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<SEC-DOCUMENT>0000950134-07-015217.txt : 20071119
<SEC-HEADER>0000950134-07-015217.hdr.sgml : 20071119
<ACCEPTANCE-DATETIME>20070716170042
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000950134-07-015217
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20070716

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMERISAFE INC
		CENTRAL INDEX KEY:			0001018979
		STANDARD INDUSTRIAL CLASSIFICATION:	FIRE, MARINE & CASUALTY INSURANCE [6331]
		IRS NUMBER:				752069407
		STATE OF INCORPORATION:			TX
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		2301 HIGHWAY 190 WEST
		CITY:			DERIDDER
		STATE:			LA
		ZIP:			70634
		BUSINESS PHONE:		337-463-9052

	MAIL ADDRESS:	
		STREET 1:		2301 HIGHWAY 190 WEST
		CITY:			DERIDDER
		STATE:			LA
		ZIP:			70634
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<HTML>
<HEAD>
<TITLE>corresp</TITLE>
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<BODY bgcolor="#FFFFFF">
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;AMERISAFE LETTERHEAD&#093;
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">July&nbsp;16, 2007
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Ms.&nbsp;Ibolya Ignat<BR>
Securities and Exchange Commission<BR>
Division of Corporation Finance<BR>
100 F Street, N.E.<BR>
Mail Stop 6010<BR>
Washington, D.C. 20549

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="94%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Re:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AMERISAFE, Inc.</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><FONT style="white-space: nowrap">Form&nbsp;10-K for Fiscal Year Ended December&nbsp;31, 2006</FONT></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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Filed on March&nbsp;5, 2007</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">File No.&nbsp;001-12251
</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dear Ms.&nbsp;Ignat:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is in response to the letter dated June&nbsp;22, 2007 from the Staff regarding the
2006 Form 10-K filed by AMERISAFE, Inc. (the &#147;Company&#148;). Included below is the text of the Staff&#146;s
comments followed by the Company&#146;s response to each comment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;1. Business, page 4</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Loss Reserves, page 12</B></U>
</DIV>


<DIV style="margin-top: 6pt">
<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="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>You do not disclose the name of the independent actuarial consulting firm discussed on pages
12 and 78 of the 2006 10-K. The references to this consultant suggest to an investor that you
are placing reliance on an expert, which the staff believes requires the consulting firm be
named in a &#146;34 Act filing. Additionally, if the </B><B>Form 10-K</B><B> is incorporated by reference into
the &#146;33 Act registration statement, a consent from the valuation specialist must be provided
in the &#146;33 Act registration statement. Please advise.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Under the insurance laws of the states of Louisiana and Texas (the jurisdictions in which
the Company&#146;s insurance subsidiaries are domiciled) the Company&#146;s insurance subsidiaries are
required to engage an independent actuary. By making reference to this consulting actuary
in the Form 10-K (without naming the actuary), the Company did not intend to imply this firm
was an &#147;expert&#148; within the meaning of Section&nbsp;11 of the Securities Act as the Company&#146;s
consulting actuary did not prepare or certify any report included in the 2006 Form 10-K. In
future filings, the Company will not include references to its consulting actuary in its
10-K or other Exchange Act filing.</TD>
</TR>

</TABLE>
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Ms.&nbsp;Ibolya Ignat<BR>
Securities and Exchange Commission<BR>
July &#091;16&#093;, 2007<BR>
Page 2

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U><B>Item&nbsp;7. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations,
page 52</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Critical Accounting Policies, page 56</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U><B>Reserves for Loss and Loss Adjustment Expenses, page 56</B></U>
</DIV>


<DIV style="margin-top: 6pt">
<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="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>We believe your disclosure in the Critical Accounting Estimates section of MD&#038;A regarding the
estimation of the reserve for loss and loss adjustment expenses could be improved to better
explain the judgments and uncertainties surrounding this estimate and the potential impact on
your financial statements. We believe in order to meet the principal objectives of MD&#038;A this
disclosure should enable the investor to understand 1) management&#146;s method for establishing
the estimate; and 2) whether and if so to what extent and why management has adjusted their
assumptions used to determine the estimate from the assumptions used in the immediately
preceding period. Please keep these points in mind in providing us your responses to comments
listed below. Please provide us, in disclosure-type format, the following information and
also consider providing any additional information, in disclosure-type format, to achieve this
objective.</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Please disclose the reserves accrued as of the latest balance sheet date presented. The
total of these amounts should agree to the amount presented on the balance sheet. Because
IBNR reserve estimates are more imprecise, please disclose IBNR amounts separately from
case reserves.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Discuss how management has adjusted each of the key assumptions used in calculating the
current year reserves given their historical changes or given current trends observed. This
discussion should show the link between what has happened to the key assumptions in the
past to what management is currently using as its key assumptions.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Explicitly identify and discuss key assumptions as of December&nbsp;31, 2006 that are
premised on future emergence that are inconsistent with historical loss reserve development
patterns and explain why these assumptions are now appropriate given the inconsistency
identified.</B></TD>
</TR>

</TABLE>
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Ms.&nbsp;Ibolya Ignat<BR>
Securities and Exchange Commission<BR>
July &#091;16&#093;, 2007<BR>
Page 3

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In response to the Staff&#146;s comment that the Company&#146;s disclosure could be improved and to provide
responses in a disclosure-type format, attached to this letter are proposed changes to the current
disclosure in the 2006 Form 10-K under the caption &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations&#151;Critical Accounting Policies&#151;Reserves for Loss and
Loss Adjustment Expenses&#148; that appears on page 56 (Annex A) and under the caption &#147;Business&#151;Loss
Reserves&#148; that appears on pages 12 through 16 (Annex B).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In response to the first bullet point, as shown on Annex B, the Company has included in a table
format its loss reserves, disclosing IBNR reserves separately, at December&nbsp;31, 2006, 2005 and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In response to the second and third bullet points, the Company believes that (consistent with the
General Instructions to Guide 6) it has disclosed under the caption
&#147;Business&#151;Loss Reserves&#148; in
the 2006 Form 10-K the key factors that the Company evaluates in establishing estimates for its
reserve for loss and loss adjustment expenses. However, the Company has revised the disclosure
under &#147;Critical Accounting Policies&#148; to expand the discussion of the factors it considers in
establishing its loss reserve.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As disclosed in the 2006 Form 10-K, establishing loss reserves is inherently uncertain and requires
substantial judgment in evaluating the factors that the Company&#146;s management considers in
establishing its loss reserves. The Company does not believe that it has adjusted in any material
respect the key factors or assumptions that it considers when establishing its reserves. Further,
in establishing reserves, the Company does not believe that it has made assumptions premised on
future emergence that are inconsistent with its historical loss reserve development patterns.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">* * * * *
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company hereby acknowledges that:
</DIV>

<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company is responsible for the adequacy and accuracy of the disclosure in
the filings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws of the
United States.</TD>
</TR>

</TABLE>
</DIV>

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

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Ms.&nbsp;Ibolya Ignat<BR>
Securities and Exchange Commission<BR>
July &#091;16&#093;, 2007<BR>
Page 4

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you have any questions regarding this filing, please do not hesitate to contact me at (337)
463-9052, or by facsimile at (337)&nbsp;463-7298.
</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="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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">Very truly yours,</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">AMERISAFE, Inc.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Geoffrey R. Ganta</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Geoffrey R. Banta</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">Executive Vice President and</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">Chief Financial Officer</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="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="92%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">CC:</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">C. Allen Bradley</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Todd Walker</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">AMERISAFE, Inc.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">James E. O&#146;Bannon</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">Jones Day</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Peter Cangany</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">Ernst &#038; Young LLP</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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

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

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><U><B>Annex A</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">* * * * *
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Reserves for Loss and Loss Adjustment Expenses</I>. We record reserves for estimated losses under
insurance policies that we write and for loss adjustment expenses related to the investigation and
settlement of policy claims. Our reserves for loss and loss adjustment expenses represent the
estimated cost of all reported and unreported loss and loss adjustment expenses incurred and unpaid
at any given point in time based on known facts and circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our reserves for loss and loss adjustment expenses are estimated using case-by-case valuations
based on our estimate of the most likely outcome of the claim at that time. In addition to these
case reserves, we establish reserves on an aggregate basis that have been incurred but not
reported, or IBNR. Our IBNR reserves are also intended to provide for aggregate changes in case
incurred amounts as well as the unpaid cost of recently reported claims for which an initial case
reserve has not been established. The third component of our reserves for loss and loss adjustment
expenses is our adjusting and other reserve, or AO reserve. Our AO reserve is established for the
costs of future unallocated loss adjustment expenses for all known and unknown claims. Our AO
reserve covers primarily the estimated cost of administering claims. The final component of our
reserves for loss and loss adjustment expenses is the reserve for mandatory pooling arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In establishing our reserves, we review the results of analyses using actuarial methodologies
that utilize historical loss data from our more than 21&nbsp;years of underwriting workers&#146; compensation
insurance. The actuarial analysis of our historical data provides the factors we use in estimating
our loss reserve. These factors are primarily measures over time of the number of claims paid and
reported, average paid and incurred claim amounts, claim closure rates and claim payment patterns.
In evaluating the results of our analyses, management also uses substantial judgment in considering
other factors that are not considered in these actuarial analyses, including changes in business
mix, claims management, regulatory issues, medical trends, employment and wage patterns, insurance
policy coverage interpretations, judicial determinations and other subjective factors. Due to the
inherent uncertainty associated with these estimates, and the cost of incurred but unreported
claims, our actual liabilities may vary significantly from our original estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On a quarterly basis, we review our reserves for loss and loss adjustment expenses to
determine whether adjustments are required. Any resulting adjustments are included in the results
for the current period. In establishing our reserves, we do not use loss discounting, which would
involve recognizing the time value of money and offsetting estimates of future payments by future
expected investment income. Additional information regarding our reserves for loss and loss
adjustment expenses and the actuarial methodologies and other factors used in establishing these
reserves can be found under the caption &#147;Business&#151;Loss Reserves&#148; in Item&nbsp;1 of this report.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">* * * * *
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->1<!-- /Folio -->
</DIV>

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

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><U><B>Annex B</B></U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Loss Reserves</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We record reserves for estimated losses under insurance policies that we write and for loss
adjustment expenses related to the investigation and settlement of policy claims. Our reserves for
loss and loss adjustment expenses represent the estimated cost of all reported and unreported loss
and loss adjustment expenses incurred and unpaid at a given point in time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In establishing our reserves, we review the results of analyses using actuarial methodologies
that utilize historical loss data from our more than 21&nbsp;years of underwriting workers&#146; compensation
insurance. In evaluating the results of those analyses, our management also uses substantial
judgment in considering other factors that are not considered in these actuarial analyses. These
actuarial methodologies and subjective factors are described in more detail below. Our process and
methodology for estimating reserves applies to both our voluntary and assigned risk business but
does not include our reserves for mandatory pooling arrangements. We record reserves for mandatory
pooling arrangements as those reserves are reported to us by the pool administrators. We do not
use loss discounting when we determine our reserves, which would involve recognizing the time value
of money and offsetting estimates of future payments by future expected investment income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When a claim is reported, we establish an initial case reserve for the estimated amount of our
loss based on our estimate of the most likely outcome of the claim at that time. Generally, a case
reserve is established within 14&nbsp;days after the claim is reported and consists of anticipated
medical costs, indemnity costs and specific adjustment expenses, which we refer to as defense and
cost containment expenses, or DCC expenses. At any point in time, the amount paid on a claim, plus
the reserve for future amounts to be paid, represents the estimated total cost of the claim, or the
case incurred amount. The estimated amount of loss for a reported claim is based upon various
factors, including:
</DIV>

<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>type of loss;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>severity of the injury or damage;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>age and occupation of the injured employee;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>estimated length of temporary disability;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>anticipated permanent disability;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>expected medical procedures, costs and duration;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our knowledge of the circumstances surrounding the claim;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>insurance policy provisions related to the claim, including coverage;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>jurisdiction of the occurrence; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other benefits defined by applicable statute.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The case incurred amount varies over time due to uncertainties with respect to medical
treatment and outcome, length and degree of disability, employment availability and wage levels and
judicial determinations. As changes occur, the case incurred amount is adjusted. The initial
estimate of the case incurred amount can vary significantly from the amount ultimately paid,
especially in circumstances involving severe injuries with comprehensive medical treatment.
Changes in case incurred amounts, or case development, is an important component of our historical
claim data.
</DIV>

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

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to case reserves, we establish reserves on an aggregate basis for loss and DCC
expenses that have been incurred but not reported, or IBNR. Our IBNR reserves are also intended to
provide for aggregate changes in case incurred amounts as well as the unpaid cost of recently
reported claims for which an initial case reserve has not been established.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The third component of our reserves for loss and loss adjustment expenses is our adjusting and
other reserve, or AO reserve. Our AO reserve is established for the costs of future unallocated
loss adjustment expenses for all known and unknown claims. Our AO reserve covers primarily the
estimated cost of administering claims. The final component of our reserves for loss and loss
adjustment expenses is the reserve for mandatory pooling arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In establishing reserves, we rely on the analysis of our more than 148,000 claims in our
21-year history. Using statistical analyses and actuarial methods, we estimate reserves based on
historical patterns of case development, payment patterns, mix of business, premium rates charged,
case reserving adequacy, operational changes, adjustment philosophy and severity and duration
trends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We review our reserves by industry and state on a quarterly basis. Individual open claims are
reviewed more frequently and adjustments to case incurred amounts are made based on expected
outcomes. The number of claims reported or occurring during a period, combined with a calculation
of average case incurred amounts, and measured over time, provide the foundation for our reserve
estimates. In establishing our reserve estimates, we use historical trends in claim reporting
timeliness, frequency of claims in relation to earned premium or covered payroll, premium rate
levels charged and case development patterns. However, the number of variables and judgments
involved in establishing reserve estimates, combined with some random variation in loss development
patterns, results in uncertainty regarding projected ultimate losses. As a result, our ultimate
liability for loss and loss adjustment expenses may be more or less than our reserve estimate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our analysis of our historical data provides the factors we use in our statistical and
actuarial analysis in estimating our loss and DCC expense reserve. These factors are primarily
measures over time of claims reported, average case incurred amounts, case development, duration,
severity and payment patterns. However, these factors cannot be directly used as these factors do
not take into consideration changes in business mix, claims management, regulatory issues, medical
trends, medical inflation, employment and wage patterns and other subjective factors. We use this
combination of factors and subjective assumptions in the use of the following six actuarial
methodologies:
</DIV>

<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Paid Development Method &#151; uses historical, cumulative paid losses by
accident year and develops those actual losses to estimated ultimate losses
based upon the assumption that each accident year will develop to estimated
ultimate cost in a manner that is analogous to prior years.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Paid Cape Cod Method &#151; multiplies estimated ultimate claims for each
accident year by a weighted average, trended severity. The estimated ultimate
claims used in this method are based on paid claim count development. The
selected severity for a given accident year is then</TD>
</TR>

</TABLE>
</DIV>

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<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>derived by giving some weight to all of the accident years in the experience
history rather than treating each accident year independently.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Paid Bornhuetter-Ferguson (&#147;BF&#148;) Method &#151; a combination of the Paid
Development Method and the Paid Cape Cod Method, the Paid BF Method estimates
ultimate losses by adding actual paid losses and projected, future unpaid
losses. The amounts produced are then added to cumulative paid losses to
produce the final estimates of ultimate incurred losses.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incurred Development Method &#151; uses historical, cumulative incurred losses
by accident year and develops those actual losses to estimated ultimate losses
based upon the assumption that each accident year will develop to estimated
ultimate cost in a manner that is analogous to prior years.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incurred Cape Cod Method &#151; multiplies estimated ultimate claims for each
accident year by a weighted average, trended severity. The estimated ultimate
claims used in this method are based on incurred claim count development. The
selected severity for a given accident year is then derived by giving some
weight to all of the accident years in the experience history rather than
treating each accident year independently.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incurred Bornhuetter-Ferguson Method &#151; a combination of the Incurred
Development Method and the Incurred Cape Cod Method, the Incurred BF Method
estimates ultimate losses by adding actual incurred losses and projected,
future unreported losses. The amounts produced are then added to cumulative
incurred losses to produce an estimate of ultimate incurred losses.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For each method, we calculate the amount of our total loss and DCC expenses that we estimate
will ultimately be paid by our reinsurers, which is subtracted from our total gross reserve to
produce our total net reserve. We then analyze the results and may emphasize or deemphasize some
or all of the outcomes to reflect our judgment of their reasonableness in relation to supplementary
information and operational and industry changes. These outcomes are then aggregated to produce a
single weighted average point estimate that is the base estimate for net loss and DCC expense
reserves.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In determining the level of emphasis that may be placed on some or all of the methods, we
review statistical information as to which methods are most appropriate, whether adjustments are
appropriate within the particular methods, and if results produced by each method include inherent
bias reflecting operational and industry changes. This supplementary information may include:
</DIV>

<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>open and closed claim counts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>statistics related to open and closed claim count percentages;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>claim closure rates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in average case reserves and average loss and loss adjustment
expenses incurred on open claims;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reported and ultimate average case incurred changes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reported and projected ultimate loss ratios; and</TD>
</TR>

</TABLE>
</DIV>

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

<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>loss payment patterns.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In establishing our AO reserves, we review our past adjustment expenses in relation to paid
claims and estimated future costs based on expected claims activity and duration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The sum of our net loss and DCC expense reserve, our AO reserve and our reserve for mandatory
pooling arrangements is our total net reserve for loss and loss adjustment expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2006, our best estimate of our ultimate liability for loss and loss
adjustment expenses, net of amounts recoverable from reinsurers, was $412.4&nbsp;million, which includes
$9.5&nbsp;million in reserves for mandatory pooling arrangements as reported by the pool administrators.
This estimate was derived from the process and methodology described above which relies on
substantial judgment. There is inherent uncertainty in estimating our reserves for loss and loss
adjustment expenses. It is possible that our actual loss and loss adjustment expenses incurred may
vary significantly from our estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As noted above, our reserve estimate is developed based upon our analysis of our historical
data, and factors derived from that data, including claims reported, average claim amount incurred,
case development, duration, severity and payment patterns, as well as subjective assumptions. We
view our estimate of loss and DCC expenses as the most significant component of our reserve for
loss and loss adjustment expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional information regarding our reserve for unpaid loss and loss adjustment expenses as
of December&nbsp;31, 2004, 2005 and 2006 is set forth below:
</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="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross Case loss and DCC reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">375,783</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">384,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">343,465</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">AO reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,147</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross IBNR reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,268</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross unpaid loss, DCC and AO reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">519,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">484,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432,880</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reinsurance recoverables on unpaid loss and LAE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">189,624</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unpaid loss, DCC and AO reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">412,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">364,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">243,256</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We prepared a sensitivity analysis of our net loss and DCC expense reserve as of December
31, 2006 by analyzing the effect of reasonably likely changes to the assumptions used in deriving
our estimates. Since the base estimate for our net loss and DCC expense reserve is derived from
the outcomes of the six actuarial methodologies discussed above, the most significant assumption in
establishing our reserve is the adjustment of and emphasis on those methods that we believe are
most appropriate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of the six actuarial methods we use, three are &#147;incurred&#148; methods and three are &#147;paid&#148;
methods. The selected development factors within each method are derived from our data and the
design characteristics of the particular method. The six different methods each have inherent
biases in their respective designs that are more or less predictive in their use. &#147;Incurred&#148;
methods rely on historical development factors derived from changes in our incurred estimates of
claims paid and reserve amounts over time, while &#147;paid&#148; methods focus on our claim payment patterns
and ultimate paid costs. &#147;Incurred&#148; methods focus on the measurement of the adequacy of case
reserves at points in time. As a result, if reserving practices change over time, the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#147;incurred&#148; methods may produce significant variation in the estimates of ultimate losses.
&#147;Paid&#148; methods rely on actual claims payment patterns and therefore are not sensitive to changes in
reserving practices.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The low end of the range of our sensitivity analysis was derived by placing more emphasis
(63%) on the outcomes generated by the three &#147;paid&#148; methods and less emphasis (37%) on the outcomes
generated by the three &#147;incurred&#148; methods. The high end of the range was derived by placing more
emphasis (63%) on the outcomes generated by the three &#147;incurred&#148; methods and less emphasis (37%) on
the outcomes generated by the three &#147;paid&#148; methods. We believe that changing the emphasis on the
&#147;incurred&#148; and &#147;paid&#148; methods better reflects reasonably likely outcomes than adjusting selected
development factors or other variables used within each method. We believe the results of this
sensitivity analysis, which are summarized in the table below, constitute a reasonable range of the
expected outcomes of our reserve for net loss and DCC expenses.
</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="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="14" style="border-bottom: 1px solid #000000"><B>As of December 31, 2006</B></TD>
    <TD>&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="2"><B>Mandatory</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Loss and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Pooling</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>DCC Expenses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>AO</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Arrangements</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><B>(In thousands)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Low end of range</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">351,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">379,631</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net reserve</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">383,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">412,368</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">High end of range</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">384,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">412,961</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The resulting range derived from this sensitivity analysis would have increased net reserves
by $593,000 or decreased net reserves by $32.7&nbsp;million, at December&nbsp;31, 2006. The increase would
have reduced net income and stockholders&#146; equity by $385,000. The decrease would have increased
net income and stockholders&#146; equity by $21.3&nbsp;million. A change in our net loss and DCC expense
reserve would not have an immediate impact on our liquidity, but would affect cash flow in future
periods as the losses are paid.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Given the numerous factors and assumptions used in our estimate of reserves, and consequently
this sensitivity analysis, we do not believe that it would be meaningful to provide more detailed
disclosure regarding specific factors and assumptions and the individual effects of these factors
and assumptions on our net reserves. Furthermore, there is no precise method for subsequently
evaluating the impact of any specific factor or assumption on the adequacy of reserves, because the
eventual deficiency or redundancy is affected by multiple interdependent factors.
</DIV>


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

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