UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

OR

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

For the transition period from              to             

No. 000-50926

(Commission File Number)

FREMONT MICHIGAN INSURACORP, INC.

(Exact name of Registrant as specified in its charter)

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

(231) 924-0300

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

	Number of Shares Outstanding as of November 5, 2010
COMMON STOCK (No Par Value)	1,773,567
(Title of Class)	(Outstanding Shares)

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statement of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Reserved	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
SIGNATURES		33

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

September 30, 2010 and December 31, 2009

	September 30,		December 31,
	2010		2009
Assets
Investments:
Fixed maturities available for sale, at fair value	$	58,698,879	$	56,483,580
Equity securities available for sale, at fair value		16,769,379		11,183,580
Mortgage loans on real estate from related parties		233,836		239,303
Total investments		75,702,094		67,906,463
Cash and cash equivalents		6,848,776		7,063,679
Premiums due from policyholders, net		11,896,753		10,087,998
Receivable from sale of investments		11,914,817		—
Amounts due from reinsurers		9,541,258		7,859,452
Prepaid reinsurance premiums		2,486,184		1,856,343
Accrued investment income		513,779		600,648
Deferred policy acquisition costs		4,394,054		3,913,551
Deferred federal income taxes		2,870,194		3,155,625
Property and equipment, net of accumulated depreciation		3,561,267		2,787,134
Other assets		43,715		33,175
	$	129,772,891	$	105,264,068
Liabilities and Stockholders’ Equity
Liabilities:
Losses and loss adjustment expenses	$	26,233,133	$	21,331,243
Unearned premiums		32,652,233		28,886,128
Reinsurance funds withheld and premiums ceded payable		67,958		96,697
Accrued expenses and other liabilities		21,560,607		8,905,213
Total liabilities		80,513,931		59,219,281
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value, authorized 4,500,000 shares, no shares issued and outstanding		—		—
Class A common stock, no par value, authorized 5,000,000 shares, 1,773,567 and 1,749,032 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		—		—
Class B common stock, no par value, authorized 500,000 shares, no shares issued and outstanding		—		—
Additional paid-in capital		9,631,339		9,037,405
Retained earnings		38,205,414		36,332,648
Accumulated other comprehensive income		1,422,207		674,734
Total stockholders’ equity		49,258,960		46,044,787
Total liabilities and stockholders’ equity	$	129,772,891	$	105,264,068

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

3

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Revenues:
Net premiums earned	$	15,059,899	$	13,561,708	$	43,608,316	$	39,580,197
Net investment income		388,147		533,649		1,242,297		1,473,814
Net realized gains on investments		1,404,816		51,974		2,626,824		263,468
Other income, net		160,217		163,478		471,939		486,829
Total revenues		17,013,079		14,310,809		47,949,376		41,804,308
Expenses:
Losses and loss adjustment expenses, net		10,965,808		7,940,906		30,447,540		25,935,476
Policy acquisition and other underwriting expenses		4,605,975		4,237,706		14,398,439		12,608,286
Total expenses		15,571,783		12,178,612		44,845,979		38,543,762
Income before federal income tax expense		1,441,296		2,132,197		3,103,397		3,260,546
Federal income tax expense		443,753		664,312		916,086		929,846
Net income	$	997,543	$	1,467,885	$	2,187,311	$	2,330,700
Earnings per share
Basic	$	.56	$	.84	$	1.24	$	1.33
Diluted	$	.55	$	.82	$	1.21	$	1.31

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

4

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (Unaudited)

For the Nine Months Ended September 30, 2010

	Common Stock Class A (Number of Shares)			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2009		1,749,032		$	9,037,405		$	36,332,648		$	674,734		$	46,044,787
Comprehensive income:
Net income								2,187,311						2,187,311
Net unrealized gains on investments, net of tax											788,659			788,659
Amortization of prior service credit, net of tax											(42,413	)		(42,413	)
Amortization of net actuarial loss, net of tax											1,227			1,227
Total comprehensive income														2,934,784
Common stock issued		20,501			427,589									427,589
Stock options exercised		9,898			63,557									63,557
Tax benefit from stock options exercised					45,859									45,859
Common stock repurchased		(5,864	)		(35,895	)		(102,585	)					(138,480	)
Cash dividend								(211,960	)					(211,960	)
Stock-based compensation					92,824									92,824
Balance, September 30, 2010		1,773,567		$	9,631,339		$	38,205,414		$	1,422,207		$	49,258,960

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

5

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended September 30, 2010 and 2009

	2010			2009
Cash flows from operating activities:
Net income	$	2,187,311		$	2,330,700
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		713,031			684,387
Deferred federal income taxes		(99,630	)		246,713
Stock based compensation expense		92,824			90,893
Net realized gains on investments		(2,626,824	)		(263,468	)
Net amortization of premiums on investments		455,541			249,959
Excess tax benefit from stock options exercised		(45,859	)		(2,319	)
Changes in assets and liabilities:
Premiums due from policyholders		(1,808,755	)		(1,111,660	)
Amounts due from reinsurers		(1,681,806	)		(1,074,838	)
Prepaid reinsurance premiums		(629,841	)		(1,690,793	)
Accrued investment income		86,869			28,302
Deferred policy acquisition costs		(480,503	)		(279,755	)
Other assets		(10,540	)		17,361
Losses and loss adjustment expenses		4,901,890			510,331
Unearned premiums		3,766,105			2,003,555
Reinsurance balances payable		(28,739	)		(114,728	)
Accrued expenses and other liabilities		304,209			2,213,376
Net cash provided by operating activities		5,095,283			3,838,016
Cash flows from investing activities:
Proceeds from sales and maturities of fixed maturity investments		47,218,792			15,362,196
Proceeds from sales of equity investments		7,782,992			815,582
Purchases of fixed maturity investments		(47,387,230	)		(15,247,633	)
Purchases of equity investments		(12,049,433	)		(4,670,168	)
Increase in receivable from investments		419,824			948,499
Repayment of mortgage loan on real estate from related party		5,467			5,937
Proceeds from sale of property and equipment		—			16,150
Purchase of property and equipment, net		(1,487,164	)		(776,575	)
Net cash used in investing activities		(5,496,752	)		(3,546,012	)
Cash flows from financing activities:
Proceeds from issuance of common stock		491,146			281,956
Share repurchases of common stock		(138,479	)		(231,518	)
Dividends paid to stockholders		(211,960	)		(157,834	)
Tax benefit from exercised stock options		45,859			2,319
Net cash provided by (used in) financing activities		186,566			(105,077	)
Net change in cash and cash equivalents		(214,903	)		186,927
Cash and cash equivalents, beginning of period		7,063,679			6,576,564
Cash and cash equivalents, end of period	$	6,848,776		$	6,763,491

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

6

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

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

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

The accompanying unaudited consolidated financial statements for the interim periods included herein are unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year. The accompanying unaudited consolidated financial statements should be read with the annual consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The December 31, 2009 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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

Certain 2009 amounts have been reclassified from the prior year financial statements to conform to the 2010 presentation.

2. New Accounting Standards

In June 2009, a new accounting standard was issued related to the accounting for transfers of financial assets, which updates accounting for securitizations and special-purpose entities. The new accounting standard is a revision of previously issued accounting standards related to accounting for transfers and servicing of financial assets and extinguishments of liabilities, and will require additional information regarding financial asset transfers, including securitization transactions, and the presence of continuing exposure around the risks related to transferred financial assets. In addition, the new accounting standard removes the concept of a qualifying special-purpose entity and changes the requirements for derecognizing financial assets. The new accounting standard was effective for the Company on January 1, 2010. The implementation of this new accounting standard did not have a significant impact on our financial statements.

In June 2009, new consolidation guidance was issued which 1) replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, 2) requires ongoing assessments whether an enterprise is the primary beneficiary of a variable interest entity, and 3) requires additional disclosure about an enterprise’s involvement in variable interest entities. This guidance was effective for the Company on January 1, 2010. The implementation of this new guidance did not have an impact on our financial statements.

In January 2010, an update to the Accounting Standards Codification (ASC) was issued related to fair value measurements and disclosures. This ASC update provides for additional disclosure requirements to improve the transparency and comparability of fair value information in financial reporting. Specifically, the new guidance requires separate disclosure of the amounts of significant transfers in and out of Levels 1 and 2, as well as the reasons for the transfers, and separate disclosure for the purchases, sales, issuances and settlement activity in Level 3. In addition, this ASC update requires fair value measurement disclosure for each class of assets and liabilities, and disclosures about the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements in Levels 2 and 3. The new disclosures and clarifications of existing disclosures were adopted on January 1, 2010, except for the requirement to provide Level 3 activity detail which will become effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Early adoption is permitted. These amendments do not require disclosures for earlier periods presented for comparative purposes at initial adoption. The updated disclosures are included in note 4 to the consolidated financial statements.

In October 2010, updated guidance was issued to address the diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of acquisition costs to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. If application of this guidance would result in the capitalization of acquisition costs that had not previously been capitalized by a reporting entity, the entity may elect not to capitalize those costs. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The adoption of this guidance is not expected to have an impact on our financial statements.

7

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

3. Investments

The cost or amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of investments at September 30, 2010 and December 31, 2009 are as follows:

	September 30, 2010
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	8,216,927	$	138,159	$	—	$	8,355,086
States and political subdivisions		18,555,614		523,332		79,739		18,999,207
Corporate securities		16,171,162		300,108		50,665		16,420,605
Mortgage-backed securities		14,623,088		300,895		2		14,923,981
		57,566,791		1,262,494		130,406		58,698,879
Equity securities		16,548,823		1,320,251		1,099,695		16,769,379
Total	$	74,115,614	$	2,582,745	$	1,230,101	$	75,468,258
	December 31, 2009
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,670,813	$	30,533	$	5,136	$	5,696,210
States and political subdivisions		23,790,222		473,278		76,596		24,186,904
Corporate securities		12,514,810		198,936		26,830		12,686,916
Mortgage-backed securities		13,846,261		154,329		87,040		13,913,550
		55,822,106		857,076		195,602		56,483,580
Equity securities		11,687,346		829,461		1,333,227		11,183,580
Total	$	67,509,452	$	1,686,537	$	1,528,829	$	67,667,160

The cost or amortized cost and estimated fair value of fixed maturities at September 30, 2010, by contractual maturity, are shown below. Expected maturities on certain corporate and mortgage-backed investments may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

8

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Cost or Amortized Cost		Estimated Fair Value
Due in one year or less	$	2,435,089	$	2,441,568
Due after one year through five years		17,535,532		18,011,292
Due after five years through ten years		21,919,082		22,267,849
Due after ten years		1,054,000		1,054,190
Mortgage-backed securities		14,623,088		14,923,980
	$	57,566,791	$	58,698,879

Net realized gains (losses) on investments for the three and nine months ended September 30 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Gross realized investment gains:
Fixed maturities	$	1,376,840		$	10,000		$	2,031,788		$	279,023
Equity securities		88,560			43,539			656,060			43,850
		1,465,400			53,539			2,687,848			322,873
Gross realized investment losses:
Fixed maturities		—			—			—			—
Equity securities		(60,584	)		(1,565	)		(61,024	)		(59,405	)
		(60,584	)		(1,565	)		(61,024	)		(59,405	)
Net realized gains on investments	$	1,404,816		$	51,974		$	2,626,824		$	263,468

Evaluating Investments for Other-than-Temporary Impairments

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

The table below shows the total value of securities that were in an unrealized loss position as of September 30, 2010 and December 31, 2009 including the length of time they have been in an unrealized loss position. As of September 30, 2010 and December 31, 2009, unrealized losses, as shown in the following tables, were 1.5% and 2.0%, respectively of total invested assets including cash and cash equivalents.

9

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	September 30, 2010
	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	—	$	—	$	—	$	—	$	—	$	—
States and political subdivisions		6,354,814		79,739						6,354,814		79,739
Corporate securities		5,010,826		50,665		—		—		5,010,826		50,665
Mortgage-backed securities		3,168		2						3,168		2
		11,368,808		130,406		—		—		11,368,808		130,406
Equity securities		1,212,340		126,447		4,880,077		973,248		6,092,417		1,099,695
Total	$	12,581,148	$	256,853	$	4,880,077	$	973,248	$	17,461,225	$	1,230,101
	December 31, 2009
	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	2,960,523	$	5,136	$	—	$	—	$	2,960,523	$	5,136
States and political subdivisions		2,630,506		57,311		480,715		19,285		3,111,221		76,596
Corporate securities		3,689,734		26,830		—		—		3,689,734		26,830
Mortgage-backed securities		5,249,649		36,993		1,770,809		50,047		7,020,458		87,040
		14,530,412		126,270		2,251,524		69,332		16,781,936		195,602
Equity securities		103,878		5,771		6,197,433		1,327,456		6,301,311		1,333,227
Total	$	14,634,290	$	132,041	$	8,448,957	$	1,396,788	$	23,083,247	$	1,528,829

The following table shows the composition of the fixed maturity securities in unrealized loss positions at September 30, 2010 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings. The vast majority of the securities are rated by S&P and/or Moody’s.

NAIC Rating	Equivalent S&P Rating	Equivalent Moody’s Rating	Book Value		Fair Value		Unrealized Loss			Percent to Total
1	AAA/AA/A	Aaa/Aa/A	$	11,499,214	$	11,368,808	$	(130,406	)		100.0	%
2	BBB	Baa		—		—		—			—
3	BB	Ba		—		—		—			—
4	B	B		—		—		—			—
5	CCC or lower	Caa or lower		—		—		—			—
6				—		—		—			—
			$	11,499,214	$	11,368,808	$	(130,406	)		100.0	%

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

10

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

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

As of September 30, 2010, the portfolio included 21 fixed maturity securities and 57 equity securities in an unrealized loss position for less than 12 months and 11 equity securities in an unrealized loss position for more than 12 months. Of the fixed maturity securities, all 21 were trading above 95% of amortized cost. All of the fixed maturity securities in an unrealized loss position and assigned a rating by a commercial credit rating agency are rated investment grade securities.

As of September 30, 2010, the investment portfolio included 68 equity securities in an unrealized loss position. Of these 68 equity securities, 5 were trading below 75% of amortized cost, 15 were trading between 75% and 85% of amortized cost, 22 were trading between 86% and 95% of amortized cost and the remaining 26 were trading above 95% of amortized cost.

As of December 31, 2009, the portfolio included 23 fixed maturity securities and 7 equity securities in an unrealized loss position for less than 12 months and 4 fixed maturity securities and 14 equity securities in an unrealized loss position for more than 12 months. Of the fixed maturity securities, all twenty-seven were trading above 95% of amortized cost. All of the fixed maturity securities in an unrealized loss position and assigned a rating by a commercial credit rating agency are rated investment grade securities.

As of December 31, 2009, the investment portfolio included 21 equity securities in an unrealized loss position. Of these twenty-one equity securities, 2 were trading under 75% of amortized cost, 7 were trading between 75% and 85% of amortized cost, 8 were trading between 86% and 95% of amortized cost and the remaining 4 were trading above 95% of amortized cost.

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

4. Fair Value Measurements

Investments

Our available-for-sale investment portfolio consists of fixed maturity and equity securities, and is recorded at fair value in the accompanying consolidated balance sheets. The change in the fair value of these investments, unless deemed to be other than temporarily impaired, is recorded as a component of other comprehensive income.

Accounting standards provide a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). The hierarchy level assigned to each security in our available-for-sale portfolio is based on our assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The three hierarchy levels are defined as follows:

Level 1

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

11

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Level 2

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

Level 3

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

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

The following tables present our available-for-sale investments measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009 classified by the valuation hierarchy (as discussed above):

	September 30, 2010
			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Available-for-Sale Investments:
Fixed Maturity Securities
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	8,355,086	$	3,865,055	$	4,490,031	$	—
States and political subdivisions		18,999,207		—		18,999,207		—
Corporate securities		16,420,605		—		16,420,605		—
Mortgage-backed securities		14,923,981		—		14,923,981		—
		58,698,879		3,865,055		54,833,824		—
Equity Securities		16,769,379		16,769,379		—		—
Total	$	75,468,258	$	20,634,434	$	54,833,824	$	—
	December 31, 2009
			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Available-for-Sale Investments:
Fixed Maturity Securities
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,696,210	$	1,632,250	$	4,063,960	$	—
States and political subdivisions		24,186,904		—		24,186,904		—
Corporate securities		12,686,916		—		12,686,916		—
Mortgage-backed securities		13,913,550		—		13,913,550		—
		56,483,580		1,632,250		54,851,330		—
Equity Securities		11,183,580		11,183,580		—		—
Total	$	67,667,160	$	12,815,830	$	54,851,330	$	—

12

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

5. Comprehensive Income

The Company’s comprehensive income for the three and nine months ended September 30 is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Net income	$	997,543		$	1,467,885		$	2,187,311		$	2,330,700
Other comprehensive income, net of tax:
Unrealized gain on investments		1,908,940			2,216,906			2,522,363			3,203,797
Reclassification adjustment for realized gain on investments included in net income		(927,179	)		(34,303	)		(1,733,704	)		(173,889	)
Amortization of prior service credit		(14,138	)		(14,137	)		(42,413	)		(42,411	)
Amortization of net actuarial loss		409			163			1,227			501
Other comprehensive income (loss), net of tax		968,032			2,168,629			747,473			2,987,998
Comprehensive (loss) income	$	1,965,575		$	3,636,514		$	2,934,784		$	5,318,698

6. Earnings per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Numerator for basic and diluted earnings per share:
Net income	$	997,543	$	1,467,885	$	2,187,311	$	2,330,700
Denominator:
Denominator for basic earnings per share – weighted average shares outstanding		1,769,119		1,746,202		1,760,992		1,749,718
Effect of dilutive stock options		37,103		37,132		40,525		35,734
Denominator for diluted earnings per share – adjusted weighted average shares outstanding		1,806,222		1,783,334		1,801,517		1,785,452
Basic earnings per share	$	0.56	$	0.84	$	1.24	$	1.33
Diluted earnings per share	$	0.55	$	0.82	$	1.21	$	1.31

7. Segment Information

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

The Company evaluates product line profitability based on underwriting gain (loss). Certain expenses are allocated based on measurements including premiums, incurred losses or other departmental employee data. Underwriting gain (loss) by product line would change if different methods were applied.

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

13

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Segment data for the three and nine months ended September 30 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenues:
Net premiums earned:
Personal lines	$	11,171,853		$	10,039,152		$	32,337,965		$	29,144,171
Commercial lines		2,164,525			1,766,009			6,149,515			5,262,738
Farm		1,236,367			1,278,854			3,668,929			3,750,180
Marine		487,154			477,693			1,451,907			1,423,108
Total net premiums earned		15,059,899			13,561,708			43,608,316			39,580,197
Expenses:
Loss and loss adjustment expenses:
Personal lines		8,249,597			6,190,893			23,811,242			19,603,010
Commercial lines		1,159,478			836,282			3,479,531			3,244,211
Farm		939,706			332,424			2,137,368			2,123,116
Marine		617,027			581,307			1,019,399			965,139
Total loss and loss adjustment expenses		10,965,808			7,940,906			30,447,540			25,935,476
Policy acquisition and other underwriting expenses:
Personal lines		3,175,583			2,830,864			9,708,673			8,294,688
Commercial lines		853,462			841,012			2,906,993			2,493,636
Farm		418,343			398,122			1,308,401			1,266,793
Marine		158,587			167,708			474,372			553,169
Total policy acquisition and other underwriting expenses		4,605,975			4,237,706			14,398,439			12,608,286
Underwriting gain (loss):
Personal lines		(253,327	)		1,017,395			(1,181,950	)		1,246,473
Commercial lines		151,585			88,715			(237,009	)		(475,109	)
Farm		(121,682	)		548,308			223,160			360,271
Marine		(288,460	)		(271,322	)		(41,864	)		(95,200	)
Total underwriting gain (loss)		(511,884	)		1,383,096			(1,237,663	)		1,036,435
Net investment income		388,147			533,649			1,242,297			1,473,814
Net realized gains on investments		1,404,816			51,974			2,626,824			263,468
Other income, net		160,217			163,478			471,939			486,829
Income before federal income taxes	$	1,441,296		$	2,132,197		$	3,103,397		$	3,260,546

14

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities included the following:

	September 30, 2010		December 31, 2009
Commissions payable	$	3,186,742	$	3,062,449
Advance premiums		1,198,828		734,618
Accrued salaries & employee benefits		887,881		1,114,020
Accumulated benefit obligation		1,827,390		1,819,308
Payable from investment purchases		12,334,973		13,002
Other		2,124,793		2,161,816
	$	21,560,607	$	8,905,213

9. Other Postretirement Plan

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Components of net periodic benefit cost:
Service cost	$	—		$	1,946		$	—		$	5,836
Interest cost		25,354			26,286			76,060			78,856
Amortization of unrecognized prior service credit		(21,421	)		(21,420	)		(64,262	)		(64,261	)
Amortization of unrecognized net actuarial loss		620			253			1,860			760
Net periodic benefit cost	$	4,553		$	7,065		$	13,658		$	21,191

As this plan is not pre-funded, no contributions other than those necessary to cover benefit payments are anticipated. For the nine months ended September 30, 2010 the Company has made contributions to the plan of approximately $92,000 which is the total contribution that the Company expects to contribute to the plan in 2010 to cover anticipated benefit payments.

10. Reinsurance

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

	Three Months Ended
	September 30, 2010						September 30, 2009
	Written			Earned			Written			Earned
Direct	$	20,313,328		$	18,440,771		$	17,979,342		$	16,370,968
Assumed		27,138			26,948			16,256			17,186
Ceded		(3,540,306	)		(3,407,820	)		(2,875,128	)		(2,826,446	)
Net premiums	$	16,800,160		$	15,059,899		$	15,120,470		$	13,561,708
	Nine Months Ended
	September 30, 2010						September 30, 2009
	Written			Earned			Written			Earned
Direct	$	56,646,898		$	52,895,494		$	49,698,844		$	47,702,444
Assumed		107,768			93,067			77,116			69,960
Ceded		(9,916,050	)		(9,380,245	)		(8,302,455	)		(8,192,207	)
Net premiums	$	46,838,616		$	43,608,316		$	41,473,505		$	39,580,197

15

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Loss and LAE incurred	$	11,435,451		$	8,685,976		$	35,097,962		$	28,980,093
Reinsurance recoveries		(469,643	)		(745,070	)		(4,650,422	)		(3,044,617	)
Net loss and LAE incurred	$	10,965,808		$	7,940,906		$	30,447,540		$	25,935,476

11. Federal Income Taxes

The provision for income taxes for the three and nine months ended September 30 consists of the following:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010			2009		2010			2009
Current expense	$	450,926		$	488,987	$	1,015,716		$	683,134
Deferred expense (benefit)		(7,173	)		175,325		(99,630	)		246,712
Total	$	443,753		$	664,312	$	916,086		$	929,846

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

	Three Months Ended September 30,										Nine Months Ended September 30,
	2010					2009					2010					2009
Income before federal income taxes	$	1,441,296				$	2,132,197				$	3,103,397				$	3,260,546
Tax at statutory rate		490,041		34.0	%		724,947		34.0	%		1,055,155		34.0	%		1,108,586		34.0	%
Tax effect of :
Nontaxable investment income		(53,650	)	(3.7	%)		(59,480	)	(2.8	%)		(164,343	)	(5.3	%)		(181,837	)	(5.6	%)
Nondeductible expenses, net		7,361		0.5	%		2,428		0.1	%		26,388		0.8	%		6,677		0.2	%
Other, net		1		0.0	%		(3,583	)	(0.2	%)		(1,114	)	(0.0	%)		(3,580	)	(0.1	%)
Federal income tax expense	$	443,753		30.8	%	$	664,312		31.1	%	$	916,086		29.5	%	$	929,846		28.5	%

Deferred federal income tax assets and liabilities are recognized for the estimated future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company’s management reviews both positive and negative evidence, including current and historical results of operations, the annual limitation on utilization of net operating loss carryforwards pursuant to Internal Revenue Code Section 382 (“Section 382”), future income projections and the overall prospects of our business. Based upon management’s assessment of all available evidence, including the Company’s cumulative net income for recent fiscal years, estimates of current and future profitability and the overall prospects of our business, it has been determined that as of September 30, 2010 it is more likely than not that sufficient taxable income will exist in the periods of reversal in order to realize the net deferred tax asset. Based on the annual Section 382 limitation of the utilization of net operating loss carryforwards management has determined that approximately $2,971,000 of net operating loss carryforwards will not be realized and therefore a valuation allowance of approximately $1,010,000 will be maintained for the deferred tax asset associated with these amounts.

16

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

At September 30, 2010 and December 31, 2009, the tax effects of temporary differences that give rise to deferred federal income tax assets and liabilities are as follows:

	September 30, 2010			December 31, 2009
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves	$	500,740		$	390,239
Unearned premium reserves		2,145,064			1,893,838
Postretirement benefits accrued		621,312			618,565
Net operating loss carryforward		2,124,417			2,226,423
Alternative minimum tax credit carryforward		357,697			357,697
Other deferred tax assets		287,181			252,027
Total deferred federal income tax assets		6,036,411			5,738,789
Deferred federal income tax liabilities arising from:
Deferred policy acquisition costs		(1,549,587	)		(1,364,651	)
Unrealized gain on investments		(459,899	)		(53,621	)
Property and equipment		(143,058	)		(141,626	)
Other deferred tax liabilities		(3,636	)		(13,229	)
Total deferred federal income tax liabilities		(2,156,180	)		(1,573,127	)
Net deferred federal income tax asset		3,880,231			4,165,662
Valuation allowance		(1,010,037	)		(1,010,037	)
Net deferred tax asset	$	2,870,194		$	3,155,625

17

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

The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2009, particularly “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report.

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

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

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

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

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

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

• inflation;

• the cost, availability and collectibility of reinsurance;

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

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

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

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

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

• adverse litigation or arbitration results;

• technological change;

• the ability to carry out our business plans; and

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

• the effect of Federal legislative or regulatory matters; and

• the effect of Federal or state judicial rulings.

Because forward-looking information is subject to various risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking information. Therefore, we caution you not to place undue reliance on this forward-looking information, which speaks only as of the date of this filing.

All subsequent written and oral forward-looking information attributable to the Holding Company or the Insurance Company or any person acting on our behalf is expressly qualified in its entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to publicly release any revisions that may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this filing.

Overview of Fremont Michigan InsuraCorp

Fremont Michigan InsuraCorp, Inc. is a holding company owning all of the outstanding shares of Fremont Insurance Company. Fremont Insurance Company is a Michigan licensed property and casualty insurer operating exclusively in the State of Michigan and writing principally personal lines, commercial lines, farm and marine insurance policies through independent agents. We were founded in 1876 and have served Michigan policyholders for over 134 years. We market policies through approximately 175 independent insurance agencies. Fremont Insurance Company has a financial strength rating of “A-” (Excellent) by A.M. Best. The Holding Company is subject to regulation by the Michigan Office of Financial and Insurance Services (“OFIR”) as its primary regulator because it is the holding company for Fremont Insurance Company. As of September 30, 2010, we had approximately 74,600 policies in force and assets of $129.8 million.

18

General

We use accounting principles that are in compliance with those generally accepted in the United States of America (GAAP). Management’s discussion and analysis covers the Company’s financial condition and results of operations for the three and nine months ended September 30, 2010 and 2009. The Company’s fiscal year ends on December 31.

Critical Accounting Policies and Estimates

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

We believe the critical accounting policies and estimates discussed below reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements. These may be further commented upon in applicable sections on Results of Operations and Liquidity and Capital Resources that follow. These policies are more fully described below as well as in our 2009 Annual Report on Form 10-K. There have been no material changes to these policies during the most recent quarter.

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

Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. Specifically, on a quarterly basis, we review existing reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior accident years. We use historical paid and incurred losses and accident year data to derive expected ultimate loss and loss adjustment expense ratios by line of business. We then apply these expected loss and loss adjustment expense ratios to earned premiums to derive a reserve level for each line of business. In connection with the determination of the reserves, we also consider other specific factors such as recent weather-related losses, trends in historical paid losses, and legal and judicial trends with respect to theories of liability. Some of our business relates to coverage for short-term risks, and for these risks loss development is comparatively rapid and historical paid losses, adjusted for known variables, have been a reliable predictive measure of future losses for purposes of our reserving. Some of our business relates to longer-term risks, where the claims are slower to emerge and the estimate of damage is more difficult to predict. For these lines of business, more sophisticated actuarial methods, such as the Bornhuetter-Ferguson loss development methods must be employed to project an ultimate loss expectation, and then the related loss history must be regularly evaluated and loss expectations updated, with the possibility of variability from the initial estimate of ultimate losses.

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

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

Reserves are estimates because there are uncertainties inherent in the determination of ultimate losses. Court decisions, regulatory changes and economic conditions can affect the ultimate cost of claims that occurred in the past as well as create uncertainties regarding future loss cost trends. Accordingly, the ultimate liability for unpaid losses and loss adjustment expenses will likely differ from the amount recorded at September 30, 2010.

19

We have four business segments: personal, commercial, farm and marine. The following table shows the breakdown of our loss and LAE reserves between reported losses and IBNR losses by segment as of September 30, 2010 and December 31, 2009 (in thousands):

	September 30, 2010		December 31, 2009
Reported losses
Personal	$	11,691	$	8,443
Commercial		2,944		3,121
Farm		1,545		1,029
Marine		700		353
		16,880		12,946
IBNR losses
Personal		5,019		4,614
Commercial		3,575		3,030
Farm		425		416
Marine		334		325
		9,353		8,385
Total
Personal		16,710		13,057
Commercial		6,519		6,151
Farm		1,970		1,445
Marine		1,034		678
	$	26,233	$	21,331

The reserves are reported gross of any amounts recoverable from reinsurers and are reduced for anticipated salvage and subrogation. Anticipated salvage and subrogation as of September 30, 2010 and December 31, 2009, was approximately $94,000 and $151,000, respectively.

Investments. At September 30, 2010 and December 31, 2009, all of the Company’s investments are classified as available-for-sale and are investments that would be available to be sold in response to the Company’s liquidity needs, changes in market interest rates and asset-liability management strategies, among others. Available-for-sale investments are recorded at fair value, with the corresponding unrealized appreciation or depreciation, net of deferred income taxes, reported as a component of accumulated other comprehensive income or loss until realized.

The Company reviews the status and market value changes of its investment portfolio on at least a quarterly basis during the year, and any provisions for other-than-temporary impairments in the portfolio’s value are evaluated and established at each quarterly balance sheet date. When a fixed maturity security has a decline in value, where fair value is below amortized cost, an OTTI write-down is triggered in circumstances where (1) the Company has the intent to sell the security, (2) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis, or (3) the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell the security or if it is more-likely-than-not the Company will be required to sell the security before recovery, an OTTI write-down is recognized as a realized loss in the statement of operations equal to the difference between the security’s amortized cost and its fair value. If the Company does not intend to sell the security or it is not more-likely-than-not that the Company will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing the credit loss, which is recognized as a realized loss in the statement of operations, and the amount related to all other factors, which is recognized in other comprehensive income.

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

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

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

Reinsurance. Net premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned premiums ceded to them are reported as assets. Reinsurance assumed from other companies, including assumed premiums written and earned and losses and LAE, is accounted for in the same manner as direct insurance written.

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

At September 30, 2010 and December 31, 2009, the Company’s recoverable from reinsurers was comprised of the following:

	September 30, 2010		December 31, 2009
Paid losses and LAE	$	1,146,535	$	1,041,969
Unpaid losses and LAE		8,394,723		6,817,483
Amounts due from reinsurers	$	9,541,258	$	7,859,452

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

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

21

Results of Operations – Three Months Ended September 30, 2010 and 2009

Consolidated Results of Operations. The following table shows the underwriting gain or loss as well as other revenue and expense items included in our unaudited consolidated statements of income for the three months ended September 30, 2010 and 2009. The Company’s underwriting gain or loss consists of net premiums earned less loss and LAE and policy acquisition and other underwriting expenses. The Company’s underwriting performance is the most important factor in evaluating the overall results of operations given the fluctuations which can occur in loss and LAE due to weather related events as well as the uncertainties involved in the process of estimating reserves for losses and LAE. The underwriting results and the fluctuations in other revenue and expense items are discussed in greater detail below.

							Change
	2010			2009			Dollar			Percentage
Underwriting gain (loss)
Personal	$	(253,327	)	$	1,017,395		$	(1,270,722	)		(124.9	%)
Commercial		151,585			88,715			62,870			70.9	%
Farm		(121,682	)		548,308			(669,990	)		(122.2	%)
Marine		(288,460	)		(271,322	)		(17,138	)		(6.3	%)
Total underwriting gain (loss)		(511,884	)		1,383,096			(1,894,980	)		(137.0	%)
Other revenue (expense) items
Net investment income		388,147			533,649			(145,502	)		(27.3	%)
Net realized gains on investments		1,404,816			51,974			1,352,842			2602.9	%
Other income		160,217			163,478			(3,261	)		(2.0	%)
Total other revenue (expense) items		1,953,180			749,101			1,204,079			160.7	%
Income before federal income taxes		1,441,296			2,132,197			(690,901	)		(32.4	%)
Federal income tax expense		443,753			664,312			(220,559	)		(33.2	%)
Net income	$	997,543		$	1,467,885		$	(470,342	)		(32.0	%)

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the three months ended September 30, 2010 and 2009.

	2010			2009			Change			% Change
Direct premiums written	$	20,313,328		$	17,979,342		$	2,333,986			13.0	%
Net premiums written	$	16,800,160		$	15,120,470		$	1,679,690			11.1	%
Net premiums earned	$	15,059,899		$	13,561,708		$	1,498,191			11.0	%
Loss and LAE		10,965,808			7,940,906			3,024,902			38.1	%
Policy acquisition and other underwriting expenses		4,605,975			4,237,706			368,269			8.7	%
Underwriting gain (loss)	$	(511,884	)	$	1,383,096		$	(1,894,980	)		(137.0	%)
Loss and LAE ratio		72.8	%		58.6	%		14.2	%
Policy acquisition and other underwriting expense ratio		30.6	%		31.2	%		(0.6	%)
Combined ratio		103.4	%		89.8	%		13.6	%

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

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

	2010		2009		$ Change		% Change
Direct Premiums Written:
Personal	$	15,373,177	$	13,436,661	$	1,936,516		14.4	%
Commercial		2,833,158		2,486,051		347,107		14.0	%
Farm		1,532,334		1,482,675		49,659		3.3	%
Marine		574,659		573,955		704		0.1	%
	$	20,313,328	$	17,979,342	$	2,333,986		13.0	%

The market remains very competitive when it comes to target market business in all lines, especially in the commercial segment. We continue to outperform the industry in Michigan in our ability to grow our business in our target markets and continue to focus on those risks that provide long term growth and profit potential. All major lines, (personal, commercial, farm), are showing positive growth through September of 2010 which is attributed to the strong partnerships we have cultivated with our agents along with our focused efforts to provide competitive products and pricing for target market business.

Direct premiums written increased 13.0% during the quarter ended September 30, 2010. Renewal premiums increased 11.7% while new business premiums increased 20.0%. Direct premiums written for the personal segment increased 14.4%, driven by personal auto, up 23.5%, and homeowners, up 7.2%. During the quarter ended September 30, 2010, the personal segment experienced new business growth of 29.7% and renewal business growth of 12.6% as compared to the 2009 quarter. Personal auto new business premium increased 39.6% while renewal premium grew 20.5%. Homeowner new business premium increased 19.9% while renewal premium grew 5.5%. On September 15, 2010, an overall 9.6% rate increase was implemented in the homeowners product line and on October 1, 2010 an overall 7.2% rate increase was implemented in the personal auto product line.

The commercial segment experienced an increase of 14.0% in direct premiums written as a result of growth in renewal business of 15.5% and new business of 3.6%. All commercial products except for businessowners experienced an increase in premiums for the quarter. During the quarter, we rolled out the commercial package policy (CPP) product onto our web-based rating platform, Fremont Complete – NextGen. Our independent agents now have the ability to quote, rate and bind all of our commercial products using our web-based rating platform.

Farm direct premiums written increased 3.3% driven by growth in renewal business of 6.4% offset by a decline in new business of 33.6%. Direct premiums written for the marine segment were flat.

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

	2010		2009		$ Change			% Change
Net Premiums Written:
Personal	$	12,864,619	$	11,514,508	$	1,350,111			11.7	%
Commercial		2,081,292		1,719,723		361,569			21.0	%
Farm		1,316,893		1,361,244		(44,351	)		(3.3	%)
Marine		537,356		524,995		12,361			2.4	%
	$	16,800,160	$	15,120,470	$	1,679,690			11.1	%

The increase in net premiums written is due to growth in direct premiums written of $2,334,000 offset by an increase of $654,000 in ceded premiums written under the Company’s reinsurance agreements.

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

	2010		2009		$ Change			% Change
Net Premiums Earned:
Personal	$	11,171,854	$	10,039,152	$	1,132,702			11.3	%
Commercial		2,164,525		1,766,009		398,516			22.6	%
Farm		1,236,367		1,278,854		(42,487	)		(3.3	%)
Marine		487,153		477,693		9,460			2.0	%
	$	15,059,899	$	13,561,708	$	1,498,191			11.0	%

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The increase in net premiums earned is due to the overall increase in direct premiums earned of $2,003,000 offset by an increase of $505,000 in ceded premiums earned under the Company’s reinsurance agreements.

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

	2010			2009			$ Change			% Change
Loss and LAE:
Personal	$	8,249,597		$	6,190,893		$	2,058,704			33.3	%
Commercial		1,159,477			836,282			323,195			38.6	%
Farm		939,706			332,424			607,282			182.7	%
Marine		617,028			581,307			35,721			6.1	%
	$	10,965,808		$	7,940,906		$	3,024,902			38.1	%
Incurred Claim Count:
Personal		2,937			2,480			457			18.4	%
Commercial		314			241			73			30.3	%
Farm		136			137			(1	)		(0.7	%)
Marine		116			124			(8	)		(6.5	%)
		3,503			2,982			521			17.5	%
Average Loss and LAE per Claim:
Personal	$	2,809		$	2,496		$	313			12.5	%
Commercial		3,693			3,470			223			6.4	%
Farm		6,910			2,426			4,484			184.8	%
Marine		5,319			4,688			631			13.5	%
	$	3,130		$	2,663		$	467			17.5	%
Loss and LAE Ratio:
Personal		73.8	%		61.7	%
Commercial		53.6	%		47.4	%
Farm		76.0	%		26.0	%
Marine		126.7	%		121.7	%
		72.8	%		58.6	%

The personal segment’s loss and LAE ratio increased to 73.8% due to losses in the personal auto product line, an increase in weather-related claims offset by a decline in fire related losses. The loss and LAE ratio for personal auto increased to 83.4% for the three months ended September 30, 2010 compared to 61.1% in the 2009 period. During the 2010 quarter, we have experienced an increase in both auto claim frequency as well as severity particularly from casualty related auto claims. Weather-related claims, primarily hail and wind damage, also increased in the 2010 quarter as compared to 2009 which drove up incurred losses in the homeowner and mobilowner product lines. The increased weather-related losses were somewhat offset by a decline in fire related losses during the 2010 quarter.

The commercial segment’s loss and LAE ratio increased to 53.6% for the three months ended September 30, 2010 compared to 47.4% for the 2009 period. The higher loss ratio is due to increased frequency and severity experienced in the businessowner and commercial auto product lines. The farm segment’s loss and LAE ratio was 76.0% during the three months ended September 30, 2010 compared to 26.0% in the 2009 period. The higher loss ratio is due to increased severity as a result of fire related losses experienced during the quarter. The marine segment’s loss and LAE ratio was up and was impacted by the increased seasonal activity which occurs during the Michigan boating season.

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

	2010			2009			Change			% Change
Amortization of deferred policy acquisition costs	$	2,383,936		$	2,148,216		$	235,720			11.0	%
Other underwriting expenses		2,222,039			2,089,490			132,549			6.3	%
Total policy acquisition and other underwriting expenses	$	4,605,975		$	4,237,706		$	368,269			8.7	%
Net premiums earned	$	15,059,899		$	13,561,708		$	1,498,191			11.0	%
Expense ratio		30.6	%		31.2	%		(0.6	%)

The increase in amortization of deferred policy acquisition costs (“DAC”) is a result of increased earned premium volume. As a percentage of net premiums earned DAC amortization remained at 15.8%. Other underwriting expenses as a percentage of net premiums earned dropped from 15.4% to 14.8% due to lower assessments from state mandated pools and associations, a decrease in allowances to agents and continued growth in net premiums earned.

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

	2010			2009			Change			% Change
Fixed maturities	$	432,669		$	519,556		$	(86,887	)		(16.7	%)
Equity securities		54,245			20,768			33,477			161.2	%
Cash and cash equivalents		11,189			90,489			(79,300	)		(87.6	%)
Gross investment income		498,103			630,813			(132,710	)		(21.0	%)
Less: Investment expenses		(109,956	)		(97,164	)		12,792			13.2	%
Net investment income	$	388,147		$	533,649		$	(145,502	)		(27.3	%)
Average invested assets (amortized cost basis)	$	80,879,364		$	72,854,077		$	8,025,287			11.0	%
Rate of return on average invested assets		1.9	%		2.9	%		(1.0	%)

Gross investment income from the fixed portfolio was lower in the 2010 quarter as compared to the same period in 2009 as a result of the realized gains from sales which have occurred over the past 2 years. As interest rates have declined, bonds in the portfolio, which had appreciated considerably, were sold to capture immediate realized gains, which are excluded from gross investment income. This has the effect of reducing the current and future gross investment income, while significantly increasing the income from net realized gains. The portfolio tax-equivalent book yield declined from 3.69% to 3.00% in the third quarter of 2010, as nearly $1.4 million in gains were realized. At September 30, 2010, the portfolio duration was 4.32.

The increase in income from the equity portfolio is due to higher dividend income as a result of the Company increasing its holdings of dividend paying common stocks. The decrease in interest income from cash and cash equivalents was affected by approximately $73,000 in interest received in the 2009 period as a result of a settlement of a claim. Excluding this item, interest from cash and cash equivalent decreased approximately $6,000 due to the current lower yield environment.

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

	2010		2009		Change			% Change
Net realized gains - fixed maturities	$	1,376,840	$	10,000	$	1,366,840			13668.4	%
Net realized gains - equity securities		27,976		41,974		(13,998	)		(33.3	%)
Total net realized gains	$	1,404,816	$	51,974	$	1,352,842			2602.9	%

During the quarter ended September 30, 2010, the Company generated realized gains in the fixed portfolio of $1,377,000. As interest rates have declined, our fixed portfolio experienced an increase in unrealized gains. As a result, the Company decided to recognize a portion of the appreciation in the portfolio when the opportunity presented itself during the quarter. In the 2009 period, Company sold a bond which had previously been written down due to the issuer filing bankruptcy. The sale resulted in a net realized gain of $10,000.

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Income Tax Expense. During the quarters ended September 30, 2010 and 2009, the Company recorded income tax expense of approximately $444,000 and $664,000, respectively, resulting in an effective tax rate of 30.8 % and 31.1%, respectively. The difference between the effective tax rate and the statutory rate of 34% is primarily due to tax exempt investment income.

Results of Operations – Nine Months Ended September 30, 2010 and 2009

Consolidated Results of Operations. The following table shows the underwriting gain or loss as well as other revenue and expense items included in our unaudited consolidated statements of income for the nine months ended September 30, 2010 and 2009. The Company’s underwriting gain or loss consists of net premiums earned less loss and LAE and policy acquisition and other underwriting expenses. The Company’s underwriting performance is the most important factor in evaluating the overall results of operations given the fluctuations which can occur in loss and LAE due to weather related events as well as the uncertainties involved in the process of estimating reserves for losses and LAE. The underwriting results and the fluctuations in other revenue and expense items are discussed in greater detail below.

							Change
	2010			2009			Dollar			Percentage
Underwriting gain (loss)
Personal	$	(1,181,950	)	$	1,246,473		$	(2,428,423	)		(194.8	%)
Commercial		(237,009	)		(475,109	)		238,100			50.1	%
Farm		223,160			360,271			(137,111	)		(38.1	%)
Marine		(41,864	)		(95,200	)		53,336			56.0	%
Total underwriting gain (loss)		(1,237,663	)		1,036,435			(2,274,098	)		(219.4	%)
Other revenue (expense) items
Net investment income		1,242,297			1,473,814			(231,517	)		(15.7	%)
Net realized gains (losses) on investments		2,626,824			263,468			2,363,356			897.0	%
Other income		471,939			486,829			(14,890	)		(3.1	%)
Total other revenue (expense) items		4,341,060			2,224,111			2,116,949			95.2	%
Income before federal income taxes		3,103,397			3,260,546			(157,149	)		(4.8	%)
Federal income tax expense		916,086			929,846			(13,760	)		(1.5	%)
Net income	$	2,187,311		$	2,330,700		$	(143,389	)		(6.2	%)

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the nine months ended September 30, 2010 and 2009.

	2010			2009			Change			% Change
Direct premiums written	$	56,646,898		$	49,698,844		$	6,948,054			14.0	%
Net premiums written	$	46,838,616		$	41,473,505		$	5,365,111			12.9	%
Net premiums earned	$	43,608,316		$	39,580,197		$	4,028,119			10.2	%
Loss and LAE		30,447,540			25,935,476			4,512,064			17.4	%
Policy acquisition and other underwriting expenses		14,398,439			12,608,286			1,790,153			14.2	%
Underwriting gain (loss)	$	(1,237,663	)	$	1,036,435		$	(2,274,098	)		(219.4	%)
Loss and LAE ratio		69.8	%		65.5	%		4.3	%
Policy acquisition and other underwriting expense ratio		33.0	%		31.9	%		1.1	%
Combined ratio		102.8	%		97.4	%		5.4	%

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

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

	2010		2009		Change			% Change
Direct Premiums Written:
Personal	$	41,245,087	$	35,858,088	$	5,386,999			15.0	%
Commercial		9,193,720		7,790,057		1,403,663			18.0	%
Farm		4,387,429		4,208,706		178,723			4.2	%
Marine		1,820,662		1,841,993		(21,331	)		(1.2	%)
	$	56,646,898	$	49,698,844	$	6,948,054			14.0	%

Direct premiums written increased 14.0% during the nine months ended September 30, 2010. Renewal premiums increased 12.2% while new business premiums increased 23.7%. Direct premiums written for the personal segment increased 15.0%, driven by personal auto, up 21.8%, and homeowners, up 8.5%. During the nine months ended September 30, 2010, the personal segment experienced new business growth of 24.6% and renewal business growth of 14.2% as compared to the 2009 period. Personal auto new business premium increased 26.6% while renewal premium grew 20.9%. Homeowner new business premium increased 19.5% while renewal premium grew 6.8%. On September 15, 2010, an overall 9.6% rate increase was implemented in the homeowners product line and on October 1, 2010 an overall 7.2% rate increase was implemented in the personal auto product line.

The commercial segment experienced an increase of 18.0% in direct premiums written as a result of growth in renewal business of 9.6% and new business of 33.2%. All commercial products experienced an increase in premiums for the quarter. During the quarter, we rolled out the commercial package policy (CPP) product onto our web-based rating platform, Fremont Complete – NextGen. Our independent agents now have the ability to quote, rate and bind all of our commercial products using our web-based rating platform.

Farm direct premiums written increased 4.2% driven by growth in renewal business of 6.8% offset by a decline in new business of 17.6%. Direct premiums written for the marine segment are down as a result of the lack of demand for marine products given the current Michigan economy.

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

	2010		2009		Change			% Change
Net Premiums Written:
Personal	$	34,484,010	$	30,518,969	$	3,965,041			13.0	%
Commercial		6,900,833		5,439,801		1,461,032			26.9	%
Farm		3,740,931		3,817,517		(76,586	)		(2.0	%)
Marine		1,712,842		1,697,218		15,624			0.9	%
	$	46,838,616	$	41,473,505	$	5,365,111			12.9	%

The increase in net premiums written is due to the overall increase in direct premiums written of $6,948,000 offset by an increase of $1,583,000 in ceded premiums written under the Company’s reinsurance agreements. The farm segment experienced a decline in net premiums written due to increased premiums ceded under our treaty reinsurance programs as a result of increased reinsurance costs associated with farm products.

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

	2010		2009		Change			% Change
Net Premiums Earned:
Personal	$	32,337,965	$	29,144,171	$	3,193,794			11.0	%
Commercial		6,149,515		5,262,738		886,777			16.9	%
Farm		3,668,929		3,750,180		(81,251	)		(2.2	%)
Marine		1,451,907		1,423,108		28,799			2.0	%
	$	43,608,316	$	39,580,197	$	4,028,119			10.2	%

The increase in net premiums earned is due to the overall increase in direct premiums earned of $5,093,000 offset by an increase of $1,065,000 in ceded premiums earned under the Company’s reinsurance agreements. The farm segment experienced a decline in net premiums earned due to increased premiums ceded under our treaty reinsurance programs as a result of increased reinsurance costs associated with farm products.

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

	2010			2009			Change			% Change
Loss and LAE:
Personal	$	23,811,242		$	19,603,010		$	4,208,232			21.5	%
Commercial		3,479,531			3,244,211			235,320			7.3	%
Farm		2,137,368			2,123,116			14,252			0.7	%
Marine		1,019,399			965,139			54,260			5.6	%
	$	30,447,540		$	25,935,476		$	4,512,064			17.4	%
Incurred Claim Count:
Personal		6,483			6,299			184			2.9	%
Commercial		616			551			65			11.8	%
Farm		273			345			(72	)		(20.9	%)
Marine		176			200			(24	)		(12.0	%)
		7,548			7,395			153			2.1	%
Average Loss and LAE per Claim:
Personal	$	3,673		$	3,112		$	561			18.0	%
Commercial		5,649			5,888			(239	)		(4.1	%)
Farm		7,829			6,154			1,675			27.2	%
Marine		5,792			4,826			966			20.0	%
	$	4,034		$	3,507		$	527			15.0	%
Loss and LAE Ratio:
Personal		73.6	%		67.3	%
Commercial		56.6	%		61.6	%
Farm		58.3	%		56.6	%
Marine		70.2	%		67.8	%
		69.8	%		65.5	%

The increase in the loss and LAE ratio in the personal segment resulted from higher losses in the personal auto product line coupled with an increase in weather-related claims, particularly hail and wind damage. The loss and LAE ratio for personal auto was 77.2% for the nine months ended September 30, 2010 compared to 61.8% for the same period in 2009. The increase in the loss ratio for personal auto is due to increased severity and frequency from auto liability losses experienced during the 2010 period. The homeowner’s line had a loss ratio of 73.1% for the nine months ended September 30, 2010 and was affected by weather related losses experienced during the second and third quarters of 2010.

The commercial segment experienced an increase of $235,000 in its loss and LAE while the loss and LAE ratio dropped to 56.6% for the nine months ended September 30, 2010 from 61.6% in the 2009 period. The increase in incurred losses is due to an increase in both weather and fire related losses. Despite higher incurred losses, growth in commercial net premiums earned reduced the loss ratio as compared to the prior year period. The increase in the farm segment’s loss ratio is due to a small decline in the segment’s net premiums earned as a result of higher reinsurance costs.

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

	2010			2009			Change			% Change
Amortization of deferred policy acquisition costs	$	6,880,878		$	6,204,001		$	676,877			10.9	%
Other underwriting expenses		7,517,561			6,404,285			1,113,276			17.4	%
Total policy acquisition and other underwriting expenses	$	14,398,439		$	12,608,286		$	1,790,153			14.2	%
Net premiums earned	$	43,608,316		$	39,580,197		$	4,028,119			10.2	%
Expense ratio		33.0	%		31.9	%		1.1	%

Amortization of deferred policy acquisition costs (“DAC”) increased during the 2010 period as compared to the same period in 2009 as a result of increased earned premium volume. As a percentage of net premiums earned DAC amortization increased slightly from 15.7% to 15.8%. Other underwriting expenses as a percentage of net premiums earned increased from 16.2% to 17.2% due to increase legal expenses.

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

	2010			2009			Change			% Change
Fixed maturities	$	1,360,138		$	1,588,733		$	(228,595	)		(14.4	%)
Equity securities		151,349			29,435			121,914			414.2	%
Cash and cash equivalents		33,284			129,280			(95,996	)		(74.3	%)
Gross investment income		1,544,771			1,747,448			(202,677	)		(11.6	%)
Less: Investment expenses		(302,474	)		(273,634	)		28,840			10.5	%
Net investment income	$	1,242,297		$	1,473,814		$	(231,517	)		(15.7	%)
Average invested assets (amortized cost basis)	$	78,005,330		$	71,089,717		$	6,915,613			9.7	%
Rate of return on average invested assets		2.1	%		2.8	%		(0.7	%)

Gross investment income from the fixed portfolio continues to trend down in 2010 as compared to the same period in 2009 as a result of the realized gains from sales which have occurred over the past 2 years. As interest rates have declined, bonds in the portfolio, which had appreciated considerably, were sold to capture immediate realized gains, which are excluded from gross investment income. This has the effect of reducing the current and future gross investment income, while significantly increasing the income from net realized gains. The portfolio tax-equivalent book yield declined from 4.55% at September 30, 2009 to 3.00% as of September 30, 2010, as nearly $2.0 million in gains were realized. At September 30, 2010, the portfolio duration was 4.32.

The increase in income from the equity portfolio is due to higher dividend income as a result of the Company increasing its holdings of dividend paying common stocks. The decrease in interest income from cash and cash equivalent was affected by approximately $73,000 in interest received in the 2009 period as a result of a settlement of a claim. Excluding this item, interest from cash and cash equivalents decreased approximately $23,000 due to the lower yield environment as well as a lower average cash and cash equivalent balance in the 2010 period.

The table below summarizes the net realized gains generated during the nine months ended September 30, 2010 and 2009:

	2010		2009			Change		% Change
Net realized gains - fixed maturities	$	2,031,788	$	279,023		$	1,752,765		628.2	%
Net realized gains (losses) - equity securities		595,036		(15,555	)		610,591		3925.3	%
Total net realized gains	$	2,626,824	$	263,468		$	2,363,356		897.0	%

During the nine months ended September 30, 2010, the Company recognized gains in both the fixed and equity portfolios. Given the volatility in both the equity and fixed markets, the Company has recognized a portion of the appreciation in the investment portfolio when the opportunity presented itself.

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Income Tax Expense. During the nine months ended September 30, 2010 and 2009, the Company recorded income tax expense of approximately $916,000 and $930,000, respectively. The effective tax rate for the nine months ended September 30, 2010 was 29.5% compared to 28.5% in the prior year period. The increase in the effective tax rate is due primarily to lower tax-exempt interest income earned in 2010 coupled with a small increase in nondeductible expenses in the 2010 period.

Liquidity and Capital Resources

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

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

Cash flow provided by operations was $5,095,000 and $3,838,000 for the nine months ended September 30, 2010 and 2009, respectively, an increase of $1,257,000. During the nine months ended September 30, 2010 as compared to the same period in 2009, net premiums collected increased $6,221,000, net loss and LAE payments increased $727,000, policy acquisition and other underwriting expenses paid increased $2,628,000 and federal income taxes paid increased $1,599,000. Other cash used by operations increased $10,000 during the nine months ended September 30, 2010 compared to the same period in 2009.

During the nine months ended September 30, 2010, cash flow used in investing activities was $5,497,000 while during the same period in 2009 cash flow used in investing activities was $3,546,000. During the 2010 period, the Company invested $4,015,000 into its fixed and equity portfolio while in the 2009 period it invested $2,792,000 into its portfolio. The increase in cash placed into the investment portfolio was affected by an increase in cash generated from operations. Capital expenditures for the 2010 period were $1,487,000 compared to $777,000 in the 2009 period. The majority of the 2010 expenditures are related to our investment in technology related projects including our web-based rating platform – Fremont Complete.

Cash provided by financing activities was $187,000 and cash used in financing activities was $105,000 for the nine months ended September 30, 2010 and 2009, respectively. During the nine months ended September 30, 2010, financing activities consisted of the issuance of common stock which generated $537,000 in proceeds, share repurchases of approximately $138,000 and cash dividends of $212,000 paid to stockholders. During the same period in 2009, financing activities consisted of cash received of approximately $285,000 from the issuance of common stock, share repurchases of approximately $232,000 and a cash dividend of $158,000.

During the nine months ended September 30, 2010, the Company has paid three quarterly cash dividends of $.04 per common share, collectively totaling $212,000. The Board’s current intention is to evaluate each quarter whether a cash dividend will be declared. The payment of future dividends will depend upon the availability of cash resources at the Holding Company, the financial condition and results of operations of the Company and such other factors as are deemed relevant by the Board of Directors.

During the nine months ended September 30, 2010 the Company repurchased 5,864 shares of our common stock under a repurchase plan which was previously announced on May 8, 2008. The shares were repurchased at a cost of approximately $138,000, or $23.62 per share. See Part II Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for details of our share repurchase program.

We believe that our existing cash and funds generated from operations will be sufficient to satisfy our financial requirements during the foreseeable future

Changes in Interest Rates

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

Change in Rate	Portfolio Value		Change in Value
	(In thousands)
2%	$	54,065	$	(4,634	)
1%		56,262		(2,437	)
0		58,699		—
-1%		61,377		2,678
-2%		64,296		5,597

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

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

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

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

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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

The Holding Company’s principal source of cash available for payment of dividends is dividends from the Insurance Company. The payment of dividends by the Insurance Company is subject to limitations imposed by the Michigan Insurance Code. The Insurance Company may not pay an extraordinary dividend unless it notifies the Insurance Commissioner and he does not disapprove the payment. An extraordinary dividend includes any dividend which, when taken together with other dividends paid within the preceding 12 months, exceeds the greater of 10% of the Insurance Company’s statutory policyholders’ surplus as of December 31 of the immediately preceding year or its statutory net income, excluding realized capital gains, for the 12-month period ending December 31 of the immediately preceding year. During the year ended December 31, 2010, the Insurance Company can pay a non-extraordinary dividend of up to $3,694,000 without prior approval from the Insurance Commissioner. In order to pay any dividends, the Insurance Company must be in a position to satisfy the requirement that the Company continues to be safe, reliable and entitled to public confidence. Also, in the absence of approval of the Insurance Commissioner, dividends may only be paid from statutory earned surplus. Also, dividends may not exceed the amount of the Insurance Company’s statutory capital stock account in any one year unless it meets certain other requirements.

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On November 25, 2008, the Company’s Board of Directors adopted the Agent Stock Purchase Plan (“Plan”). The Plan provides for the sale of up to 100,000 shares of the Company’s Class A Common Stock over the five year estimated term of the Plan. The Plan has been established by the Company to provide incentive to independent insurance agencies that sell products and services of its subsidiary, Fremont Insurance Company, by enabling them to participate in the Company’s long-term growth and success and to help align their success with the interests of the Company’s stockholders.

The Common Stock offered by the Company under this Plan will not have been registered with, or approved, by the United States Securities and Exchange Commission (“SEC”). The offering of the Common Stock under the Plan is based on an exemption from such registration as set forth in §4(2) of the Securities Act of 1933, as amended (“Act”), and Rule 506 of Regulation D issued under the Act. The offering is being made only to eligible agencies of the Insurance Company and eligible persons designated by those agencies who are “accredited investors” as defined under Regulation D issued under the Act and to not more than 35 eligible persons in any 12 month period who may not be accredited investors, but are “sophisticated” investors. Resales of the unregistered Class A Common Stock will require registration or the availability of an exemption to registration such as SEC Rule 144.

The Common Stock will be offered directly to participants through our officers, and we will not use a broker or a dealer. We will not pay commissions, discounts or any other payments to any person for services in connection with the offer or sale of shares under the Plan. Participants will not incur brokerage commissions or service charges. The Company intends to use the proceeds of this offering for general corporate purposes which include making investments in and advances to the Insurance Company, which in turn will use the proceeds for general corporate purposes.

The following table sets forth the sales of unregistered securities under the Plan during the quarter ended September 30, 2010:

Recent Sales of Unregistered Securities

Date of Sale	Number of Shares Sold		Offering Price		Total Consideration Received
September 7, 2010		4,885	$	18.71	$	91,398

The following table sets forth the repurchases of common stock for the quarter ended September 30, 2010:

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans
Month ended July 31, 2010		2,774	$	20.48		2,774		35,886
Month ended August 31, 2010		—	$	—		—		35,886
Month ended September 30, 2010		—	$	—		—		35,886
Total		2,774	$	20.48		2,774

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. RESERVED.

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS.

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

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

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SIGNATURES

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

	FREMONT MICHIGAN INSURACORP, INC.
Date: November 12, 2010	By:	/s/ Richard E. Dunning
		Richard E. Dunning
		President and Chief Executive Officer
Date: November 12, 2010	By:	/s/ Kevin G. Kaastra
		Kevin G. Kaastra
		Vice President of Finance (principal financial and accounting officer)

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