to ensure cost-efficient service in the
treatment of auto accident victims and reduced claims expenses for
Proformance. Riverview is also a third party claims administrator
providing claims handling services.
•
NAIA
, which provides services to "orphan" policyholders no
longer serviced by their independent agents and policyholders
acquired as part of our replacement carrier transactions.
Our other insurance subsidiary, Mayfair, was formed in 2003 as a Bermuda
licensed reinsurance company to assume reinsurance business as a
retrocessionaire from third party reinsurers of Proformance, and provide other
potentially profitable small reinsurance facilities to third parties.
For the year ended December 31, 2003 and the three months ended March 31,
2004, Proformance and our other subsidiaries generated the following net income
and revenues:
Net Income and Revenues(1)
Net Income
Revenues
Year Ended
Three Months
Year Ended
Three Months
December 31,
Ended March 31,
December 31,
Ended March 31,
2003
2004
2003
2004
Proformance Insurance Company
$
18,951,798
$
8,250,178
$
160,852,768
$
46,129,149
Riverview Professional Services, Inc.
846,040
246,537
3,778,150
1,196,139
National Atlantic Insurance Agency, Inc
1,209,252
405,418
2,573,980
850,208
Mayfair Reinsurance Company Limited
—
314,187
—
1,250,000
Total
$
21,007,090
$
9,216,320
$
167,204,898
$
49,425,496
(1)
The numbers set forth in this table do not include the results of
operations of NAHC on a stand-alone basis.
Our Competitive Strengths
Summary
We believe that we are well positioned to compete in our target market because of our core strengths:
•
our agency relationships;
•
our experienced, dedicated and knowledgeable management team;
•
our knowledge of the New Jersey insurance market and regulatory environment;
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•
our ability to offer policyholders the convenience of our packaged High Proformance Policy;
•
our focus on reducing underwriting costs and claims expenses; and
•
our ability to take advantage of the services provided by our non-insurance subsidiaries.
Our Agency Relationships
Proformance distributes its products through licensed independent agents,
primarily its Partner Agents. Partner Agents are our independent agents who
have entered into an agency agreement and a share repurchase agreement and
purchased common stock of NAHC with a minimum purchase price of $50,000. As of
March 31, 2004, our Partner Agents, including those that are
directors of our Company, owned in the aggregate
approximately 38.7% of
our outstanding common stock on a fully diluted basis. Following this
offering (assuming full exercise of the underwriters'
over-allotment option) our Partner Agents will own in the aggregate      % of our
outstanding common stock on a fully diluted basis. None of our Partner Agents
are selling shares of our common stock in this offering. By reason of their
ownership interest in NAHC, we believe that each Partner Agent has an incentive
to provide us with its more profitable personal and commercial lines business
in New Jersey. We intend to continue requiring our agents to purchase shares
of our common stock prior to selling our insurance products.
In addition, in order to support our independent agents and enhance our
relationships with them we:
•
provide our agents with a portfolio of property and casualty
insurance products at what we consider to be competitive prices to
help our agents address effectively the insurance needs of their
clients;
•
offer commission schedules and profit sharing programs to our
agents that we consider to be competitive;
•
deliver superior, more efficient service and support to our
agents by providing them with a variety of technological resources;
and
•
provide our agents with the opportunity to qualify as "Custom
Agents" which enables them to perform some of the basic underwriting
and claims processing associated with the business they produce for
additional compensation.
We work directly with our agents to be certain that the business they
produce for us is consistent with our underwriting and risk selection
objectives. Proformance has established a Peer Review Committee which
currently consists of five of our independent agents who evaluate the
performance of and deal with issues relating to our agents, in particular to
ensure compliance with our underwriting guidelines and marketing plans. The
Committee refers issues which it deems appropriate to management for review.
Although we must compete with other insurance carriers for the business of
these independent agents, we believe these measures will enable us to continue
to capture a growing share of the total insurance business written by our
Partner and Active RCS Agents (including both personal and commercial lines)
which, based upon reports given to us by them, approximates $4.0 billion of New
Jersey property and casualty premiums per annum.
Our Experienced, Dedicated and Knowledgeable Management Team
As of March 31, 2004, our executive management team and directors owned in
the aggregate approximately 33.8% of our outstanding common stock on a fully
diluted basis. Following this offering our executive management team will
own in the aggregate approximately      % of our outstanding common stock
on a fully diluted basis. None of our directors or officers are selling shares
of our common stock in this offering. The executive management team, led by
our Chairman and Chief Executive Officer, James V. Gorman, has an average of
over 20 years of property and casualty insurance carrier experience. Our
management team has demonstrated an ability to operate successfully within the
regulated New Jersey property and casualty insurance market.
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Our Knowledge of the New Jersey Market and Regulatory Environment
We believe our knowledge of and experience with and the relationships we
have developed in the New Jersey property and casualty insurance market provide
us with an advantage over our competitors, especially large, national insurers
not primarily focused on New Jersey. We have a thorough understanding of the
insurance laws and regulations of New Jersey and extensive knowledge concerning
local judges and relationships with local legal and medical service providers
and auto repair companies. We believe this knowledge and experience allows us
to better evaluate the risks in the New Jersey marketplace and adjust claims at
lower costs than our competitors. In addition, certain of our officers are
members of the board of directors and the executive committee of the Insurance
Council of New Jersey and we are a member of the Professional Insurance Agents
Association of New Jersey.
We believe our knowledge and experience in the New Jersey market has
enabled us to successfully operate and expand our business in New Jersey while
other insurers were withdrawing from or reducing their share in the New Jersey
private passenger auto insurance market. The decision of other insurers to
reduce their business in New Jersey provided us with the opportunity to enter
into replacement carrier transactions to expand our market share and grow our
business. Replacement carrier transactions allow insurers to withdraw from the
New Jersey personal auto insurance market by finding a replacement carrier,
such as Proformance, that will agree to offer insurance coverage upon renewal
of the withdrawing carrier's policies.
We entered into replacement carrier transactions with Met P&C in 2003,
Sentry Insurance in 2003, OCIC and OCNJ in 2001, and Kemper Insurance Company
in 1995. See "Business — Recent Transactions." Our replacement carrier
transactions provided us with improved economies of scale and enabled us to
increase capital and surplus while increasing premium volume at rates that
cannot be achieved by organic growth of insurance policies sold on an
individual basis. As opportunities arise, we will evaluate additional
replacement carrier and other transactions which we determine to be consistent
with our objectives.
Our Ability to Offer Policyholders the Convenience of Our Packaged High
Proformance Policy
Our primary insurance product is our High Proformance Policy. Our High
Proformance Policy is a "packaged" product that may include deluxe homeowners,
private passenger automobile, personal excess liability and personal inland
marine insurance coverages. We believe customers are attracted to the
convenience of buying all of their personal insurance coverages under one
policy from one company. Our historical underwriting experience further
indicates that the policyholders who purchase their auto and homeowners
coverage from the same carrier are better risks than policyholders who purchase
only one kind of coverage or the other.
Many of our competitors do not offer a packaged policy. We believe that
others have been slow to introduce package policies in New Jersey because it is
difficult to convert a policy processing system designed to produce single
coverage policies into a system that can handle packaged policies. However,
our advanced technology and information systems allow us to efficiently convert
single coverage policies into packaged policies. In addition, our systems
enable us to provide our packaged policy customers with a single insurance
statement that reflects all of the coverages we provide to them. We believe
our ability to offer our customers the convenience of a packaged policy and a
single insurance statement of all of their coverages gives us an advantage over
our competitors.
Our Focus on Reducing Underwriting Costs and Claims Expenses
We believe that our ability to operate efficiently and reduce underwriting
costs and claims expenses enables us to price our products competitively and
improve our profitability.
We have dedicated significant human and financial resources to the
development of advanced information systems and technology which are designed
to maximize the efficiency with which we operate, particularly in working with
our agents and delivering our products and services to our insured. We
continue to develop technology that empowers our independent agents to make it
easier for them to transact business with their clients and with our
underwriters on a real-time basis. Of our 97 Partner Agents, approximately 74%
have the ability
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through our proprietary systems to take authorized actions including
receiving applications, quoting new policies, issuing and servicing policies
and claims directly to customers. We provide certain agents with advanced
automation tools to enable the agency to reduce the redundant operations
associated with the personal lines policy production and servicing process. We
believe that the use by us and our agents of our advanced automation and
information systems enables us to operate more efficiently and reduce our
underwriting costs.
We believe that our ability to reduce claims expenses enables us to
improve our profitability. We maintain a special investigative unit, which
employs nine individuals responsible for identifying and investigating
potential fraud and misrepresentation by claimants. All of our claims
adjusters are carefully trained to identify certain factors in the claims
handling process that indicate a potentially fraudulent claim or the presence
of misrepresentation in the application or claims process. If a claims
adjuster identifies any such factor, he or she is required to notify our
investigative unit. A member of our investigative unit investigates the claim
further to determine whether the claim is fraudulent or whether the claimant
made a misrepresentation in the application or claims process. We believe the
effectiveness of our investigative unit enables us to reduce our claims
expenses by limiting the number of improper claims.
In addition, as discussed below, Riverview's cost-efficient service and
management of the medical treatment of auto accident victims reduce our claims
expenses.
Our Ability to Take Advantage of the Services Provided By Our
Non-Insurance Subsidiaries
We believe another one of our core strengths is our ability to take
advantage of the services provided by our non-insurance subsidiaries.
Proformance's operations directly benefit from the unique aspects of
Riverview's cost efficient service and management of the medical treatment of
auto accident victims and reduction of claims expenses. NAIA operates as a
full service insurance agency that receives the same commission structure as
our Partner Agents. In addition, rather than paying fees to third parties for
similar services, we are able to retain that fee income within our holding
company structure. Since the fee income is earned by non-insurance
subsidiaries, the net after-tax income generated by these subsidiaries can be
transferred by dividend to NAHC without the restrictions imposed under New
Jersey's insurance laws and regulations. See "Business — Supervision and
Regulation."
Our Growth Strategies
Our goal is to grow our business and maximize shareholder value through
the following strategies:
Focusing on the New Jersey Market
. We will continue to focus our business
in the New Jersey property and casualty insurance market where we believe we
are able to achieve a competitive advantage through our knowledge and expertise
of the market and regulatory environment.
Capturing a Larger Share of Our Agents' Business
. We intend to maintain
and further develop our strong independent agent relationships by providing our
agents with a broader portfolio of insurance products and technology services
to enable us to capture a growing share of the total insurance business written
by our agents. Based upon reports given to us by our Partner and Active
Agents, we believe they write an aggregate of approximately $4.0 billion of New
Jersey property and casualty premiums per annum, of which approximately
two-thirds is commercial lines. We estimate that we currently write
approximately 4.2% of the aggregate business placed by our Partner and Active
RCS Agents. We intend to expand that percentage. In particular, we intend to
increase the amount of commercial lines business we write for small to medium
business "mainstreet" policyholders by capturing a larger share of this
business written by our Partner and Active Agents.
Converting Single Coverage Policies into Our Packaged Policies and
Opportunistically Growing Our Business through Replacement Carrier
Transactions
.
We intend to continue to grow our homeowners and non-auto
businesses, principally by endorsing these additional coverages on policies
which currently cover only automobile insurance, such as the policies
transferred to us as part of the replacement carrier transactions, thereby
converting those policies into our packaged High Proformance Policies. In
addition, as opportunities arise we will enter into replacement carrier and
other transactions which we determine are consistent with our objectives.
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Marketing the Services of Our Non-Insurance Subsidiaries to Third Parties
.
We intend to selectively market and sell to third parties the services
provided by Riverview. These services will generate fee income to these
non-insurance subsidiaries. We believe Riverview provides a unique approach to
maintaining cost-efficient medical service and management of the medical
treatment and reducing frivolous and potentially fraudulent claims. We believe
the services of Riverview are especially marketable to those insurers with
small New Jersey books of business who do not have access to these claims and
cost-reduction services. We will market the services of NAIA to our agents
who, in exchange for our services to the designated policyholders of that
agent, will receive a commission from us lower than our normal commission.
Other Subsidiaries
NAHC was formed on July 29, 1994 as a New Jersey corporation to serve as a
holding company for Proformance. Proformance was formed as a New Jersey
property and casualty insurance company on September 26, 1994. In addition to
Proformance, our other operating subsidiaries are Riverview, NAIA and Mayfair.
Riverview Professional Services, Inc.
In 2002, we formed Riverview Professional Services, Inc. to address the
problem of sharply increasing costs for medical case management. We believe
that appropriate and effective management of personal injury treatment is
important to our success in the auto insurance industry. As a result, we
created Riverview to provide Proformance with services relating to case
management, medical treatment management, bill and code review and
pre-certification and decision point review. Riverview is also a third party
claims administrator that provides claims handling services.
Riverview deals with auto accident victims' medical providers and screens
requests for medical treatment that it considers to be frivolous, non-compliant
or potentially fraudulent. Riverview pre-certifies all medically necessary
services related to auto accident insureds through qualified medical
professionals and works on containing costs for its clients. We believe
Riverview's approach leads to a more cost-efficient service for the management
of medical treatment of auto accident victims and reduces claims expenses for
its clients. Riverview also has a staff of six in-house attorneys, allowing
Riverview to handle claims-related litigation more efficiently and
cost-effectively. Proformance pays Riverview an agreed upon flat fee per case
handled.
We recently began offering Riverview's claim adjustment services to third
parties. In June 2003, Riverview entered into a third party agreement to
provide its services to AT&T on a countrywide basis. The agreement provides
that Riverview will handle AT&T's auto liability, auto physical damage and
general liability claims. The agreement will expire on October 15, 2004. We
believe that the unique and effective nature of Riverview's services will
enable it to selectively expand its business and provide its services to
additional third parties on a competitive fee for service basis.
National Atlantic Insurance Agency, Inc.
In 1995, we formed our insurance agency subsidiary, National Atlantic
Insurance Agency, Inc. NAIA is a full service insurance agency that provides
agency services to Proformance's "orphan" policyholders no longer serviced by
their independent agents. In addition, NAIA provides services to agents and/or
policyholders acquired as part of our replacement carrier transactions
discussed below. NAIA also provides services with respect to policyholders no
longer receiving services from their agents of record. NAIA does not solicit
new insurance customers except as required by New Jersey insurance laws and
regulations.
NAIA receives a standard rate of commission, similar to that received by
our Partner Agents, in exchange for the services it provides. NAIA does not
currently provide agency services with respect to any other property casualty
business other than Proformance's business, although we plan to market NAIA's
services to agents who wish to have NAIA service such agents' customers.
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Mayfair Reinsurance Company Limited
On November 7, 2003 we formed Mayfair Reinsurance Company Limited in
Bermuda to provide reinsurance on certain blocks of business. Mayfair is
classified as a Class 3 reinsurer in Bermuda and received its reinsurance
license on December 19, 2003 from the Bermuda Monetary Authority. Mayfair does
not reinsure business directly from Proformance, but rather assumes business as
a retrocessionaire from Odyssey Re, which is one of Proformance's reinsurers.
We believe that this arrangement with Odyssey Re and Mayfair will promote
effective protection of Proformance's surplus, manage premium to surplus
leverage to improve Proformance's A.M. Best rating, and position Proformance to
underwrite better segments of the personal and commercial lines business in New
Jersey. We believe that this strategy will enable us to retain some of the
profits on the reinsurance business ceded within the consolidated group as
opposed to passing all of those profits to third party reinsurers.
We anticipate that Mayfair will provide small reinsurance facilities to
other similarly situated single-state or small regional personal lines carriers
which may provide us with profitable business opportunities.
Niagara Atlantic Holdings Corporation
We own an 80% interest in Niagara Atlantic Holdings Corporation, a New
York corporation. Niagara Atlantic was formed in December 1995 as a holding
company for the purpose of executing a surplus debenture and service agreement
with Capital Mutual Insurance Company. On June 5, 2000, Capital Mutual
Insurance Company went into liquidation and is currently under the supervision
and control of the New York State Insurance Department. Through loan
guaranties, we lost approximately $3.0 million in connection with our
investment in Niagara Atlantic. As of the date of this prospectus, Niagara
Atlantic is an inactive subsidiary.
The New Jersey Property and Casualty Insurance Market
Regulatory Environment
Proformance is licensed by the Commissioner of the Department of Banking
and Insurance of the State of New Jersey (whom we refer to as the Commissioner)
to transact property and casualty insurance in New Jersey. All of
Proformance's business is extensively regulated by the Commissioner, as
described below and elsewhere in this prospectus.
New Jersey Market for Private Passenger Automobile Insurance
Private passenger automobile insurance is heavily regulated in New Jersey.
In many respects, the private passenger automobile insurance market in New
Jersey is unique, in comparison with other states. This is due to a number of
factors, including unusual regulatory conditions such as the "take all comers"
requirement and the Automobile Insurance Urban Enterprise Zone (UEZ) Program.
For many insurance companies, these factors present substantial challenges, but
we believe they give us a competitive advantage because of our thorough
understanding of this market and our ability to take advantage of opportunities
available under the law.
Recent Legislation
In 1990, the New Jersey legislature adopted the Fair Automobile Insurance
Reform Act of 1990, which we refer to as the FAIR Act, which, among other
things, restricted the ability of insurance companies to refuse automobile
insurance applicants and restricted their right to non-renew existing policies.
In response to the FAIR Act, many insurance companies withdrew from or reduced
their market share in the New Jersey automobile insurance market.
By the mid-1990's, the FAIR Act was deemed insufficient to meet the needs
of the marketplace. Auto insurance rates had become a major political issue,
and the New Jersey legislature passed the Automobile Insurance Cost Reduction
Act of 1998, which we refer to as the AICRA.
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AICRA attempted to control consumer costs by cutting auto rates by 15%
across the board. The loss of premiums to insurance carriers was to be made up
by implementing strict measures to reduce insurance fraud and abuse, especially
in the areas of vehicle repair and medical case management. Although the
industry noted an increase in the efforts of the state's law enforcement
personnel to combat insurance fraud, the impact of AICRA on the profitability
of carriers was viewed by the automobile insurance industry in New Jersey as
being largely negative.
New Jersey Automobile Insurance Competition & Choice Act
On June 9, 2003, the New Jersey Automobile Insurance Competition & Choice
Act, which we refer to as the AICC Act, was signed into law by the Governor of
New Jersey to address the issues of auto insurance availability and capacity.
The new legislation was designed to attract competition in the New Jersey auto
insurance market, and to provide consumers with coverage choices. Pursuant to
the AICC Act, the following regulatory changes have been adopted.
Rate Increases.
The AICC Act improves the ability to achieve rate
increases with respect to private passenger automobile insurance in a more
timely fashion. The AICC Act increases the annual "expedited" rate filing
threshold from 3% per annum to 7% per annum. The AICC Act shortens the time
periods for the Commissioner to issue a decision with respect to an insurer's
proposal to increase rates by up to 7%. For a proposed rate increase of up to
3%, the Commissioner must issue a decision within 30 days after receipt of the
filing. For a proposed rate increase of more than 3%, but not more than 7%,
the Commissioner must issue a decision within 45 days after receipt of the
filing.
Excess Profits.
Each insurer in New Jersey is required to file an annual
report which includes a calculation of statutory profits on private passenger
automobile business. If the insurer has excess statutory profits as determined
by a prescribed formula, the insurer is required to submit a plan for the
approval of the Commissioner to refund or credit the excess profits to
policyholders. Prior to the AICC Act, the calculation of statutory profits was
based on the three-year period immediately prior to the report, and the amount
of profit an insurer could earn without being considered excess was limited to
3.5% of its earned premium. The AICC Act extended the time period for the
calculation of statutory profits from three years to seven years to take into
account market fluctuations over a longer period of time. The AICC Act also
changed the basis for determining allowable profits from earned premium to
policyholder surplus. The amount of profit an insurer can now earn without
being considered excess is 12% of policyholder surplus. As of December 31,
2003, we did not exceed the excess profit threshold in respect of any prior
lookback period.
"Take All Comers" Requirement
. The AICC Act phases out the "take all
comers" requirement over five years, to become inoperative on January 1, 2009.
Also, the AICC Act provides for an exemption from the "take all comers"
requirement for insurers that increase their private passenger auto insurance
non-fleet exposures by certain amounts. The exemption criteria are applied
every six months to determine if the insurer remains exempt. Insurers that
increased their private passenger auto insurance non-fleet exposures by 5%
during the one-year period ending on January 1, 2004 are exempt from the "take
all comers" requirement for the subsequent six-month period, at which time the
5% standard is applied to determine if the insurer remains exempt. Insurers
that increase their private passenger auto insurance non-fleet exposures by the
following amounts will also be exempt from the "take all comers" requirement,
subject to review every six months: 4% in the one-year period ending January
1, 2005, 3% in the one-year period ending January 1, 2006, 2% in the one-year
period ending January 1, 2007, and 1% in the one-year period ending January 1,
2008. As of the date of this prospectus, Proformance has filed with
the New Jersey Department of Banking and Insurance its required
certification indicating it is exempt from the "take
all comers" provision for 2004 as it has satisfied the foregoing criteria.
Tier Rating
. Under the tier rating system used to determine rates,
drivers are assigned to different rating tiers according to driving history and
other risk characteristics including, among others, driving record
characteristics, experience and type of car. The tier rating system requires
insurers to take into account the entire record of the consumer, rather than
penalizing drivers for accidents and department of motor vehicle violations.
Each insurer creates tiers based on the risk characteristics that are important
to it, which vary from insurer to insurer. By establishing tiers, each insurer
is able to target the risks which it prefers to underwrite. Proformance's
tiering system seeks to charge low rates to good drivers and higher rates to
drivers with poor driving records.
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Unsatisfied Claim and Judgment Fund.
The Unsatisfied Claim and Judgment
Fund was created to pay claims of victims of hit and run or uninsured motor
vehicle accidents and to reimburse insurers when medical expense benefits
exceed $75,000 per person per accident. The AICC Act eliminates reimbursement
to insurers for medical claims in excess of $75,000 for policies issued on or
after January 1, 2004. The administration of these claims will be transferred
from the Unsatisfied Claim and Judgment Fund to the New Jersey
Property-Liability Insurance Guaranty Association, a private, nonprofit entity.
This change is beneficial to us as the cost of this facility to Proformance
has historically exceeded its benefits to Proformance.
Insurance Fraud Detection Reward Program
. In an effort to enable
efficient prosecution of fraud against insurance companies, the AICC Act
establishes the crime of "insurance fraud" to criminalize the harmful conduct.
To provide the public with incentives to come forward regarding reasonable
suspicion or knowledge of insurance crimes, the AICC Act also establishes the
Insurance Fraud Detection Reward Program to obtain information from the public.
Insurance Scenarios
. Starting in 2004, every insurer must provide each
new applicant seeking automobile insurance, and each insured upon request, with
three premium scenarios illustrating the effect of different coverage choices.
Insurers are required to explain how each choice may affect costs and benefits
in the event of an accident.
Automobile Insurance Urban Enterprise Zone Program
The Automobile Insurance Urban Enterprise Zone Program is an effort by the
State of New Jersey to increase the availability of insurance and decrease the
number of uninsured motorists in urban areas. New Jersey law requires each
insurer to have its share of business in designated "urban enterprise zones"
across the state equal to its proportionate share of the auto insurance market
in the state as a whole. If an insurer does not achieve its quota, it is
assigned business by the state to fill the quota. Proformance currently
satisfies its quota in each urban enterprise zone primarily as a result of
voluntary business it writes and the influx of policies from our replacement
carrier transactions.
Personal Automobile Insurance Plan
The Personal Automobile Insurance Plan, or PAIP, is a plan designed to
provide personal automobile coverage to drivers unable to obtain private
passenger auto insurance in the voluntary market and to provide for the
equitable assignment of PAIP liabilities to all licensed insurers writing
personal automobile insurance in New Jersey. We may be assigned PAIP
liabilities by the state in an amount equal to the proportion that our net
direct written premiums on personal auto business for the prior calendar year
bears to the corresponding net direct written premiums for all personal auto
business written in New Jersey for such year.
We have entered into an agreement pursuant to which the PAIP liabilities
assigned to us by the state are transferred to a third party that writes and
services the business in exchange for an agreed upon fee. Upon the transfer,
we have no liabilities with respect to such PAIP business.
Commercial Automobile Insurance Plan
The Commercial Automobile Insurance Plan, or CAIP, is a plan similar to
PAIP, but involving commercial auto insurance rather than private passenger
auto insurance. Private passenger vehicles cannot be insured by CAIP if they
are eligible for coverage under PAIP or if they are owned by an "eligible
person" as defined under New Jersey law. We are assessed an amount in respect
of CAIP liabilities equal to the proportion that our net direct written
premiums on commercial auto business for the prior calendar year bears to the
corresponding net direct written premiums for commercial auto business written
in New Jersey for such year.
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Recent Transactions
Ohio Casualty Replacement Carrier Transaction
On December 18, 2001, NAHC and Proformance entered into a transaction with
OCNJ pursuant to which OCNJ transferred to Proformance the obligation to renew
all of OCNJ's private passenger automobile business written in New Jersey and
OCNJ ceased writing private passenger automobile insurance in the State of New
Jersey. As part of the withdrawal, Proformance became the replacement carrier
for all of OCNJ's private passenger auto insurance policies. OCNJ retained all
rights and responsibilities related to the policies it issued. Proformance
offered renewal policies to all eligible OCNJ policyholders.
In connection with the transaction, OCNJ paid Proformance
$41,100,000, of which $500,000 was paid at the contract date and
$40,600,000 was paid in twelve equal monthly installments of $3,833,333,
with the first payment due on March 18, 2002. In connection with this
transaction, OCIC acquired a 19.71 percent interest (at the time of
the transaction) in NAHC by purchasing 20,185 shares of Class
B nonvoting common stock. We valued the stock issued as part of the
transaction at $13,500,000, based on a valuation performed for
us. The remaining $27,600,000 was earned evenly as
replacement carrier revenue over the twelve month period beginning on
March 8, 2002. Further, OCNJ may be required to pay to Proformance up to an additional
$15,600,000 in the aggregate to maintain a premium-to-surplus ratio of 2.5 to 1
on the renewal business. A calculation of the premium-to-surplus ratio is made
annually to determine the amount of the additional payment, if any, for such
year. The $15,600,000 conditional guaranty will expire on December 18, 2004.
We received payments of $2,521,000 on June 25, 2004 and $4,299,000 on July 14,
2004 for a total of $6,820,000 from OCNJ pursuant to this requirement.
Proformance entered into a non-competition agreement with OCIC that prohibits
Proformance from writing any commercial lines insurance policy until December
31, 2004 where the expiring policy was issued by Ohio Casualty Group.
As required under the December 18, 2001 agreement, on August 1, 2003,
NAHC conducted a private offering of its nonvoting common stock. The offering
was made only to former personal automobile agents of OCNJ, who met certain
eligibility requirements as determined by NAHC's board of directors. In
connection with the offering, NAHC issued nonvoting common stock for an
aggregate price of $2,500,000.
Also, as part of the transaction, NAHC, James V. Gorman and OCIC entered
into an Investor Rights Agreement, dated as of December 18, 2001, which sets
forth certain rights of OCIC with respect to its shares of NAHC. See "Certain
Relationships and Related Party Transactions — Investor Rights Agreement."
On July 10, 2004, we entered into an agreement with OCNJ and OCIC pursuant
to which we agreed to include OCIC as the selling shareholder in this offering
and to use commercially reasonable efforts to facilitate the sale by OCIC of
shares of common stock of NAHC owned by OCIC that have an aggregate value equal
to at least 10% of the aggregate value of all shares of common stock sold by
NAHC and OCIC in this offering, which we anticipate will approximate 50% of the
shares of NAHC common stock owned by OCIC. In exchange for the foregoing, OCIC
agreed to waive any rights it has, had or may have under the Investor Rights Agreement to require us to
redeem all of its shares of NAHC common stock as provided in that agreement.
OCIC also executed a 180-day lock-up agreement in connection with this offering
as described below in "Underwriting."
Following expiration of the 180-day lock-up period, we agreed to use
commercially reasonable efforts to facilitate a secondary public offering in
which OCIC will sell its shares of NAHC common stock not sold as part of this
offering. In lieu of a secondary offering, we and OCIC may mutually agree that
OCIC shall sell to us an amount of NAHC common stock owned by OCIC which are
not sold as part of this offering, the aggregate market value of which is equal
to any additional amounts then due Proformance under the provision concerning
maintenance of a 2.5 to 1 premium-to-surplus ratio on the renewal business of
the Replacement Carrier Agreement. Upon the transfer by OCIC of its shares of
NAHC common stock to us, OCNJ shall have no further obligation under such
provision, except to the extent that the aggregate market value of the shares
transferred to us is less than the amount due Proformance, in which case, OCNJ
shall pay Proformance cash in the amount of such shortfall.
In addition, subject to certain exceptions, we have granted OCIC the
right, on three occasions following the expiration of the 180-day lock-up
period relating to this offering, to demand that we file a registration
statement with respect to the resale by OCIC of any shares of NAHC common stock
owned by OCIC which are not sold as part of this offering.
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Sentry Insurance Replacement Carrier Transaction
On October 21, 2003, Proformance consummated a replacement carrier
transaction with Sentry Insurance, a Wisconsin mutual company. Sentry
Insurance agreed to not renew its personal lines insurance business in New
Jersey upon policy expiration dates and Proformance agreed to offer replacement
policies with substantially similar coverages and rates to the non-renewed
Sentry Insurance policyholders, and to be responsible for any statutory or
regulatory obligations that flow from the transfer of the business.
Sentry Insurance also agreed to support the business renewed by
Proformance as a result of this transaction by paying Proformance $3,500,000,
paid in four equal installments. In addition, in the event that the
premium-to-surplus ratio for the Sentry Insurance business written by
Proformance exceeds 2.5 to 1 during a specified period, Sentry Insurance is
obligated to pay to Proformance such additional sums of money as necessary, up
to an aggregate limit of $1,250,000, to reduce the premium-to-surplus ratio for
the Sentry Insurance business written by Proformance to not less than 2.5 to 1.
As of the date of this prospectus we have determined that no amount is
currently recoverable.
As part of the transaction, NAIA agreed to provide general agency services
to the transferred Sentry Insurance customers.
Metropolitan Property and Casualty Replacement Carrier Transaction
On December 8, 2003, NAHC and Proformance consummated a replacement
carrier transaction with Met P&C pursuant to which Met P&C agreed to not renew
its personal lines insurance business (except for the Specialty Vehicle
Automobile Program) produced by independent agents in New Jersey upon normal
policy expiration dates and Proformance agreed to offer replacement policies
with substantially similar coverages and rates to the non-renewed Met P&C
policyholders, and to be responsible for any statutory or regulatory
obligations that flow from the transfer of the business.
Pursuant to their agreement, Proformance offered all agents terminated by
Met P&C as a result of this transaction, full or limited agency contracts with
Proformance under terms and conditions no less favorable than the terms and
conditions of such agents' contracts with Met P&C.
As part of this replacement carrier transaction, Proformance agreed, with
respect to any Met P&C policy renewed by Proformance pursuant to this
transaction, not to impose an overall rate increase greater than 15% per year
for three years subject to a maximum aggregate rate increase of 52%. Met P&C
agreed to support the business renewed by Proformance by making a payment (on
an after-tax basis) to Proformance totaling $6,660,000 which was paid at
closing. In addition, at closing Met P&C purchased nonvoting common stock of
NAHC for $10,000,000.
In connection with the Met P&C replacement carrier transaction, Met P&C
and NAHC entered into a share repurchase agreement, dated as of December 8,
2003. See "Certain Relationships and Related Party Transactions —
Metropolitan Property and Casualty Share Repurchase Agreement."
Products
High Proformance Policy
We attempt to attract and retain policyholders who are better insurance
risks with a "packaged" insurance product, which we refer to as the "High
Proformance Policy" or "HPP." HPP is a comprehensive and differentiated policy
which may contain the following property and casualty coverages purchased by
individuals:
•
private passenger automobile insurance, including bodily injury and
property damage liability, uninsured motorist coverage, personal injury
protection, extended medical payments, comprehensive fire and theft,
collision, rental reimbursement, towing and labor, and miscellaneous
electronic device and mobile telephone coverages;
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Table of Contents
•
homeowners and condominium insurance coverage, including various
endorsements for extended coverage for eligible property and liability
exposures;
•
personal excess ("umbrella") liability insurance as an additional
line of coverage; and
•
personal specialty property lines covering jewelry, furs, fine
arts, cameras, electronic data process equipment, boats, yachts and
other high value items.
The target market for our HPP is middle income and upper-middle income
applicants. We believe customers will continue to be attracted to the
convenience of buying all of their personal insurance coverages under one
policy from one company, and the benefit of comprehensive coverage designed not
to leave gaps or create overlaps in coverage. We believe this design enhances
our renewal retention, provides convenient premium payment and improves our
loss ratios. Our historical underwriting experience further indicates that the
policyholders who purchase their auto and homeowners coverage from the same
carrier are better risks than policyholders who purchase only one kind of
coverage or the other.
Policyholders may purchase HPP coverage that initially includes only
either the private passenger automobile coverage or the homeowners coverage.
The policyholder may add the other coverages at their convenience as their
existing policies for this other coverage expire. Many of our competitors do
not offer a packaged policy and of the few who do, they do not offer the
flexibility of sequentially adding coverage during the life of the policy. We
believe that others have been slow to introduce packaged policies in New Jersey
because they are trying to reduce market share and because it is difficult to
convert a policy processing system designed to handle single coverage policies
into a system that can handle packaged policies.
Our HPP coverage excludes mold, mildew and pollution.
Other Products
We also offer commercial lines insurance products including commercial
automobile, commercial general liability, and commercial excess liability.
Specifically, we underwrite commercial automobile liability and physical damage
and commercial inland marine for risks insuring up to ten vehicles. In
addition, we offer commercial liability, commercial inland marine and
commercial excess liability to our commercial automobile policyholders.
Predominantly, Proformance underwrites commercial automobile liability and
physical damage for small to medium business "mainstreet" policyholders which
we regard as high frequency/low severity risks.
We have recently initiated underwriting of a new commercial line of
business designed to insure commercial property exposures on an "all risk"
basis. We have just commenced this effort and have no business written as of
the date of this prospectus, nor do we expect to have material amount of this
business in the foreseeable future.
The table below shows our direct written premiums in each of our product
lines for the periods indicated and the portions of our total direct written
premiums each product line represented.
Years Ended December 31,
Three Months Ended March 31,
Direct Written Premiums
2001
2002
2003
2003
2004
Private passenger auto
$
26,813,265
53.9
%
$
87,757,479
76.6
%
$
135,859,175
83.3
%
$
31,500,402
83.7
%
$
39,315,756
84.5
%
Commercial auto
13,452,145
27.0
15,775,345
13.8
14,402,092
8.8
3,422,781
9.1
3,574,967
7.7
Homeowners
7,322,300
14.7
7,959,295
6.9
9,579,346
5.9
2,055,540
5.5
2,868,485
6.2
Other liability
2,169,760
4.4
3,132,137
2.7
3,338,274
2.0
666,182
1.7
742,256
1.6
Total
$
49,757,470
100.0
%
$
114,624,256
100.0
%
$
163,178,887
100.0
%
$
37,644,905
100.0
%
$
46,501,464
100.0
%
An emerging issue in the insurance industry is mold liability and property
coverage under homeowners and similar property-related policies. Property
damage as a result of mold is uncommon in New Jersey, unlike in the southern
sections of the United States, most notably Texas. Although our High
Proformance Policies exclude mold coverage, some of our other products include
such coverage. Generally, insurance policies exclude mold coverage unless it
is the result of a covered loss. In the prior two years, we are aware of 2
claims under our policies, totaling less than $1,000 that involve mold
liability as a result of a covered loss.
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Distribution
Independent Agent Relationships
We distribute our products exclusively through licensed and contracted
independent agents. All of our agents have entered into agency agreements. We
have two types of independent agents, Partner Agents and Replacement Carrier
Service Agents.
Partner Agents
Our Partner
Agents are our independent agents who have purchased NAHC
common stock with a minimum purchase price of $50,000. As of March 31, 2004,
our Partner Agents, including those that are directors of our
Company, owned in the aggregate approximately 38.7% of
our outstanding
common stock on a fully diluted basis. Following this offering our
Partner Agents (assuming full exercise of the underwriters'
over-allotment option) will own in the aggregate
approximately      % of our
outstanding common stock on a fully diluted basis. None of our Partner
Agents are selling shares of our common stock in this offering. By reason of
their ownership interest in NAHC, we believe that each agent has an incentive
to provide us with more profitable segments of the personal and commercial
lines business in New Jersey. We believe this gives us a competitive advantage
in the market. Currently, there are 97 Partner Agents in 119 locations who
enjoy the privileges of producing new and renewal insurance business in all of
Proformance's product lines of business and are paid a standard commission. We
intend to continue requiring our agents to purchase shares of our common stock
prior to selling our insurance products.
We provide Partner Agents with advanced automation tools to enable them to
reduce the redundant operations associated with the personal lines policy
production and servicing process. In addition, 72 Partner Agencies have
qualified for the elite "Custom Agent" designation enabling these agents to
perform some of the basic underwriting and claims processing for additional
compensation, thereby reducing our operating expenses. The Custom Agent's
underwriting activities are subject to review by our underwriting department
and our Peer Review Committee.
All Partner Agents are eligible to participate in our contingent
commission program, which is based upon the volume and the profitability of the
business produced by the agency. We believe that the Partner Agent system of
distributing our products provides us with a sustainable strategic advantage as
compared to our competitors in the areas of underwriting/risk selection and
operating expense control.
Replacement Carrier Service Agents
Replacement Carrier Service Agents are those independent agents who became
associated with Proformance through replacement carrier transactions, such as
the Ohio Casualty replacement carrier transaction. Currently, there are
approximately 168 Replacement Carrier Service Agents located in New Jersey. We
converted 50 Replacement Carrier Service Agents who were former OCNJ agents to
Partner Agent status in connection with our private offering of NAHC common
stock in 2003. We may offer additional Replacement Carrier Service Agents the
opportunity to become Partner Agents in the future. In compliance with state
regulations, Replacement Carrier Service Agents are paid the same rate of basic
commission as they were paid by the ceding carrier. Replacement Carrier
Service Agents do not enjoy Proformance's standard Partner Agent commission
levels, nor do they operate with any of the advanced automation tools available
to the Partner Agents.
We classify our Replacement Carrier Service Agents as "Active" Replacement
Carrier Service Agents, or Active RCS Agents, and Non-Active Replacement
Carrier Service Agents, or Non-Active RCS Agents. We have 27 Active RCS Agents
and 141 Non-Active RCS Agents located in New Jersey. Generally, we recognize a
single location for each of our Replacement Carrier Service Agents. Active RCS
Agents have entered into a limited agency agreement with Proformance and are
authorized to write renewals and selective endorsements of private passenger
auto business. Proformance can discontinue new personal auto business
production by any Active RCS Agent, with or without cause, with 90 days advance
written notice to the Active RCS Agent. Non-Active RCS Agents are authorized
to provide limited agency services to the transferred policyholders, but are
not authorized to produce any new business for Proformance.
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Table of Contents
Agency Agreements
All of our Partner Agents have entered into Partner Agent agency
agreements which define the duties and obligations of Proformance and each
Partner Agent. Under the agency agreement, an agent who is a licensed New
Jersey insurance agent agrees to purchase shares of NAHC common stock and
become an independent contractor selling Proformance's products in exchange for
commissions. The agency agreement can be terminated by either party upon 90
days' written notice and will automatically terminate if the insurance agent
loses its license, sells its business (provided
,
that Proformance, may at its
discretion, offer an agency agreement to the successor if it meets its
suitability requirements) or in the event of fraud, insolvency, abandonment,
gross negligence or willful misconduct of the agent.
Share Repurchase Agreements
All Partner Agents are also required to enter into a share repurchase
agreement with NAHC. Each share repurchase agreement restricts the Partner
Agent's transfer of shares. The Partner Agent may not transfer the shares for
a period of two years from the date of the share repurchase agreement without
NAHC's prior written consent, which consent may be withheld in NAHC's sole
discretion. If subsequent to the two-year holding period, the Partner Agent
desires to transfer shares to a third party, NAHC has the priority right to
purchase all or any portion of the shares from the Partner Agent at the price
and pursuant to the terms set forth in the share repurchase agreement. If such
shares are not purchased by NAHC, the Partner Agent is free for a period of six
months to transfer all of his or her shares. In the event that the agency
agreement is terminated for any reason, including by reason of breach, default,
voluntary termination by the agency or voluntary termination by Proformance,
the Partner Agent is obligated to offer the shares for sale to NAHC. If the
shares are not purchased by NAHC, the Partner Agent is free to transfer the
unpurchased shares for a period of six months.
All shares which are subject to repurchase by NAHC may be repurchased at a
price equal to the greater of (i) the book value of the shares and (ii) the
purchase price of the shares as of the date of the original acquisition of the
shares by the Partner Agent. In the event the repurchase of shares by NAHC is
due to a termination of the agency agreement as a result of default by the
agent, agency's loss of license, fraud, abandonment, insolvency, gross
negligence or willful misconduct by the Partner Agent, then the purchase price
shall be the lesser of (i) and (ii) above.
Each share repurchase agreement terminates five years from the date of its
execution. Following termination, NAHC retains a right of first refusal with
respect to a Partner Agent's shares which obligates the Partner Agent to offer
to NAHC the right to purchase any shares which the Partner Agent desires to
transfer to any third party, on the same terms as offered to such third party.
Peer Review Committee
Proformance has established a Peer Review Committee which monitors the
underwriting and risk selection activities of Partner Agents. The Peer Review
Committee currently consists of five Partner Agents. The members of the
Committee generally serve for one-year terms and are appointed by Proformance's
senior management team. It is our expectation that all Partner Agents will
have the opportunity to serve on the Committee at some point. The Committee
evaluates the performance of the Partner Agents to ensure compliance with our
underwriting guidelines and marketing plans and can refer any issues to
management of Proformance. Management of Proformance further evaluates the
issues and can take certain actions regarding the Partner Agent under review,
including, but not limited to, terminating the Partner Agent and forcing the
sale of NAHC's stock back to NAHC pursuant to the terms of the share repurchase
agreement. At each meeting of the Board of Directors of Proformance, the
Committee reports any meetings it has held and any actions it has taken. The
Committee met twice in 2003 and has met once in 2004 as of the date of this
prospectus.
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Table of Contents
Marketing
Strategy
We believe that in the New Jersey personal lines property and casualty
insurance industry there is a strong relationship between the policyholder and
the independent agent. Therefore, we view the independent agents as our
customers. As a result, our marketing efforts focus on developing strong
interdependent relationships with our Partner Agents and providing them with
the resources to write profitable business. We believe that our ability to
develop strong and mutually beneficial relationships with our agents is
paramount to our success and will enable us to capture a larger portion of our
agents' aggregate business.
Our principal marketing strategies are:
•
To offer a range of products, which we believe enables our agents
to meet the insurance needs of their clients who meet our target
criteria;
•
To price our products competitively, including offering discounts
when and where appropriate for policyholders seeking to place all of
their primary property and casualty insurance coverage with one
carrier;
•
To offer agents competitive commissions, with incentives for
placing their more profitable business with us; and
•
To provide a level of support and service that enhances the agents'
ability to do business with their clients and with us while reducing
operating costs, providing us with an ability to maintain our
competitive pricing position.
Agent Commissions and Incentive Plans
We employ several programs designed to compensate and provide incentives
to our Partners Agents to produce increasing volumes of profitable business for
us.
•
Agent Commission Rates
. We pay agent commissions on new and
renewal business which we believe are competitive in our marketplace.
•
Contingent Commission Plan
. Our contingent commission plan rewards
our Partner Agents by providing annual incentives based on profit,
growth and product mix of the business produced by each Partner Agent.
•
Custom Agency Plan
. Our Custom Agents are our Partner Agents that
participate in the Custom Agency Plan. The Custom Agency Plan enables
Custom Agents to perform some of the basic underwriting, claims
processing and other functions for additional compensation. Currently,
approximately 74% of our Partner Agents participate in the Custom
Agency Plan.
•
Volume Incentives
. We often provide qualifying Partner Agents with
volume incentives. We negotiate volume incentives with Partner Agents
individually, which we generally use to promote specific new business.
We employ various volume incentive strategies, such as commission
overrides and fee payments per application.
•
Investment Incentive
. All of our Partner Agents are shareholders
of NAHC. By reason of their ownership interest in NAHC, we believe
that each agent has an incentive to provide us with more profitable
segments of the personal and commercial lines business in New Jersey.
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Table of Contents
Service and Support
We believe that the level and quality of service and support we provide to
our agents helps differentiate us from other insurers. First, we currently
have three field representatives that monitor and assist our agents. In
addition, we provide our agents with software applications along with programs
and services designed to strengthen and expand their marketing, sales and
service capabilities. Our Custom Agency Plan allows certain agencies to sell
new or service existing policyholders in a real-time environment by providing
the agents with certain access to our underwriting, claims and policy
information. We believe that the array of services we offer to our agents adds
significant value to their business and enhances their capabilities. We are an
Associate Member of the Professional Insurance Agents Association of New
Jersey, and we support the Independent Insurance Agents and Brokers of New
Jersey.
Underwriting
General
Our underwriting department currently consists of 16 underwriters who are
supported by underwriting assistants and other policy administration personnel.
The underwriting department is responsible for pricing of our policies,
management of the risk selection process and monitoring of our various books of
business. Our underwriting department has two divisions, one for our personal
lines business and one for our commercial lines business. Our personal lines
underwriting division consists of seven teams. Each team services designated
independent agencies on a rotating basis.
Agent Underwriting Authority
Our Custom Agents are equipped with advanced automation tools to enable
the agency to perform the initial underwriting services. Agents are provided
access to electronic version of underwriting manuals, which include updated
guidelines for acceptable risks, commission levels and product pricing. This
process enables our agents to perform certain underwriting and administrative
services on our behalf thereby reducing our operating expenses.
The underwriting activities of the Custom Agents are reviewed by our
underwriting department on a daily basis. The software employed by our
underwriting department identifies for our underwriting personnel any business
underwritten by our Custom Agents which does not meet certain criteria
predetermined by our underwriting department. Our underwriting department may
then take appropriate actions in regards to such business underwritten,
including amending or canceling the policies in accordance with applicable laws
and regulation.
Use of "Credit Scoring"
As permitted under New Jersey insurance laws and regulations, we employ
"insurance scoring" (sometimes referred to as "credit scoring") in underwriting
our homeowners policies and our commercial lines policies. We use credit
bureaus to obtain insurance scores for individuals who apply for our homeowners
or commercial lines coverage.
An insurance score is a measure of a person's financial responsibility
based on historical credit experience. The theory behind insurance scoring is
that individuals with higher scores are less likely to incur insured losses
than those with lower credit scores. We do not rely solely on credit scores to
determine whether to provide coverage to an applicant or in determining the
coverage price. Rather, we use credit scores as an ancillary underwriting tool
which assists us in evaluating the underwriting risk of our applicants.
We believe that using credit scores to evaluate the underwriting risk of
our applicants in connection with our homeowners and commercial lines coverage
improves our underwriting results and increases our profitability.
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Table of Contents
Claims
Our claims department processes all claims that arise out of our insurance
policies. We currently have in excess of 100 employees in our claims
department. Processing automation has streamlined much of our claims function.
We receive claims from our policyholders either through our agents or directly
through our 1-800 toll free telephone number.
Claims received by our agents are forwarded to our claims department
through our claims systems. As agents receive calls from claimants, our
software permits the agent to immediately send information related to the
claims directly to us. Once we receive this information, the claim is directed
to the appropriate internal adjuster responsible for investigating the claim to
determine liability. We believe this process results in a shorter time period
from when the claimant first contacts the agent to when the claimant receives a
claim payment, while enabling the agents to build credibility with their
clients by responding to claims in a timely and efficient manner.
As required under New Jersey insurance laws and regulations, a portion of
our claims department consists of a special investigative unit, which employs
nine individuals responsible for identifying and investigating potential fraud
and misrepresentation by claimants. All of our claims adjusters are carefully
trained to identify certain factors in the claims handling process that
indicate a potentially fraudulent claim or the presence of misrepresentation in
the application or claims process. If a claims adjuster identifies any such
factor, he or she is required to notify our investigative unit. A member of
our investigative unit investigates the claim further to determine whether the
claim is fraudulent or whether the claimant made a misrepresentation in the
application or claims process. We believe the effectiveness of our
investigative unit enables us to reduce the number of improper claims and
produce more profitable underwriting results.
In addition, we rely on Riverview's case management and medical treatment
cost containment to ensure cost-efficient service in the treatment of auto
accident victims and reduce our claims expenses. See "Business—Other
Subsidiaries—Riverview Professional Services, Inc."
Reserves
Significant periods of time can elapse between the occurrence of an
insured loss, the reporting of the loss to the insurer and the insurer's final
payment of that loss. To recognize liabilities for unpaid losses, insurers
establish reserves as balance sheet liabilities representing estimates of
amounts needed to pay reported and unreported losses and the expenses
associated with investigating and paying the losses, or loss adjustment
expenses. We review our reserves internally on a quarterly basis. We are
required by law to annually obtain a certification from a qualified actuary
that our loss and loss adjustment expenses reserves are reasonable.
When a claim is reported, claims personnel establish a "case reserve" for
the estimated amount of the ultimate payment. The amount of the reserve is
primarily based upon an evaluation of the type of claim involved, the
circumstances surrounding each claim and the policy provisions relating to the
loss. The estimate reflects informed judgment of such personnel based on
general insurance reserving practices and on the experience and knowledge of
the claims personnel. During the loss adjustment period, these estimates are
revised as deemed necessary by our claims department based on subsequent
developments and periodic reviews of the cases.
In accordance with industry practice, we also maintain reserves for
estimated losses incurred but not yet reported. Incurred but not yet reported
reserves are determined in accordance with commonly accepted actuarial
reserving techniques on the basis of our historical information and experience.
We make adjustments to incurred but not yet reported reserves quarterly to
take into account changes in the volume of business written, claims frequency
and severity, our mix of business, claims processing and other items that can
be expected to affect our liability for losses and loss adjustment expenses
over time.
When reviewing reserves, we analyze historical data and estimate the
impact of various loss development factors, such as our historical loss
experience and that of the industry, legislative enactments, judicial
decisions, legal developments in imposition of damages, and changes and trends
in general economic conditions, including the effects of inflation. There is
no precise method, however, for evaluating the impact of any specific factor on
the
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Table of Contents
adequacy of reserves, because the eventual development of reserves is
affected by many factors. After taking into account all relevant factors, we
believe that our provision for unpaid losses and loss adjustment expenses at
December 31, 2003 is adequate to cover the ultimate net cost of losses and
claims incurred as of that date. The ultimate liability may be greater or less
than reserves. Establishment of appropriate reserves is an inherently
uncertain process, and there can be no certainty that currently established
reserves will prove adequate in light of subsequent actual experience. To the
extent that reserves are inadequate and are strengthened, the amount of such
increase is treated as a charge to earnings in the period that the deficiency
is recognized.
The following table presents information on changes in the reserve for
losses and loss adjustment expenses of Proformance for the years ended December
31, 2002 and December 31, 2003 and the three months ended March 31, 2004.
Year Ended
Year Ended
Three Months Ended
December 31,
December 31,
March
2002
2003
31, 2004
(in thousands)
Reserves for losses and loss adjustment
expenses, beginning period
$
56,732
$
85,472
$
134,201
Less reinsurance recoverable on unpaid losses
and loss adjustment expenses
(26,718
)
(19,431
)
(21,329
)
Net reserves for losses and loss adjustment
expenses, beginning of period
30,014
66,041
112,872
Incurred losses and loss adjustment expenses,
related to:
Current period
60,861
108,047
24,710
Prior period
8,630
76
663
Total incurred losses and loss adjustment
expenses
69,491
108,123
25,373
Paid losses and loss adjustment expenses
related to:
Current period
20,114
37,594
5,574
Prior period
13,350
23,698
14,944
Total paid losses and loss adjustment Expenses
33,464
61,292
20,518
Net reserves for losses and loss adjustment
expenses, end of period
66,041
112,872
117,727
Plus reinsurance recoverables on unpaid
losses and loss adjustment expenses
19,431
21,329
21,499
Reserves for losses and loss adjustment
expenses, end of period
$
85,472
$
134,201
$
139,226
As a result of changes in estimates of insured events in prior years,
incurred losses in prior years increased by approximately $0.7 million for the
three months ended March 31, 2004 and $0.1 million and $8.6 million,
respectively, for the years ended December 31, 2003 and 2002. In the first
three months of 2004, we experienced favorable weather and our claims frequency
was down and claim severity was constant. The incurred losses related to prior
years of $0.1 million in 2003 included a commutation of a reinsurance agreement
 of $0.2 million which was offset by favorable loss development on prior
accident year reserves. The incurred losses related to prior years in
2002 were because of higher than expected losses on private passenger
automobile business and commercial auto business.
The following table represents the development of reserves, net of
reinsurance, for calendar years 1995 through 2003. The top line of the table
shows the reserves at the balance sheet date for each of the indicated years.
This represents the estimated amounts of losses and loss adjustment expenses
for claims arising in all years that were unpaid at the balance sheet date,
including losses that had been incurred but not yet reported to us. The upper
portion of the table shows the cumulative amounts paid as of the end of each
successive year with respect to those claims. The lower portion of the table
shows the re-estimated amount of the previously recorded reserves based on
experience as of the end of each succeeding year, including cumulative payments
made since the end of the respective year. The estimate changes as more
information becomes known about the payments, frequency and
57
Table of Contents
severity of claims for individual years. Favorable loss development,
shown as a cumulative redundancy in the table, exists when the original reserve
estimate is greater than the re-estimated reserves at December 31, 2003.
Information with respect to the cumulative development of gross reserves
(that is, without deduction for reinsurance ceded) also appears at the bottom
portion of the table.
In evaluating the information in the table, it should be noted that each
amount entered incorporates the effects of all changes in amounts entered for
prior periods. Thus, if the 1998 estimate for a previously incurred loss was
$150,000 and the loss was reserved at $100,000 in 1994, the $50,000 deficiency
(later estimate minus original estimate) would be included in the cumulative
redundancy (deficiency) in each of the years 1995-1998 shown in the table. It
should further be noted that the table does not present accident or policy year
development data. In addition, conditions and trends that have affected the
development of liability in the past may not necessarily recur in the future.
Accordingly, it is not appropriate to extrapolate future redundancies or
deficiencies from the table.
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Table of Contents
As of and for the Year Ended December 31,
($ in thousands)
1995
1996
1997
1998
1999
2000
2001
2002
2003
As Originally Estimated
$
780
$
3,893
$
10,928
$
14,965
$
15,484
$
20,386
$
30,014
$
66,041
$
112,872
As Re-estimated as of December 31, 2003
1,277
7,331
15,587
20,924
25,797
33,720
38,952
74,671
112,872
Liability Re-estimated as of:
One Year Later
775
4,387
12,017
15,261
17,901
25,588
32,028
74,671
Two Years Later
949
5,881
12,888
16,530
21,201
29,484
38,952
Three Years Later
1,096
6,578
13,562
18,471
23,740
33,720
Four Years Later
1,271
6,694
14,762
20,203
25,797
Five Years Later
1,284
7,294
15,870
20,924
Six Years Later
1,273
7,391
15,587
Seven Years Later
1,277
7,331
Eight Years Later
1,277
Cumulative Deficiency
(Redundancy)
497
3,438
4,659
5,959
10,313
13,334
8,938
8,630
Cumulative Amounts Paid as of :
One Year Later
478
1,334
6,123
6,770
6,437
11,147
13,819
23,695
Two Years Later
510
4,013
9,194
10,554
13,511
19,591
22,766
Three Years Later
947
5,333
10,999
15,178
18,926
25,518
Four Years Later
1,125
5,919
13,437
18,050
21,944
Five Years Later
1,219
6,857
14,535
18,722
Six Years Later
1,245
6,953
14,844
Seven Years Later
1,272
7,107
Eight Years Later
1,264
Percentage of initially estimated liability
Liability Re-estimated as of:
One Year Later
99
%
113
%
110
%
102
%
116
%
126
%
137
%
129
%
Two Years Later
122
%
151
%
118
%
110
%
137
%
145
%
166
%
Three Years Later
141
%
169
%
124
%
123
%
153
%
165
%
Four Years Later
163
%
172
%
135
%
135
%
167
%
Five Years Later
165
%
187
%
145
%
140
%
Six Years Later
163
%
190
%
143
%
Seven Years Later
164
%
188
%
Eight Years Later
164
%
Cumulative Deficiency
(Redundancy)
64
%
88
%
43
%
40
%
67
%
65
%
66
%
29
%
Net Loss and Loss Adjustment Cumulative
Paid as
a Percentage of Initially Estimated
Liability
Cumulative Amounts Paid as of :
One Year Later
61
%
34
%
56
%
45
%
42
%
55
%
59
%
48
%
Two Years Later
65
%
103
%
84
%
71
%
87
%
96
%
97
%
Three Years Later
121
%
137
%
101
%
101
%
122
%
125
%
Four Years Later
144
%
152
%
123
%
121
%
142
%
Five Years Later
156
%
176
%
133
%
125
%
Six Years Later
160
%
179
%
136
%
Seven Years Later
163
%
183
%
Eight Years Later
162
%
The following table is a reconciliation of net liability to gross
liability for losses and loss adjustment expenses:
As of and for the Year Ended December 31,
($ in thousands)
1995
1996
1997
1998
1999
2000
2001
2002
2003
As Originally Estimated
Net Liability shown above
$
780
$
3,893
$
10,928
$
14,965
$
15,484
$
20,386
$
30,014
$
66,041
$
112,872
Add Reinsurance Recoverables
423
2,210
6,122
8,395
11,571
16,962
26,718
19,431
21,329
Gross Liability
1,203
6,103
17,050
23,360
27,055
37,348
56,732
85,472
134,201
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1995
1996
1997
1998
1999
2000
2001
2002
2003
As Re-estimated as of December 31, 2003
Net Liability Shown Above
1,277
7,331
15,587
20,924
25,797
33,720
38,952
74,671
112,872
Add Reinsurance Recoverables
921
5,935
9,662
13,585
16,471
22,082
26,718
19,431
21,329
Gross Liability
2,198
13,266
25,249
34,509
42,268
55,802
65,670
94,102
134,201
In 2003, 2002 and 2001, our reserve reviews indicated that reserves
established in prior years were lower than necessary, and so in those years we
strengthened $0.1 million, $8.6 million and $8.9 million, respectively, of
previously established reserves for losses and loss adjustment
expenses because of higher than expected losses on private passenger
automobile, automobile physical damage and commercial automobile
liability. The incurred losses related to prior years of
$0.1 million in 2003 included the impact of a commutation of a
reinsurance contract which was offset by favorable loss development
on prior accident year reserves. We
strengthened reserves for prior years by $0.7 million in the first three months
of 2004. Proformance's reserves have shown a deficiency in every year since
1995.
As a result of our focus on core business lines since our founding in
1994, we believe we have no exposure to asbestos or environmental pollution
liabilities, except for what we believe is a small amount of liability with
respect to underground storage tanks pursuant to our homeowners policies.
Reinsurance
Third Party Reinsurance Program
The use of reinsurance has been an important part of our business
strategy. As is customary in the industry, we reinsure with other insurance
companies a portion of our potential liability under the policies we have
underwritten, thereby protecting us against an unexpectedly large loss or a
catastrophic occurrence that could produce large losses. Reinsurance involves
an insurance company transferring (ceding) a portion of its exposure on
insurance underwritten by it to another insurer (reinsurer). The reinsurer
assumes a portion of the exposure in return for a share of the premium.
Reinsurance does not legally discharge an insurance company from its primary
liability for the full amount of the policies, but it does make the reinsurer
liable to the company for the reinsured portion of any loss realized.
We are very selective in choosing our reinsurers, seeking only those
companies that we consider to be financially stable and adequately capitalized.
The collectibility of reinsurance is largely a function of the solvency of the
reinsurers. As of December 31, 2003, our largest
reinsurance recoverables/receivables were
due from the following unaffiliated reinsurers, with their respective A.M. Best
rating indicated below:
Reinsurance
Recoverables/
Receivables
A.M. Best
Rating(1)
($ in thousands)
Scor Re
$
8,176
B++
Odyssey Re
$
18,465
A
Berkley Insurance
$
649
A
PMA Capital Insurance Company
$
944
B++
American Reinsurance
$
9,169
A+
Folksamerica Re
$
84
A
(1)
Ratings are as of July 13, 2004.
Mayfair Reinsurance Company Limited
After September 11, 2001, the third party reinsurance market changed
dramatically. In renewing our reinsurance program for 2002 and 2003, we faced
a market that continued to harden, with reduced availability and coverage
limits and increased prices. Due to these and other factors, we concluded that
our third party reinsurance program historically had not been maximizing our
profits or strengthening our financial position. In response, on November 7,
2003 we formed Mayfair Reinsurance Company Limited. See "Business—Other
Subsidiaries—Mayfair Reinsurance Company Limited."
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Terrorism Risk Insurance Act of 2002
The Terrorism Risk Insurance Act of 2002, which we refer to as TRIA, was
signed into law on November 26, 2002. The intent of this legislation is to
provide federal assistance to the insurance industry in order to meet the needs
of commercial insurance policyholders with the potential exposure for losses
due to acts of terrorism. This law requires insurers writing certain lines of
property and casualty insurance to offer coverage against certain acts of
terrorism causing damage within the United States or to United States flagged
vessels or aircraft. In return, the law requires the federal government to
indemnify such insurers for 90% of insured losses resulting from covered acts
of terrorism subject to a premium-based deductible. The law will expire
automatically at the end of 2005. Effective February 28, 2003, we issued
policy endorsements for all commercial policyholders to comply with TRIA after
obtaining approval of the Commissioner.
Investments
We invest according to guidelines devised by an internal investment
committee, comprised of management of Proformance and a non-employee director
of NAHC, focusing on what we believe are investments that will produce an
acceptable rate of return given the risk being assumed. Our investment
portfolio is managed by the investment officer at Proformance with oversight
from our Chief Financial Officer and the assistance of outside investment
advisors.
Our objectives are to seek the highest total investment return consistent
with prudent risk level by investing in a portfolio comprised of high quality
investments including common stock, convertible securities, bonds and money
market funds in accordance with the asset classifications set forth in
Proformance's Investment Policy Statement Guidelines and Objectives.
Proformance's portfolio must be managed in accordance with New Jersey
insurance statutory requirements and guidelines which restrict our investment
options. In addition, the terms of the Ohio Casualty replacement carrier
transaction also limit us in our investment of assets through 2004 as specified
in the Investment Policy Statement Guidelines and Objectives.
Our Investment Policy Statement Guidelines and Objectives include the
following restrictions on investments:
•
No more than 5% of the portfolio can be invested in single
investment or issuer (investments that are backed by the full faith and
backing of the United States are exempt from the issuer restriction);
•
With respect to investments in equity securities, such investments:
•
must not exceed 25% of policyholders surplus,
•
must not exceed the lower of 60% of the total portfolio
or the maximum permitted by New Jersey insurance regulations,
•
must not exceed the lower of 20% of total portfolio in
convertible securities or the maximum permitted by New Jersey
insurance regulations,
•
invested in any one sector/industry group of the
economy by reference to the S&P 500 Index must be no more than
10% of portfolio, and
•
in American Depository Receipts or foreign stocks must
not exceed a maximum of 10% of portfolio;
•
All investments must be denominated in U.S. dollar;
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•
All fixed income investments must be rated by the NAIC. In
addition (a) average maturity of fixed income portfolio may not exceed
10 years and the weighted average credit quality of the portfolio must
be rated at least "Baa" by Moody's or at least "BBB+" by Standard &
Poor's Ratings Services, which we refer to as Standard & Poor's, and
(b) the portfolio must have a target duration of 3.5 years, but can
range between 3 and 4 years (with the exception that the 10-15 year
municipal bonds may have duration of 8.5 years); and
•
Proformance may not make investments in (a) unincorporated
businesses, (b) private placements, (c) direct mortgages, (d) foreign
currency denominated securities, (e) financial guarantees, (f)
commodities, puts, calls, options, futures or any securities tied to
derivatives, (g) guaranteed investment contracts or (h) commercial
paper rated below "A-1" by Standard & Poor's or "P-1" by Moody's.
The following table reflects the composition of our investment portfolio
at December 31, 2001, 2002 and 2003 and March 31, 2004.
As of December 31,
2001
2002
2003
As of March 31, 2004
Amount
% of Portfolio
Amount
% of Portfolio
Amount
% of Portfolio
Amount
% of Portfolio
Fixed Income Securities:
U.S. Treasury securities and
obligations of U.S. Government
agencies
$
7,669,000
39.6
%
$
11,250,000
15.2
%
$
61,206,000
35.9
%
$
92,081,000
49.5
%
Obligations of states and
political subdivisions
671,000
3.4
3,200,000
4.3
42,139,000
24.7
34,004,000
18.3
Mortgage-backed securities
3,316,000
17.1
6,022,000
8.1
4,991,000
2.9
3,187,000
1.7
Corporate and other securities
7,095,000
36.7
51,996,000
70.3
53,643,000
31.5
43,228,000
23.2
Total fixed income securities
18,761,000
96.8
72,468,000
97.9
161,979,000
94.9
172,500,000
91.7
Equity Securities:
Preferred stocks
—
—
—
2,308,000
1.4
2,467,000
1.3
Common stocks
611,000
3.2
1,508,000
2.0
6,285,000
3.7
11,086,000
6.0
Total equity securities
611,000
3.2
1,508,000
2.0
8,593,000
5.1
13,553,000
7.3
Total Investments
$
19,362,000
100.0
%
$
73,976,000
100.0
%
$
170,572,000
100.0
%
$
186,053,000
100.0
%
The principal risks inherent in holding mortgage-backed securities and
other pass-through securities are prepayment and extension risks, which affect
the timing of when cash flows will be received. When interest rates decline,
mortgages underlying mortgage-backed securities tend to be prepaid more rapidly
than anticipated, causing early repayments. When interest rates rise, the
underlying mortgages tend to be prepaid at a slower rate than anticipated,
causing the principal repayments to be extended. Although early prepayments
may result in acceleration of income from recognition of any unamortized
discount, the proceeds typically are reinvested at a lower current yield,
resulting in a net reduction of future investment income.
The following table reflects our investment results for each year in the
three-year period ended December 31, 2003 and for the three months ended March
31, 2004:
Investment Results
Year Ended December 31,
Three Months
Ended
2001
2002
2003
March 31, 2004
Average invested assets
$
19,367,000
$
51,283,000
$
136,828,000
$
178,128,000
Net investment income
$
1,085,000
$
1,593,000
$
4,258,000
$
1,184,013
Net effective yield
5.6
%
3.1
%
3.0
%
3.1
%
Net realized capital gains (losses)
$
346,482
$
(55,219
)
$
1,372,557
$
676,981
Effective yield including realized
capital gains (losses)
7.4
%
3.0
%
4.0
%
4.6
%
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The following table indicates the composition of our fixed income security
portfolio (at carrying value) by rating as of March 31, 2004:
Composition of Fixed Income Security Portfolio
by Rating
March 31, 2004
Amount
Percent
U.S. Government and Government Agency Fixed Income Securities
$
92,081,000
53.4
%
Aaa/Aa
72,230,000
41.9
A
8,189,000
4.7
Baa
—
—
Ba
—
—
Total
$
172,500,000
100.0
%
Moody's rating system utilizes nine symbols to indicate the relative
investment quality of a rated bond. "Aaa" rated bonds are judged to be of the
best quality and are considered to carry the smallest degree of investment
risk. "Aa" rated bonds are also judged to be of high quality by all standards.
Together with "Aaa" rated bonds, these bonds comprise what are generally known
as high grade bonds. Bonds rated "A" possess many favorable investment
attributes and are considered to be upper medium grade obligations. "Baa"
rated bonds are considered as medium grade obligations; they are neither highly
protected nor inadequately secured. Bonds rated "Ba" or lower (those rated
"B", "Caa", "Ca" and "C") are considered to be too speculative to be of
investment quality.
The Securities Valuation Office of the NAIC evaluates all public and
private bonds purchased as investments by insurance companies. The Securities
Valuation Office assigns one of six investment categories to each security it
reviews. Category 1 is the highest quality rating and Category 6 is the
lowest. Categories 1 and 2 are the equivalent of investment grade debt as
defined by rating agencies such as Standard & Poor's and Moody's, while
Categories 3-6 are the equivalent of below investment grade securities.
Securities Valuation Office ratings are reviewed at least annually. At March
31, 2004, all of our fixed maturity investments were rated Category 1, the
highest rating assigned by the Securities Valuation Office.
The following table indicates the composition of our fixed income security
portfolio (at carrying value) by time to maturity as of March 31, 2004.
Composition of Fixed Income Security Portfolio
by Maturity
March 31, 2004
Amount
Percent
1 year or less
$
41,022,000
23.8
%
Over 1 year through 5 years
10,310,000
6.0
Over 5 years through 10 years
38,680,000
22.4
Over 10 years through 20 years
78,926,000
45.8
Over 20 years
375,000
0.2
Asset-backed securities(1)
3,187,000
1.8
Total
$
172,500,000
100.0
%
(1)
Actual maturities of asset-backed securities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. Prepayment rates are determined
by a number of factors that cannot be predicted with certainty, including the
relative sensitivity of the underlying mortgages or other collateral to changes
in interest rates, a variety of economic, geographic and other factors, and the
repayment priority of the securities in the overall securitization structures.
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Competition
The property and casualty insurance business is highly competitive and
most established companies in the field have greater financial resources,
larger and more experienced agency organizations, and longer relationships with
agency and sales organizations and insureds than we can expect to have for a
number of years. As a result, established insurance companies have many
competitive advantages over us. We compete with both large national writers
and smaller regional companies.
Our competitors include other companies which, like us, serve the
independent agency market, as well as companies which sell insurance directly
to customers. Direct writers may have certain competitive advantages over
agency writers, including increased name recognition, loyalty of the customer
base to the insurers rather than to independent agencies and, potentially,
lower cost structures. A material reduction in the amount of business
independent agents sell would adversely affect us. In the past, competition in
the New Jersey personal auto market has included significant price competition,
and there can be no assurance that these conditions will not recur. We and
others compete on the basis of product portfolio, product pricing, and the
commissions and other cash and non-cash incentives provided to agents.
Although a number of national insurers that are much larger than us do not
currently compete in a material way in the New Jersey property and casualty
market, if one or more of these companies decide to aggressively enter the
market it could have a material adverse effect on us. These companies include
some that would be able to sustain significant losses in order to acquire
market share, as well as others which use distribution methods that compete
with the independent agent channel. There can be no assurance that we will be
able to compete effectively against these companies in the future.
Our principal competitor which serves the independent agency market and
offers a packaged personal lines property and casualty insurance product, is
Encompass Insurance (an affiliate of Allstate Insurance). Other competitors
include First Trenton and Palisades Insurance. In addition, we compete with
companies such as Chubb Insurance that also offer a packaged personal lines
property and casualty insurance product.
As part of the Ohio Casualty replacement carrier transaction, Proformance
entered into a non-competition agreement with OCIC which prohibits Proformance
from writing any commercial lines insurance policy until December 31, 2004
where the expiring policy was issued by Ohio Casualty Group.
Ratings
One of the key comparisons between insurers is the relative rating by A.M.
Best Company. A.M. Best, which rates insurance companies based on factors of
concern to policyholders, currently assigns Proformance a "B (Fair)" rating.
Such rating is the seventh highest rating of 15 rating levels that A.M. Best
assigns to insurance companies, which currently range from "A++ (Superior)" to
"D (Poor)." Publications of A.M. Best indicate that the "B" rating is assigned
to those companies that in A.M. Best's opinion have a fair ability to meet
their current obligations to policyholders, but are financially vulnerable to
adverse changes in underwriting and economic conditions . In evaluating a
company's financial and operating performance, A.M. Best reviews the company's
profitability, leverage and liquidity, as well as its book of business, the
adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its loss reserves, the adequacy of its
surplus, its capital structure, the experience and competence of its management
and its market presence. A.M. Best's ratings reflect its opinion of an
insurance company's financial strength, operating performance and ability to
meet its obligations to policyholders and are not evaluations directed to
purchasers of an insurance company's securities.
In addition, Proformance is rated "A" by Demotech, Inc. Demotech provides
financial stability ratings of property and casualty insurers. In addition to
A.M. Best, Demotech is the only other authorized rating agency recognized by
federally insured lending institutions, such as mortgage companies. Mortgage
companies, as a condition to issuing a mortgage, generally require borrowers to
obtain adequate homeowners insurance. The mortgage companies often refer to
Demotech's financial stability rating prior to issuing a mortgage. We believe
the "A" rating assigned by Demotech is beneficial in connection with our
homeowners and other lines of business.
Publications of Demotech indicate that its rating process provides an
objective baseline for assessing the solvency of an insurer. A Demotech
financial stability rating summarizes its opinion as to the
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insurer's ability to insulate itself from the business cycle that exists
in the general economy as well as the underwriting cycle that exists in the
industry.
An "A" rating is Demotech's third highest rating out of six possible
rating classifications for insurers with complete financial data. An "A"
rating is assigned to insurers that in Demotech's opinion possess exceptional
financial stability related to maintaining positive surplus as regards
policyholders, regardless of the severity of a general economic downturn or
deterioration in the insurance cycle.
Our A.M. Best and our Demotech ratings are subject to change and are not
recommendations to buy, sell or hold securities. Any future decrease in our
ratings could affect our competitive position.
Properties
We are headquartered at 4 Paragon Way, Freehold, New Jersey. NAHC leases
approximately 45,000 square feet of office space for a term ending June 1,
2009. NAHC's subsidiaries share the cost of this space under the cost sharing
agreement that they entered into with NAHC. We anticipate leasing an
additional 25,000 square feet of space at 3 Paragon Way, Freehold, New Jersey
in the third quarter of 2004.
Employees
As of March 31, 2004, we had 261 employees, of which 214 were employed by
Proformance, 40 were employed by Riverview, 5 were employed by NAIA and 2 were
employed by NAHC. None of our employees is represented by a labor union or is
covered by a collective bargaining agreement. We have not experienced any
labor disputes or work stoppages and we consider our employee relations to be
good.
Legal Proceedings
Proformance is party to a number of lawsuits arising in the ordinary
course of its insurance business. We believe that the ultimate resolution of
these lawsuits will not, individually or in the aggregate, have a material
adverse effect on our financial condition. Other than these lawsuits, we are
not involved in any legal proceedings.
Supervision and Regulation
New Jersey
In addition to the regulation of the New Jersey property and casualty
market described above, our insurance subsidiary, Proformance, is subject to
comprehensive regulation by the Department of Banking and Insurance of New
Jersey, of which the Commissioner is the senior official. The Commissioner is
appointed by the Governor, with the advice and consent of the Senate, and
serves at the pleasure of the Governor. We are subject to the authority of the
Commissioner in many areas of our business under New Jersey law. We must
comply with regulations involving:
•
transactions between an insurance company and any of its affiliates;
•
the payment of dividends;
•
the acquisition of an insurance company or of any company controlling an insurance company;
•
approval or filing of premium rates and policy forms;
•
solvency standards;
•
minimum amounts of capital and policyholders' surplus which must be maintained;
•
limitations on types and amounts of investments;
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Table of Contents
•
restrictions on the size of risks which may be insured by a single company;
•
limitation of the right to cancel or non-renew policies in some lines;
•
regulation of the right to withdraw from markets or terminate involvement with agencies;
•
requirements to participate in residual markets;
•
licensing of insurers and agents;
•
deposits of securities for the benefit of policyholders;
•
reporting with respect to our financial condition including the
adequacy of our reserves and provisions for unearned premium;
•
unfair trade and claim practices; and
•
the type of accounting we must use.
In addition, examiners from the New Jersey Department of Banking and
Insurance perform periodic financial and market conduct examinations of
insurance companies. Such regulation is generally intended for the protection
of policyholders rather than securityholders. We were most recently examined
for the 3-year period ending 2000 and a new examination is set to begin
shortly. The examiners made no material findings as a result of the 1998-2000
examination.
Insurance Holding Company Regulation
. Our principal operating subsidiary,
Proformance, is an insurance company, and therefore we are subject to certain
laws and regulations in New Jersey regulating insurance holding company
systems. These laws require that we file annually a registration statement
with the Commissioner that discloses the identity, financial condition, capital
structure, ownership and management of each entity within our corporate
structure and any transactions among the members of our holding company system.
In some instances, we must obtain the prior approval of the Commissioner for
material transactions between our insurance subsidiary and other members of our
holding company system. These holding company statutes also require, among
other things, prior approval of the payment of extraordinary dividends or
distributions and any acquisition of control of a domestic insurer.
Insurance Regulation Concerning Dividends
. We rely on dividends from
Proformance for our cash requirements. The insurance holding company law of
New Jersey requires notice to the Commissioner of any dividend to the
shareholders of an insurance company. Proformance may not make an
"extraordinary dividend" until 30 days after the Commissioner has received
notice of the intended dividend and has not objected or has approved it in such
time. An extraordinary dividend is defined as any dividend or distribution
whose fair market value together with that of other distributions made within
the preceding 12 months exceeds the greater of 10% of the insurer's surplus as
of the preceding December 31, or the insurer's net income (excluding realized
capital gains) for the 12-month period ending on the preceding December 31, in
each case determined in accordance with statutory accounting practices. Under
New Jersey law, an insurer may pay dividends that are not considered
extraordinary only from its unassigned funds, also known as its earned surplus.
The insurer's remaining surplus must be both reasonable in relation to its
outstanding liabilities and adequate to its financial needs following payment
of any dividend or distribution to shareholders. As of the date of this
prospectus, Proformance is not permitted to pay any dividends without the
approval of the Commissioner as it has negative unassigned surplus as a result
of the impact of its replacement carrier transactions.
Acquisition of Control of a New Jersey Domiciled Insurance Company
. New
Jersey law requires prior approval by the Commissioner of any acquisition of
control of an insurance company that is domiciled in New Jersey. That law
presumes that control exists where any person, directly or indirectly, owns,
controls, holds the power to vote or holds proxies representing 10% or more of
our outstanding voting stock. Even persons who do not acquire beneficial
ownership of more than 10% of the outstanding shares of our common stock may be
deemed to
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have acquired control if the Commission determines that control exists in
fact. Any purchaser of shares of common stock representing 10% or more of the
voting power of our capital stock will be presumed to have acquired control of
our New Jersey insurance subsidiary unless, following application by that
purchaser, the Commissioner determines that the acquisition does not constitute
a change of control or is otherwise not subject to regulatory review. These
requirements may deter, delay, or prevent transactions affecting the control of
or the ownership of our common stock, including transactions that could be
advantageous to our shareholders.
Protection against Insurer Insolvency
. New Jersey law requires that
property and casualty insurers licensed to do business in New Jersey
participate in the New Jersey Property-Liability Insurance Guaranty
Association, which we refer to as NJPLIGA. NJPLIGA must pay any claim up to
$300,000 of a policyholder of an insolvent insurer if the claim existed prior
to the declaration of insolvency or arose within 90 days after the declaration
of insolvency. Members of NJPLIGA are assessed the amount NJPLIGA deems
necessary to pay its obligations and its expenses in connection with handling
covered claims. Subject to certain exceptions, assessments are made in the
proportion that each member's net direct written premiums for the prior
calendar year for all property and casualty lines bear to the corresponding net
direct written premiums for NJPLIGA members for the same period. By statute,
no insurer in New Jersey may be assessed in any year an amount greater than 2%
of that insurer's net direct written premiums for the calendar year prior to
the assessment. In 2003, Proformance was assessed approximately $0.5 million,
as our portion of the losses due to insolvencies of certain insurers. We
anticipate that there will be additional assessments from time to time relating
to insolvencies of various insurance companies. We are allowed to re-coup
these assessments from our policyholders over time until we have recovered all
such payments.
Risk-Based Capital Requirements
. The NAIC has adopted a formula and model
law to implement risk-based capital requirements for most property and casualty
insurance companies, which are designed to determine minimum capital
requirements and to raise the level of protection that statutory surplus
provides for policyholder obligations. The risk-based capital formula for
property and casualty insurance companies measures three major areas of risk
facing property and casualty insurers: (i) underwriting, which encompasses the
risk of adverse loss developments and inadequate pricing; (ii) declines in
asset values arising from market and/or credit risk; and (iii) off-balance
sheet risk arising from adverse experience from non-controlled assets,
guarantees for affiliates or other contingent liabilities and reserve and
premium growth. Under New Jersey law, insurers having less total adjusted
capital than that required by the risk-based capital calculation will be
subject to varying degrees of regulatory action, depending on the level of
capital inadequacy.
The risk-based capital law provides four levels of regulatory action. The
extent of regulatory intervention and action increases as the level of total
adjusted capital to risk-based capital falls. The first level, the company
action level as defined by the NAIC, requires an insurer to submit a plan of
corrective actions to the Commissioner if total adjusted capital falls below
200% of the risk-based capital amount. The regulatory action level as defined
by the NAIC requires an insurer to submit a plan containing corrective actions
and requires the Commissioner to perform an examination or other analysis and
issue a corrective order if total adjusted capital falls below 150% of the
risk-based capital amount. The authorized control level, as defined by the
NAIC, authorizes the Commissioner to take whatever regulatory actions he or she
considers necessary to protect the best interest of the policyholders and
creditors of the insurer and the public, which may include the actions
necessary to cause the insurer to be placed under regulatory control (
i.e.
,
rehabilitation or liquidation) if total adjusted capital falls below 100% of
the risk-based capital amount. The fourth action level is the mandatory
control level as defined by the NAIC, which requires the Commissioner to place
the insurer under regulatory control if total adjusted capital falls below 70%
of the risk-based capital amount.
The formulas have not been designed to differentiate among adequately
capitalized companies that operate with higher levels of capital. Therefore,
it is inappropriate and ineffective to use the formulas to rate or to rank
these companies. As of the date of this prospectus, Proformance had total
adjusted capital in excess of amounts requiring company or regulatory action at
any prescribed risk-based capital action level. As
described in Note 12 to our Consolidated Financial Statements
and footnote 7 to the Selected Historical Financial data,
subsequent to the filing of Proformance's statutory annual
statements for the year ended December 31, 2003, management
identified certain adjustments which, if known at the time, would
have impacted the amounts as previously filed. Management has
concluded that had such adjustments been made at the time of the
filing of Proformance's statutory financial statements,
Proformance's risk-based capital levels would have continued to
be in excess of the amount that would require any corrective action
on our part. See
"Business—Supervision and Regulation."
NAIC IRIS Ratios
. The NAIC has developed a set of financial relationships
or "tests" know as the Insurance Regulatory Information System that were
designed for early identification of companies which may require special
attention or action by insurance regulatory authorities. Insurance companies
submit data annually to the NAIC which analyzes the data against defined "usual
ranges." Generally, an insurance company will become
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subject to regulatory scrutiny if it falls outside the usual ranges of
four or more of the ratios. As of December 31, 2003, Proformance fell outside
of the usual ranges of five ratios. However, we are not subject to regulatory
action based on our falling outside the ranges with respect to those ratios.
We believe the rapid increase in premium and surplus as a result of the
replacement carrier transactions we have entered into was the primary reason we
fell outside the usual ranges for these tests. This is further supported by
the fact that the NAIC, in the "Statistical Phase" portion of its information
guide, acknowledges that rapid increases in premium and surplus may result in
an insurer falling outside the usual ranges of the ratios. Management has concluded that
had the adjustments to Proformance's statutory financial
statements described in Note 12 to our Consolidated Financial
Statements and footnote 7 to the Selected Historical Financial
Data been made at the time of the filing of
Proformance's statutory financial statements, Proformance would
have continued to fall outside of the usual ranges of the same five
ratios. The impact of these adjustments would not have caused
Proformance to fall outside of the usual ranges for the other IRIS
ratios. There can be no
assurance that Proformance will fall within the usual ranges of those five
ratios or satisfy the other ratios in the future. In the event that
Proformance fails to satisfy a sufficient number of these ratios, it could
become subject to regulatory scrutiny which could have a negative effect on our
operations.
Surplus and Capital Requirements.
The Commissioner has the discretionary
authority, in connection with the ongoing licensing of Proformance, to limit or
prohibit the ability of Proformance to issue new policies if, in the
Commissioner's judgment, Proformance is not maintaining a minimum amount of
surplus or is in hazardous financial condition. We do not believe that the
current or anticipated levels of statutory surplus of Proformance,
including the impact of the adjustments described in Note 12 to
our Consolidated Financial Statements and footnote 7 to the
Selected Historical Financial Data, present a
material risk that the Commissioner would limit the amount of new policies
Proformance may issue.
Regulation of Investments.
Proformance is subject to laws and regulations
that require diversification of its investment portfolio and limit the amount
of investments in certain asset categories, such as below investment grade
fixed income securities, equity real estate, other equity investments and
derivatives. Failure to comply with these laws and regulations would cause
investments exceeding regulatory limitations to be treated as non-admitted
assets for purposes of measuring surplus, and, in some instances, would require
divestiture of such non-complying investments. We believe that investments
made by Proformance comply with these laws and regulations.
Bermuda
Bermuda Restrictions on Dividend Payments
. Bermuda legislation imposes
limitations on the dividends that Mayfair may pay. Under the Bermuda Insurance
Act 1978, Mayfair is required to maintain a specified solvency margin and a
minimum liquidity ratio and is prohibited from declaring or paying any
dividends if doing so would cause Mayfair to fail to meet its solvency margin
and its minimum liquidity ratio. Under the Insurance Act, Mayfair is
prohibited from paying dividends of more than 25% of its total statutory
capital and surplus at the end of the previous fiscal year unless it files an
affidavit stating that the declaration of such dividends will not cause it to
fail to meet its solvency margin and minimum liquidity ratio. The Insurance
Act also prohibits Mayfair from declaring or paying dividends without the
approval of the Bermuda Monetary Authority if Mayfair fails to meet its
solvency margin and minimum liquidity ratio on the last day of the previous
fiscal year. Additionally, under the Bermuda Companies Act 1981, Mayfair may
declare or pay a dividend only if it has no reasonable grounds for believing
that it is, or would after the payment be, unable to pay its liabilities as
they become due, or that the realizable value of its assets would thereby be
less than the aggregate of its liabilities and its issued share capital and
share premium accounts.
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MANAGEMENT
Directors and Executive Officers
The table below sets forth certain information concerning the directors
and executive officers of NAHC and Proformance as of the date of this
prospectus.
Name
Age
Position
James V. Gorman
53
Chairman of the Board of Directors and
Chief Executive Officer of NAHC and
Proformance
F.P. "Skip" Campion
66
Vice Chairman and Director of NAHC and
Director of Proformance
Peter A. Cappello, Jr.
50
Director of NAHC and Chief Financial
Officer of Proformance
Cynthia L. Codella
54
Secretary and Executive Vice
President of Proformance and NAHC
Gregory T. Doyle
44
Director of Proformance
Andrew C. Harris
51
Director of NAHC and Proformance
John A. Latimer
41
Director of Proformance
Thomas M. Mulhare
56
Director of NAHC
Douglas G. Olson
64
Director of Proformance
Frank J. Prudente
37
Executive Vice President—Corporate Finance
and Treasurer of NAHC
John E. Scanlan
48
Senior Vice President of Proformance
Thomas J. Sharkey, Sr.
71
Director of NAHC and Proformance
Steven V. Stallone
42
Director of NAHC and Proformance
Candace L. Straight
56
Director of Proformance
Daniel J. Taylor
53
Director of Proformance
James V. Gorman
: Mr. Gorman was elected Chairman of the board of each of NAHC
and Proformance in 1994. Since 1994, Mr. Gorman has served as Chief Executive
Officer of each of NAHC and Proformance. From 1987 to 1993, Mr. Gorman served
as President and Chief Executive Officer of Home State Insurance Company, as
well as Chairman and/or President of two affiliated insurance companies, Quaker
City Insurance Company and New York Merchant Bankers Mutual Fire Insurance
Company. From 1986 to 1987, Mr. Gorman served as Vice President of Marketing
for the Personal Insurance Division of the Reliance Insurance Company. From
1984 to 1985, Mr. Gorman was Director of the Market Development Group for
Colonial Penn Group. From 1982 to 1984, Mr. Gorman was Manager of Product and
Market Development for Continental Insurance Company. From 1974 to 1982, he
served in various management capacities with Kemper Insurance Companies. Mr.
Gorman has worked in the insurance industry in excess of 30 years. Mr. Gorman
was awarded the Distinguished Insurance Award for 1994-1995 by the Professional
Insurance Agents of New Jersey (PIANJ).
Frank "Skip" P. Campion
: Mr. Campion was elected Vice Chairman of NAHC in June
2004. From 1997 to 2004, Mr. Campion served as the President and Treasurer of
each of NAHC and Proformance. Since 1994, Mr. Campion has served as a director
of each of NAHC and Proformance. Since 1965, Mr. Campion has been Chief
Executive Officer of Connelly, Campion, Wright, Inc., an independent insurance
agency. From 1992 to 1993, Mr. Campion served as the President of the PIANJ.
In 1983, Mr. Campion became a director of the New Jersey Automobile Full
Insurance Underwriting Association. Mr. Campion has served as a director of
the Independent Insurance Agents Association, and was Trustee of the Medical
Center of Ocean County. Mr. Campion was awarded the Henry A. Franz Memorial
Award as "Insurance Man of the Year" for the State of New Jersey in 1985, and
the PIANJ Agent of the year award in 1997. Mr. Campion holds the Chartered
Property Casualty Underwriter professional designation.
Peter A. Cappello, Jr.
: Mr. Cappello has served as a director of NAHC since
1994. Mr. Cappello was elected Chief Financial Officer of Proformance in July
2002. From 2001 to 2002, Mr. Cappello served as a salesman for R&R Marketing,
L.L.C. From 1995 to 2000, Mr. Cappello served as Senior Vice President, Senior
Loan Officer and
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director of First State Bank. From 1980 to 2000, Mr. Cappello served as a
commercial loan officer for SI Bank and Trust. He has managed independent
agent and premium finance programs for insurance agencies located throughout
New Jersey.
Cynthia L. Codella
: Ms. Codella has served as Secretary of each of NAHC and
Proformance and Executive Vice President of each of NAHC and Proformance since
January 1999. From 1996 to 1998, Ms. Codella served as the Deputy Commissioner
of Insurance in the New Jersey Department of Banking and Insurance. She had
been employed in the insurance industry for 24 years before being appointed
Deputy Commissioner. From 1991 to 1996, Ms. Codella served as Vice President
of Claims for the First Trenton Indemnity Company. Prior to that time, for 19
years, Ms. Codella served in various management capacities with the Travelers
Insurance Company, including National Director of LITFAX, (a subsidiary
providing litigation support to defendant companies in the Agent Orange
litigation) as well as District Manager of the Northeast Regional Environmental
Claim Division. From 2000 to 2001, Ms. Codella served as chairwoman of the
Insurance Council of New Jersey, the state's insurance trade organization. Ms.
Codella currently serves on the board of directors and executive committee for
the Insurance Council of New Jersey.
Gregory T. Doyle
: Mr. Doyle has served as a director of Proformance since
2003. Mr. Doyle is currently the principal consultant for a number of
reinsurance carriers. Mr. Doyle has nearly 20 years of experience in the
insurance and reinsurance fields. From 2000 to 2003, Mr. Doyle was Executive
Vice President of Guy Carpenter & Co., the reinsurance division of the Marsh &
McLennan Companies. From 1985 to 2000, Mr. Doyle served as Executive Vice
President of the American Re Corporation in Princeton, New Jersey. Mr. Doyle
holds the Chartered Property Casualty Underwriter (CPCU) designation.
Andrew C. Harris
: Mr. Harris has served as a director of each of NAHC and
Proformance since 2002 and 2000, respectively. Since 1985, Mr. Harris has been
Chief Executive Officer of Liberty Insurance Associates, Inc. of Millstone
Township, New Jersey. Mr. Harris holds professional designations from the
Insurance Institutes of America (ARM), American Institute of Chartered Property
Casualty Underwriters (CPCU) and PIANJ. Mr. Harris is a member of the
Independent Insurance Agents of New Jersey, the CPCU Society and the PIANJ, of
which he is a former president.
John A. Latimer
: Mr. Latimer has served as a director of Proformance since
March 2004. Since 1991, Mr. Latimer has been the Vice President and General
Counsel of the Barclay Group, an Insurance and Financial Services firm of
Riverton, New Jersey. Mr. Latimer also has served as the President of the J.S.
Braddock Agency since 2000. Mr. Latimer serves as Vice President and director
of PIANJ.
Thomas M. Mulhare
: Mr. Mulhare has served as a director of NAHC since June
2004. Since April 2003, Mr. Mulhare has been an officer/audit partner in
charge of the insurance industry services at Amper, Politziner & Mattia, an
accounting and consulting firm in Edison, New Jersey. From May 2002 to January
2003, Mr. Mulhare served as a Managing Director of Navigant Consulting. Prior
to that time, for over 30 years, Mr. Mulhare was a partner at Arthur Anderson,
LLP. Mr. Mulhare is a CPA licensed in New Jersey.
Douglas G. Olson
: Dr. Olson has served as a director of Proformance since
1998. Since 2000, Dr. Olson has served as the President of Olson and
Associates, LLC, a consulting firm based in Philadelphia, PA. Dr. Olson served
as Managing Director of the Providence Washington Insurance Group from 1989 to
1993 and as a partner at Snyder & Co.
,
an investment banking company, from
1993 to 2000. From 1969 to 1985, Dr. Olson was a professor of management at
the Wharton School.
Frank J. Prudente
: Mr. Prudente has served as Treasurer of NAHC since June of
2004, and Executive Vice President-Corporate Finance of NAHC since April 2003.
From June 2002 to April 2003, Mr. Prudente served as Executive Vice President
and Chief Financial Officer of Gulf Insurance Group, a specialty insurer based
in New York City. From December 1993 to May 2002, Mr. Prudente, a CPA licensed
in New York and New Jersey was a manager and a partner at Arthur Andersen LLP. Previously,
Mr. Prudente was an auditor with Talagen Corporation from October 1991 to
December 1993 and Deloitte & Touche LLP from September 1989 to October 1991.
John E. Scanlan
: Mr. Scanlan has served as Senior Vice President of
Proformance since September 1999. He has over 17 years of industry experience
in underwriting, marketing and administration. Prior to 1999, for 12 years,
Mr.
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Scanlan served in a variety of front-line and managerial positions with General
Accident Insurance Company. Mr. Scanlan holds the CPCU designation.
Thomas J. Sharkey, Sr.
: Mr. Sharkey has served as a director of each of NAHC
and Proformance since 2003 and 2001, respectively. Since 2000, Mr. Sharkey has
served as the Chairman of Fleet Insurance Services, a full service brokerage
based in Summit, New Jersey. From 1990 to 2000, Mr. Sharkey was a principal of
Meeker, Sharkey Financial Services. Mr. Sharkey holds the Chartered Life
Underwriter (CLU) designation.
Steven V. Stallone
: Mr. Stallone has served as a director of each of NAHC and
Proformance since 1994. Since 1993, Mr. Stallone has served as Vice President
in the private client group for the Bank/Trust Market for Blackrock Capital
Management Corporation, an Investment Management firm. From 1988 to 1993, Mr.
Stallone was Assistant Vice President and Manager of Conestoga Mutual Funds for
Meridian Bancorp. From 1987 to 1988, he was the Treasurer's Compliance
Coordinator for the Chubb Corporation. Mr. Stallone holds Series 7 and 63
Securities Licenses.
Candace L. Straight
: Ms. Straight has served as a director of Proformance
since March 2004. Since 1997, Ms. Straight has served as a self-employed
investment banking consultant specializing in the insurance industry. From
1987 to 1996, Ms. Straight serves as a principal of Head Company, a merchant
banking firm specializing in the insurance industry, in New York, New York.
Ms. Straight currently serves as a director of Neuberger and Berman Mutual
Funds, Summit Global Partners as well as Providence Washington Insurance
Company.
Daniel J. Taylor
: Mr. Taylor has served as a director of Proformance since
1996. Since 1974, Mr. Taylor has served as the Senior Vice President of the
Anderson Insurance Agency of Manahawkin and Beach Haven, New Jersey. Mr.
Taylor is a member of the PIANJ as well as the Independent Insurance Agents.
Mr. Taylor holds the Certified Insurance Counselor professional designation.
Mr. Taylor currently serves as the Director of the South Ocean County Chamber
of Commerce. Prior to joining the Proformance board, Mr. Taylor served as the
chairman of the peer review committee for Proformance.
Family Relationships
James V. Gorman and Steven V. Stallone are cousins.
Board of Directors
NAHC's has seven members on its board of directors. The directors are
divided into three classes and serve for staggered three year terms. Our
initial Class I directors, whose term expires in 2005, are Mr. Stallone and Mr.
Sharkey, Sr. Our initial Class II directors, whose term expires in 2006, are
Mr. Cappello and Mr. Harris. Our Initial Class III directors, whose term
expires in 2007, are Mr. Gorman, Mr. Campion and Mr. Mulhare.
Board Committees
Upon completion of this offering, NAHC's board of directors will appoint
an audit committee, a compensation committee and a nominating and corporate
governance committee, all of which will consist of independent directors.
Audit Committee
The audit committee will oversee NAHC's corporate accounting and financial
reporting process. The audit committee will evaluate the independent auditors
qualifications, independence and performance; determine the engagement of the
independent auditors; approve the retention of the independent auditors to
perform any proposed permissible non-audit services; monitor the rotation of
partners of the independent auditors on the engagement team as required by law;
review NAHC's financial statements; review NAHC's critical accounting policies
and estimates; and discuss with management and the independent auditors the
results of the annual audit and the review of NAHC's quarterly financial
statements. The audit committee will include a member of the board of
directors that qualifies as a financial expert under the Securities and
Exchange Commission rules implementing Section 407 of the
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Sarbanes-Oxley Act of 2002. NAHC intends for the composition of its audit
committee to meet the requirements for independence under the current
requirements of the Sarbanes-Oxley Act of 2002, the Nasdaq National Market and
Securities and Exchange Commission rules and regulations. NAHC believes that
the functioning of its audit committee will comply with the applicable
requirements of the Sarbanes-Oxley Act of 2002, the Nasdaq National Market and
SEC rules and regulations. NAHC intends to comply with future requirements to
the extent they become applicable to NAHC.
Compensation Committee
NAHC's compensation committee will make recommendations to the board of
directors concerning salaries and incentive compensation for its officers and
employees and administer its employee benefit plans.
Compensation Committee Interlocks and Insider Participation
The compensation levels of our executive officers are currently determined
by Mr. Gorman and Mr. Harris. Upon completion of this offering, our board of
directors will appoint a compensation committee as described above. None of
our executive officers has served as a director or member of the compensation
committee, or other committee serving an equivalent function, of any entity of
which an executive officer has served as a member of our board of directors or
is expected to serve as a member of our compensation committee.
Nominating and Corporate Governance Committee
NAHC's nominating and corporate governance committee will identify
individuals qualified to become members of the board of directors and recommend
such persons to be nominated to the board for election as directors at the
annual meeting of shareholders. The nominating and corporate governance
committee will also be responsible for reviewing with the board the requisite
skills and criteria for new board members as well as the composition of the
board as a whole. The nominating and corporate governance committee will
review the qualifications and backgrounds of all directors and nominees
(without regard to whether a nominee has been recommended by shareholders), as
well as the overall composition of the board, and recommend a slate of
directors to be nominated for election at the annual meeting of shareholders,
or, in the case of a vacancy on the board, recommend a director to be elected
by the board to fill such vacancy.
Director Compensation
Our employee and non-employee directors each receives $500 for each board
meeting and each committee meeting attended. Following this offering, each
director who is also our employee will not receive any compensation for serving
as a director, and each director who is not our employee will receive an annual
retainer to be determined by the board. We will reimburse our non-employee
directors for reasonable travel expenses incurred in connection with their
services as directors.
Management Compensation
Executive Compensation
The following table sets forth information with respect to compensation
earned by NAHC's and Proformance's named executive officers for the fiscal year
ended December 31, 2003.
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Summary Compensation Table
Annual Compensation
Long Term Compensation
Awards
All Other
Name and Principal Position
Salary
Bonus
Shares Underlying Options
Compensation(1)
James V. Gorman
Chairman of the Board of Directors
and Chief Executive Officer of NAHC
and Proformance
$
274,118
$
140,000
4700
$
7,876
Cynthia L. Codella
Secretary and Executive Vice
President of
Proformance and NAHC
$
204,116
$
90,000
1500
$
5,865
Frank J. Prudente
Executive Vice President—Corporate
Finance and Treasurer
$
237,000
$
70,000
1000
$
4,750
Peter A. Cappello, Jr
Director of NAHC and Chief
Financial Officer of Proformance
$
173,600
$
75,000
1400
$
4,988
John E. Scanlan
Senior Vice President of Proformance
$
175,125
$
75,000
300
$
4,860
(1)
Represents discretionary matching contributions made by us to the
accounts of each of the named executive officers under our 401(k) plan.
The following table sets forth the options to purchase shares of our
common stock granted to each of the named executive officers listed in the
Summary Compensation Table during the year ended December 31, 2003.
Option Grants in Last Fiscal Year
Individual Grants
Number of
Percent of
Common Shares
Total Options
Exercise Price
Potential Realizable Value at
Underlying
Granted to
($ per
Assumed Annual Rates of
Options Granted
Employees in
Common
Stock Price Appreciation For
Name and Principal Position
(#)(1)
2003
Share)
Expiration Date
Option Term($)(2)
0%
5%
10%
Frank J. Prudente
Executive Vice
President-Corporate
Finance and Treasurer
1,000
100
%
$
263.98
April 14, 2014
(1)     Pursuant to the applicable option grant agreement, these options are
subject to a three-year, cliff-vesting schedule and are scheduled to become
fully vested on April 14, 2007. However, these options are also subject to
accelerated vesting under specified circumstances, and upon completion of this
offering, such options will become fully vested and immediately exercisable
without regard to the vesting schedule described in the preceding sentence. In
addition, Mr. Prudente has entered into a transfer restriction agreement with
us imposing certain transfer limitations with respect to shares of our common
stock issued upon the exercise of these options. This transfer restriction
agreement will be terminated upon the completion of this offering.
(2)     Potential
realizable values are computed by (i) multiplying the number of
shares of our common stock underlying the options granted by an
assumed initial offering price of
$         per share (the
midpoint of the range set forth on the cover of this prospectus),
(ii) assuming that the aggregate stock value derived from that
calculation compounds at an annual rate of 0%, 5% and 10% over the
life of the respective options and (iii) subtracting from that
result the aggregate option exercise price. The 5% and 10% assumed
annual rates of stock price appreciation are mandated by the SEC and
do not represent our estimate or projection of future prices of our
common stock.
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valuations were calculated is consistent with the requirements of Statement of
Financial Accounting Standards No. 123,
Accounting for Stock-Based
Compensation
.
The following table sets forth the number and value of shares or our
common stock underlying unexercised options held by each of our named executive
officers listed in the Summary Compensation Table as of December 31, 2003.
Aggregated Option Exercises and Fiscal Year-End Options
Number of Common
Shares Underlying
Common
Unexercised Options at
Value of Unexercised
Shares
the End of 2003
In-The-Money Options
Acquired On
Exercise
Value
(#)(1)
at the End of 2003(2)
Name and Principal Position
(#)
Realized ($)
Exercisable
Unexercisable
Exercisable
Unexercisable
James V. Gorman
—
—
1,100
250
Chairman of the Board
1,100
of Directors and Chief
1,100
Executive Officer of
800
NAHC and Proformance
350
Cynthia L. Codella
—
—
250
250
Secretary and Executive
1,000
Vice President of
Proformance and NAHC
Frank J. Prudente
—
—
1,000
—
Executive Vice
President—
Corporate
Finance and
Treasurer
Peter A. Cappello, Jr.
—
—
300
100
Director of NAHC and
300
Chief Financial Officer
300
of Proformance
300
100
John E. Scanlan
—
—
—
300
Senior Vice President
of
Proformance
(1)     The options reflected in this table are subject to accelerated vesting
under specified circumstances and upon completion of this offering such options
will become fully vested and immediately exercisable.
(2)     The value of in-the-money options at December 31, 2003 represents the
difference between the exercise price of such options and the fair value of our
common stock as of December 31, 2003. There was no public trading market for
our common stock at December 31, 2003. Accordingly, these values have been
calculated based on an assumed initial public offering price of $        per
share, the midpoint of the price range set forth on the cover page of this
prospectus, less the per share exercise price, multiplied by the number of
shares underlying the options. The actual value of in-the-money options will
depend upon the trading price of our common stock on the date of sale of the
underlying common stock and may be higher or lower than the amount set forth in
the table above.
Employment-Related Agreements
We intend to enter into employment agreements with each of Messrs. Gorman,
Cappello, Prudente and Scanlan and Ms. Codella. The initial term of the
agreements will be three years, with automatic one-year extensions beginning on the
first anniversary of the agreements and each successive anniversary thereafter.
The automatic extension of the agreements may be terminated with at least 90
days' prior written notice from the executive or us.
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Under the agreements, Messrs. Gorman, Cappello, Prudente and Scanlan and
Ms. Codella will be entitled to receive annual base salaries of $         , $
        , $         , $        and $         , respectively, subject to annual
review and increase by our board of directors in its sole discretion. The
agreements will provide for an annual bonus to be paid to the executives in an
amount to be determined from year to year by our board of directors in its sole
discretion. Each executive will be entitled to participate in our employee and
fringe benefit plans and each executive will also be entitled to receive
periodic equity awards as determined by our board of directors in its sole
discretion.
Under the agreements, we may terminate the employment of the executive at
any time and for any reason by providing the executive 30 days' prior written
notice. The employment of each executive will also be automatically terminated
upon the death or permanent "Disability" (as defined in the agreements) of the
executive. Upon termination of the executive by us without "Cause" or by the
executive for "Good Reason" (each as defined in the agreements), the executive
will be entitled to receive his or her base salary and a continuation of health
care coverage, subject to reduction or elimination upon the executive's
attainment of subsequent employment, for a period of two years following the
executive's termination of employment, provided that an executive with an
employment agreement who has stock options to purchase fewer than 500 shares of
our common stock will be entitled to such benefits for the then-remaining term
of his employment agreement if such period is greater than two years.
In the event of a termination of the executive's employment by us without
"Cause" or by the executive for "Good Reason" following a "Change in Control"
(each as defined in the agreements) of the Company, the executive will be
entitled to: (a) a lump-sum cash payment equal to three times the sum of (i)
the executive's then-current base salary plus (ii) the executive's average
annual bonus for the three years preceding the date of termination; (b) a
continuation of health care coverage for a period of two years following the
date of termination, subject to reduction or elimination upon the executive's
attainment of subsequent employment; and (c) full vesting of all restricted
stock, stock option and share unit awards. To the extent that the severance
payments and benefits payable under the agreements would cause an executive to
be liable for excise taxes by reason of Section 280G of the Internal Revenue
Code, the executive will be entitled to additional "gross up" payments to
indemnify for the effect of the excise taxes.
The agreements contain non-competition covenants that prohibit the
executives from competing against us in all states in which we conduct business
during the period of employment and for a period of two years following
termination of employment with respect to all property-casualty insurance lines

in which we are involved at the time of termination. The agreements also
contain non-solicitation provisions that prohibit the executives from actively
soliciting our employees, customers or suppliers during the period of
employment and for a period of two years following termination of employment.
The executives are also subject to confidentiality restrictions that protect
our proprietary information, developments and other intellectual property.
Indemnity Agreements
We have entered into indemnification agreements with each of our directors
and executive officers which provide for indemnification against judgments,
fines, amounts paid in settlement and other liabilities and expenses, to the
fullest extent permitted by law. The indemnification is available, provided
that such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to our best interest, and with respect to any
criminal proceeding, if such person had no reasonable cause to believe such
conduct was unlawful.
2004 Stock and Incentive Plan
Our board of directors has adopted our 2004 Stock and Incentive Plan for
the purpose of providing a vehicle for compensating our key personnel by giving
them the opportunity to acquire a proprietary interest in our common stock by
receiving equity-based incentive compensation. The plan is an "omnibus" stock
incentive plan that provides for the grant of stock options, stock appreciation
rights, restricted stock, stock units and other equity-based incentive awards.
Reservation of Shares
.
The maximum number of shares of our common stock
that may be subject to awards under the plan is            shares. Shares of
our common stock issued and sold under the plan may be either authorized but
unissued shares or shares held in our treasury. To the extent that any award
payable in shares of our common stock is forfeited, cancelled, returned to us
for failure to satisfy vesting requirements or upon the
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occurrence of other forfeiture events, or otherwise terminates without
payment being made thereunder, the shares of our common stock covered thereby
will no longer be charged against the foregoing maximum share limitations and
may again be made subject to awards under the plan. In addition, any shares of
our common stock exchanged by a participant or withheld from a participant as
full or partial payment to us of the exercise price or the tax withholding upon
exercise or payment of an award will be returned to the number of shares of
common stock available for issuance under the plan. Any awards settled in cash
will not be counted against the share limitations under the plan. In the event
of recapitalizations, reclassifications or other specified events affecting us
or shares of our common stock, appropriate and equitable adjustments may be
made to the number and kind of shares of our common stock available for grant,
as well as to other maximum limitations under the plan, and the number and kind
of shares of our common stock or other rights and prices under outstanding
awards.
Administration
.
The plan is administered by the compensation committee of
our board of directors. Our compensation committee will, to the extent deemed
necessary or advisable by our board of directors, be constituted so each
committee member will satisfy the requirements for (i) an "independent
director" under rules adopted by the Nasdaq Stock Market, (ii) a "non-employee
director" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934
and (iii) an "outside director" under Section 162(m) of the Code. Subject to
the limitations set forth in the plan, the compensation committee has the
authority to determine the persons to whom awards are granted, the types of
awards to be granted, the time at which awards will be granted, the number of
shares of our common stock, units or other rights subject to each award, the
exercise, base or purchase price of an award, the time or times at which the
award will become vested, exercisable or payable, the performance criteria,
performance goals and other conditions of an award, and the duration of the
award. The compensation committee will have the right, from time to time, to
delegate to one or more of our executive officers the authority of the
compensation committee to grant and determine the terms and conditions of
awards, subject to certain limitations. Any awards under the plan made to
non-employee members of our board of directors must be approved by the full
board of directors.
Eligibility
.
Awards under the plan may be granted to any of our or our
subsidiaries' current or prospective employees, officers, directors,
consultants or insurance agents. Recipients of awards will be selected from
time to time by the compensation committee in its sole discretion.
Stock Options
.
Stock options granted under the plan may be issued as
either incentive stock options (within the meaning of Section 422 of the Code),
or as non-qualified options. The exercise price of an option will be
determined by the compensation committee, provided that the exercise price per
share will not be less than the fair market value of a share of our common
stock on the date of the grant of the option. The compensation committee will
determine the vesting and/or exercisability requirements and the term of
exercise of each option, including the effect of termination of employment or
service of a participant. The maximum term of a stock option will be ten years
from the date of grant. The maximum number of shares of our common stock that
may be covered under options granted under the plan to any participant in any
calendar year is            shares of our common stock. The plan prohibits
"repricing" or the cancellation, substitution or amendment of an option for the
purpose of reducing the exercise price of a previously granted option, except
for equitable adjustments for changes in our corporate structure, as described
above.
Stock Appreciation Rights
.
A stock appreciation right may be granted
either in tandem with an option or without a related option. A stock
appreciation right entitles the participant, upon exercise, to receive a
payment based on the excess of the fair market value of a share of our common
stock on the date of exercise over the base price of the right, multiplied by
the number of shares of our common stock as to which the right is being
exercised. The base price may not be less than the fair market value of a
share of our common stock on the date of grant. The compensation committee
will determine the vesting requirements and the term of exercise of each stock
appreciation right, including the effect of termination of employment or
service of a participant. The maximum term of a stock appreciation right will
be ten years from the date of grant. The maximum number of shares of our
common stock that may be subject to stock appreciation rights granted under the
plan to any participant during any calendar year is shares of our
common stock. Stock appreciation rights may be payable in cash or in shares of
our common stock or in a combination of both. The plan prohibits the
"repricing" of stock appreciation rights, as described above for stock options.
Restricted Stock Awards
. A restricted stock award represents shares of
our common stock that are issued subject to restrictions on transfer and
vesting requirements as determined by the compensation committee. Vesting
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requirements may be based on the continued employment of the participant
for specified time periods and on the attainment of specified business
performance goals established by the compensation committee. Subject to the
transfer restrictions and vesting requirements of the award, the participant
will have the same rights as one of our shareholders, including all voting and
dividend rights, during the restriction period, unless the compensation
committee determines otherwise at the time of the grant. The maximum number of
shares of our common stock that may be subject to restricted stock awards
granted under the plan to any participant during any calendar year is
shares of our common stock.
Stock Units
.
An award of stock units provides the participant the right
to receive a payment based on the value of a share of our common stock. Stock
units may be subject to vesting requirements, restrictions and conditions to
payment as the compensation committee determines are appropriate. Vesting
requirements may be based on the continued employment of the participant for a
specified time period or on the attainment of specified business performance
goals established by the compensation committee. A stock unit award may also
be granted on a fully vested basis, with a deferred payment date. Stock unit
awards are payable in cash or in shares of our common stock or in a combination
of both. Stock units may also be granted together with related dividend
equivalent rights. The maximum number of shares of our common stock that may
be subject to stock units granted under the plan to any participant during any
calendar year is            shares of our common stock.
Stock Awards
.
A stock award represents shares of our common stock that
are issued free of restrictions on transfer and free of forfeiture conditions
and to which the participant is entitled all incidents of ownership. A stock
award may be granted for past services, in lieu of bonus or other cash
compensation, directors' fees or for any other valid purpose as determined by
the compensation committee. The maximum number of shares of our common stock
that may be subject to stock awards granted under the plan to any participant
during any calendar year is            shares of our common stock.
Section
162(m)
Awards
.
Awards of options and stock appreciation rights
granted under the plan are intended by their terms to qualify for the
performance-based compensation exception under Section 162(m) of the Code. In
addition, the compensation committee may grant awards of restricted stock,
stock units or stock awards that are intended to qualify for the
performance-based compensation exception under Section 162(m) of the Code.
Under Section 162(m), the terms of the award must state, in terms of an
objective formula or standard, the method of computing the amount of
compensation payable under the award, and must preclude discretion to increase
the amount of compensation payable under the terms of the award (but may give
the compensation committee discretion to decrease the amount of compensation
payable). For each such award, the performance criteria upon which the payment
or vesting may be based will be limited to one or more of the following
performance measures, which may be applied with respect to us, any of our
subsidiaries or any of our business units:         . The foregoing
performance criteria will have any reasonable definitions that the compensation
committee may specify, which may include or exclude any items specified by the
compensation committee, including but not limited to any or all of the
following items: discontinued operations, extraordinary, unusual or
non-recurring items, effects of accounting changes, effects of currency or
interest rate fluctuations, effects of financing activities, changes in tax
rates, expenses for restructuring or productivity initiatives, litigation
losses, non-operating items, effects of acquisitions or divestitures and
changes of law or regulation affecting our business. The foregoing performance
measures may be determined on an absolute basis or relative to internal goals
or relative to levels attained in prior years, or related to other companies or
indices, or as ratios expressing relationships between two or more performance
measures.
Effect of Change In Control
.
The compensation committee may, in an award
agreement, provide for the effect of a "change in control" (as defined in the
plan) on an award. These provisions may include the acceleration of vesting of
an award, the elimination or modification of performance or other conditions,
the extension of the time for exercise or realizing gain from an award, the
acceleration of payment, cash settlement of an award or other adjustments that
the compensation committee considers appropriate. Unless otherwise provided by
the compensation committee and set forth in the applicable award agreement,
upon a change in control, (i) each outstanding option and stock appreciation
right, to the extent that it has not otherwise become vested and exercisable,
will automatically become fully and immediately vested and exercisable, without
regard to any otherwise applicable vesting requirement, (ii) each restricted
stock award will become fully and immediately vested and all forfeiture and
transfer restrictions thereon will lapse, and (iii) each outstanding stock unit
award and stock award will become immediately and fully vested and payable.
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Term; Amendment and Termination
.
The plan will become effective upon the
effective date of our initial public offering and will have a term of ten years
from the date of adoption by our board of directors. Our board of directors
may terminate or amend the plan at any time, subject to shareholder approval
under certain circumstances. No termination or amendment of the plan will
adversely affect the rights of a participant under any previously granted
award.
Annual Bonus Plan
Our board of directors has adopted an annual bonus plan to promote our
interests by motivating superior performance by our executive officers and
other key employees with annual bonus opportunities based upon corporate and
individual performance. The compensation committee has the authority to
administer the plan, to determine the criteria for the payment of bonuses under
the plan and to approve the amounts of all bonus payments to executive
officers. All of our executive officers, as designated by the compensation
committee, and certain other of our select employees, as designated by our
Chief Executive Officer, are eligible to participate in the plan. Participants
will generally receive their bonuses in the form of a lump sum cash payment,
but the compensation committee may provide that a participant receive a portion
of the annual bonus in stock units or other equity-based compensation. In the
event of a participant's termination of employment for any reason prior to the
payment of annual bonuses for the year, the participant will forfeit any
entitlement to a bonus, unless otherwise provided by the compensation
committee. The compensation committee may provide for pro-rata or other bonus
payments to be made in the event of death, disability or under other
circumstances. In the event of a "Change in Control" (as defined in the plan),
each participant will receive a prorated award based on the period of service
and applicable performance through the date of the Change in Control. The plan
will become effective for the 2005 fiscal year and will have an indefinite
term. Our board of directors has the authority to amend, suspend or terminate
the plan at any time.
401(k) Plan
We have established and maintained a retirement savings plan under Section
401(k) of the Internal Revenue Code of 1986, as amended, which we refer to as
the Code, to cover our eligible employees. The Code allows eligible employees
to defer a portion of their compensation, within prescribed limits, on a tax
deferred basis through contributions to the 401(k) plan. Our 401(k) plan is
intended to constitute a qualified plan under Section 401(a) of the Code and
its associated trust is intended to be exempt from federal income taxation
under Section 501(a) of the Code. Our 401(k) plan permits us to make
discretionary matching contributions on behalf of eligible employees and we
provide a company match to employee contributions up to a maximum of 4% of the
employee's salary. Our discretionary contributions vest immediately. Our
discretionary matching contributions to the 401(k) plan totaled
$67,318 in
2001, $127,730 in 2002 and $149,760 in 2003.
Other Employee Benefits Plans
We have also established and provide all eligible employees with several
other health and welfare plans, including: medical and vision benefits,
long-term disability insurance and life insurance.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We describe below the material transactions we have entered into with
parties that are related to our company. The following summary of the Share
Repurchase Agreement with James V. Gorman, the Investor Rights Agreement and
the Metropolitan Property and Casualty Share Repurchase Agreement is qualified
in its entirety by the provisions of such agreements and does not purport to
describe all of the terms of such agreements.
Share Repurchase Agreement with James V. Gorman
NAHC has entered into a share repurchase agreement with James V. Gorman,
Chairman and Chief Executive Officer of NAHC and Proformance. Pursuant to the
terms of Mr. Gorman's share repurchase agreement, he may sell up to an
aggregate of 10,000 of his shares of common stock of NAHC solely to licensed
New Jersey insurance agents determined by Proformance's Peer Review Committee
and the board of directors of NAHC to be acceptable agents for Proformance in
their reasonable discretions, in private transactions to be negotiated between
Mr. Gorman and the prospective new agents. Mr. Gorman may not sell more than
1,000 shares to any new agent. Mr. Gorman may not sell any shares beyond the
10,000 shares described above to any third party without offering such shares
first to NAHC. Mr. Gorman has informed us that he has no present intention to
exercise the foregoing rights.
If NAHC desires to issue common shares to a prospective agent, pursuant to
the share repurchase agreement, Mr. Gorman shall have the first option to sell
up to 1,000 shares to such agent. If Mr. Gorman declines to sell shares to the
agent, NAHC shall be free for a period of six months to issue up to 1,000
shares to such agent. Mr. Gorman has informed us that he has no present
intention to exercise the foregoing rights.
Investor Rights Agreement
James V. Gorman, NAHC and OCIC entered into an Investor Rights Agreement,
dated as of December 18, 2001, in connection with the Ohio Casualty replacement
carrier transaction. See "Business—Recent Transactions—Ohio Casualty
Replacement Carrier Transaction."
Pursuant to the Investor Rights Agreement, OCIC, Mr. Gorman and NAHC have
certain rights with respect to the shares of NAHC, including:
•
Preemptive Right
: If NAHC issues any equity securities, OCIC has a
right of first offer in proportion to OCIC's then current ownership
interest in NAHC. NAHC may, however, issue securities free of OCIC's
preemptive right, in certain circumstances, including shares of common
stock issued by NAHC in certain qualified public offerings, such as
this offering.
•
First Offer Right
: If OCIC desires to transfer its equity
securities, NAHC and Mr. Gorman have a right of first offer to purchase
all, but not less than all such shares, with NAHC having priority over
Mr. Gorman to purchase all such shares. Any transferee of
OCIC's shares must agree to become a party to and be bound by the terms of the
Investor Rights Agreement. Pursuant to the terms of the Investor
Rights Agreement, the foregoing restriction does not apply to the shares of our common stock acquired in this offering.
•
Right of Co-Sale
: So long as Mr. Gorman owns at least 10% of the
common stock of NAHC on a fully diluted basis, OCIC shall have the
right to sell its allocable share of equity securities in any sale by
Mr. Gorman of equity securities. Certain transfers may be made by Mr.
Gorman free from the restrictions set forth above, including any
transfer of common stock by Mr. Gorman in connection with this
offering. Mr. Gorman is not selling or otherwise transferring
any shares of common stock of NAHC in connection with this offering.
•
Registration Rights
- NAHC may not grant any shareholder or
proposed shareholder registration rights, unless the same rights are
afforded to OCIC with respect to its shares of NAHC.
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In addition, pursuant to the Investor Rights Agreement, OCIC had a right
to require NAHC to redeem all equity securities of NAHC owned by OCIC for fair
market value at any time (i) on or after December 18, 2006 or (ii) prior to
December 18, 2006 if NAHC delivers notice to OCIC that NAHC is engaging in
certain transactions, including, but not limited to, a public offering of
equity securities of NAHC, such as this offering. As more fully described
under "Business—Recent Transactions—Ohio Casualty Replacement Carrier
Transaction," on July 10, 2004, we entered into an agreement with OCNJ and OCIC
pursuant to which, among other things, OCIC agreed to waive any
rights it has, had or may have under the Investor Rights Agreement. As part of the agreement with OCNJ
and OCIC, subject to certain exceptions, we have granted OCIC the right, on
three occasions following the expiration of the 180-day lock-up period in the
lock-up agreement OCIC entered into in connection with this offering, to demand
that we file a registration statement with respect to the resale by OCIC of any
shares of NAHC common stock owned by OCIC which are not sold as part of this
offering.
NAHC is also prohibited from taking certain actions with respect to its
common stock without extending such benefits to all classes of common stock,
such as subdividing, combining, paying dividends or providing any other benefit
for preference to any shares.
Ohio Casualty Non-Competition Agreement
Also as part of the Ohio Casualty replacement carrier transaction,
Proformance entered into a non-competition agreement with OCIC which prohibits
Proformance from writing any commercial lines insurance policy until December
31, 2004 where the expiring policy was issued by Ohio Casualty Group.
Metropolitan Property and Casualty Share Repurchase Agreement.
In connection with the replacement carrier transaction between Met P&C and
NAHC entered into a share repurchase agreement, dated as of December 8, 2003.
Under the share repurchase agreement, Met P&C may not transfer shares for a
period of two years from the date of the share repurchase agreement without
NAHC's prior written consent, which consent may be withheld in NAHC's sole
discretion. If subsequent to the two-year holding period and prior to an
initial public offering of NAHC's common stock, Met P&C desires to transfer
shares to a third party, NAHC has the right to purchase all such shares from
Met P&C at the price and pursuant to the terms set forth in the Agreement.
NAHC's right of first offer will terminate upon completion of this offering.
If prior to an initial public offering of NAHC's common stock, Mr. Gorman
proposes, in a single transaction or series of related transactions, to
transfer for value common stock representing at least 10% of the outstanding
common stock of NAHC on a fully diluted basis, Met P&C shall have the right,
subject to certain exceptions, to have included in such proposed transfer its
pro rata portion of the common stock to be so transferred at the same per share
price and for the same consideration that Mr. Gorman proposes to sell the
common stock to be so transferred. Met P&C's co-sale right will terminate upon
completion of this offering.
If at any time prior to December 8, 2008, NAHC shall issue or sell any
shares of common stock without consideration or for consideration per share
less than the purchase price per share paid by Met P&C for its shares of common
stock, then Met P&C shall have the right to purchase for the same purchase
price per share paid by the party to whom NAHC has issued or sold shares of its
common stock, such additional common stock as would be needed to maintain Met
P&C's ownership percentage of common stock immediately prior to the issuance or
sale of such additional common stock.
Payments to Insurance Agencies Affiliated with Certain of Our Directors
For the years ended December 31, 2003, 2002 and 2001 and the three months
ended March 31, 2004, Proformance paid to Connelly-Campion-Wright Insurance
Agency commissions of $287,986, $138,317, $116,966 and $165,738, respectively.
Mr. Campion, Vice Chairman of our board of directors, is Chief Executive
Officer of Connelly-Campion-Wright Insurance Agency.
For the years ended December 31, 2003, 2002 and 2001 and the three months
ended March 31, 2004, Proformance paid to Liberty Insurance Associates, Inc.
commissions of $220,605, $160,414, $127,265 and $80,119,
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respectively. Mr. Harris, a member of our board of directors, is Chief
Executive Officer of Liberty Insurance Associates.
For the years ended December 31, 2003, 2002 and 2001 and the three months
ended March 31, 2004, Proformance paid to Fleet Insurance Services commissions
of $104,941, $116,434, $150,528 and $52,255, respectively. Mr. Sharkey, a
member of our board of directors, is Chairman of Fleet Insurance Services.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of the date hereof by:
•
each person that owns beneficially more than 5% of the outstanding shares of our common stock;
•
each director, director nominee and named executive officer;
•
the selling shareholder; and
•
all of our directors, director nominees and executive officers as a group.
Except as stated below, each holder listed below has sole investment and
voting power with respect to the shares of common stock beneficially owned by
the holder. As of March 31, 2004, there were 122 holders of record of shares
of our common stock.
Unless otherwise stated, the business address for each beneficial owner
below is 4 Paragon Way, Freehold, NJ 07728.
We have had certain relationships with the OCIC, the selling shareholder
in this offering. See "Certain Relationships and Related Party
Transactions—Investor Rights Agreement" and "Certain Relationships and Related
Party Transactions—Ohio Casualty Non-Competition Agreement."
Number of Shares
Percent Before
Shares to Be
Number of Shares
Percent After
Name and Address of Beneficial Owner
Before Offering(1)
Offering
Sold in Offering
After Offering
Offering
James V. Gorman(2)
Chairman of the Board of Directors
and Chief Executive Officer of NAHC
and Proformance
39,680
33.2
%
—
The Ohio Casualty Insurance Company
9450 Seward Road
Fairfield, OH 45015
20,185
17.6
Metropolitan Property and Casualty
Insurance Company
700 Quaker Lane
Warwick, RI 02886
10,000
8.7
—
F.P. "Skip" Campion(3)
Vice Chairman and Director of NAHC
and Director of Proformance
5,750
4.8
—
Peter A. Cappello, Jr.(4)
Director of NAHC and Chief
Financial Officer of Proformance
1,612
1.4
—
Cynthia L. Codella(5)
Secretary and Executive Vice
President of NAHC and Proformance
1,500
1.3
—
Gregory T. Doyle
Director of Proformance
—
—
—
Andrew C. Harris(6)
Director of NAHC and Proformance
505
*
—
John A. Latimer
Director of Proformance
—
—
—
Thomas M. Mulhare
Director of NAHC
—
—
—
Douglas G. Olson(7)
Director of Proformance
1,940
1.7
—
Frank J. Prudente(8)
Executive Vice President—Corporate
Finance and Treasurer of NAHC
1,000
*
—
John E. Scanlan(9)
Senior Vice President of Proformance
300
*
—
Thomas J. Sharkey, Sr.
Director of NAHC and Proformance
1,055
*
—
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Number of Shares
Percent Before
Shares to Be
Number of Shares
Percent After
Name and Address of Beneficial Owner
Before Offering(1)
Offering
Sold in Offering
After Offering
Offering
Steven V. Stallone(10)
Director of NAHC and Proformance
1,633
1.4
—
Candace L. Straight
Director of Proformance
—
—
—
Daniel J. Taylor(11)
Director of Proformance
350
*
—
Directors, director nominees and named
executive officers as a group
55,325
42.4
—
*
Less than 1%.
(1) The shares reflected in this column include all shares issuable pursuant to
outstanding options held by such shareholders (but not of any other
shareholder) as such options are subject to
accelerated vesting under specified circumstances and upon completion of this
offering such options will become fully vested and immediately exercisable.
(2) Includes options to purchase 4,700 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
(3) Includes options to purchase 4,700 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
(4) Includes options to purchase 1,400 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
(5) Includes options to purchase 1,500 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
(6) Includes options to purchase 100 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
(7) Includes options to purchase 200 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
(8) Includes options to purchase 1,000 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
(9) Includes options to purchase 300 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
(10) Includes options to purchase 1,400 shares of our common stock, all of
which are fully vested and exercisable or will become fully vested and
exercisable upon consummation of this offering.
(11) Includes options to purchase 350 shares of our common stock, all of which
are fully vested and exercisable or will become fully vested and exercisable
upon consummation of this offering.
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DESCRIPTION OF CAPITAL STOCK
The following description of certain provisions of our amended and
restated Certificate of Incorporation, our amended and restated By-Laws, and of
the New Jersey Business Corporation Act is necessarily general and does not
purport to be complete. This summary is qualified in its entirety by reference
in each case to the applicable provisions of our Certificate of Incorporation
and By-Laws, which are filed as exhibits to this registration statement and to
the provisions of New Jersey law.
General
At the time of the closing of this offering our authorized capital stock
will
be            shares,
            of which shall be common stock, no par
value per share, and            of which shall be preferred stock, no par value
per share.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding preference stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by our board of directors out of funds legally available. See
"Dividend Policy." In the event of our liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior liquidation rights of
preference stock, if any, then outstanding. The common stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. Pursuant to its share
repurchase agreement, Met P&C has certain anti-dilution rights. See "Certain
Relationships and Related Party Transactions—Metropolitan Property and Casualty
Share Repurchase Agreement." All outstanding shares of common stock to be
outstanding upon the completion of this offering will be fully paid and
non-assessable.
Our board of directors will have the authority following the closing of
this offering to issue preferred stock in one or more series and to fix the
number of shares constituting any such series and the designations, powers,
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by shareholders.
Certain Provisions of Our Certificate and By-Laws and of New Jersey Law
A number of provisions of our Certificate of Incorporation and our By-Laws
deal with matters of corporate governance and the rights of shareholders. The
following discussion is a general summary of select provisions of our
Certificate of Incorporation, our By-Laws and certain New Jersey laws that
might be deemed to have a potential "anti-takeover" effect. These provisions
may have the effect of discouraging a future takeover attempt which is not
approved by our board of directors but which individual shareholders may deem
to be in their best interest or in which shareholders may be offered a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also make the removal
of the incumbent board of directors or management more difficult.
Common Stock
Our unissued shares of authorized common stock will be available for
future issuance without additional shareholders approval, except as required by
the rules of the Nasdaq National Market. While the authorized but unissued
shares are not designed to deter or prevent a change of control, under some
circumstances we could use the authorized but unissued shares to create voting
impediments or to frustrate persons seeking to effect a takeover or otherwise
gain control of us by, for example, issuing those shares in private placements
to purchasers who might side with our board of directors in opposing a hostile
takeover bid.
Preferred Stock
The existence of authorized but unissued preferred stock could reduce our
attractiveness as a target for an unsolicited takeover bid since we could, for
example, issue shares of the preferred stock to parties that might oppose
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such a takeover bid or issue shares of the preferred stock containing
terms the potential acquiror may find unattractive. Such preferred stock could
also have the right to vote separately as a class with respect to a merger,
take-over or other significant corporate transactions. This ability may have
the effect of delaying or preventing a change of control, may discourage bids
for our common stock at a premium over the market price of our common stock,
and may adversely affect the market price of, and the voting and the other
rights of the holders of, our common stock.
Classified Board of Directors and Related Provisions
Our Certificate of Incorporation provides that our board of directors
shall be divided into three classes of directors (each class containing
approximately one-third of the total number of directors) serving staggered
three-year terms. As a result, approximately one-third of our board of
directors will be elected each year. This classified board provision will
prevent a third party who acquires control of a majority of our outstanding
voting stock from obtaining control of our board of directors until the second
annual shareholder meeting following the date the acquiror obtains the
controlling interest. The number of directors constituting our board of
directors is determined from time to time by our board of directors. Our
Certificate of Incorporation also provides that directors may be removed only
for "cause" and by the affirmative vote of the holders of a majority of all
outstanding voting stock entitled to vote. This provision, in conjunction with
the provisions of our Certificate of Incorporation authorizing our board of
directors to fill vacancies on the board, will prevent shareholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.
No Shareholder Action by Written Consent; Special Meetings
Our Certificate of Incorporation provides that shareholder action can be
taken only at an annual or special meeting of shareholders and cannot be taken
by written consent in lieu of a meeting. Our Certificate of Incorporation also
provides that, except as otherwise required by law, special meetings of the
shareholders can only be called by a majority of our entire board of directors
or by the Chief Executive Officer and President. Shareholders may not call a
special meeting or require that our board of directors call a special meeting
of shareholders.
Advance Notice Requirements for Shareholder Proposals and Director
Nominees.
Our By-Laws provide that, if one of our shareholders desires to submit a
proposal or nominate persons for election as directors at an annual
shareholders' meeting, the shareholder shall deliver written notice to our
Secretary not less than 90 nor more than 120 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30 days before or
more than 60 days after such anniversary date, notice by the shareholder to be
timely shall be so delivered not less than 90 days nor more than 120 days prior
to such annual meeting or ten days following the day on which public
announcement of the date of such meeting is first made. Such shareholder's
notice shall set forth (A) as to any such business that the shareholder
proposes to bring before the meeting, a brief description of such business, the
reasons for conducting such business at the meeting, any material interest of
such shareholder in such business and the beneficial owner, if any, on whose
behalf the proposal is made; (B) as to each person whom the shareholder
proposes to nominate for election as a director, all information relating to
such person that would be required to be disclosed in a solicitation of proxies
for the election of such person as a director pursuant to Regulation 14A under
the Securities Exchange Act of 1934 (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
so elected); and (C) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf of the proposal or nomination is made (1) the
name and address of such shareholder, as they appear on our books, and of such
beneficial owner, and (2) the class and number of our shares which are owned
beneficially and of record by such shareholder and such beneficial owner.
Voting Requirements on Amending Our Certificate of Incorporation or
By-Laws
Our Certificate of Incorporation and our By-Laws provide that amendments
to certain provisions of our By-Laws, including those relating to shareholder
proposals, classified board, removal of directors, calling special meetings and
no shareholder action by written consent, must be approved by both our board of
directors and by the vote, at a regular or special shareholders meeting, of the
holders of at least two-thirds of the votes entitled to be cast
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by the holders of all our capital stock then entitled to vote. All other
amendments to our By-Laws require either: (i) approval by a majority of our
entire board of directors (without shareholder consent) or (ii) the vote, at a
regular or special shareholders' meeting, of the holders of at least two-thirds
of the votes entitled to be cast by the holders of all our capital stock then
entitled to vote.
Business Combination Statute
The New Jersey Shareholders Protection Act, NJSA 14A:10A-1 et seq., which
we refer to as New Jersey Act, prohibits certain New Jersey corporations, such
as us following this offering, from entering into certain "business
combinations" with an "interested shareholder" (any person who is the
beneficial owner of 10% or more of such corporation's outstanding voting
securities) for five years after such person became an interested shareholder,
unless the business combination or the interested shareholder's acquisition of
stock was approved by the corporation's board of directors prior to such
interested shareholder's stock acquisition date. After the five-year waiting
period has elapsed, a business combination between such corporation and an
interested shareholder will be prohibited unless the business combination is
approved by the holders of at least two-thirds of the voting stock not
beneficially owned by the interested shareholder, or unless the business
combination satisfies the New Jersey Act's fair price provision intended to
provide that all shareholders (other than the interested shareholders) receive
a fair price for their shares.
The New Jersey Act defines "business combination" to include, the
following transactions between a corporation and an interested shareholder or
such interested shareholder's affiliates; (1) the merger or consolidation of
the corporation with the interested shareholder or any corporation that after
the merger or consolidation would be an affiliate or associate of the
interested shareholder, (2) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition to or with the interested shareholder, which has
an aggregate market value equal to 10% or more of the aggregate market value of
all of the assets, outstanding stock or income of the corporation or its
subsidiaries; (3) the issuance or transfer to the interested shareholder of any
stock of the corporation having an aggregate market value equal to or greater
than 5% of the corporation's outstanding stock; (4) the adoption of a plan or
proposal for the liquidation or dissolution of the corporation proposed by the
interested shareholder; (5) any reclassification of securities proposed by the
interested shareholder, that has the effect, directly or indirectly, of
increasing any class or series of stock that is owned by the interested
shareholder; and (6) the receipt by the interested shareholder of any loans or
other financial assistance from the corporation.
The New Jersey Act does not apply to certain business combinations,
including those with persons who acquired 10% or more of the voting power of
the corporation prior to the time the corporation was required to file periodic
reports pursuant to the Exchange Act or prior to the time the corporation's
securities began to trade on a national securities exchange.
Limitations on Director Liability
Article 12 of our Certificate of Incorporation provides that the no
director shall be liable to us or our shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability for breach of the
director's duty of loyalty to us or our shareholders, for acts or omissions not
in good faith or which involve a knowing violation of law, or for any act or
omission which results in receipt by the director of an improper personal
benefit.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have a total of            common
shares outstanding. All of
the            shares
(            shares if the
underwriters exercise the over-allotment option in full) sold in the offering
will be freely tradeable without restriction or further registration under the
Securities Act by persons other than our "affiliates." The remaining
shares are "restricted securities" as defined in Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
the exemptions contained in Rule 144. Under the Securities Act, an "affiliate"
of a company is a person that directly or indirectly controls, is controlled
by, or is in common control with that company.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including any person who may be deemed our affiliate, is entitled
to sell within any three-month period, a number of restricted securities that
does not exceed the greater of 1% of the then outstanding shares of common
stock and the average weekly trading volume in the over-the-counter market
during the four calendar weeks preceding each such sale, provided that at least
one year has elapsed since such shares were acquired from us or any affiliate
of ours and certain manner of sale, notice requirements and requirements as to
availability of current public information about us are satisfied. Any person
who is deemed to be our affiliate must comply with the provisions of Rule 144
(other than the one-year holding period requirement) in order to sell shares of
common stock which are not restricted securities (such as shares acquired by
affiliates either in this offering or through purchases in the open market
following this offering). In addition, under Rule 144(k), a person who is not
our affiliate, and who has not been our affiliate at any time during the 90
days preceding any sale, is entitled to sell such shares without regard to the
foregoing limitations, provided that at least two years have elapsed since the
shares were acquired from us or any affiliate of ours.
We, our officers and directors (including Mr. Gorman), the selling
shareholder, and certain of our other shareholders, including Met P&C, have
agreed, subject to specified exceptions, not to dispose of or hedge our and
their shares without the prior written consent of Citigroup Global Markets Inc.
during the period of 180 days following the date of this prospectus. See
"Underwriting."
On July 10, 2004, we entered into an agreement with the selling
shareholder, OCIC, pursuant to which we agreed, among other things, that
following the expiration of the 180-day lock-up period discussed above, we will
use commercially reasonable efforts to facilitate a secondary public offering
by OCIC of the shares of NAHC common stock owned by OCIC which are not sold as
part of this offering. In addition, subject to certain exceptions, we have
granted OCIC the right, on three occasions following the expiration of the
180-day lock-up period, to demand that we file a registration statement with
respect to the resale by OCIC of any shares of NAHC common stock owned by OCIC
which are not sold as part of this offering. See "Business—Recent
Transactions—Ohio Casualty Replacement Carrier Transaction."
In addition, following the consummation of this offering, we intend to
file one or more registration statements on Form S-8 under the Securities Act
to register shares of our common stock issued or reserved for issuance under
our 2004 Stock and Incentive Plan. Subject to the exercise of issued and
outstanding options, shares registered under the registration statement on Form
S-8 will be available for sale into the public markets unless such shares are
subject to vesting restrictions with us or the lock-up restrictions described
above.
No prediction can be made as to the effect, if any, future sales of
shares, or the availability of shares for future sales, will have on the market
price of our common stock prevailing from time to time. The sale of
substantial amounts of our common stock in the public market, or the perception
that such sales could occur, could harm the prevailing market price of our
common stock.
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MATERIAL UNITED STATES FEDERAL INCOME AND ESTATE TAX
CONSIDERATIONS FOR NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a non-U.S. holder that acquires our common stock pursuant to this
offering. The discussion is based on provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), applicable U.S. Treasury regulations
promulgated thereunder and administrative and judicial interpretations, all as
in effect on the date of this prospectus, and all of which are subject to
change, possibly on a retroactive basis. The discussion is for general
information only. The discussion is limited to non-U.S. holders that hold our
common stock as a "capital asset" within the meaning of Section 1221 of the
Code (generally, property held for investment). As used in this discussion,
the term "non-U.S. holder" means a beneficial owner of our common stock that is
not, for U.S. federal income tax purposes:
•
an individual who is a citizen or resident of the United States;
•
a corporation or partnership (including any entity treated as a
corporation or partnership for U.S. federal income tax purposes)
created or organized in or under the laws of the United States or any
State of the United States or the District of Columbia, other than a
partnership treated as foreign under U.S. Treasury regulations;
•
an estate the income of which is includible in gross income for
U.S. federal income tax purposes regardless of its source; or
•
a trust (1) if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons have
authority to control all substantial decisions of the trust, or (2)
that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
This discussion does not consider:
•
U.S. federal gift tax consequences, or U.S. state or local or non-U.S. tax consequences;
•
specific facts and circumstances that may be relevant to a
particular non-U.S. holder's tax position, including, if the non-U.S.
holder is a partnership that the U.S. tax consequences of holding and
disposing of our common stock may be affected by certain determinations
made at the partner level;
•
the tax consequences for the shareholders, partners, or
beneficiaries of a non-U.S. holder;
•
all of the U.S. federal tax considerations that may be relevant to
a non-U.S. holder in light of its particular circumstances or to
non-U.S. holders that may be subject to special treatment under U.S.
federal tax laws, such as financial institutions, insurance companies,
tax-exempt organizations, certain trusts, hybrid entities, certain
former citizens or residents of the United States, holders subject to
U.S. federal alternative minimum tax, broker-dealers, and traders in
securities; or
•
special tax rules that may apply to a non-U.S. holder that holds
our common stock as part of a "straddle," "hedge," "conversion
transaction," "synthetic security," or other integrated investment.
Prospective investors are urged to consult their own tax advisors
regarding the U.S. federal, state, local, and non-U.S. income and other tax
considerations with respect to owning and disposing of shares of our common
stock.
Dividends
As previously discussed, we do not anticipate paying dividends on our
common stock in the foreseeable future. See "Dividend Policy." If we pay
dividends on our common stock, those payments will constitute dividends for
U.S. federal income tax purposes to the extent paid from our current or
accumulated earnings and profits, as
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determined under U.S. federal income tax principles. To the extent those
dividends exceed our current and accumulated earnings and profits, the
dividends will constitute a return of capital and first reduce the non-U.S.
holder's basis, but not below zero, and then will be treated as gain from the
sale of stock.
We will have to withhold U.S. federal income tax at a rate of 30%, or a
lower rate under an applicable income tax treaty, from the gross amount of the
dividends paid to a non-U.S. holder, unless the dividend is effectively
connected with the conduct of a trade or business of the non-U.S. holder within
the United States, or if an income tax treaty applies, attributable to a
permanent establishment of the non-U.S. holder within the United States. Under
applicable U.S. Treasury regulations, a non-U.S. holder (including, in certain
cases of non-U.S. holders that are entities, the owner or owners of such
entities) will be required to satisfy certain certification requirements in
order to claim a reduced rate of withholding pursuant to an applicable income
tax treaty. Non-U.S. holders should consult their tax advisors regarding their
entitlement to benefits under a relevant income tax treaty.
Dividends that are effectively connected with a non-U.S. holder's conduct
of a trade or business in the United States or, if an income tax treaty
applies, attributable to a permanent establishment in the United States, are
taxed on a net income basis at the regular graduated U.S. federal income tax
rates in the same manner as if the non-U.S. holder were a resident of the
United States. In such cases, we will not have to withhold U.S. federal income
tax if the non-U.S. holder complies with applicable certification and
disclosure requirements. In addition, a "branch profits tax" may be imposed at
a 30% rate, or a lower rate under an applicable income tax treaty, on dividends
received by a foreign corporation that are effectively connected with the
conduct of a trade or business in the United States.
Gain on Disposition of Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax
or any withholding thereof with respect to gain realized on a sale or other
disposition of our common stock unless one of the following applies:
•
the gain is effectively connected with the non-U.S. holder's
conduct of a trade or business in the United States or, alternatively,
if an income tax treaty applies, is attributable to a permanent
establishment maintained by the non-U.S. holder in the United States;
in these cases, the non-U.S. holder will generally be taxed on its net
gain derived from the disposition at the regular graduated rates and in
the manner applicable to U.S. persons and, if the non-U.S. holder is a
foreign corporation, the "branch profits tax" described above may also
apply;
•
the non-U.S. holder is an individual who is present in the United
States for 183 days or more in the taxable year of the disposition and
meets certain other requirements; in this case, the non-U.S. holder
will be subject to a 30% tax on the gain derived from the disposition;
or
•
we are or have been a United States real property holding
corporation, or "USRPHC," for U.S. federal income tax purposes at any
time during the shorter of the five-year period ending on the date of
disposition or the period that the non-U.S. holder held our common
stock; in this case, the non-U.S. holder may be subject to U.S. federal
income tax on its net gain derived from the disposition of our common
stock at regular graduated rates. If we are, or were to become, a
USRPHC, gain realized upon disposition of our common stock by a
non-U.S. holder that did not directly or indirectly own more than 5% of
our common stock during the shorter of the five-year period ending on
the date of disposition or the period that the non-U.S. holder held our
common stock generally would not be subject to U.S. federal income tax,
provided that our common stock is "regularly traded on an established
securities market" within the meaning of Section 897(c)(3) of the Code.
We believe that we are not currently, and we do not anticipate
becoming in the future, a USRPHC.
Federal Estate Tax
Common stock owned or treated as owned by an individual who is a non-U.S.
holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.
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Information Reporting and Backup Withholding Tax
We must report annually to the IRS and to each non-U.S. holder the amount
of dividends paid to that holder and the tax withheld from those dividends.
These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable income tax treaty. Copies of the
information returns reporting those dividends and withholding may also be made
available under the provisions of an applicable income tax treaty or agreement
to the tax authorities in the country in which the non-U.S. holder is a
resident.
Under some circumstances, U.S. Treasury regulations require backup
withholding and additional information reporting on reportable payments on
common stock. The gross amount of dividends paid to a non-U.S. holder that
fails to certify its non-U.S. holder status in accordance with applicable U.S.
Treasury regulations generally will be reduced by backup withholding at the
applicable rate (currently 28%).
The payment of the proceeds of the sale or other disposition of common
stock by a non-U.S. holder to or through the U.S. office of any broker, U.S. or
non-U.S., generally will be reported to the IRS and reduced by backup
withholding, unless the non-U.S. holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds from the disposition of common stock by
a non-U.S. holder to or through a non-U.S. office of a non-U.S. broker will not
be reduced by backup withholding or reported to the IRS, unless the non-U.S.
broker has certain enumerated connections with the United States. In general,
the payment of proceeds from the disposition of common stock by or through a
non-U.S. office of a broker that is a U.S. person or has certain enumerated
connections with the United States will be reported to the IRS and may be
reduced by backup withholding unless the broker receives a statement from the
non-U.S. holder that certifies its status as a non-U.S. holder under penalties
of perjury or the broker has documentary evidence in its files that the holder
is a non-U.S. holder.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules from a payment to a non-U.S. holder can be
refunded or credited against the non-U.S. holder's U.S. federal income tax
liability, if any, provided that the required information is furnished to the
IRS in a timely manner. These backup withholding and information reporting
rules are complex and non-U.S. holders are urged to consult their own tax
advisors regarding the application of these rules to them.
The foregoing discussion of U.S. federal income and estate tax
considerations is not tax advice and is not based on an opinion of counsel.
Accordingly, each prospective non-U.S. holder of our common stock should
consult that holder's own tax advisor with respect to the federal, state, local
and non-U.S. tax consequences of the ownership and disposition of our common
stock.
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UNDERWRITING
Citigroup Global Markets Inc. is acting as the sole bookrunning manager of
the offering, and, together with      , are acting as representatives of the
underwriters named below. Subject to the terms and conditions stated in the
underwriting agreement dated the date of this prospectus, each underwriter
named below has agreed to purchase, and we and the selling shareholder have
agreed to sell to that underwriter, the number of shares set forth opposite the
underwriter's name.
Number
Underwriter
of Shares
Citigroup Global Markets Inc.
Total
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the shares (other than those covered by the
over-allotment option described below) if they purchase any of the shares.
The underwriters propose to offer some of the shares directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not to exceed $  per share. The underwriters may allow,
and dealers may reallow, a concession not to exceed $  per share on
sales to other dealers. If all of the shares are not sold at the initial
offering price, the representatives may change the public offering price and
the other selling terms. The representatives have advised us that the
underwriters do not intend sales to discretionary accounts to exceed 5% of the
total number of shares of our common stock offered by them.
We and the selling shareholder have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to
             additional shares of common stock at the public offering price less the
underwriting discount. The underwriters may exercise the option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent the option is exercised, each underwriter must purchase a number
of additional shares approximately proportionate to that underwriter's initial
purchase commitment.
We, our officers and directors, the selling shareholder and certain of our
other shareholders have agreed that, for a period of 180 days from the date of
this prospectus, we and they will not, without the prior written consent of
Citigroup Global Markets, Inc., dispose of or hedge any shares of our common
stock or any securities convertible into or exchangeable for our common stock,
except if such shareholder is a partnership, to a partner, if an individual, by
gift, will or intestate succession, or a transfer to an affiliate. In any such
case, such transfer will be subject to certain conditions, including that each
transferee execute an agreement that the shares are subject to a lock-up
agreement, and there be no further transfer of shares, except in accordance
with the lock-up agreement. Citigroup in its sole discretion may release any
of the securities subject to these lock-up agreements at any time without
notice.
Each underwriter has represented, warranted and agreed that:
•
it has not offered or sold and, prior to the expiry of a period of
six months from the closing date, will not offer or sell any shares
included in this offering to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995;
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•
it has only communicated and caused to be communicated and will
only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning of
section 21 of the Financial Services and Markets Act 2000 ("FSMA"))
received by it in connection with the issue or sale of any shares
included in this offering in circumstances in which section 21(1) of
the FSMA does not apply to us;
•
it has complied and will comply with all applicable provisions of
the FSMA with respect to anything done by it in relation to the shares
included in this offering in, from or otherwise involving the United
Kingdom; and
•
the offer in The Netherlands of the shares included in this
offering is exclusively limited to persons who trade or invest in
securities in the conduct of a profession or business (which include
banks, stockbrokers, insurance companies, pension funds, other
institutional investors and finance companies and treasury departments
of large enterprises).
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares will be
determined by negotiations between us and the representatives. Among the
factors considered in determining the initial public offering price will be our
record of operations, our current financial condition, our future prospects,
our markets, the economic conditions in and future prospects for the industry
in which we compete, our management, and currently prevailing general
conditions in the equity securities markets, including current market
valuations of publicly traded companies considered comparable to our company.
We cannot assure you, however, that the prices at which the shares will sell in
the public market after this offering will not be lower than the initial public
offering price or that an active trading market in our common stock will
develop and continue after this offering.
We have applied to have our common stock included for quotation on the
Nasdaq National Market under the symbol "NAHC."
The following table shows the underwriting discounts and commissions that
we and the selling shareholder are to pay to the underwriters in connection
with this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
Paid by NAHC
Paid by Selling Shareholder
No Exercise
Full Exercise
No Exercise
Full Exercise
Per Share
Total
$
$
$
$
$
$
In connection with the offering, Citigroup Global Markets Inc., on behalf
of the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve syndicate sales
of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
"Covered" short sales are sales of shares made in an amount up to the number of
shares represented by the underwriters' over-allotment option. In determining
the source of shares to close out the covered syndicate short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Transactions to close out
the covered syndicate short position involve either purchases of the common
stock in the open market after the distribution has been completed or the
exercise of the over-allotment option. The underwriters may also make "naked"
short sales of shares in excess of the over-allotment option. The underwriters
must close out any naked short position by purchasing shares of common stock in
the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the shares in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
bids for or purchases of shares in the open market while the offering is in
progress.
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The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Citigroup Global Markets Inc. repurchases shares originally sold by that
syndicate member in order to cover syndicate short positions or make
stabilizing purchases.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the common stock. They may also cause the price
of the common stock to be higher than the price that would otherwise exist in
the open market in the absence of these transactions. The underwriters may
conduct these transactions on the Nasdaq National Market or in the
over-the-counter market, or otherwise. If the underwriters commence any of
these transactions, they may discontinue them at any time.
We estimate that our portion of the total expenses of this offering will
be approximately $        million.
Certain of the underwriters have performed investment banking and
advisory services for us from time to time for which they have received
customary fees and expenses. The underwriters may, from time to time, engage
in transactions with and perform services for us in the ordinary course of
their business. For example, approximately $93 million of our investment
assets currently are held in four non-discretionary brokerage accounts with
Smith Barney, an affiliate of Citigroup Global Markets Inc. We believe the
fees and commissions payable for services in connection with these accounts are
customary.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters. The representatives may agree
to allocate a number of shares to underwriters for sale to their online
brokerage account holders. The representatives will allocate shares to
underwriters that may make Internet distributions on the same basis as other
allocations. In addition, shares may be sold by the underwriters to securities
dealers who resell shares to online brokerage account holders.
We and the selling shareholder have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make
because of any of those liabilities.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon by Patricia M. Forsyth, General Counsel of Proformance Insurance Company.
Dewey Ballantine LLP, New York, New York is also representing us in this
offering. Certain legal matters in connection with the issuance of the common
stock to be sold in the offering will be passed upon for the underwriters by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, New York, New York. LeBoeuf, Lamb, Greene
& MacRae, L.L.P. has in the past performed services for us.
EXPERTS
The consolidated financial statements of NAHC and its subsidiaries as of
December 31, 2003 and 2002 and for each of the three years in the period ended
December 31, 2003 included in this prospectus and the related financial
statement schedules included elsewhere in this registration statement have been
audited by Deloitte & Touche LLP, an independent registered public accounting
firm, as stated in their report appearing herein and elsewhere in this
registration statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
CHANGE OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On March 22, 2004, the Executive Committee of our Board of Directors
approved replacing the firm of WithumSmith+Brown, PC as our independent
accountants with the firm of Deloitte & Touche LLP for the fiscal years ended
December 31, 2001, 2002 and 2003. Our engagement of Deloitte & Touche LLP was
effective as of May 14, 2004. The decision to change independent accountants
was recommended and approved by the Board of Directors as the Board viewed it
as desirable in anticipation of our initial public offering to have our
financial statements audited by a large internationally recognized accounting
firm such as Deloitte & Touche LLP.
The reports of WithumSmith+Brown, PC on our financial statements for each
of the two fiscal years ended December 31, 2003 and December 31, 2002,
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles.
These financial statements have been subsequently restated in
connection with the audit referred to in the preceeding paragraph.
During our two most recent fiscal years and in the subsequent interim
periods, we have had no disagreements with WithumSmith+Brown, PC on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope and procedure, which if not resolved to the satisfaction of
WithumSmith+Brown, PC would have caused WithumSmith+Brown, PC to make reference
to the matter in their report.
During our two most recent fiscal years and in the subsequent interim
periods, we have had no reportable events (as the term is described in Item
304(a)(1)(v) of Regulation S-K).
Prior to our engagement of Deloitte & Touche LLP, we had not consulted
with Deloitte & Touche LLP during our two most recent fiscal years or during
the three months ended March 31, 2004 regarding: (a) either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our financial
statements, and neither a written report nor oral advice were provided that
Deloitte & Touche LLP concluded was an important factor considered by us in
reaching a decision as to the accounting, auditing or financial reporting
issue, or (b) any matter that was the subject of either a disagreement or a
reportable event.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act of 1933, as amended with respect
to the common stock offered in this prospectus. This prospectus, filed as part
of the registration statement, does not contain all of the information set
forth in the registration statement and its exhibits and schedules, portions of
which have been omitted as permitted by the rules and regulations of the
Securities and Exchange Commission. For further information about us and our
common
94
Table of Contents
stock, we refer you to the registration statement and to its exhibits and
schedules. Statements in this prospectus about the contents of any contract,
agreement or other document are not necessarily complete and, in each instance,
we refer you to the copy of such contract, agreement or document filed as an
exhibit to the registration statement, with each such statement being qualified
in all respects by reference to the document to which it refers. Anyone may
inspect the registration statement and its exhibits and schedules without
charge at the public reference facilities the Securities and Exchange
Commission maintains at 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain copies of all or any part of these materials from the SEC upon the
payment of certain fees prescribed by the Securities and Exchange Commission.
You may obtain further information about the operation of the Securities and
Exchange Commission's Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. You may also inspect these reports and
other information without charge at a web site maintained by the Securities and
Exchange Commission. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
and will be required to file reports, proxy statements and other information
with the Securities and Exchange Commission. You will be able to inspect and
copy these reports, proxy statements and other information at the public
reference facilities maintained by the Securities and Exchange Commission at
the address noted above. You also will be able to obtain copies of this
material from the Public Reference Room of the Securities and Exchange
Commission as described above, or inspect them without charge at the Securities
and Exchange Commission's web site. We intend to furnish our shareholders with
annual reports containing consolidated financial statements audited by an
independent accounting firm.
95
Table of Contents
National Atlantic
Holdings Corporation and Subsidiaries
Table of Contents
Page(s)
Consolidated
Financial Statement:
Report of Independent Registered Public Accounting Firm
F-2
Consolidated
Balance Sheets:
March 31,
2004 (Unaudited) and December 31, 2003
and 2002
F-3
Consolidated
Statements of Operations:
Three months
ended March 31, 2004 and 2003 (Unaudited) and years ended
December 31, 2003, 2002 and 2001
F-4
Consolidated
Statements of Comprehensive Income (Loss):
Three months
ended March 31, 2004 and 2003 (Unaudited) and years ended
December 31, 2003, 2002 and 2001
F-5
Consolidated
Statements of Changes in Stockholders' Equity:
Three months
ended March 31, 2004 and 2003 (Unaudited) and years ended
December 31, 2003, 2002 and 2001
F-6
Consolidated
Statements of Cash Flows:
Three months
ended March 31, 2004 and 2003 (Unaudited) and years ended
December 31, 2003, 2002 and 2001
F-7
Notes to Consolidated Financial Statements
F-8
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors,
National Atlantic Holdings Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of National
Atlantic Holdings Corporation and Subsidiaries (the "Company") as of December
31, 2003 and 2002 and the related consolidated statements of operations,
comprehensive income (loss), changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2003 and 2002, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
July 19, 2004
F-2
Table of Contents
NATIONAL ATLANTIC
HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
March 31,
December 31,
Proforma
2003
2004
see note 15
2003
2002
Investments: (Note 2)
Fixed maturities available-for-sale (amortized cost $130,799 in 2003 and
$67,179 in 2002)
$
144,481
$
130,410
$
67,871
Short-term investments (cost $31,569 in 2003 and $4,597 in 2002)
28,021
31,569
4,597
Equity securities (cost $8,117 in 2003 and $1,673 in 2002)
13,552
8,593
1,508
Total investments
186,054
170,572
73,976
Cash and cash equivalents
10,110
9,124
18,376
Accrued investment income
1,972
1,901
850
Premiums receivable
26,408
23,219
21,855
Reinsurance recoverable on paid and unpaid losses (Note 4)
26,600
26,346
23,118
Reinsurance receivable (Note 4)
10,050
10,050
—
Prepaid reinsurance
1,255
5,328
3,422
Receivable from Ohio Casualty, a related party (Note 3)
6,820
6,820
6,767
Receivable from Sentry (Note 3)
1,750
2,625
—
Deferred acquisition costs
11,143
8,714
8,538
Property and
equipment  — Net (Note 7)
1,097
1,082
920
Deferred taxes (Note 6)
—
—
1,145
Federal income taxes recoverable
1,318
2,168
—
Other assets
3,693
1,419
2,590
Total assets
$
288,270
$
269,368
$
161,557
Liabilities and Stockholders' Equity:
Liabilities:
Unpaid losses and loss adjustment expenses (Note 5)
$
139,226
$
134,201
$
85,472
Unearned premiums
59,998
51,813
46,018
Accounts payable and accrued expenses
4,913
2,290
1,545
Reinsurance payable
2,207
3,960
—
Deferred revenue from related party (Note 3)
5,045
10,091
5,917
Deferred revenue (Note 3)
2,625
3,500
—
Deferred income taxes (Note 6)
11,207
8,236
—
State income taxes payable
751
399
—
Other liabilities
1,374
4,630
4,098
Total liabilities
227,346
219,120
143,050
Stockholders' equity:
Common stock, Class A, no par value (100,000 shares authorized;
63,901 shares issued as of December 31, 2003 and 2002, respectively)
3,002
3,002
3,002
3,002
Common stock, Class B, no par value (100,000 shares authorized;
51,029 and 38,529 shares issued as of December 31, 2003 and 2002, respectively)
28,258
29,647
28,258
15,382
Retained earnings (accumulated deficit)
27,948
18,024
18,931
(225
)
Accumulated other comprehensive income
1,716
57
57
348
Total stockholders' equity
60,924
$
50,730
50,248
18,507
Total liabilities and stockholders' equity
$
288,270
$
269,368
$
161,557
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
Table of Contents
NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share data)
(Unaudited)
Three months ended
March 31,
For the years ended December 31,
2004
2003
2003
2002
2001
Revenue:
Net premiums earned
$
36,402
$
33,192
$
145,344
$
76,460
$
25,432
Net investment income
1,184
730
4,258
1,593
1,085
Realized gains (losses) on
investments  - net
677
(29
)
1,373
(55
)
346
Replacement carrier revenue from
related party
5,045
5,917
12,737
21,683
—
Replacement carrier revenue from
unrelated party
875
—
—
—
—
Other income
497
334
929
564
212
Total revenue
44,680
40,144
164,641
100,245
27,075
Costs and Expenses:
Loss and loss adjustment expenses
incurred
25,263
22,721
108,123
69,491
28,338
Acquisition expenses
6,187
5,482
26,381
15,128
5,523
Other operating and general expenses
852
1,047
992
3,605
3,684
Total costs and expenses
32,302
29,250
135,496
88,224
37,545
Income (loss) before income taxes
12,378
10,894
29,145
12,021
(10,470
)
Provision (benefit) for income taxes
3,361
3,727
9,989
3,014
(3,606
)
Net Income (Loss)
$
9,017
$
7,167
$
19,156
$
9,007
$
(6,864
)
Net income (loss) per share Common
Stock  - Basic
$
78.46
$
69.97
$
185.16
$
87.93
$
(82.78
)
Net income (loss) per share Common
Stock  - Diluted
$
69.80
$
62.11
$
162.73
$
78.05
$
(82.78
)
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
Table of Contents
NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
Three months ended
March 31,
For the years ended December 31,
2004
2003
2003
2002
2001
Net Income (loss)
$
9,017
$
7,167
$
19,156
$
9,007
$
(6,864
)
Other comprehensive income  - net of tax:
Net holding gains arising during the year
1,635
(36
)
63
441
321
Reclassification adjustment for realized
(gains)
losses included in net income
24
9
(354
)
(43
)
(179
)
Total other comprehensive (loss)
income
1,659
(27
)
(291
)
398
142
Comprehensive Income (loss)
$
10,676
$
7,140
$
18,865
$
9,405
$
(6,722
)
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Table of Contents
NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2003, 2002 and 2001
(in thousands, except share data)
Retained
Receivable
Accumulated
Class A
Class B
Earnings
for
Other
Total
Common Stock
Common Stock
(Accumulated
Securities
Comprehensive
Stockholders'
Shares
Amount
Shares
Amount
Deficit)
Issued
Income (Loss)
Equity
Balance at January
1, 2001
64,951
$
3,055
17,294
$
1,712
($2,368
)
($192
)
$
2,207
Issuance of Class
B Common Stock
20,185
13,500
(13,000
)
$
500
Net loss
(6,864
)
($6,864
)
Other
comprehensive
income
142
$
142
Balance at December
31, 2001
64,951
3,055
37,479
15,212
(9,232
)
(13,000
)
(50
)
(4,015
)
Exchange of Class
A for Class B
Common Stock
(1,050
)
(53
)
1,050
53
—
Issuance of Class
B Common Stock
13,000
13,000
Issuance of stock
options
706
706
Unamortized
deferred
compensation
(589
)
(589
)
Net Income
9,007
9,007
Other
comprehensive
income
398
398
Balance at December
31, 2002
63,901
3,002
38,529
15,382
(225
)
348
18,507
Issuance of Class
B Common Stock
12,500
12,457
12,457
Issuance of Stock
Options
736
736
Unamortized
deferred
compensation
(552
)
(552
)
Amortization of
2002 options
235
235
Net Income
19,156
19,156
Other
comprehensive loss
(291
)
(291
)
Balance at December
31, 2003
63,901
3,002
51,029
28,258
18,931
57
50,248
Net Income
9,017
9,017
Other
comprehensive
income
1,659
1,659
Balance at March
31, 2004
(unaudited)
63,901
$
3,002
51,029
$
28,258
$
27,948
$
1,716
$
60,924
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
Table of Contents
NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the three months
ended March 31,
For the years ended December 31,
2004
2003
2003
2002
2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
9,017
$
7,167
$
19,156
$
9,007
$
(6,864
)
Adjustment to reconcile net income to net cash provided
(used in)
operating activities:
Depreciation and amortization
(99
)
(50
)
312
285
184
Amortization of premium/discount on bonds
245
116
837
259
25
Realized (losses) gains on investment sales
(677
)
(13
)
(1,373
)
55
(346
)
Realized (losses) gains on fixed asset sales
(3
)
—
—
—
—
Realized (losses) gains on premium write offs
5
—
—
—
—
Changes in:
Deferred income taxes
2,129
3,381
9,531
3,015
(3,000
)
Premiums receivable
(3,189
)
1,111
(1,364
)
(12,271
)
(2,134
)
Reinsurance recoverable
(255
)
103
(3,228
)
5,998
(10,310
)
Reinsurance receivable
—
—
(10,050
)
—
—
Prepaid reinsurance
4,073
650
(1,906
)
5,765
(2,183
)
Receivable from Ohio Casualty
—
(233
)
(53
)
(6,767
)
—
Receivable from Sentry
875
—
(2,625
)
—
—
Guarantee fund receivable
—
—
—
21
38
Deferred acquisition costs
(2,430
)
(1,904
)
(176
)
(6,707
)
770
Accrued interest income
(71
)
(104
)
(1,051
)
(678
)
101
Federal income taxes recoverable
850
—
(2,168
)
608
482
Other assets
(2,274
)
2,013
1,171
(2,449
)
305
Unpaid losses and loss adjustment expenses
5,025
15,085
48,729
28,740
19,383
Stock options
—
—
419
117
—
Accounts payable
2,623
940
745
1,364
181
Deferred revenue from related party
(5,046
)
1,083
4,174
5,917
—
Deferred revenue
(875
)
1,414
3,500
—
—
Unearned premiums
8,185
2,042
5,795
29,208
1,785
Reinsurance payable
(1,753
)
4,195
3,960
(1,664
)
(1,419
)
Income taxes payable
352
1,213
399
—
—
Other liabilities
(3,256
)
(2,215
)
533
2,892
(693
)
Net cash provided by (used in) operating activities
13,451
35,994
75,267
62,715
(3,695
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
84
25
(474
)
(821
)
(201
)
Purchases of fixed maturity investments
(43,039
)
(21,560
)
(131,225
)
(56,735
)
(24,424
)
Sales and maturities of fixed income investments
31,598
4,758
68,326
4,016
30,638
Purchases of equity securities
(6,138
)
(415
)
(14,282
)
(1,927
)
(858
)
Sales of equity securities
1,477
230
7,664
875
675
Purchases of short-term investments  - net
3,553
(23,979
)
(26,984
)
(556
)
(1,957
)
Net cash (used in) provided by investing activities
(12,465
)
(40,941
)
(96,975
)
(55,148
)
3,873
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in notes payable—net
(1
)
—
—
(5,683
)
(107
)
Proceeds from issuance of common stock—net
—
—
12,456
13,000
500
Net cash provided by financing activities
(1
)
—
12,456
7,317
393
Net (decrease) increase in cash
986
(4,947
)
(9,252
)
14,884
571
Cash and cash equivalents @ beginning of year
9,124
18,376
18,376
3,492
2,921
Cash and cash equivalents @ end of year
$
10,110
$
13,429
$
9,124
$
18,376
$
3,492
Cash paid during the year for:
Interest
$
0
$
0
$
3
$
389
$
694
Income taxes paid (received)
$
0
$
0
$
2,227
$
(608
)
$
(1,088
)
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
Table of Contents
NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
1. Nature of Operations and Significant Accounting Policies
National Atlantic Holdings Corporation (NAHC) and Subsidiaries (the Company)
was incorporated in New Jersey, on July 29, 1994. The Company is a holding
company for Proformance Insurance Company (Proformance), its wholly-owned
subsidiary. Proformance is domiciled in the State of New Jersey and writes
property and casualty insurance, primarily personal auto. NAHC's initial
capitalization was pursuant to private placement offerings. The initial
stockholders paid $50 per share for 65,400 shares of Class A common stock.
On February 14, 1995 the Board of Directors approved the offering of up to
15,000 shares at $100 per share of nonvoting Class B common stock. At the end
of 1995, 6,584 shares were issued at $100 per share to new agents and at 105 %
of the net book value to the officers and directors under a one-time stock
purchase program. The average per share price for both issuances of this Class
B common stock was approximately $88 per share. On April 7, 1995, the
Certificate of Incorporation was amended to authorize the issuance of up to
100,000 shares of nonvoting common stock.
NAHC also has a controlling interest (80 percent) in Niagara Atlantic Holdings
Corporation and Subsidiaries (Niagara), which is a New York corporation.
Niagara was incorporated on December 29, 1995. The remaining interest (20
percent) is owned by New York agents. Niagara was established as a holding
company in order to execute a surplus debenture and service agreement with
Capital Mutual Insurance (CMI). As of June 5, 2000, CMI has gone into
liquidation and is under the control of the New York State Insurance
Department. CMI is no longer writing new business and therefore neither is
Niagara. Niagara had $0 equity value as of December 31, 2003 and 2002. NAHC
has no remaining obligations as it relates to the agreement.
In addition, NAHC has another wholly owned subsidiary, Riverview Professional
Services, Inc., which was established in 2002 for the purpose of providing case
management and medical cost containment services to Proformance and other
unaffiliated clients.
In December 2001, NAHC established National Atlantic Financial Corporation
(NAFC), to offer general financing services to its agents and customers. In
November 2003, NAFC established a wholly owned subsidiary, Mayfair Reinsurance
Company Limited, for the purpose of assuming reinsurance business as a
retrocessionaire from third party reinsurers of Proformance and providing
reinsurance services to unaffiliated clients.
Another wholly owned subsidiary of NAHC is National Atlantic Insurance Agency,
Inc. (NAIA), which was incorporated on April 5, 1995. The Company purchased all
1,000 shares of NAIA's authorized common stock at $1 per share. NAIA obtained
its license to operate as an insurance agency in December 1995. The agency
commenced operations on March 20, 1996. The primary purpose of this entity is
to service any direct business written by Proformance and to provide services
to agents and policyholders acquired as part of replacement carrier
transactions.
F-8
Table of Contents
The significant accounting policies followed by the Company in the preparation
of the accompanying consolidated financial statements are as follows:
Basis of Presentation
—
The accompanying financial statements have been prepared
in conformity with accounting principles generally accepted in the United
States of America (GAAP) which differ materially from statutory accounting
practices prescribed or permitted for insurance companies by regulatory
agencies. All significant intercompany transactions and balances have been
eliminated.
Segment Disclosure
-
We manage and report our business as a single segment based
upon several factors. Historically, on average in excess of 90% of our total
consolidated revenues are generated by our insurance subsidiary Proformance
Insurance Company. In addition, although Proformance writes both personal line
and commercial line business, we consider those operating segments as one
operating segment due to the fact that the nature of the products are similar
and they share the same distribution system.
Use of Estimates
—The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, 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. The primary estimates made by management involve the
establishment of reserves for losses and loss adjustment expenses. Actual
results could differ from those estimates.
Cash and Cash Equivalents
—For purposes of the statements of cash flows, the
Company considers short-term investments with an initial maturity of three
months or less to be cash equivalents.
Property and Equipment
—
Property and equipment are stated at cost. Depreciation
and amortization is provided under the straight-line method based upon the
following estimated useful lives:
Estimated
Description
Life (Years)
Automobiles
5
Furniture and fixtures
7
Computer software and electronic data equipment
3
Leasehold improvements
*
*
Amortized over the remaining life of the lease from the date placed in
service.
Major replacements of, or improvements to, property and equipment are
capitalized. Minor replacements, repairs and maintenance are charged to expense
as incurred. Upon retirement or sale, the cost of the assets disposed and the
related accumulated depreciation and amortization are removed from the accounts
and any resulting gain or loss is recorded in operations. The recoverable
value of property and equipment assets are evaluated at least annually.
Investments
—
Fixed maturity investments which may be sold in response to, among
other things, changes in interest rates, prepayment risk, income tax strategies
or liquidity needs, are classified
as available-for-sale and are carried at market value. Equity securities are
also carried at market value. Changes in market value for fixed maturity
investments and equity securities are credited or charged to stockholders'
equity as other comprehensive income (loss). Short-term securities
F-9
Table of Contents
are carried
at cost, which approximates market value. Market values are generally based on
quoted market prices. Realized investment gains and losses are recorded on the
specific identification method. All security transactions are recorded on a
trade date basis.
The Company considers a number of factors in the evaluation of whether a
decline in value is other-than-temporary including: (a) the financial condition
and near term prospects of the issuer; (b) the Company's ability and intent to
retain the investment for a period of time sufficient to allow for an
anticipated recovery in value; and (c) the period and degree to which the
market value has been below cost. A fixed maturity security is
other-than-temporarily impaired if it is probable that the Company will not be
able to collect all the amounts due under the security's contractual terms.
Equity investments are impaired when it becomes apparent that the Company will
not recover its cost over the expected holding period. These adjustments are
recorded as realized investment losses.
Concentration of Credit Risk
—Financial instruments which potentially subject
the Company to concentrations of credit risk include cash balances and
marketable debt securities. The Company places its temporary cash investments
with creditworthy financial institutions. The Company holds bonds and notes
issued by the United States government and corporations. By policy, these
investments are kept within limits designed to prevent risks caused by
concentration. Consequently, as of December 31, 2003, the Company does not
believe it has significant concentrations of credit risks. The Company is
exposed to a concentration of credit risk with respect to amounts due from
reinsurers. Management monitors the financial condition of their reinsurers and
additional collateral is requested as needed.
Deferred Policy Acquisition Costs
—Deferred acquisition costs, which consist of
commissions and other underwriting expenses, are costs that vary with and are
directly related to the underwriting of new policies and are deferred and
amortized over the period in which the related premiums are earned.
Anticipated investment income is considered in the determination of the
recoverability of deferred acquisition costs.
Amortized deferred acquisition costs for the years ended December 31, 2003,
2002 and 2001 were $26,380,984, $15,128,220 and $5,522,877, respectively.
Insurance Liabilities/Reserves for Losses and Loss Adjustment Expenses
—The
provision for unpaid losses and loss adjustment expenses includes individual
case estimates, principally on the basis of reports received from claim
adjusters engaged by the Company, for losses reported prior to the close of the
year and estimates with respect to incurred but not reported (IBNR) losses and
loss adjustment expenses, net of anticipated salvage and subrogation. The
method of making such estimates and for establishing the resulting reserves is
continually reviewed and updated, and adjustments resulting therefrom are
reflected in current operations. The estimates are determined by management and
are based upon industry data relating to loss and loss adjustment expense
ratios as well as the Company's historical data. The unpaid losses and unpaid
loss adjustment expenses presented in these financial statements have not been
discounted.
This liability is subject to the impact of changes in claim severity, frequency
and other factors which may be outside of the Company's control. Despite the
variability inherent in such estimates, management believes that the liability
for unpaid losses and loss adjustment expenses is adequate and represents its
best estimate of the ultimate cost of investigating, defending and
settling claims. However, the Company's actual future experience may not
conform to the assumptions inherent in the determination of this liability.
Accordingly, the ultimate settlement of
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Table of Contents
these losses and the related loss
adjustment expenses may vary significantly from the amounts included in the
accompanying financial statements.
Recognition of Premium Revenues
—Premiums written or assumed are earned on a
daily pro-rata basis over the estimated life of the policy or reinsurance
contract. Unearned premiums are established and represent the portion of net
premiums which is applicable to the unexpired terms of policies in force.
Recognition of Replacement Carrier Revenues
—Revenue from replacement carrier
contracts is recognized pro-rata over the period as the Company completes the
obligations under the terms of the agreement, typically the renewal option
period of the policyholders ranging from six months to a year, as required
pursuant to the terms of the contract. Certain replacement carrier contracts
require additional consideration to be paid to the Company based on an
evaluation of premiums written to surplus. The calculation is performed and
related revenue is recognized as earned annually pursuant to the terms of the
contract. See note 3.
Accounting for Reinsurance
—The Company accounts for reinsurance in conformity
with Statement of Financial Accounting Standards No. 113,
Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts.
This
standard requires the Company to report assets and liabilities relating to
reinsured contracts gross of the effects of reinsurance. The standard also
establishes the conditions required for a contract with a reinsurer to be
accounted for as reinsurance and prescribes accounting and reporting standards
for such contracts.
The Company contracts with insurance companies, which assume portions of the
risk undertaken. The Company remains the primary obligee to the extent any
reinsurer is unable to meet its obligations under the existing reinsurance
agreements. The reinsurance contracts are accounted for on a basis consistent
with that used in the accounting of the direct policies issued by the Company.
Income Taxes—
The Company files a consolidated federal tax return. Under the
tax allocation agreement, current federal income tax expense (benefit) is
computed on a separate return basis and provides that members shall make
payments (receive reimbursements) to the extent that their income (losses and
other credit) contributes to (reduces) consolidated federal income tax expense.
The member companies are reimbursed for the tax attributes they have generated
when utilized in the consolidated return.
The Company recognizes taxes payable or refundable for the current year, and
deferred taxes for the future tax consequences of differences between the
financial reporting and tax basis of assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years the temporary differences between the carrying
amounts of assets and liabilities for finance reporting purposes and the
amounts used for income tax purposes are expected to reverse.
Stock Options
—The Company adopted Statement of Financial Accounting Standards
No. 123,
Accounting for Stock-Based Compensation
(SFAS 123), in 1996. Under the
provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value based method or continue measuring
compensation expenses for those plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock
Issued
to Employees
(APB 25) and related interpretations. In December 2002, the FASB
issued SFAS No. 148 which amended the disclosure requirements of SFAS No. 123
to require prominent
F-11
Table of Contents
disclosures in financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
on reported results. The Company has elected to continue using the intrinsic
value method (APB No. 25) to account for stock based compensation plans.
The following table presents the Company's pro forma net income (loss) for the
years ended December 31, assuming the Company had used the fair value method
(SFAS No. 123) to recognize compensation expense with respect to its options:
(unaudited)
Three months ended
Years ended
March 31,
December 31,
2004
2003
2003
2002
2001
Net income (loss)  - as reported
$
9,017,417
$
7,166,681
$
19,155,796
$
9,006,638
$
(6,864,395
)
Plus: Compensation expense recorded
against income
120,193
58,858
419,000
118,000
—
Deduct: Total stock-based employee
compensation expense determined
under fair value method for all awards,
net of related tax effects
(123,149
)
(59,002
)
(418,559
)
(130,973
)
(553
)
Pro forma net income (loss)
$
9,014,461
$
7,166,537
$
19,156,237
$
8,993,665
$
(6,864,948
)
Net income per weighted average shareholding
Basic  - as reported
$
78.46
$
69.97
$
185.16
$
87.93
$
(82.78
)
Basic  - proforma
$
78.43
$
69.97
$
185.16
$
87.80
$
(82.78
)
Diluted  - as reported
$
69.80
$
62.11
$
162.73
$
78.05
$
(82.78
)
Diluted  - proforma
$
69.78
$
62.11
$
162.73
$
77.94
$
(82.78
)
The above pro forma information has been determined as if the Company had
accounted for its employees' stock options under the fair value method. The
fair value of the options was estimated at the date of grant using the
Black-Scholes option-pricing model with a volatility factor assumed to be zero
percent and the following weighted average assumptions:
2003
2002
2001
Risk-free interest yield
4.0
%
4.6
%
5.0
%
Dividend yield
0.0
%
0.0
%
0.0
%
Average life
3 Years
3 Years
3 Years
The weighted average fair value of options granted whose exercise price was
equal to the market price of the stock on the date of grant during the years
ended December 31, 2003, 2002 and 2001 was $0, $0 and $61,132, respectively.
The weighted average fair value of options granted whose exercise price was
less than the market price of the stock on the date of grant during the years
ended December 31, 2003, 2002 and 2001 was $1,000,000, $734,800 and $0,
respectively. The weighted average exercise price of options granted whose
exercise price was less than market price of the stock on the date of grant was
$263.98 and $25.91 and $0, respectively.
F-12
Table of Contents
Option pricing models require the input of highly subjective assumptions.
Because the Company's employee stock has characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Retirement Plans
—The Company has a contributory savings plan for salaried
employees meeting certain service requirements, which qualifies under Section
401(k) of the Internal Revenue Code of 1986. Retirement plan expense for the
year ended December 31, 2003, 2002 and 2001 amounted to $149,760, $127,730 and
$67,318, respectively.
Unaudited Interim
Statements
—The interim consolidated financial statements
as of March 31, 2004, and for the three months ended,
March 31, 2004 and 2003 and the financial data and other
information for these periods disclosed in these notes to the
consolidated financial statements are unaudited. In the opinion of
management, the Company has made all adjustments,
consisting primarily of normal recurring accruals, necessary for a
fair presentation of the financial condition of the Company as of
March 31, 2004, the results of operations, comprehensive income
(loss), changes in stockholders' equity and cash flows for the
three-month periods ended March 31, 2004 and 2003, as presented
in the accompanying unaudited interim financial statements.
2. INVESTMENTS
The amortized cost and estimated market value of the investment portfolio,
classified by category, as of December 31, 2003 are as follows:
Cost/
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Market
Cost
Gains
(Losses)
Value
Fixed maturities:
U.S. Government,
government agencies
and authorities
$
39,633,926
$
17,604
$
(338,138
)
$
39,313,392
State, local government
and agencies
46,261,628
19,533
—
46,281,161
Industrial and miscellaneous
44,903,263
116,868
(205,222
)
44,814,909
Total fixed maturities
130,798,817
154,005
(543,360
)
130,409,462
Other Investments:
Short-term investments
31,569,445
—
—
31,569,445
Equity securities
8,117,385
763,737
(288,038
)
8,593,084
Total Investments
$
170,485,647
$
917,742
$
(831,398
)
$
170,571,991
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Table of Contents
The amortized cost and estimated market value of the investment portfolio,
classified by category, as of December 31, 2002 are as follows:
Cost/
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Market
Cost
Gains
(Losses)
Value
Fixed maturities:
U.S. Government,
government agencies
and authorities
$
12,071,671
$
175,134
—
$
12,246,805
State, local government
and agencies
6,661,642
42,326
(17,662
)
6,686,306
Industrial and miscellaneous
48,445,593
511,112
(18,527
)
48,938,178
Total fixed maturities
67,178,906
728,572
(36,189
)
67,871,289
Other Investments:
Short-term investments
4,597,363
—
—
4,597,363
Equity securities
1,673,009
67,501
(232,817
)
1,507,693
Total Investments
$
73,449,278
$
796,073
$
(269,006
)
$
73,976,345
The fair value of available-for-sale securities at December 31, 2003, by
contractual maturity, are shown below. Expected maturities may differ from
stated maturities because issuers may have the right to call or prepay certain
obligations with or without prepayment penalties.
Fair
Value
Due in one year or less
$
6,212,235
Due in one year through five years
11,225,758
Due in five years through ten years
46,107,077
Due in ten through twenty years
59,450,768
Due in over twenty years
7,413,624
Total
$
130,409,462
As of December 31, 2003 and 2002, the Company held no investments that were
below investment grade or not rated by an independent rating agency.
The Company has placed securities on deposit having a fair value of $208,724
and $209,170 at December 31, 2003 and 2002 respectively in order to comply with
New Jersey state insurance regulatory requirements.
F-14
Table of Contents
Sales of fixed maturity and equity securities for the periods ended December 31
are shown below:
2003
2002
2001
Proceeds
$
75,990,136
$
4,890,603
$
31,313,474
Gross realized gains
1,802,770
23,174
388,200
Gross realized losses
(430,213
)
(78,393
)
(41,718
)
No other-than-temporary impairments were recognized for the periods ended
December 31, 2003, 2002 and 2001.
The components of net investment income earned were as follows:
Years Ended December 31,
2003
2002
2001
Investment income:
Interest income
$
4,199,917
$
1,675,194
$
1,140,110
Dividend income
312,545
38,622
12,950
Investment income
4,512,462
1,713,816
1,153,060
Investment expenses
(254,790
)
(120,938
)
(68,104
)
Net investment income
$
4,257,672
$
1,592,878
$
1,084,956
Adoption of New Accounting Pronouncements
-
Effective December 31, 2003, the
Company adopted the disclosure requirements of Emerging Issues Task Force
("EITF") Issue No. 03-01,
The Meaning of Other-Than-Temporary Impairment and
Its Applications of Certain Investments
. Under the consensus, disclosures are
required for unrealized losses on fixed maturity and equity securities
accounted for under SFAS No. 115,
Accounting for Certain Investment in Debt and
Equity Securities
, which are classified as either available-for-sale or
held-to-maturity. The disclosure requirements include quantitative information
regarding the aggregate amount of unrealized losses and the associated fair
value of the investments in an unrealized loss position, segregated into time
periods for which the investments have been in an unrealized loss position.
The consensus also requires certain qualitative disclosures about the holdings
in an unrealized loss position in order to provide additional information that
the Company considered in concluding that the unrealized losses were not
other-than-temporary. The recognition and impairment guidance of this Issue
should be applied to other-than-temporary impairment evaluations in reporting
periods beginning after June 15, 2004. Management is in the process of
assessing the impact of adopting the recognition and measurement guidance of
EITF Issue No. 03-01.
Fixed maturity securities having an unrealized loss of $543,360, a fair value
of $14,211,383 and an amortized cost of $14,754,743 as of December 31, 2003
have been in a continuous unrealized loss position for less than twelve months.
F-15
Table of Contents
Equity and preferred securities having an unrealized loss of $288,038, a fair
value of $2,786,840 and an amortized cost of $3,074,878 as of December 31, 2003
have been in a continuous unrealized loss position for less than twelve months.
The Company's gross unrealized losses represented 0.5% of cost or amortized
cost of the investment portfolio. Fixed maturities represented 77% of the
investment portfolio and 65% of the unrealized losses as of December 31, 2003.
There were no securities that were in an unrealized loss position for twelve
months or more as of December 31, 2003.
The fixed income securities in an unrealized loss position are primarily above
investment grade securities with extended maturity dates, which have been
adversely impacted by the increase in interest rates after the purchase date.
As part of the ongoing security monitoring process by the Company's investment
manager and investment committee, it was concluded that there were no
other-than-temporary impairments of the portfolio as of December 31, 2003. It
is the management's position with the committee's confirmation that the
securities that are temporarily impaired are of quality and continue to pay in
accordance with their contractual terms with the expectation that they will
continue to do so.
The evaluation for other-than-temporary impairments is a quantitative and
qualitative process, which is subject to risks and uncertainties in the
determination of whether declines in the fair value of investments are
other-than-temporary. The risks and uncertainties include changes in general
economic conditions, the issuer's financial condition or near term recovery
prospects and the effects of changes in interest rates.
F-16
Table of Contents
The changes in net unrealized investment gains (losses) were as follows:
Years ended December 31,
2003
2002
2001
Fixed Maturities:
Balance at January 1,
$
456,973
$
(7,207
)
$
(69,512
)
Unrealized investment gains (losses) during the year
(1,081,738
)
703,303
94,401
Deferred income taxes
367,791
(239,123
)
(32,096
)
Balance at December 31,
$
(256,974
)
$
456,973
$
(7,207
)
Net change in unrealized investment gains
$
(713,947
)
$
464,180
$
62,305
2003
2002
2001
Equity Securities:
Balance at January 1,
$
(109,109
)
$
(42,437
)
$
(122,885
)
Unrealized investment gains (losses) during the year
641,015
(99,988
)
121,891
Deferred income taxes
(217,945
)
33,316
(41,443
)
Balance at December 31,
$
313,961
$
(109,109
)
$
(42,437
)
Net change in unrealized investment gains
$
423,070
$
(66,672
)
$
80,448
Net realized gains (losses) were as follows:
Years ended December 31,
2003
2002
2001
Fixed maturities
$
1,546,459
$
592
$
388,199
Equity Securities
(173,902
)
(55,811
)
(41,717
)
$
1,372,557
$
(55,219
)
$
346,482
3. REPLACEMENT CARRIER TRANSACTIONS
Ohio Casualty
On December 18, 2001 the Company entered into a replacement carrier agreement
with Ohio Casualty Insurance Company (OCIC) and Ohio Casualty of New Jersey,
Inc. (OCNJ) pursuant to where OCNJ would transfer to Proformance the obligation
to offer renewals for all of OCNJ's New Jersey private passenger automobile
business, effective March 18, 2002. In accordance with the agreement, OCNJ
ceased issuing private passenger automobile policies in the State of New
Jersey. As part of the withdrawal, Proformance became the replacement carrier
for OCNJ,
F-17
Table of Contents
providing OCNJ's policyholders with a guaranteed option to renew their policies
over a twelve month period. OCNJ retains all rights and responsibilities
related to policies issued by OCNJ and is responsible to issue any endorsements
in the ordinary course of business prior to the renewal date. The policies
renew every six months. As part of the transaction, OCNJ paid Proformance
$41,100,000, of which $500,000 was paid at the contract date and $40,600,000
was paid in twelve equal monthly installments of $3,833,333, with the first
payment due on March 18, 2002.
In connection with this transaction, OCIC acquired a 19.71 percent interest (at
the time of the transaction) in the Company by purchasing 20,185 shares of
Class B nonvoting common stock. The Company valued the stock issued as part of
the transaction at $13,500,000, based on a valuation performed for the Company.
The remaining $27,600,000 was earned evenly as replacement carrier revenue
over the twelve month period beginning on March 18, 2002, consistent with the
terms of the contract.
In addition, as part of the agreement, there is also a provisional amount due
to the Company pursuant to which OCNJ will pay to the Company up to $15,600,000
of additional consideration as necessary to reduce the premium-to-surplus ratio
to 2.5 to 1 on the renewal business for a three year period based on
calculations performed at each calendar year-end. For the years ended December
31, 2003 and 2002, the Company recognized additional consideration of
$6,820,000 and $0, respectively, as replacement carrier revenue in accordance
with the terms of the contract.
At December 31, 2003 and 2002, amounts due from OCNJ relating to the
transaction amounted to $6,820,000 and $6,766,667, respectively. Deferred
revenue relating to the contract amounted to $5,916,987 at December 31, 2002.
Metropolitan Property and Casualty Insurance Company
On September 2, 2003, the Company entered into a replacement carrier agreement
with Metropolitan Property and Casualty Insurance Company (Met) pursuant to
which Met would transfer to Proformance the obligation to offer renewals for
all of Met's New Jersey personal lines business, effective January 1, 2004. In
accordance with the agreement, Met ceased issuing new personal lines policies
in the State of New Jersey. As part of the withdrawal, Proformance became the
replacement carrier for Met, providing Met's policyholders with a guaranteed
option to renew their policies over a six month period. As part of the
transaction, Met was required to pay Proformance consideration of $10,090,909
and purchase 10,000 shares of class B nonvoting stock for $10,000,000, which
represented a 9% interest at the time of the transaction, based upon the
Company's valuation. The $10,090,909 has all been considered deferred revenue
at December 31, 2003 and will be earned evenly over the six month period
beginning on January 1, 2004.
Sentry Insurance Company
The Company entered into a replacement carrier agreement on March 14, 2003 with
Sentry Insurance Mutual Company (Sentry) pursuant to which Sentry would
transfer to Proformance the obligation to offer renewals for all of Sentry's
New Jersey personal lines business, effective December 30, 2003. In accordance
with the agreement, Sentry ceased issuing new personal lines policies in the
State of New Jersey. As part of the withdrawal, Proformance became the
replacement carrier for Sentry, providing Sentry's policyholders with a
guaranteed option to renew their policies over a twelve month period. As part
of the transaction, Sentry was required to pay the Company $3,500,000 in four
equal quarterly installments of $875,000 with the first payment on October 23,
2003. The replacement carrier revenue will be earned evenly over the
F-18
Table of Contents
twelve
month period beginning on January 1, 2004, the date that the first notices of
renewal to each policyholder were processed and issued.
In addition, as part of the agreement, there is also a provisional amount due
to the Company pursuant to which Sentry will pay to the Company up to
$1,250,000 of additional consideration as necessary to reduce the
premium-to-surplus ratio to 2.5 to 1 on the renewal business for a three year
period based on calculations preformed at each calendar year-end. At December
31, 2003, the Company has determined that no amount is currently recoverable.
At December 31, 2003 amounts due from Sentry relating to the transaction
amounted to $2,625,000. Deferred revenue relating to the contract amounted to
$3,500,000 at December 31, 2003.
4. REINSURANCE ACTIVITY
In the ordinary course of business, the Company reinsures certain risks with
other companies. Such arrangements serve to limit the Company's maximum loss
from catastrophes, large risks and unusually hazardous risks. To the extent
that any reinsuring company is unable to meet its obligations, the Company
would be liable for its respective participation in such defaulted amounts. The
Company does not require or hold any collateral to secure the amounts
recoverable. In addition the Company does not have any reinsurance treaties
with retroactive adjustments or contingent commissions.
For the years ended December 31, 2003, 2002 and 2001, the Company reinsured its
business through various excess of loss reinsurance agreements and catastrophe
reinsurance agreements. The various excess of loss agreements provide
protection for losses and loss adjustment expenses in excess of $250,000 per
occurrence. Effective on July 1, 2003, the Company entered into a Multiple Line
Loss Ratio Excess of loss treaty. Under the terms of the treaty the Company
retains the risk up to an ultimate net loss ratio of 80 percent of subject
written premiums in force for the one six month term of the contract. The
reinsurer assumes the risk for 11 percent of subject premiums in excess of 80
percent up to a maximum of $15,000,000. Any losses exceeding the reinsurers
liability remains the liability of the company.
Under the terms of the contract, the Company is entitled to an experience
rating adjustment based on reinsurance premiums paid net of ceding commissions
and reinsurers margin, which is determined by a specific formula outline in the
contract. The ceding enterprise should recognize an asset and the assuming
enterprise should recognize a liability to the extent that any cash (or other
consideration) would be payable from the assuming enterprise to the ceding
enterprise based on experience to date under the contract. The Company commuted
the contract effective December 31, 2003. Accordingly, as of December 31, 2003,
the Company accrued for a reinsurance receivable which was received on May 28,
2004 in the amount of $10,050,000. In connection with this commutation, the
Company recognized the amounts received as a decrease in ceded premium of
$10,050,000.
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Table of Contents
A summary of reinsurance transactions are as follows:
2003
2002
2001
Written
Earned
Written
Earned
Written
Earned
Direct
$
163,178,887
$
158,409,998
$
114,624,256
$
85,418,626
$
49,757,470
$
47,971,847
Assumed
2,719,644
1,693,591
2,546,694
2,544,625
53,249
53,993
Gross
165,898,531
160,103,589
117,170,950
87,963,251
49,810,719
48,025,840
Ceded
(16,665,730
)
(14,759,585
)
(5,739,145
)
(11,503,364
)
(24,312,146
)
(22,594,094
)
Net
$
149,232,801
$
145,344,004
$
111,431,805
$
76,459,887
$
25,498,573
$
25,431,746
Reinsurance assumed relates to mandated premiums from the New Jersey Commercial
Auto Insurance Procedure.
The Company reported reinsurance recoverables on paid losses and loss
adjustment expenses of $5,017,349, $3,687,466 and $2,397,637 at December 31,
2003, 2002 and 2001, respectively.
The Company also reported reinsurance recoverables on unpaid losses and loss
adjustment expenses of approximately $21,329,000, $19,431,000 and $26,718,000
at December 31, 2003, 2002 and 2001, respectively.
Incurred losses and loss adjustment expenses ceded to reinsurers totaled
$16,822,000, $16,172,000 and $14,305,000 at December 31, 2003, 2002 and 2001,
respectively.
Reinsurance recoverables on ceded paid and unpaid losses, loss adjustment
expenses and ceded unearned premiums and reinsurance receivable from individual
reinsurers in excess of 3 percent of the Company's equity were as follows for
the year ended December 31 (000's omitted):
2003
2002
Gerling Global Reinsurance Corp. of America
$
—
$
7,087
Scor Reinsurance Company
8,176
5,600
American Reinsurance
9,169
4,772
Odyssey America Reinsurance
18,465
11,652
In 2002, the Company commuted an aggregate stop loss treaty with Odyssey
American Reinsurance. The commutation was initiated and accrued for in December
2002 and the return premium was received on March 7, 2003 in the amount of
$3,379,500. The commutation was recognized as a decrease in ceded premium.
In 2003, the Company commuted all treaties held with Gerling Global Reinsurance
Corporation (Gerling), due to credit downgrades and the financial deterioration
of Gerling. In March 2003, The Company received $6,200,000 from Gerling in
full settlement of their liability. The Company recognized the amount received
as a reduction of reinsurance recoverables, ceded loss and loss adjustment
expense reserves in the amount of $2,047,612, $3,805,535 and $346,853,
respectively (thereby increasing net losses and loss adjustment expenses
incurred) in the current year. The Company also decreased its net loss and
loss adjustment expenses paid (thereby decreasing net losses and loss
adjustment expenses incurred) to recognize the effect of releasing Gerling from
its obligations under the treaties. The Company recorded a net loss of
$235,999 on the transaction.
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Table of Contents
5. RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The changes in unpaid losses and loss adjustment expenses are summarized as
follows (000's omitted):
2003
2002
2001
Balance as of beginning of year
$
85,472
$
56,732
$
37,350
Less reinsurance recoverable on unpaid losses
(19,431
)
(26,718
)
(16,961
)
Net balance as of beginning of year
66,041
30,014
20,389
Incurred related to:
Current period
108,047
60,861
19,400
Prior period
76
8,630
8,938
Total incurred
108,123
69,491
28,338
Paid related to:
Current period
37,594
20,114
8,168
Prior period
23,698
13,350
10,545
Total paid
61,292
33,464
18,713
Net balance as of December 31
112,872
66,041
30,014
Plus reinsurance recoverable on unpaid losses
21,329
19,431
26,718
Balance as of December 31
$
134,201
$
85,472
$
56,732
As a result of changes in estimates of insured events in prior years, incurred
losses in prior years increased by approximately $76,000 in 2003, $8,630,000 in
2002 and $8,938,000 in 2001 because of higher than anticipated losses on the
private passenger automobile, automobile physical damage and commercial
automobile liability, as well as reserve strengthening during 2002 and 2001.
The incurred losses related to prior years of $76,000 in 2003 included the
previously discussed, Gerling commutation loss of $235,999 which was offset by
favorable loss development on prior accident year reserves.
Environmental Reserves
-
The Company's exposure to environmental claims arises
solely from the sale of Homeowners policies. The exposure to environmental
claims which may also be referred to as "pollution," "hazardous waste," or
"environmental impairment liability" was due to leakage of underground fuel
storage tanks, which contaminated the surrounding soil and ground water.
The Company establishes full case reserves for all reported environmental
claims. Reserves for losses incurred but not reported (IBNR) include a
provision for development of reserves on reported losses. The Company's IBNR
reserves are established based on a review of a number of actuarial analyses.
F-21
Table of Contents
The table balance represents the loss activity related to environmental
exposures for the periods ended December 31, 2003, 2002 and 2001 (000's
omitted):
2003
2002
2001
Environmental, Gross of Reinsurance
Beginning Reserves -  including case, bulk and IBNR, and
LAE
$
650
$
471
$
171
Losses and LAE incurred
186
699
849
Calendar year payments for losses and LAE
93
520
549
Ending reserves - including case, bulk and IBNR, and LAE
743
650
471
Environmental, net of reinsurance
Beginning Reserves - including case, bulk and IBNR, and
LAE
$
381
$
114
$
67
Losses and LAE incurred
146
439
432
Calendar year payments for losses and LAE
73
171
385
Ending reserves - including case, bulk and IBNR, and LAE
454
381
114
6. INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax return.
The components of the provision (benefit) for income taxes on income for the
years ended December 31, 2003, 2002 and 2001 are as follows:
2003
2002
2001
Taxes on income before income taxes:
Current taxes
$
457,640
—
$
(606,294
)
Deferred taxes
9,531,493
3,014,570
(3,000,094
)
Total
$
9,989,133
$
3,014,570
$
(3,606,388
)
F-22
Table of Contents
The components of deferred tax assets and deferred tax liabilities are as
follows for the years ending December 31, 2003 and 2002:
2003
2002
Deferred tax assets:
20% UPR adjustment
$
3,160,948
$
2,896,510
Loss reserve discount
3,424,851
1,488,005
Depreciation
—
685
Bad debt reserve
169,995
209,045
Unrealized losses
282,675
91,462
Incentive stock options
289,871
40,018
Charitable contribution carryover
—
3,099
Loss on NJ CAIP
—
453,220
NOL carryforward
—
904,821
GAAP reserve differentials
3,400,000
5,706,900
Deferred tax assets
10,728,340
11,793,765
Deferred tax liability:
Deferred acquisistion costs
2,962,608
2,902,754
Accrual of bond discount
8,351
3,727
Deferred revenues - special surplus funds
11,702,800
7,372,224
Unrealized gains
312,032
270,665
Due & Accrued dividends
17,487
2,051
Depreciation
143,714
97,346
Accrued income reinsurance recoverable
3,817,000
—
Deferred tax liabilities
18,963,992
10,648,767
Net deferred tax income taxes
$
(8,235,652
)
$
1,144,998
The income tax rate reconciliation for the years ended December 31, 2003, 2002
and 2001 is as follows (000's omitted):
2003
2002
2001
Pre Tax Net Income
$
29,145
$
12,021
$
(10,470
)
Income Tax Statutory Rate
9,909
34.00
%
4,087
34.00
%
(3,560
)
34.00
%
Tax Exempt Interest
(230
)
-0.79
%
(11
)
-0.09
%
(55
)
0.53
%
DRD
(54
)
-0.19
%
(8
)
-0.07
%
(4
)
0.04
%
Proration
43
0.15
%
3
0.02
%
9
-0.09
%
Life insurance expense
27
0.09
%
—
0.00
%
—
0.00
%
State taxes
399
1.37
%
—
0.00
%
—
0.00
%
Release of valuation allowance
—
0.00
%
(1,161
)
-9.66
%
—
0.00
%
Other
(105
)
-0.36
%
104
0.87
%
4
-0.04
%
Subtotal
9,989
34.27
%
3,014
25.07
%
(3,606
)
34.44
%
Foreign tax credits
—
0.00
%
—
0.00
%
—
—
Total income tax expense
$
9,989
34.27
%
$
3,014
25.07
%
$
(3,606
)
34.44
%
F-23
Table of Contents
Income tax provision in 2002 was less than the amount of tax computed using the
statutory tax rate primarily due to the reduction in the valuation allowance
for deferred tax assets. The valuation allowance of $1,161,000 was originally
recorded in 2000 and related to net operating losses arising from the Niagara
subsidiary. Due to Niagara's history of losses it was determined that it was
more likely than not that the asset would not be recovered. However, due to
the tax law changes enacted in 2002 that allowed for a 5 year carry-back of the
net operating losses generated in 2001, the Niagara net operating loss was
fully utilized in 2002.
In 2001, net operating losses of $1,274,894 were used and $3,428,748 of losses
were carried forward to 2002. Of these losses carried forward, $767,511 were
used in 2002 leaving a remaining loss carry forward of $2,661,237 which was
fully utilized in 2003.
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
2003
2002
Automobiles
$
264,682
$
93,945
Computer Software
44,374
34,834
Furniture & fixtures
560,972
497,973
Leasehold improvements
117,480
40,047
Electronic data equipment
1,629,335
1,475,902
2,616,843
2,142,701
Less: Accumulated depreciation
1,534,951
1,222,600
Net property and equipment
$
1,081,892
$
920,101
Depreciation and amortization expense amounted to $312,351, $285,250 and
$183,885 in 2003, 2002 and 2001, respectively.
8. CAPITAL TRANSACTIONS
As discussed in Note 3, the Company issued 10,000 shares of Class B common
stock to Met for $10,000,000.
On August 1, 2003 the company made a private offering to certain former
personal lines agents of OCNJ. The offering was of up to 5,000 shares at $1,000
per share of nonvoting Class B common stock. At the end of 2003, 2,500 shares
were issued at $1,000 per share to the former agents of OCNJ.
During 2002, the Company cancelled 1,050 shares of Class A Common Stock and
reissued 1,050 shares of Class B Common Stock.
As discussed further in Note 3, the company sold 20,185 shares of Class B
Non-voting Common shares to OCIC which was valued by the Company at $13,500,000
at the time of the transaction. This represented 19.71 percent of the
outstanding shares of the Company at December 18, 2001.
F-24
Table of Contents
Pursuant to an investor rights agreement entered into between OCIC and NAHC on
December 18, 2001, OCIC had a right to require NAHC to redeem all equity
securities of NAHC owned by OCIC for fair market value at any time (i) on or
after December 18, 2006 or (ii) prior to December 18, 2006 if NAHC delivers
notice of a change in control event as defined in the agreement. On July 10,
2004, OCIC and NAHC entered into an agreement which would facilitate the sale
by OCIC of shares of common stock of NAHC owned by OCIC that have an aggregate
value of equal to at least 10% of the aggregate value of all shares of common
stock sold by NAHC as part of an initial public offering. In exchange for the foregoing, OCIC agreed to waive its
redemption right. As such, the related common stock is considered permanent
capital.
9. STOCK OPTIONS
During 1995, the Company developed a stock option plan for key management
employees and directors. Options are exercisable when the earliest of the
following events occur: three years from date of issuance, date of retirement
or expiration of the Director's term, date of change of control, or the date of
an offering of its shares through an initial public offering. The options
expire 10 years after the date of grant. The options are also nontransferable
and contain further restrictions imposed after the options have vested. If
options are exercised then the shareholders cannot transfer their shares unless
the transfer is permitted by the Company and the Company has first right to
purchase all or any of the shares offered for sale. These restrictions have
been taken into account when determining the fair value of the stock.
The following table summarizes information with respect to stock options
outstanding as of December 31:
Weighted
Number of
Average
Options
Exercise Price
Balance Outstanding at January 1, 2001
12,100
$
85.55
Granted
1,450
42.16
Exercised
Forfeited
Balance Outstanding at December 31, 2001
13,550
80.90
Granted
1,100
25.91
Exercised
Forfeited
Balance Outstanding at December 31, 2002
14,650
76.77
Granted
1,000
263.98
Exercised
Forfeited
Balance Outstanding at December 31, 2003
15,650
$
88.74
F-25
Table of Contents
Years ended December 31,
2003
2002
2001
Weighted average fair value of options granted (per option)
$
1,000.00
$
668.00
$
42.16
The following table summarizes information about stock options outstanding at
December 31, 2003:
Options Outstanding
Options Exercisable
Weighted
Average
Weighted
Weighted
Range of
Number
Contractual
Average
Number
Average
Exercise
of Stock
Life
Exercise
of Stock
Exercise
Prices
Options
(in years)
Price
Options
Price
$25.91
1,100
8.45
$
25.91
—
—
42.16 - 55.63
7,050
3.10
51.48
5,600
53.89
107.46 - 124.37
6,500
4.23
112.82
6,500
112.82
263.98
1,000
9.28
263.98
—
—
15,650
4.34
$
88.74
12,100
$
85.55
The number of exercisable stock options outstanding at December 31, 2003, 2002
and 2001 were 12,100, 12,100 and 10,750, respectively.
Compensation expense recorded in connection with the options issued during 2003
was $184,005 for the year ended December 31, 2003. The unamortized deferred
compensation in connection with these options was $552,015 as of December 31,
2003.
Compensation expense recorded in connection with the options issued during 2002
was $235,432 and $117,717 for the years ended December 31, 2003 and 2002,
respectively. The unamortized deferred compensation in connection with these
options was $353,150 and 588,582 as of December 31, 2003 and 2002,
respectively.
The company is not authorized to grant additional options.
10. CONTINGENCIES AND COMMITMENTS:
Litigation
—The Company is subject to legal proceedings and claims which arise
in the ordinary course of its business. The Company accounts for such activity
through the establishment of unpaid claims and claim adjustment expense
reserves. Management does not believe that the outcome of any of those matters
will have a material adverse effect on the Company's financial position,
operating results or cash flows.
Operating Leases
—The Company has entered into a seven-year lease agreement for
the use of office space and equipment. The most significant obligations under
the lease terms are the reimbursement of the Company's share of the operating
expenses of the premises, which include real estate taxes, repairs and
maintenance, utilities, and insurance. Net rent expense for 2003, 2002 and 2001
was $743,200, $475,710 and $342,500, respectively.
F-26
Table of Contents
Aggregate minimum rental commitments of the Company as of December 31, 2003 are
as follows:
Year
Amount
2004
$
694,200
2005
694,200
2006
694,200
2007
694,200
2008
694,200
2009 and thereafter
636,350
Total
$
4,107,350
In connection with the lease agreement, the Company executed a letter of credit
in the amount of $300,000 as security for payment of the base rent.
Guarantee fund and assessment
—The Company is subject to guaranty fund and other
assessments by the State of New Jersey. The Company collects from its
policyholders an amount that represents the anticipated liability for guaranty
fund and other assessments, which represents management's best estimate of the
liability.
New Jersey law requires that property and casualty insurers licensed to do
business in New Jersey participate in the New Jersey Property-Liability
Insurance Guaranty Association (which we refer to as NJPLIGA). Members of
NJPLIGA are assessed the amount NJPLIGA deems necessary to pay its obligations
and its expenses in connection with handling covered claims. Subject to
certain exceptions, assessments are made in the proportion that each member's
net direct written premiums for the prior calendar year for all property and
casualty lines bear to the corresponding net written premiums for NJPLIGA
members for the same period. NJPLIGA notifies the insurer of the assessment to
the policyholders as a percentage of premiums. The Company records the amounts
received as a liability and remit the amounts to NJPLIGA when billed. The
Company collects these amounts on behalf of the NJPLIGA and there is no income
statement impact.
In 2003, Proformance was assessed $407,947, as its portion of the losses due to
insolvencies of certain insurers. We anticipate that there will be additional
assessments from time to time relating to insolvencies of various insurance
companies. We are allowed to re-coup these assessments from our policyholders
over time until we have recovered all such payments.
A summary of guarantee fund transactions are as follows:
at December 31,
2003
2002
2001
Payable
$
486,548
$
382,369
$
171,749
Paid
—
$
124,394
—
F-27
Table of Contents
11. OTHER COMPREHENSIVE INCOME (LOSS)
The tax effect of other comprehensive income is as follows for the years
ended December 31:
Before Tax
Tax
Net of Tax
Amount
Effect
Amount
2003
Net holding gains arising during the year
$
95,495
$
(32,468
)
$
63,027
Less reclassification adjustment for net
realized gains included in net income
(536,218
)
182,314
(353,904
)
Other comprehensive loss
$
(440,723
)
$
149,846
$
(290,877
)
Before Tax
Tax
Net of Tax
Amount
Effect
Amount
2002
Net holding gains arising during the year
$
670,980
$
(230,043
)
$
440,937
Less reclassification adjustment for net
realized gains included in net income
(67,665
)
24,236
(43,429
)
Other comprehensive income
$
603,315
$
(205,807
)
$
397,508
Before Tax
Tax
Net of Tax
Amount
Effect
Amount
2001
Net holding gains arising during the year
$
486,959
$
(165,566
)
$
321,393
Less reclassification adjustment for net
realized gains included in net loss
(270,667
)
92,027
(178,640
)
Other comprehensive income
$
216,292
$
(73,539
)
$
142,753
F-28
Table of Contents
12. STATUTORY SURPLUS
Proformance, which is domiciled in New Jersey, prepares its statutory financial
statements in accordance with accounting principles and practices prescribed or
permitted by the New Jersey Department of Banking and Insurance, the
recognized authority for determining solvency under the New Jersey insurance
law. The commissioner of the New Jersey Department of Banking and Insurance
has the right to permit other practices that may deviate from prescribed
practices. Prescribed statutory accounting practices are those practices that
are incorporated directly or by reference in state laws, regulations, and
general administrative rules applicable to all insurance enterprises domiciled
in New Jersey. Permitted statutory accounting practices that are not
prescribed may differ from company to company within a state, and may change in
the future.
Generally accepted accounting principles differ in certain respects from the
accounting practices prescribed or permitted by insurance regulatory
authorities (statutory basis). Based on amounts included in the original
filings of the annual statements for the respective years, statutory surplus
including the effects of the prescribed and permitted practices, was
approximately $58,245,092, $37,106,900 and $7,640,486 at December 31, 2003,
2002 and 2001, respectively.
Subsequent to the original filing of the annual statement, management
identified certain adjustments which, if recorded properly at the time, would
have impacted the amounts as filed. Such amounts would have reduced statutory
surplus by $536,550, $11,747,413 and $4,882,151 at December 31, 2003, 2002 and
2001, respectively.
The Company's statutory financial statements are presented on the basis of
accounting practices prescribed or permitted by the New Jersey Department of
Banking and Insurance. New Jersey has adopted the National Association of
Insurance Commissioners' statutory accounting practices as its statutory
accounting practices, except that it has retained the prescribed practice of
writing off goodwill immediately to statutory surplus in the year of
acquisition. In addition, the commissioner of the New Jersey Department of
Banking and Insurance has the right to permit other specific practices that may
deviate from prescribed practices.
13. DIVIDENDS FROM SUBSIDIARIES
The funding of the cash requirements of National Atlantic Holdings Corporation
is primarily provided by cash dividends from its subsidiaries. Dividends paid
by Proformance are restricted by regulatory requirements of the State of New
Jersey. Generally, the maximum dividend that may be paid without prior
regulatory approval is limited to the greater of 10 percent of statutory
surplus (shareholders' equity on a statutory basis) or 100 percent of net
income (excluding realized capital gains) for the prior year. Dividends
exceeding these limitations can be made subject to approval by state insurance
departments. In addition, dividends must be paid from unassigned funds which
must not reflect a deficit. In addition, Bermuda legislation imposes
limitations on the dividends that Mayfair may pay, based on minimum capital and
solvency requirements. No insurance subsidiary dividends were paid in the
periods ending December 31, 2003, 2002 and 2001 as the unassigned funds were
$(21,572,922), $(25,523,205) and $(2,172,619), respectively. The non-insurance
subsidiaries paid cash dividends to National Atlantic Holdings Corporation of
$2.2 million and $0 in 2003 and 2002, respectively.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107,
Disclosure About Fair Value of Financial Instruments
, requires
the Company to disclose the estimated fair value of financial instruments, both
assets and liabilities, recognized
F-29
Table of Contents
and not recognized in the consolidated
balance sheets for which it is practical to estimate fair value.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short Term Investments
.
For short- term instruments, the carrying
amount is a reasonable estimate of fair value.
Investment in Securities
.
For investments in securities, fair values are based
on quoted market prices or dealer quotes, if available. If a quoted market
price is not available, fair value is estimated using quoted market prices for
similar securities.
The statement value and estimated fair value of financial instruments at
December 31 are as follows:
2003
2002
Statement
Estimated
Statement
Estimated
Value
Fair Value
Value
Fair Value
Fixed maturity
$
130,409,462
$
130,409,462
$
67,871,289
$
67,871,289
Short-term investments
31,569,445
31,569,445
4,597,363
4,597,363
Equity Securities
8,593,084
8,593,084
1,507,693
1,507,693
15. PROFORMA EQUITY
Upon any change of control of the company all options immediately vest. This
proforma assumes all options convert to Class B common stock with the receipt
of $1.4 million in cash.
16. NET EARNINGS PER SHARE
Basic net income per share is computed based on the weighted average number of
shares outstanding during the year. Diluted net income per share includes the
dilutive effect of outstanding share options, using the treasury stock method.
Under the treasury stock method, exercise of options is assumed with the
proceeds used to purchase common stock at the average price for the period.
The difference between the number of shares assumed issued and the number of
shares purchased represents the dilutive shares.
F-30
Table of Contents
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except for share data):
(unaudited)
Three months ended
March 31,
Years ended December 31,
2004
2003
2003
2002
2001
Net Income applicable to common stockholders
$
9,017
$
7,167
$
19,156
$
9,007
$
(6,864
)
Weighted average common shares - basic
114,930
102,430
103,458
102,430
82,918
Effect of dilutive securities:
Options
14,261
12,966
14,261
12,966
—
Weighted average common shares - diluted
129,191
115,396
117,719
115,396
82,918
Basic Earnings Per Share
$
78.46
$
69.97
$
185.16
$
87.93
$
(82.78
)
Diluted Earnings per Share
$
69.80
$
62.11
$
162.73
$
78.05
$
(82.78
)
For the year ended December 31, 2001 the Company had a net loss of $6,864,395.
Based on 82,918 shares, basic net loss per common share was $82.78. The effect
of including potential common shares in the denominator of the diluted earnings
per-share calculation would have an anti-dilutive effect as the Company had a
loss from continuing operations. Although the inclusion of those shares may
have a dilutive effect on basic per-share amounts, no potential common shares
may be included in the diluted per share computation when a loss from
continuing operations or net loss is reported. The total outstanding options at
December 31, 2001 were 13,550. If the treasury stock method had been applied
based on market value at that time, the effect would have been anti-dilutive,
resulting in (12,452) dilutive potential common shares.
17. NOTES PAYABLE
On December 4, 1997, the Company entered into a loan agreement with Gerling
Global Reinsurance Company of America (Gerling). The amount of the
indebtedness was $3,000,000 and was written at a variable interest rate. The
Base Rate was the six month Libor rate plus an applicable margin of 7%. The
term of the obligation was six years in full with semi-annual payments of
interest only. The following principal payments were required on December 4 of
each year starting in 2000; $600,000, $720,000, $840,000 and $840,000. At
December 31, 2000, the Company was unable to make the scheduled principal
repayment. On January 11, 2001, Gerling agreed to modify the loan agreement,
delaying the principal repayments for one year. In return for that
forbearance, the Company agreed to increase the interest rate by 2 percentage
points. In addition, Gerling agreed to allow the Company to postpone the
initial principal payment scheduled for December 2001 until January 2002, when
payment was made.
The outstanding principal balance of this obligation as of December 31, 2001
was $3,000,000; the loan was paid in full in December of 2002.
On December 30, 1997, the Company entered into a loan agreement with the
National Cooperative Bank (NCB). The amount of the indebtedness was $3,000,000
and the interest rate was fixed at closing based on the 5 year US Treasury
index plus 400 basis points for the first (5) years, and then the 5 year
treasury index plus 390 basis points for the balance of the term. The
F-31
Table of Contents
term of
the loan was 11 years with interest only paid quarterly for the first year.
Quarterly principal reductions of $210,000 were to commence January of 2000 and
continue to and including January of 2008 with a final principal payment of
$1,110,000 plus all accrued interest on January 1, 2009. As of December 31,
2001, the outstanding principal balance of this obligation was $2,392,782; the
loan was paid in full in March of 2002.
Interest expense related to these obligations was $691,529 in 2001 and $338,725
in 2002.
F-32
Table of Contents
Shares
National Atlantic Holdings Corp.
Common Stock
[LOGO]
PROSPECTUS
, 2004
Citigroup
Table of Contents
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Registrant in
connection with the issuance and distribution of the shares being registered
hereby. All of such expenses are estimates, other than the Securities and
Exchange Commission Registration Fee, the National Association of Securities
Dealers, Inc. filing fee and the Nasdaq National Market listing fee.
Securities and Exchange Commission Registration Fees
$
9,503
National Association of Securities Dealers, Inc. Filing Fees
8,000
Transfer Agent's Fees*
*
Printing Costs*
*
Legal Fees*
*
Accounting Fees*
*
Transfer Agent Fees*
*
Blue Sky Fees*
*
NASDAQ Listing Fees*
*
Total
*
*
To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14A:2-7(3) of the New Jersey Business Corporation Act, which we
refer to as the NJBCA, permits New Jersey corporations to eliminate or limit
the liability of directors to the corporation or its shareholders for breach of
any duty owed to the corporation or its shareholders, except for any breach of
duty based upon an act or omission (a) in breach of such director's duty of
loyalty to the corporation or its shareholders (b) not in good faith or
involving a knowing violation of law or (c) resulting in receipt by the
directors of an improper personal benefit.
Section 14A:3-5 of the NJBCA permits each New Jersey business corporation
to indemnify a "corporate agent" against expenses and liability in connection
with any proceeding involving the corporate agent by reason of his being or
having been such a corporate agent, other than a proceeding by or in the right
of the corporation (unless the corporate agent shall have been adjudged not
liable to the corporation or shall have been adjudged liable, but in view of
all the circumstances in the case, the court in which such proceeding was
brought shall determine that such corporate agent is fairly and reasonably
entitled to indemnity), if such actions were taken in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal proceeding, if
he or she had no reasonable cause to believe his or her conduct was unlawful.
Such indemnification may be made by the corporation only as authorized in a
specific case upon a determination (by the board of directors of the
corporation, a committee thereof, independent legal counsel via a written
opinion or by the shareholders (if the certificate of incorporation or bylaws
of the corporation, or a resolution of the board of directors or a resolution
of the shareholders so directs) that indemnification is proper because the
corporate agent has met the applicable standard of conduct. The NJBCA defines
a "corporate agent" as any person who is or was a director, officer, employee
or agent of the indemnifying corporation or of any constituent corporation
absorbed by the indemnifying corporation in a consolidation or merger and any
person who is or was a director, officer, trustee, employee or agent of any
other enterprise, serving as such at the request of the indemnifying
corporation, or of any such constituent corporation, or the legal
representative of any such director, officer, trustee, employee or agent. To
the extent that a corporate agent has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in NJBCA
Section 14A:3-5(2) or (3), or in defense of any claim, issue or matter therein,
he or she shall be indemnified by the corporation against expenses in
connection therewith. Such expenses may be paid by the corporation in advance
of the final disposition of the action, suit or proceeding as authorized by the
board of directors of the corporation upon receipt of an undertaking to repay
the advance if it is ultimately determined that such person is not entitled to
indemnification.
II-1
Table of Contents
Our amended and restated Certificate of Incorporation provides that the
our directors will not be personally liable to us or our shareholders for
monetary damages resulting from breaches of their fiduciary duty as directors,
except for liability for any breach of duty based upon an act or omission which
is either (a) in breach of the director's duty of loyalty to us or our
shareholders, (b) not in good faith or involves a knowing violation of law, or
(c) results in the director's receipt of an improper benefit.
Section 14A:3-5(9) of the NJBCA provides that any corporate agent may be
insured by insurance purchased and maintained by the corporation against any
expenses incurred in any proceeding and any liabilities asserted against him or
her in his or her capacity as a corporate agent, whether or not the corporation
would have the power to indemnify him or her against any such expenses and
liabilities.
We have entered into indemnification agreements with each of our directors
and executive officers which provide for indemnification against judgments,
fines, amounts paid in settlement and other liabilities and expenses, to the
fullest extent permitted by law. The indemnification is available, provided
that such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to our best interest, and with respect to any
criminal proceeding, if such person had no reasonable cause to believe such
conduct was unlawful.
We maintain insurance that provides for indemnification of our officers
and directors and certain other persons against liabilities and expenses
incurred by any of them in certain stated proceedings and under certain stated
conditions.
In the underwriting agreement in connection with this offering, the
underwriters will agree to indemnify our officers, directors and controlling
persons against certain liabilities, including liabilities under the Securities
Act of 1933 under certain conditions and with respect to certain limited
information.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the three years preceding this registrations statement, NAHC made
the following sales of unregistered securities:
•
Issued and sold to our agents (former personal automobile agents of
OCNJ) an aggregate of 2,500 shares of nonvoting common stock of NAHC
for an aggregate purchase price of $2,500,000 on August 1, 2003, as
required under the December 18, 2001 agreement between NAHC and OCNJ.
These securities were issued in reliance on the exemption from
registration provided by Section 4(2) and Regulation D, Rule 506, under
the Securities Act.
•
Issued and sold 10,000 shares of nonvoting common stock of NAHC for
an aggregate purchase price of $10,000,000 on December 8, 2003 to Met
P&C. These securities were issued in reliance on the exemption from
registration provided by Section 4(2) and Regulation D, Rule 506, under
the Securities Act.
•
Issued and sold 20,185 shares of nonvoting common stock of NAHC for
an aggregate purchase price of $500,000 on December 18, 2001 to OCIC.
These securities were issued in reliance on the exemption from
registration provided by Section 4(2) and Regulation D, Rule 506, under
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
Exhibit
Number
Description
1.1
Form of Underwriting Agreement*
3.1
Form of Amended and Restated Certificate of Incorporation of the Registrant*
3.2
Form of Amended and Restated Bylaws of the Registrant*
4.1
Form of Stock Certificate for the Common Stock*
5.1
Opinion of Patricia M. Forsyth, General Counsel of Proformance Insurance Company*
II-2
Table of Contents
Exhibit Number
Description
10.1
Form of Agency Agreements between Proformance Insurance Company and
Partner Agents of
Proformance Insurance Company
10.2
Form of Agency Agreements between
Proformance Insurance Company and Active Replacement Carrier Service
Agents of Proformance Insurance Company
10.3
Form of Limited Agency Agreements between Proformance Insurance
Company and Non-Active Replacement Carrier Service Agents of
Proformance Insurance Company
10.4
Replacement Carrier Agreement,
dated December 18, 2001, among the Registrant, Proformance
Insurance Company and Ohio Casualty of New Jersey, Inc.
10.5
Investor
Rights Agreement, dated December 18, 2001, among the Registrant,
The Ohio Casualty
Insurance Company and James V. Gorman
10.6
Non-Competition Agreement, dated
December 18, 2001, among the Registrant, Proformance Insurance
Company, The Ohio Casualty Insurance Company and Ohio Casualty of New
Jersey
10.7
Letter Agreement, dated July 10, 2004, among the Registrant,
Proformance Insurance Company and The Ohio Casualty Insurance
Company and Ohio Casualty of New Jersey
10.8
Share
Repurchase Agreement, dated October 25, 1994, between James V.
Gorman and the Registrant
10.9
Replacement Carrier Agreement,
dated December 8, 2003, between the Registrant and Metropolitan Property and Casualty Insurance Company
10.10
Share Repurchase Agreement, dated
December 8, 2003, between the Registrant and Metropolitan Property and Casualty Insurance Company
10.11
Replacement Carrier Agreement,
dated March 14, 2003, between Performance Insurance Company and
Sentry Insurance Company
10.12
Limited Assignment Distribution Agreement, effective January 1,
2004, between Proformance Insurance Company and The Clarendon
National Insurance Company
10.13
Limited Assignment Distribution Agreement, effective January 1,
2004, between Proformance Insurance Company and AutoOne Insurance
Company
10.14
2004
Stock and Incentive Plan of the Registrant*
10.15
National Atlantic Holdings Corp. Annual Bonus Plan*
10.16
Employment
Agreement, dated , 2004, between the Registrant and James V.
Gorman*
10.17
Employment
Agreement, dated , 2004, between the Registrant and Peter A.
Cappello, Jr.*
10.18
Employment
Agreement, dated , 2004, between the Registrant and Frank J.
Prudente*
10.19
Employment
Agreement, dated , 2004, between the Registrant and John E.
Scanlan*
10.20
Employment Agreement, dated , 2004, between the Registrant and Cynthia L. Codella*
16.1
Letter,
dated July 15, 2004, from WithumSmith+Brown, PC, the
Registrant's former accountants, to the Securities and Exchange
Commission
21.1
Subsidiaries of the Registrant*
23.1
Consent
of Patricia M. Forsyth, General Counsel of Proformance Insurance
Company (contained in her opinion filed as Exhibit 5.1
hereto)*
23.2
Consent of Deloitte & Touche LLP
24.1
Power of Attorney (included on the signature page of this registration statement)
*
To be filed by amendment
(b) Financial Statement Schedules
Schedule I
Summary of Investments — Other than Investments in
Affiliates
Schedule II
Condensed Financial Information of Registrant (Balance
Sheets, Statements of Income, Statements of Cash Flows)
Schedule III
Supplementary Insurance Information
Schedule IV
Reinsurance
Schedule VI
Supplementary Information Concerning Property and
Casualty Insurance Operations
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ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial
bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of the its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Freehold, State of New
Jersey, on July 7, 2004.
NATIONAL ATLANTIC HOLDINGS CORP.
By: /s/ James V. Gorman
Name: James V. Gorman
Title: Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints James V. Gorman and Frank J.
Prudente, and each of them acting individually, his or her true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to sign any and all registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) of the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and any other regulatory authority, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature
Title
Date
/s/ James V. Gorman
James V. Gorman
Chairman of the Board of
Directors and Chief
Executive Officer (Principal
Executive Officer)
July 7, 2004
/s/ Frank J. Prudente
Frank J. Prudente
Executive Vice
President—Corporate Finance
(Principal Financial and
Accounting Officer)
July 7, 2004
/s/ Peter A. Cappello, Jr.
Peter A. Cappello, Jr.
Director
July 7, 2004
/s/ F.P. Campion
F.P. Campion
Director
June 21, 2004
/s/ Andrew C. Harris
Andrew C. Harris
Director
June 16, 2004
/s/ Thomas J. Sharkey, Sr.
Thomas J. Sharkey, Sr.
Director
June 28, 2004
/s/ Steven V. Stallone
Steven V. Stallone
Director
June 21, 2004
II-5
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Signature
Title
Date
/s/ Thomas M. Mulhare
Thomas M. Mulhare
Director
June 23, 2004
II-6
Table of Contents
Exhibit Index
Exhibit
Number
Description
1.1
Form of Underwriting Agreement*
3.1
Form of Amended and Restated Certificate of Incorporation of the Registrant*
3.2
Form of Amended and Restated Bylaws of the Registrant*
4.1
Form of Stock Certificate for the Common Stock*
5.1
Opinion of Patricia M. Forsyth, General Counsel of Proformance Insurance Company*
10.1
Form of Agency Agreements between Proformance Insurance Company and Partner Agents of
Proformance Insurance Company
10.2
Form of Agency Agreements between Proformance Insurance Company and Active Replacement Carrier
Service Agents of Proformance Insurance Company
10.3
Form of Limited Agency Agreements between Proformance Insurance Company and Non-Active
Replacement Carrier Service Agents of Proformance Insurance Company
10.4
Replacement Carrier Agreement, dated December 18, 2001, among the Registrant, Proformance
Insurance Company and Ohio Casualty of New Jersey, Inc.
10.5
Investor Rights Agreement, dated December 18, 2001, among the Registrant, The Ohio Casualty
Insurance Company and James V. Gorman
10.6
Non-Competition Agreement, dated December 18, 2001, among the Registrant, Proformance
Insurance Company, The Ohio Casualty Insurance Company and Ohio Casualty of New Jersey
10.7
Letter Agreement, dated July 10, 2004, among the Registrant, Proformance Insurance Company and
The Ohio Casualty Insurance Company and Ohio Casualty of New Jersey
10.8
Share Repurchase Agreement, dated October 25, 1994, between James V. Gorman and the Registrant
10.9
Replacement Carrier Agreement, dated December 8, 2003, between the Registrant and Metropolitan
Property and Casualty Insurance Company
10.10
Share Repurchase Agreement, dated December 8, 2003, between the Registrant and Metropolitan
Property and Casualty Insurance Company
10.11
Replacement Carrier Agreement, dated March 14, 2003, between Proformance Insurance Company and
Sentry Insurance
10.12
Limited Assignment Distribution Agreement, effective January 1, 2004, between Proformance
Insurance Company and The Clarendon National Insurance Company
10.13
Limited Assignment Distribution Agreement, effective January 1, 2004, between Proformance
Insurance Company and AutoOne Insurance Company
10.14
2004 Stock and Incentive Plan of the Registrant*
10.15
National Atlantic Holdings Corp. Annual Bonus Plan*
10.16
Employment Agreement, dated        , 2004, between the Registrant and James V. Gorman*
10.17
Employment Agreement, dated        , 2004, between the Registrant and Peter A. Cappello, Jr.*
10.18
Employment Agreement, dated        , 2004, between the Registrant and Frank J. Prudente*
10.19
Employment Agreement, dated        , 2004, between the Registrant and John E. Scanlan*
10.20
Employment Agreement, dated        , 2004, between the Registrant and Cynthia L. Codella*
16.1
Letter, dated July 15, 2004, from WithumSmith+Brown, PC, the Registrant's former accountants,
to the Securities and Exchange Commission
21.1
Subsidiaries of the Registrant*
23.1
Consent of Patricia M. Forsyth, General Counsel of Proformance Insurance Company (contained in
her opinion filed as Exhibit 5.1 hereto)*
23.2
Consent of Deloitte & Touche LLP
24.1
Power of Attorney (included on the signature page of this registration statement)
*
To be filed by amendment
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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
National Atlantic Holdings Corporation and Subsidiaries
We have audited the consolidated financial statements of National Atlantic
Holdings Corporation and Subsidiaries as of December 31, 2003 and 2002, and for
each of the three years in the period ended December 31, 2003, and have issued
our report thereon dated July 19, 2004. Our audits also included the financial
statement schedules of National Atlantic Holdings Corporation and Subsidiaries.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
July 19, 2004
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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN AFFILIATES
(in thousands)
As of December 31, 2003
Cost/
Amount at
Amortized
which shown
Type of Investment
Cost
Fair Value
on Balance Sheet
Fixed Maturities
U.S Government, government agencies
and authorities
$
39,633,926
$
39,313,392
$
39,313,392
State, local government and agencies
46,261,628
46,281,161
46,281,161
Industrial and miscellaneous
44,903,263
44,814,909
44,814,909
Total fixed maturities
130,798,817
130,409,462
130,409,462
Equity Securities
Common and preferred stock
8,117,385
8,593,084
8,593,084
Total equity securities
8,117,385
8,593,084
8,593,084
Other investments
Short-term investments
31,569,445
31,569,445
31,569,445
Total other investments
31,569,445
31,569,445
31,569,445
Total investments
$
170,485,647
$
170,571,991
$
170,571,991
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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(in thousands)
December 31,
2003
2002
Assets:
Cash and cash equivalents
$
278
$
23
Investment in subsidiaries
52,771
22,815
FIT recoverable
2,168
—
Deferred tax asset
289
731
Fixed assets, net of depreciation
2
—
Intercompany receivable
770
986
Total assets
$
56,278
$
24,555
Liabilities and capital:
Taxes payable
$
5
$
—
Intercompany payable
6,025
6,048
Total liabilities
6,030
6,048
Stockholders' equity:
Capital stock, class A
3,002
3,002
Capital stock, class B
28,258
15,382
Retained earnings (accumulated deficit)
18,931
(225
)
Accumulated other comprehensive income
57
348
Total stockholders' equity
50,248
18,507
Total liabilitites and stockholders' equity
$
56,278
$
24,555
Note: Dividends payable from Proformance Insurance Company, a significant
subsidiary, are restricted by the State of New Jersey Department of Banking and
Insurance.
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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(in thousands)
Years ended December 31,
2003
2002
2001
Income
Other Income
$
5
—
$
26
Total Income
5
—
26
Cost and Expenses:
Salary Expense
1,241
—
—
Interest expense
3
241
431
Professional fees
49
—
—
Other expenses
104
2,640
126
Total expenses
1,397
2,881
557
Loss before federal income taxes and equity in net
income (loss) of subsidiaries
(1,392
)
(2,881
)
(531
)
Income tax expense (benefit)
(100
)
(1,146
)
299
Loss before equity in net income (loss) of subsidiaries
(1,292
)
(1,735
)
(830
)
Equity in net income (loss) of subsidiaries
20,448
10,742
(6,034
)
Net income (loss)
$
19,156
$
9,007
$
(6,864
)
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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
2003
2002
2001
Cash flows from operating activities:
Net earnings (loss)
$
19,156
$
9,007
$
(6,864
)
Undistributed net (income) loss of subsidiaries
(20,448
)
(10,742
)
6,034
Gain on sale of fixed asset
—
—
(25
)
Depreciation
—
—
33
Changes in current assets and liabilities - net
(902
)
2,832
(392
)
Net cash (used in) provided by operating activities
(2,194
)
1,097
(1,214
)
Cash flows from investing activities:
Capital contributions to subsidiaries
(11,675
)
(702
)
—
Sale of equipment
—
—
268
Dividends received
1,668
500
—
Net cash (used in) provided by investing activities
(10,007
)
(202
)
268
Cash flows from financing activities:
Sale of stock
12,456
—
500
Issuance of note
—
—
290
Payment of note
—
(890
)
—
Net cash provided by (used in ) financing
activities
12,456
(890
)
790
Net (decrease) increase in cash
255
5
(156
)
Cash, beginning of period
23
18
174
Cash, end of period
$
278
$
23
$
18
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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
For the year ended December 31, 2003, 2002 and 2001
(in thousands)
Reserves
for
Unpaid
Deferred
Losses
Policy
and Loss
Net
Acquisition
Adjustment
Unearned
Earned
Investment
Costs
Expense
Premiums
Premiums
Income
2003
Property and Casualty
$
8,714
$
134,201
$
51,813
$
145,344
$
4,258
Consolidated
$
8,714
$
134,201
$
51,813
$
145,344
$
4,258
2002
Property and Casualty
$
8,538
$
85,472
$
46,018
$
76,460
$
1,593
Consolidated
$
8,538
$
85,472
$
46,018
$
76,460
$
1,593
2001
Property and Casualty
$
1,831
$
56,732
$
16,810
$
25,432
$
1,085
Consolidated
$
1,831
$
56,732
$
16,810
$
25,432
$
1,085
[Additional columns below]
[Continued from above table, first column(s) repeated]
Amortization
Losses and
of
Losses and
Deferred
Adjustment
Policy
Net
Expenses
Acquisition
Other
Written
Incurred
Costs
Expenses
Premiums
2003
Property and Casualty
$
108,123
$
26,381
$
992
$
149,233
Consolidated
$
108,123
$
26,381
$
992
$
149,233
2002
Property and Casualty
$
69,491
$
15,128
$
3,605
$
111,431
Consolidated
$
69,491
$
15,128
$
3,605
$
111,431
2001
Property and Casualty
$
28,338
$
5,523
$
3,684
$
25,499
Consolidated
$
28,338
$
5,523
$
3,684
$
25,499
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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
For the year ended December 31, 2003, 2002 and 2001
(in thousands)
Percentage
Ceded to
Assumed
of Amount
Gross
Other
From Other
Net
Assumed to
Amount
Companies
Companies
Amount
Net
For the year ended December 31, 2003
Property and casualty insurance premiums
$
158,410
$
14,760
$
1,694
$
145,344
1.17
%
Total Premiums
$
158,410
$
14,760
$
1,694
$
145,344
1.17
%
For the year ended December 31, 2002
Property and casualty insurance premiums
$
85,418
$
11,503
$
2,545
$
76,460
3.33
%
Total Premiums
$
85,418
$
11,503
$
2,545
$
76,460
3.33
%
For the year ended December 31, 2001
Property and casualty insurance premiums
$
47,972
$
22,594
$
54
$
25,432
0.21
%
Total Premiums
$
47,972
$
22,594
$
54
$
25,432
0.21
%
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NATIONAL ATLANTIC HOLDINGS CORPORATION AND SUBSIDIARIES
SCHEDULE VI
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY
AND CASUALTY INSURANCE OPERATIONS
(in thousands)
Losses and loss adjustment
Paid losses and
Expenses incurred related to:
Loss adjustment
Current Year
Prior Years
Expenses
Years ended December 31,
2003
$
108,047
$
76
$
61,292
2002
60,861
8,630
33,464
2001
$
19,400
$
8,938
$
18,713
S-8