S-1/A

As filed with the Securities and Exchange Commission on November 9, 2009

Registration No. 333-150864

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 6

to

Form S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Patriot Risk Management, Inc.

(Exact name of registrant as specified in its charter)

Delaware	6331	73-1665495
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

401 East Las Olas Boulevard, Suite 1540

Fort Lauderdale, Florida 33301

(954) 670-2900

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Steven M. Mariano

Chairman, President and Chief Executive Officer

401 East Las Olas Boulevard, Suite 1540

Fort Lauderdale, Florida 33301

(954) 670-2900

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

J. Brett Pritchard
Christopher A. Pesch
Locke Lord Bissell & Liddell LLP
111 South Wacker Drive
Chicago, Illinois 60606
(312) 443-0700 John J. Sabl
Beth Flaming
Sidley Austin LLP
One South Dearborn Street
Chicago, Illinois 60603
(312) 853-7000

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

CALCULATION OF REGISTRATION FEE

	Proposed Maximum	Amount of
Title of Each Class of	Aggregate	Registration
Securities to be Registered	Offering Price(1)(2)	Fee
Common Stock, par value $0.001 per share	$189,750,000	$10,588.05(3)

(1) Includes amount attributable to shares of common stock issuable upon the exercise of the underwriters’ over-allotment option.

(2) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(3) Of such fee, $7,457.18 was previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED NOVEMBER 9, 2009

PRELIMINARY PROSPECTUS

[          ] Shares

Common Stock

We are offering [          ] shares of our common stock in this firm commitment underwritten public offering. This is our initial public offering. We anticipate that the initial public offering price of our common stock will be between $ [     ] and $ [     ] per share.

Prior to this offering, there has been no public market for our common stock, and our common stock is not currently listed on any national exchange or market system. We are applying to have shares of our common stock approved for listing on the New York Stock Exchange under the symbol “[          ].”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 12 of this prospectus to read about the risks you should consider before buying our common stock.

	Per Share	Total
Price to public	$	$
Discounts and commissions to underwriters(1)	$	$
Net proceeds (before expenses) to us	$	$

(1) No discounts will be paid to underwriters with respect to shares purchased by our directors, officers and employees or persons having business relationships with us in the directed share program. See “Underwriting” on page 176 of this prospectus for a description of the underwriters’ compensation.

We have granted the underwriters the right to purchase up to [     ] additional shares of our common stock at the public offering price, less the underwriting discounts, solely to cover over-allotments, if any. The underwriters can exercise this right at any time within 30 days after the date of our underwriting agreement with them.

Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of our common stock to purchasers against payment on or about [          , 2009].

FBR Capital Markets

The date of this prospectus is          , 2009.

TABLE OF CONTENTS

	Page
Certain Important Information		ii
Prospectus Summary		1
Risk Factors		12
Forward-Looking Statements		34
Use of Proceeds		35
Dividend Policy		36
Capitalization		37
Dilution		39
Selected Historical Consolidated Financial Information		40
Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Business		91
Management		146
Executive Compensation		151
Certain Relationships and Related Transactions		165
Principal Stockholders		168
Description of Capital Stock		171
Shares Eligible for Future Sale		173
Underwriting		176
Legal Matters		180
Experts		180
Where You Can Find More Information		180
Index to Financial Statements		F-1
EX-3.3
EX-10.3
EX-10.48
EX-10.67
EX-10.68
EX-10.69
EX-10.70
EX-10.71
EX-10.72
EX-10.73
EX-10.74
EX-21.1
EX-23.2

CERTAIN IMPORTANT INFORMATION

For your convenience we have included below definitions of terms used in this prospectus.

In this prospectus:

•  references to “Patriot,” “our company,” “we,” “us” or “our” refer to Patriot Risk Management, Inc. and its direct and indirect wholly-owned subsidiaries, including Guarantee Insurance Group, Inc., Guarantee Insurance Company, PRS Group, Inc. and its subsidiaries and Patriot Underwriters, Inc. and its subsidiary, unless the context suggests otherwise;

•  references to “Patriot Risk Management” refer solely to Patriot Risk Management, Inc., unless the context suggests otherwise;

•  references to “Guarantee Insurance” refer solely to Guarantee Insurance Company, our wholly-owned insurance company;

•  references to “PUI” refer collectively to Patriot Underwriters, Inc. and its direct wholly-owned subsidiary, Patriot General Agency, Inc.;

•  references to “PRS” refer collectively to PRS Group, Inc. and its direct and indirect wholly-owned subsidiaries, including Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., Patriot Insurance Management Company, Inc., Patriot Re International, Inc. and Patriot Recovery, Inc., unless the context suggests otherwise;

•  references to “PF&C” and “Argonaut-Southwest” refer solely to Argonaut-Southwest Insurance Company, a shell property and casualty insurance company domiciled in Illinois that is not currently writing new business and that, subject to receiving regulatory approvals, we plan to acquire within 30 days after the date of this prospectus and rename as Patriot Fire & Casualty Insurance Company;

•  references to “alternative market business” refer to arrangements in which workers’ compensation insurance policies are written by Guarantee Insurance and the policyholder or another party bears a substantial portion of the underwriting risk, primarily through the reinsurance of the risk by a segregated portfolio captive (as described below). This business also includes other arrangements through which we share underwriting risk with our policyholders, such as pursuant to a large deductible policy or a retrospectively rated policy;

•  references to “traditional business” refer to guaranteed cost workers’ compensation insurance policies written by Guarantee Insurance in which Guarantee Insurance bears substantially all of the underwriting risk, subject to reinsurance arrangements. Workers’ compensation insurance is a system established under state and federal laws under which employers provide insurance for benefit payments to their employees for work-related injuries, deaths and diseases, regardless of fault, in exchange for mandatory relinquishment of the employee’s right to sue his or her employer for the tort of negligence; and

•  references to “segregated portfolio captive” refer to a captive reinsurance company that operates as a single legal entity with segregated pools of assets, or segregated portfolio cells. The pool of assets and associated liabilities of each segregated portfolio cell within a segregated portfolio captive are solely for the benefit of the segregated portfolio cell participants, and the pool of assets of one segregated portfolio cell is statutorily protected from the creditors of the others.

Unless otherwise stated, in this prospectus:

•  all amounts assume no exercise of the underwriters’ over-allotment option;

•  all share numbers assume the automatic conversion of our Series A convertible preferred stock, stated value $1,000 per share, into [          ] shares of our common stock and the automatic conversion of our Series B common stock, par value $.001 per share, into [          ] shares of our common stock upon completion of this offering; and

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•  all share amounts (other than the stock options and warrants to be issued upon completion of this offering) have been adjusted to reflect a [          ] to 1 stock split to be effected immediately prior to completion of this offering.

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with information that is different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We and the underwriters are offering to sell and seeking offers to buy these securities only in jurisdictions where offers and sales are permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. Before making a decision to purchase our common stock, you should read the entire prospectus carefully, including the “Risk Factors” and “Forward-Looking Statements” sections and our consolidated financial statements and the notes to those financial statements. Except as otherwise noted, all information in this prospectus assumes that all of the [          ] shares of common stock offered hereby will be sold and that the underwriters will not exercise their over-allotment option.

Overview

We produce, underwrite and administer alternative market and traditional workers’ compensation insurance plans and provide claims services for insurance companies, segregated portfolio captives and reinsurers. Through our wholly owned insurance company subsidiary, Guarantee Insurance Company (Guarantee Insurance), we generally participate in a portion of the insurance underwriting risk. Our business model has two components:

•  In our insurance services segment, we generate fee income by providing workers’ compensation claims services as well as agency and underwriting services almost entirely for the benefit of Guarantee Insurance, segregated portfolio captives and Guarantee Insurance’s traditional business quota share reinsurers under the Patriot Risk Services brand, and have recently begun providing these services for another insurance company under its brand, a practice which we refer to as business process outsourcing, or BPO.

•  In our insurance segment, we generate underwriting income and investment income by providing alternative market workers’ compensation risk transfer solutions and traditional workers’ compensation insurance coverage in Florida and 22 other jurisdictions.

We believe that our insurance services capabilities, specialized alternative market product knowledge and our hybrid business model allow us to achieve attractive returns through a range of industry pricing cycles and provide a substantial competitive advantage in areas that are underserved by competitors, which are generally insurance service providers or insurance carriers. Although we currently focus our business in the Midwest and Southeast, we believe that there are opportunities to market our insurance services, alternative market workers’ compensation risk transfer solutions and traditional workers’ compensation insurance coverage in other areas of the United States.

In 2009, we began producing business and performing insurance services for our BPO customer. We earn commissions for producing business and insurance services income for providing underwriting, policy and claims administration, nurse case management and cost containment services and, in certain cases, services to segregated portfolio cell captives on the business we produce for this customer. Additionally, we assume up to 90% of the premium and associated losses and loss adjustment expenses on the business we produce for our BPO customer, as mutually determined on a policy-by-policy basis.

Our Services and Products

Through our subsidiary, PRS Group, Inc. and its subsidiaries, which we collectively refer to as PRS, and our subsidiary, Patriot Underwriters, Inc. and its subsidiary, which we collectively refer to as PUI, we earn income for workers’ compensation claims services as well as agency and underwriting services. Workers’ compensation claims services include nurse case management, cost containment services and claims administration and adjudication services. Cost containment services refer to workers’ compensation bill review and re-pricing services. Workers’ compensation agency and underwriting services include general agency services and specialty underwriting, policy administration and captive management services. We currently provide these services principally to Guarantee Insurance for its benefit, for the benefit of segregated portfolio captives and for the benefit of Guarantee Insurance’s traditional business quota share reinsurers. We also provide these services to another insurance company, ULLICO Casualty Company, which we refer to as our BPO customer, for business that PUI produces for ULLICO Casualty Company pursuant to a fronting agreement between the

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two companies. ULLICO Casualty Company is licensed to write workers’ compensation insurance in 47 states plus the District of Columbia and is rated “B+” (Good) by A.M Best.

Through Guarantee Insurance, we provide alternative market workers’ compensation risk transfer solutions, including workers’ compensation policies or arrangements where the policyholder, an agent or another party generally bears a substantial portion of the underwriting risk. For example, the policyholder, an agent or another party may bear a substantial portion of the underwriting risk through the reinsurance of the risk by a segregated portfolio captive that is controlled by the policyholder, an agent or another party. A segregated portfolio captive refers to a captive reinsurance company that operates as a single legal entity with segregated pools of assets, or segregated portfolio cells, the assets and associated liabilities of which are solely for the benefit of the segregated portfolio cell participants. Through our segregated portfolio captive arrangements, we generally retain between 10% and 50% of the underwriting risk and earn a ceding commission from the segregated portfolio captive, which is payment to Guarantee Insurance by the captive of a commission as compensation for providing underwriting, policy and claims administration, captive management and investment portfolio management services.

Our alternative market business also includes other arrangements through which we share underwriting risk with our policyholders, such as large deductible policies or policies for which the final premium is based on the insured’s actual loss experience during the policy term, which we refer to as retrospectively rated policies. Unlike our traditional workers’ compensation policies, these arrangements align our interests with those of the policyholders or other parties participating in the risk-sharing arrangements, allowing them to share in the underwriting profit or loss. In addition, our alternative market business includes guaranteed cost policies issued to certain professional employer organizations and professional temporary staffing organizations on which we retain the risk. The excess of loss reinsurance on these policies is provided by the same reinsurer that covers our segregated portfolio captive insurance plans, retrospectively rated plans and large deductible plans, and these plans may be converted to risk sharing arrangements in the future.

We typically provide alternative market risk transfer solutions to:

•  larger and medium-sized employers such as hospitality companies, construction companies, professional employer organizations, clerical and professional temporary staffing companies, industrial companies and car dealerships;

•  low to medium hazard classes and some higher hazard classes; and

•  accounts with annual premiums ranging from $200,000 to $3 million.

Through Guarantee Insurance, we also provide traditional workers’ compensation insurance coverage. We manage risk through the use of quota share and excess of loss reinsurance. Quota share reinsurance is a form of proportional reinsurance in which the reinsurer assumes an agreed upon percentage of each risk being insured and shares all premiums and losses with us in that proportion. Excess of loss reinsurance covers all or a specified portion of losses on underlying insurance policies in excess of a specified amount, or retention. We typically provide traditional workers’ compensation insurance coverage to:

•  small to medium-sized employers in a broad array of industries, including clerical and professional services, food services, retail and wholesale operations and industrial services;

•  low to medium hazard classes; and

•  accounts with annual premiums below $250,000.

Our Competitive Strengths

We believe we have the following competitive strengths:

•  Exclusive Focus on Workers’ Compensation Services and Products.  Our operations are focused exclusively on workers’ compensation insurance services, workers’ compensation alternative market risk management solutions and traditional workers’ compensation insurance coverage. We believe this focus allows us to provide superior services and products to our customers relative to multiline

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insurance service providers and multiline insurance carriers. Furthermore, a significant portion of our services and products are provided in Florida, and we believe that certain of our multiline competitors that offer workers’ compensation coverage as part of a package policy including commercial property coverage tend to compete less for Florida workers’ compensation business because of property-related loss experience.

•  Hybrid Business Model.  In addition to the fee income we earn for nurse case management, cost containment and other insurance services, we also earn ceding commissions on our alternative market business involving segregated portfolio cell captives, and we earn underwriting and investment income on our alternative market and traditional workers’ compensation business. Because our nurse case management and cost containment service income is principally related to workers’ compensation claim frequency and medical costs, the operating results of our insurance services segment are not materially dependent on fluctuations or trends in prevailing workers’ compensation insurance premium rates. We believe that by changing the emphasis we place on our insurance services segment and ceding commission-based alternative market business relative to our traditional workers’ compensation business, we will be better able to achieve attractive returns and growth through a range of market cycles.

•  Targeted Market for Alternative Market Risk Transfer Solutions.  Although other insurers generally only offer alternative market products to large corporate customers, we offer alternative market workers’ compensation solutions to medium-sized employers as well as larger companies, enabling them and others to share in the claims experience and benefit from favorable loss experience.

•  Enhanced Traditional Business Product Offerings.  In our traditional business, we offer a number of flexible payment plans, including pay-as-you-go plans in which we partner with payroll service companies and our independent agents and their small employer clients to collect premiums and payroll information on a monthly or bi-weekly basis. Pay-as-you-go plans provide us with current payroll data and allow employers to remit premiums through their payroll service provider in an automated fashion. Flexible payment plans give employers a way to purchase workers’ compensation insurance without having to make a large upfront premium deposit payment. We believe that flexible payment plans, including pay-as-you-go plans, for small employers provide us with the opportunity to earn more favorable underwriting margins due to several factors:

i.  favorable cash flows afforded under this plan can be more important to smaller employers than a price differential;

ii.  smaller employers are generally less able to obtain premium rate credits and discounts; and

iii.  the premium remittance mechanism results in a more streamlined renewal process and a lower frequency of business being re-marketed at renewal, leading to more favorable retention rates.

•  Specialized Underwriting Expertise.  We select and price our alternative market and traditional business products based on the specific risk associated with each potential policyholder rather than solely on the policyholder’s industry class. We utilize state-specific actuarial models on accounts with annual premiums over $100,000. In our alternative market business, we seek to align our interests with those of our policyholders or other parties participating in the risk-sharing arrangements by having them share in the underwriting profits and losses. We believe that we can compete effectively for alternative market and traditional insurance business based on our specialized underwriting focus and our accessibility to our clients. We generally compete on these attributes more so than on price, which we believe is generally not a differentiating factor in the states in which we write most of our business. For the six months ended June 30, 2009 and year ended December 31, 2008, we reported consolidated net loss ratios of 55.6% and 57.5%, respectively. The net loss ratio is the ratio between losses and loss adjustment expenses incurred and net premiums earned, and is a measure of the effectiveness of our underwriting efforts.

•  Effective Claims Management, Nurse Case Management and Cost Containment Services.  Guarantee Insurance began writing business as a subsidiary of Patriot Risk Management, in the first quarter of

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2004. As our business has grown, we have been successful in reasonably estimating our total liabilities for losses and loss adjustment expenses, establishing and maintaining adequate case reserves and rapidly closing claims. We provide our customers with an active claims management program. Our claims department employees average more than 12 years of workers’ compensation insurance industry experience, and members of our claims management team average more than 24 years of workers’ compensation experience. In addition, our nurse case management and bill review professionals have extensive training and expertise in assisting injured workers to return to work quickly. As of December 31, 2008, approximately 6%, 2%, 1% and 0.4% of total reported claims for accident years 2007, 2006, 2005 and 2004, respectively, remained open. Final net paid losses and loss adjustment expenses associated with closed claims for these accident years were approximately 5% less than the initial reserves established for them.

•  Strong Distribution Relationships.  We maintain relationships with our network of more than 570 independent, non-exclusive agencies in 23 jurisdictions by emphasizing personal interaction and superior service and maintaining an exclusive focus on alternative market workers’ compensation solutions and traditional workers’ compensation insurance coverage. Our experienced underwriters work closely with our independent agents to market our products and serve the needs of prospective policyholders.

•  Proven Leadership and Experienced Management.  The members of our senior management team average over 20 years of insurance industry experience and over 15 years of workers’ compensation insurance experience. Their authority and areas of responsibility are consistent with their functional and state-specific experience.

Our Strategy

We believe that the net proceeds from this offering will provide us with the additional capital necessary to increase the amount of insurance that we write and to make strategic acquisitions of insurance services operations and insurance companies. We plan to continue pursuing profitable growth and favorable returns on equity and believe that our competitive strengths will help us achieve our goal of delivering attractive returns to our investors. Our strategy to achieve these goals is to:

•  Expand in Our Existing Markets.  In all of the states in which we operate, we believe that a significant portion of total workers’ compensation insurance premium is written by numerous companies that individually have a small market share. We believe that our market share in each of the states in which we currently write business does not exceed 2%. We plan to continue to take advantage of our competitive position to expand in our existing markets. We believe that our risk selection, claims management, nurse case management and cost containment capabilities position us to profitably increase market share in our existing markets.

•  Expand into Additional Markets.  We are licensed to write workers’ compensation insurance in 27 jurisdictions, and we also hold 4 inactive licenses. For the six months ended June 30, 2009, we wrote traditional and alternative market business in 23 jurisdictions, principally in those jurisdictions that we believe provide the greatest opportunity for near-term profitable growth. For the six months ended June 30, 2009, approximately 80% of our traditional and alternative market business was written in Florida, New Jersey, Missouri, Georgia, Indiana and New York. We wrote approximately 38% of our direct premiums written in Florida for the six months ended June 30, 2009. In 2009, we entered into an agreement to produce business and perform insurance services for our BPO customer to gain access to workers’ compensation insurance business in certain additional states, including California and Texas. We are in negotiations with two other insurance companies, and are seeking additional agreements with other insurance companies, with respect to similar arrangements. We plan to expand our business in states where we believe we can profitably write business. To do this, we plan to continue to leverage our talented pool of personnel, some of whom have prior expertise operating in states in which we do not currently operate. In addition, we may seek to acquire other insurance companies, books of business

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or other workers’ compensation policy and claims administration providers, general agencies or general underwriting organizations as we expand in our existing markets and into additional markets.

•  Expand Nurse Case Management, Cost Containment and Other Insurance Services Operations.  We plan to continue to generate fee income through our insurance services segment by offering workers’ compensation nurse case management and cost containment services to segregated portfolio captives and our quota share reinsurers. We plan to offer these services, together with general agency, general underwriting and policy and claims administration services, to other regional and national insurance companies and self-insured employers. We also plan to increase our insurance services income by expanding both organically and through strategic acquisitions of workers’ compensation policy and claims administration service providers, general agencies or general underwriting organizations. Taking advantage of our hybrid business model, we plan to identify and acquire insurance services operations that will create synergies with our alternative market and traditional workers’ compensation business.

•  Obtain a Favorable Rating from A.M. Best.  We have expanded our business profitability without an A.M. Best rating, and we believe that we can continue to do so with the net proceeds from this offering. However, we are seeking, and believe that we are well positioned to obtain, a favorable rating from A. M. Best upon completion of this offering. We believe that a favorable rating from A.M. Best would increase our ability to market to large employers and create new opportunities for our products and services in rating sensitive markets.

•  Leverage Existing Infrastructure.  We service our insurance services customers and policyholders through regional offices in three states, each of which we believe has been staffed to accommodate a certain level of insurance services business and premium growth. We plan to realize economies of scale in our workforce and leverage other scalable infrastructure costs.

Our Challenges and Risks

Our company and our business are subject to numerous risks as more fully described in the section of this prospectus entitled “Risk Factors.” As part of your evaluation of our business, you should consider the challenges and risks we face in implementing our business strategies, including the following:

•  Adequacy of Loss Reserves.  Our loss reserves are based upon estimates that are uncertain. These estimates may be inadequate to cover our actual losses, in which case we would need to increase our reserves and suffer a decrease in our net income. In addition, Guarantee Insurance has legacy asbestos and environmental claims arising out of the sale of general liability insurance and participations in reinsurance assumed through underwriting management organizations prior to 1984. There are significant additional uncertainties in estimating the amount of potential losses from asbestos and environmental claims. As a result, it is more difficult to estimate what the ultimate loss costs will be for these claims than for other types of claims.

•  Pricing Our Premiums.  We underwrite and price our insurance policies at their inception before all of the underlying costs are known. If we price our premiums too low, we will have insufficient income to cover our losses and expenses. In addition, we do business in several administered pricing states, including Florida, where insurance rates are set by the state insurance regulatory authorities and are adjusted periodically. There can be no assurance that state-mandated insurance rates in administered pricing states will enable us to generate appropriate underwriting margins. For the six months ended June 30, 2008 and the year ended December 31, 2007, we wrote approximately 70% and 74% of our direct premiums written, respectively, in administered pricing states.

•  Geographic Concentration.  Our business is concentrated in Florida and a few other states. Our financial performance is tied to the business, economic and regulatory conditions in these states. If the environment in these states worsens, there could be an adverse effect on our business, financial condition and results of operations.

•  Cyclical Nature of the Workers’ Compensation Industry and Economic Downturn.  The workers’ compensation insurance industry has historically fluctuated with periods of low premium rates and

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excess underwriting capacity resulting from increased competition followed by periods of high premium rates and shortages of underwriting capacity resulting from decreased competition. This cyclicality is beyond our control and may adversely affect our overall financial performance. In addition, the prevailing macroeconomic conditions in the fourth quarter of 2008 and in 2009 have led to a decrease in payrolls and a corresponding decrease in workers’ compensation direct premiums written.

•  Limited Operating History.  We commenced operations in 2004 after acquiring Guarantee Insurance, and we formed PRS in 2005. An investor in our common stock should consider that, as a relatively new company, we have a limited operating history on which you can evaluate our performance and base an estimate of our future earning prospects. Accordingly, our future results of operations or financial condition may vary significantly from expectations.

Recent Developments

Warrant Issuance

Prior to the completion of this offering, we expect that our board of directors will declare a dividend of warrants to purchase a total of [          ] shares of our common stock, payable to our stockholders at the effective time of this offering. Each warrant would represent the right to purchase one share of our common stock at the same price as the common stock sold in this offering. The right to purchase common stock under the warrants would begin upon the expiration of the lock-up agreements as described in “Shares Eligible for Future Sale — Lock-Up Agreements.” The warrants would expire 10 years after the date of issuance. The warrants also would contain a cashless exercise provision. These warrants would be subject to the restrictions contained in the lock-up agreements.

Acquisition of Shell Insurance Company

On October 27, 2009, we entered into a letter of intent with Argonaut Insurance Company to acquire Argonaut-Southwest Insurance Company, a shell property and casualty insurance company domiciled in Illinois that is licensed to write workers’ compensation insurance in Arizona, Arkansas, California, Illinois, Louisiana, Mississippi, New Jersey, New Mexico, Oklahoma, Oregon, and Texas. Guarantee Insurance is licensed in each of these jurisdictions except for Arizona, California, Illinois, Oregon, and Texas. We plan to rename Argonaut-Southwest as Patriot Fire & Casualty Insurance Company (PF&C) when we acquire it, and as a condition to the acquisition we will seek to have it redomesticated to Florida. The redomestication and acquisition are subject to regulatory approvals by both the Illinois and Florida insurance departments. If we receive all regulatory approvals for this transaction, we plan to acquire PF&C within 30 days after the date of this prospectus. There can be no assurance that we will obtain the necessary regulatory approvals to complete this acquisition. We do not believe that our failure to acquire PF&C will adversely affect our business plan.

We intend to contribute a substantial portion of the net proceeds of this offering to Guarantee Insurance and PF&C (if we acquire it) in order to support their premium writings.

Our Organization

Patriot Risk Management, Inc. was incorporated in Delaware in April 2003 by Steven M. Mariano, our Chairman, President and Chief Executive Officer. In September 2003, our wholly owned subsidiary, Guarantee Insurance Group, Inc., acquired Guarantee Insurance, a shell property and casualty insurance company that was not writing new business at the time we acquired it. At that time, Guarantee Insurance had approximately $3.2 million in loss and loss adjustment expense reserves relating to commercial general liability claims that had been in run-off since 1983, and was licensed to write insurance business in 41 states and the District of Columbia. Guarantee Insurance is domiciled in Florida and began writing business as a subsidiary of Patriot Risk Management in the first quarter of 2004. Guarantee Insurance is currently licensed to write workers’ compensation insurance in 27 jurisdictions, and also holds 4 inactive licenses.

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In 2005, we formed PRS Group, Inc. as a wholly owned subsidiary and incorporated Patriot Risk Services, Inc. PRS provides nurse case management and cost containment services for the benefit of Guarantee Insurance, segregated portfolio captives, our quota share reinsurers and our BPO customer.

In 2008, we formed Patriot Recovery, Inc. to assist us in investigation and subrogation activities.

In 2009, we established Patriot Underwriters, Inc. and its subsidiary, Patriot General Agency, Inc., to provide general agency and general underwriting services to third parties. Through PUI and PRS, we are currently licensed as an insurance agent or producer in 46 jurisdictions, and currently have several pending agency licenses.

Patriot’s current corporate structure is as follows:

* Subject to obtaining regulatory approvals, we plan to acquire PF&C within 30 days after the date of this prospectus. See “— Recent Developments — Acquisition of Shell Insurance Company.”

Patriot Risk Management, Inc. is an insurance holding company that was incorporated in Delaware in 2003. Our principal subsidiaries are Guarantee Insurance Company, Patriot Underwriters, Inc. and Patriot Risk Services, Inc. Our executive offices are located at 401 East Las Olas Boulevard, Suite 1540, Fort Lauderdale, Florida 33301, and our telephone number at that location is (954) 670-2900.

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The Offering

Shares of common stock offered by us [          ] shares

Over-allotment shares of common stock offered by us [          ] shares

Shares of common stock to be outstanding after the offering [          ] shares

Use of proceeds We estimate that our net proceeds from this offering will be approximately $[     ] million, based on an assumed initial public offering price of $[     ] per share, which is the mid-point of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. We estimate that our net proceeds will be approximately $[     ] million if the underwriters exercise their over-allotment option in full. We intend to contribute approximately $[     ] million to Guarantee Insurance to support its premium writings. As described elsewhere in this prospectus, we have entered into a letter of intent to acquire PF&C, a shell property and casualty insurance company. The acquisition of PF&C is subject to various regulatory approvals. If we obtain these regulatory approvals and consummate the acquisition within 30 days after the date of this prospectus, we plan instead to use approximately $16.2 million of the net proceeds of this offering to pay the purchase price for PF&C, to contribute approximately $[     ] million to PF&C to support its premium writings, and to contribute approximately $[     ] million to Guarantee Insurance to support its premium writings. In addition, we plan to use approximately $[     ] million of the net proceeds from this offering to pay off a loan from Mr. Mariano, our Chairman, President and Chief Executive Officer. We expect that the remaining $[     ] million, or $[     ] million if we acquire PF&C, will be used to support our anticipated growth and general corporate purposes and to fund other holding company operations, including the repayment of all or a portion of our existing indebtedness and potential acquisitions although we have no current understandings or agreements regarding any such acquisitions (other than PF&C). If the underwriters exercise all or any portion of their over-allotment option, we intend to use all or a substantial portion of the net proceeds therefrom to pay down the balance of our credit facilities as described elsewhere in this prospectus. See “Use of Proceeds.”

Dividend policy We do not expect to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any additional future earnings to finance our operations and growth. Any future determination to pay cash dividends on our common stock will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operating results, capital requirements, any contractual, regulatory and other restrictions on the payment of dividends by us or by our subsidiaries to us, and other factors that our board of directors deems relevant.

Proposed New York Stock Exchange symbol “[          ]”

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The number of shares of common stock shown to be outstanding upon completion of the offering excludes:

•  up to [          ] shares of common stock that may be issued pursuant to the underwriters’ over-allotment option;

•  163,500 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2009;

•  [          ] shares of common stock issuable upon the exercise of stock options we intend to grant to our directors, executive officers and other employees upon completion of this offering, at an exercise price equal to the initial public offering price;

•  [          ] shares of common stock issuable upon the exercise of warrants we intend to issue to our existing stockholders upon completion of this offering, at an exercise price equal to the initial public offering price; and

•  [          ] additional shares of common stock available for future issuance under our 2009 Stock Incentive Plan.

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following income statement data for the six months ended June 30, 2009 and 2008 and balance sheet data as of June 30, 2009 were derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The income statement data for the years ended December 31, 2008, 2007 and 2006 were derived from our audited consolidated financial statements included elsewhere in this prospectus. The income statement data for the years ended December 31, 2005 and 2004 were derived from our audited consolidated financial statements that are not included in this prospectus. These historical results are not necessarily indicative of results to be expected in any future period. You should read the following summary financial information together with the other information contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere.

	Six Months
	Ended June 30,						Years Ended December 31,
	2009			2008			2008			2007			2006			2005			2004
	(Unaudited)						In thousands, except per share data
Income Statement Data
Gross premiums written	$	62,555		$	69,732		$	117,563		$	85,810		$	62,372		$	47,576		$	30,911
Ceded premiums written		30,789			40,438			71,725			54,894			42,986			23,617			22,702
Net premiums written		31,766			29,294			45,838			30,961			19,386			23,959			8,209
Revenues
Net premiums earned		21,770			20,104			49,220			24,613			21,053			21,336			2,948
Insurance services income		3,787			3,008			5,657			7,175			4,369			6,429			5,952
Net investment income		920			980			2,028			1,326			1,321			1,077			233
Net realized gains (losses) on investments		743			56			(1,037	)		(5	)		(1,346	)		(2,298	)		(4,632	)
Total revenues		27,220			24,148			55,868			33,109			25,397			26,544			4,978
Expenses
Net losses and loss adjustment expenses		12,105			11,956			28,716			15,182			17,839			12,022			2,616
Net policy acquisition and underwriting expenses		6,632			5,495			13,535			6,023			3,834			3,168			2,016
Other operating expenses		4,960			4,233			10,930			8,519			9,704			6,378			4,989
Interest expense		734			725			1,437			1,290			1,109			1,129			555
Total expenses		24,431			22,409			54,618			31,014			32,486			22,697			10,176
Other income		—			219			1,469			—			796			—			110
Loss from write-off of deferred equity offering costs(1)		—			—			(3,486	)		—			—			—			—
Gain on early extinguishment of debt(2)		—			—			—			—			6,586			—			—
Income (loss) before income tax expense benefit		2,789			1,958			(767	)		1,947			3,099			1,787			(5,088	)
Income tax expense (benefit)		1,023			250			(643	)		(432	)		1,489			687			(751	)
Net income (loss)	$	1,766		$	1,708		$	(124	)	$	2,379		$	1,610		$	1,100		$	(4,337	)
Earnings Per Share
Basic	$	1.70		$	1.26		$	(0.09	)	$	1.77		$	1.16		$	0.88			NM	(3)
Diluted		1.69			1.25			(0.09	)		1.76			1.15			0.87			NM	(3)
Weighted Average Common Shares Outstanding:
Basic		1,037			1,361			1,361			1,342			1,392			1,251			NM	(3)
Diluted		1,046			1,370			1,361			1,351			1,398			1,258			NM	(3)
Return on average equity(4)		43.9	%		55.7	%		NM	(3)		58.5	%		107.0	%		NM	(3)		NM	(3)
Selected Insurance Ratios(5)
Net loss ratio		55.6	%		59.5	%		57.5	%		61.7	%		84.7	%		56.3	%		NM	(3)
Net expense ratio		30.5	%		27.3	%		27.1	%		24.5	%		18.2	%		14.8	%		NM	(3)
Net combined ratio		86.1	%		86.8	%		84.6	%		86.2	%		102.9	%		71.1	%		NM	(3)

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	June 30, 2009
	Actual		As Adjusted(6)
	(Unaudited)
	In thousands
Balance Sheet Data
Investments	$	50,888		50,888
Cash and cash equivalents		4,179		[     ]
Amounts recoverable from reinsurers		52,779		52,779
Premiums receivable, net		76,406		76,406
Prepaid reinsurance premiums		37,443		37,443
Other assets		16,079		[     ]
Total assets	$	237,774		[     ]
Reserves for losses and loss adjustment expenses	$	83,013		83,013
Unearned and advanced premium reserves		58,160		58,160
Reinsurance funds withheld and balances payable		45,167		45,167
Debt and accrued interest		21,243		[     ]
Other liabilities		21,245		21,245
Total liabilities		228,828		[     ]
Stockholders’ equity		8,946		[     ]
Total liabilities and stockholders’ equity	$	237,774		[     ]

(1) In 2008, we wrote off approximately $3.5 million of deferred equity offering costs incurred in connection with our prior efforts to consummate an initial public offering during 2007 and 2008.

(2) In 2006, Guarantee Insurance entered into a settlement and termination agreement with the former owner of Guarantee Insurance that allowed for an early extinguishment of debt in the amount of $8.8 million in exchange for $2.2 million in cash and release of the indemnification agreement previously entered into by the parties. As a result, we recognized a gain on the early extinguishment of debt on a pre-tax basis of $6.6 million. We also recognized other income in connection with the forgiveness of accrued interest associated with the early extinguishment of debt on a pre-tax basis of $796,000.

(3) We do not believe this metric is meaningful for the period indicated.

(4) Return on average equity for a given period (annualized in the case of periods less than one year) is calculated by dividing net income for that period by average stockholders’ equity as of the beginning and end of the period.

(5) The net loss ratio is calculated by dividing net losses and loss adjustment expenses by net earned premiums. The net expense ratio is calculated by dividing net policy acquisition and underwriting expenses (which are comprised of gross policy acquisition costs and other gross expenses incurred in our insurance operations, net of ceding commissions earned from our reinsurers) by net earned premiums. The net combined ratio is the sum of the net loss ratio and the net expense ratio.

(6) The As Adjusted balance sheet data as of June 30, 2009 reflects the issuance of [          ] shares of our common stock at the assumed initial public offering price of $[     ] per share, which is the mid-point of the price range set forth on the cover page of this prospectus, and the application of the net proceeds therefrom after deducting estimated underwriting discounts and commissions and our estimated offering expenses.

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RISK FACTORS

An investment in our common stock involves a number of risks. Before making a decision to purchase our common stock, you should carefully consider the following information about these risks, together with the other information contained in this prospectus. Many factors, including the risks described below, could result in a significant or material adverse effect on our business, financial condition and results of operations. If this were to happen, the price of our shares could decline significantly and you could lose all or part of your investment.

Risks Related to Our Business

Our business, financial condition and results of operations may be adversely affected if our actual losses and loss adjustment expenses exceed our estimated loss and loss adjustment expense reserves.

We maintain reserves for estimated losses and loss adjustment expenses. Loss and loss adjustment expense reserves represent an estimate of amounts needed to pay and administer claims with respect to insured events that have occurred, including events that have occurred but have not yet been reported to us. Such reserves are estimates and are therefore inherently uncertain. Judgment is required to determine the degree to which historical payment and claim settlement patterns should be considered in establishing loss and loss adjustment expense reserves. The interpretation of historical data can be impacted by external forces, such as legislative changes, economic fluctuations and legal trends.

Our net reserves for losses and loss adjustment expenses at December 31, 2007, 2006, 2005 and 2004 were $26.6 million, $24.8 million, $17.4 million and $11.8 million, respectively. At December 31, 2008, our re-estimated reserves for those four years were $27.9 million, $21.3 million, $16.7 million and $11.4 million, respectively. Accordingly, at December 31, 2008, our reserves for the years ended December 31, 2007, 2006, 2005 and 2004 showed a net cumulative redundancy (deficiency) of approximately ($1.3 million), $3.6 million, $697,000 and $429,000, respectively. Our historical claims data is not fully developed, and, accordingly, in addition to our own historical claims data, we currently utilize industry data in establishing our reserves. Key assumptions that we utilize to estimate our reserves include industry frequency and severity trends and health care cost and utilization patterns. There can be no assurance that our reserves will be adequate in the future. If there are unfavorable changes in our assumptions, our reserves may need to be increased.

It is difficult to estimate reserves for workers’ compensation claims, because workers’ compensation claims are often paid over a long period of time, and there are no policy limits on liability for claim amounts. Accordingly, our reserves may prove to be inadequate to cover our actual losses. We review our loss reserves each quarter. We may adjust our loss reserves based on the results of these reviews, and these adjustments could be significant. If we change our estimates, these changes would result in adjustments to our loss reserves and losses and loss adjustment expenses incurred in the period in which the estimates are changed. If the estimate is increased, our pre-tax income for the period in which we make the change will decrease by a corresponding amount.

Additionally, we have certain exposures related to legacy commercial general liability claims, including asbestos and environmental liability claims, and there can be no assurance that our loss and loss adjustment expense reserves for these claims are adequate. See “— Guarantee Insurance has legacy commercial general liability claims, including asbestos and environmental liability claims.”

If we do not properly price our insurance policies, our business, financial condition and results of operations will be adversely affected; we do not set prices for our policies in Florida or the other administered pricing states where we write premiums.

If our premium rates are too low, our results of operations and our profitability will be adversely affected, and if our premium rates are too high, our competitiveness may be reduced and we may generate lower revenues.

In general, the premium rates for our insurance policies are established by us (in states other than administered pricing states, as discussed below) when coverage is initiated and, therefore, before all of the

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underlying costs are known. Like other workers’ compensation insurance companies and insurance holding companies, we rely on estimates and assumptions in setting our premium rates. Establishing adequate rates is necessary to generate sufficient revenue, together with investment income, to operate profitably. If we fail to accurately assess the risks that we assume, we may fail to charge adequate premium rates. For example, when underwriting coverage on a new policy, we estimate future claims expense based, in part, on prior claims information provided by the policyholder’s previous insurance carriers. If this prior claims information is not accurate or not indicative of future claims experience, we may under-price our policies by using claims estimates that are too low. As a result, our actual costs for providing insurance coverage to our policyholders may be significantly higher than our premiums. In order to set premium rates accurately, we must:

•  collect and properly analyze a substantial volume of data;

•  develop, test and apply appropriate rating formulae;

•  closely monitor and timely recognize changes in trends; and

•  make assumptions regarding both the frequency and severity of losses with reasonable accuracy.

We must also price our insurance policies appropriately for each jurisdiction. The assumptions we make regarding our premium rates in states in which we currently write policies may not be appropriate for new geographic markets into which we may expand. Our ability to establish appropriate premium rates in new markets is subject to a number of risks and uncertainties, principally:

•  insufficient reliable data;

•  incorrect or incomplete analysis of available data;

•  uncertainties generally inherent in estimates and assumptions, especially in markets in which we have less experience;

•  our inability to implement appropriate rating formulae or other pricing methodologies;

•  regulatory constraints on rate increases;

•  costs of ongoing medical treatment;

•  our inability to accurately estimate retention, investment yields and the duration of our liability for losses and loss adjustment expenses; and

•  unanticipated court decisions, legislation or regulatory action.

For the six months ended June 30, 2009 and the years ended December 31, 2008 and 2007, we wrote approximately 60%, 67% and 70%, of our direct premiums written, respectively, in administered pricing states — Florida, Indiana, New Jersey, and, prior to October 1, 2008, New York. Effective October 1, 2008, New York is no longer an administered pricing state. In 2008, we wrote approximately 46% of our direct premiums written in Florida. In administered pricing states, insurance rates are set by the state insurance regulators and are adjusted periodically. Rate competition generally is not permitted in these states. Therefore, rather than setting rates for the policies, our underwriting efforts in these states for our traditional business relate primarily to the selection of the policies we choose to write at the premium rates that have been set.

The Florida Office of Insurance Regulation, or the Florida OIR, has approved overall workers’ compensation rate decreases of 6.8%, 18.6%, 18.4% and 15.7%, effective as of January 1, 2010, 2009, 2008 and 2007, respectively. If a state insurance regulator lowers premium rates, we may be less profitable, and we may choose not to write policies in that state. We have responded to Florida rate decreases by expanding our alternative market business in Florida and strengthening our collateral on that business where appropriate. In addition, we have the ability to offer different kinds of policies in administered pricing states, including retrospectively rated policies and dividend policies, for which an insured can receive a return of a portion of the premium paid if the insured’s claims experience is favorable. We expect an increase in Florida experience rate modifications, which permit us to increase the premium charged based on a policyholder’s loss history. We anticipate that our ability to adjust to these market changes will create opportunities as our competitors

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find the Florida market less desirable. However, there can be no assurance that state mandated insurance rates in administered pricing states will enable us to generate appropriate underwriting margins. Furthermore, there can be no assurance that alternative kinds of policies in administered pricing states will continue to be permitted or will enable us to generate appropriate underwriting margins.

Our geographic concentration ties our performance to business, economic and regulatory conditions in Florida and certain other states.

In 2008, we wrote insurance in 22 states and the District of Columbia. For the six months ended June 30, 2009 and the years ended December 31, 2008 and 2007, approximately 38%, 46% and 59% of our total direct premiums written, respectively, were concentrated in Florida.

For the six months ended June 30, 2009, approximately 51% of our alternative market business direct premiums written were concentrated in Florida, and approximately 15% and 11% of such premiums were concentrated in New Jersey and Georgia, respectively. No other state accounted for more than 5% of our alternative market business direct premiums written for the six months ended June 30, 2009. For the year ended December 31, 2008 approximately 70% of our alternative market business direct premiums written were concentrated in Florida, and approximately 9% and 6% were concentrated in Georgia and New York, respectively. No other state accounted for more than 5% of our alternative market business direct premiums written for the year ended December 31, 2008.

For the six months ended June 30, 2009, approximately 26% of our traditional business direct premiums written were concentrated in Florida, and approximately 22%, 9% and 7% were concentrated in New Jersey, New York, and Missouri, respectively. In addition, we wrote approximately 6% of our traditional business in each of Arkansas, Indiana and Georgia. No other state accounted for more than 4% of our traditional business direct premiums written for the six months ended June 30, 2009. For the year ended December 31, 2008, approximately 30% of our traditional business direct premiums written were concentrated in Florida, and approximately 14%, 12% and 9% were concentrated in New Jersey, Missouri and Indiana, respectively. No other state accounted for more than 7% of our traditional business direct premiums written for the year ended December 31, 2008.

Unfavorable business, economic or regulatory conditions in the states where we conduct the majority of our traditional and alternative market business could have a significant adverse impact on our business, financial condition and results of operations. In Florida, the state in which we write the majority of our premium, and also in Indiana and New Jersey, insurance regulators establish the premium rates we charge. In these states, insurance regulators may set rates below those that we require to maintain profitability.

Because our business is concentrated in Florida and certain other states, we may be exposed to economic and regulatory risks that are greater than the risks we would face if our business were spread more evenly by state. Our workers’ compensation insurance operations are affected by the economic health of the states in which we operate. Premium growth is dependent upon payroll growth, which, in turn, is affected by economic conditions. Furthermore, losses and loss adjustment expenses can increase in weak economic conditions because it is more difficult to return injured workers to work when employers are otherwise reducing payrolls. Florida is exposed to severe natural perils, such as hurricanes. If Florida were to experience a natural peril of the magnitude of Hurricane Katrina or other catastrophic event, the result could be a disruption of the entire local economy and the loss of jobs, which could have a material adverse effect on our business, financial condition and results of operations. We could also be adversely affected by any material change in Florida law or regulation or any Florida court decision affecting workers’ compensation carriers generally. Unfavorable changes in economic conditions affecting the states in which we write business could adversely affect our business, financial condition and results of operations.

The workers’ compensation insurance industry is cyclical in nature, which may affect our overall financial performance.

Historically, the workers’ compensation insurance market has undergone cyclical periods of price competition and excess underwriting capacity (known as a soft market), followed by periods of high premium

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rates and shortages of underwriting capacity (known as a hard market). Although an individual insurance company’s financial performance is dependent on its own specific business characteristics, the profitability of most workers’ compensation insurance companies tends to follow this cyclical market pattern. Additional underwriting capacity, and the resulting increased competition for premium, is the result of insurance companies expanding the types or amounts of business they write, or of companies seeking to maintain or increase market share at the expense of underwriting discipline. In our traditional workers’ compensation business, we have been experiencing increased price competition since 2007 in certain markets, and these cyclical patterns, the actions of our competitors and general economic factors could cause our revenue and net income to fluctuate, which may cause the price of our common stock to be volatile. Because this cyclicality is due in large part to the actions of our competitors and general economic factors beyond our control, we cannot predict with certainty the timing or duration of changes in the market cycle.

Because we have a limited operating history, our future operating results and financial condition are more likely to vary from expectations.

We commenced operations in 2004 after acquiring Guarantee Insurance, and we formed PRS Group, Inc. in 2005. As a relatively new company, we have a limited operating history on which you can evaluate our performance and base an estimate of our future earning prospects. In addition, our business plan contemplates that we will expand into new geographic areas and provide claims administration, general agency and general underwriting services to other insurance companies and self-insured employers through additional business process outsourcing relationships. We cannot assure you that we will obtain the regulatory approvals necessary for us to conduct business as planned or that any approval granted will not be subject to conditions that restrict our operations. In addition, we cannot assure you that we will have, or be able to raise, the funds necessary to capitalize our subsidiaries in order to further grow our business. Accordingly, our future results of operations or financial condition may vary significantly from expectations.

Our insurance services fee income and insurance services net income is currently substantially dependent on Guarantee Insurance’s premium levels.

Our insurance services fee income and insurance services net income is generated primarily from Guarantee Insurance, segregated portfolio captives and our quota share reinsurers. If Guarantee Insurance premium levels decrease, we would experience a corresponding decrease in consolidated insurance services fee income and insurance services net income. There can be no assurance that Guarantee Insurance premium levels will not decrease.

Our consolidated insurance services fee income is currently substantially dependent on Guarantee Insurance’s risk retention levels.

Because insurance services fee income earned by PRS from Guarantee Insurance attributable to the portion of the insurance risk that Guarantee Insurance retains and assumes from other insurance companies is eliminated upon consolidation, our consolidated insurance services income is currently substantially dependent on Guarantee Insurance’s risk retention levels. If Guarantee Insurance increases its risk retention levels, our consolidated insurance services fee income will decrease, in which case we would also experience a corresponding decrease in our consolidated losses and loss adjustment expenses and net policy acquisition and underwriting expenses. Guarantee Insurance’s risk retention levels, measured by the ratio of net premiums earned to gross premiums earned, were approximately 50% and 33% for the years ended December 31, 2008 and 2007, respectively. Guarantee Insurance entered into additional quota share agreements effective December 31, 2008 and January 1, 2009 which reduced our risk retention levels in 2009. Our risk retention rate for the six months ended June 30, 2009 was 44%. There can be no assurance as to our overall risk retention levels in the future.

We need to obtain additional licenses to allow us to provide insurance services to third parties.

As part of our business plan, we expect to expand our fee-generating insurance services by offering policy and claims administration, general agency and general underwriting services to other regional and national

15

insurance companies and self-insured employers. We also plan to explore strategic acquisitions of policy and claims administrators, general agencies or general underwriters. In order to expand these services, we will need to obtain additional licenses to allow us to provide certain of these services to third parties. However, there can be no assurance that we will be successful in expanding these fee-generating services or obtaining the necessary licenses. Our failure to expand these services would have a material adverse effect on our business plan.

Guarantee Insurance has legacy commercial general liability claims, including asbestos and environmental liability claims.

Guarantee Insurance has legacy commercial general liability claims, including asbestos and environmental liability claims, arising out of the sale of general liability insurance and participations in reinsurance assumed through underwriting management organizations, commonly referred to as pools. Guarantee Insurance ceased offering direct liability coverage in 1983 and ceased participations in reinsurance pools after 1982. In addition to the general uncertainties encountered in estimating workers’ compensation loss and loss adjustment expense reserves described above, there are significant additional uncertainties in estimating the amount of our potential losses from asbestos and environmental claims. Generally, reserves for asbestos and environmental claims cannot be estimated with traditional loss reserving techniques that rely on historical accident year development factors due to the uncertainties surrounding asbestos and environmental liability claims. Among the uncertainties impacting the estimation of such losses are:

•  potentially long waiting periods between exposure and emergence of any bodily injury or property damage;

•  difficulty in identifying sources of environmental or asbestos contamination;

•  difficulty in properly allocating responsibility and liability for environmental or asbestos damage;

•  changes in underlying laws and judicial interpretation of those laws;

•  potential for an environmental or asbestos claim to involve many insurance providers over many policy periods;

•  long reporting delays from insureds to insurance companies;

•  historical data concerning asbestos and environmental losses being more limited than historical information on other types of claims;

•  questions concerning interpretation and application of insurance coverage; and

•  uncertainty regarding the number and identity of insureds with potential asbestos or environmental exposure.

These factors generally render traditional actuarial methods less effective at estimating reserves for asbestos and environmental losses than reserves on other types of losses. As of December 31, 2008, we had established gross reserves of approximately $6.8 million and net reserves, net of reinsurance recoverable on unpaid losses and loss adjustment expenses, of approximately $3.0 million for legacy asbestos and environmental claims, which include 22 direct claims and Guarantee Insurance’s participation in two reinsurance pools and our estimate for the impact of unreported claims. As of December 31, 2008, one of the pools in which we are a participant (which accounted for approximately 80% of these net reserves at December 31, 2008) had approximately 1,600 open claims. Of these, one claim carries reserves of more than $100,000. In this pool, Guarantee Insurance reinsured the risks of other insurers and then ceded a portion (generally 80%) of these reinsurance risks to other reinsurers, which we refer to as participating pool reinsurers. Under this structure, Guarantee Insurance remains obligated for the total liability under each reinsurance contract to the extent any of the participating pool reinsurers fails to pay its share. Over time, Guarantee Insurance’s net liabilities under these reinsurance contracts have increased from approximately 20% to approximately 50% of the pooled risks due to the insolvency of some participating pool reinsurers. In the second pool (which accounted for approximately 20% of our net reserves for legacy asbestos and environmental claims at

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December 31, 2008), Guarantee Insurance is one of a number of participating pool reinsurers, and Guarantee Insurance’s liability is based on the percentage share of the pool obligations it reinsures. We review our loss and loss adjustment expense reserves for asbestos and environmental claims based on historical experience, current developments and actuarial reports for the pools, and this review entails a detailed analysis of our direct and assumed exposure.

In addition, as of December 31, 2008, we had established gross reserves of approximately $3.6 million and net reserves, net of reinsurance recoverable on unpaid losses and loss adjustment expenses, of approximately $1.5 million for legacy commercial general liability claims.

For the year ended December 31, 2008, incurred losses and loss adjustment expenses associated with adverse development of reserves for legacy claims were approximately $709,000. For the year ended December 31, 2007, we recognized a reduction of incurred losses and loss adjustment expenses attributable to favorable development of reserves for legacy claims of approximately $1.3 million. For the year ended December 31, 2006, incurred losses and loss adjustment expenses associated with adverse development of reserves for legacy asbestos and environmental and commercial general liability claims were approximately $516,000.

We plan to continue to monitor industry trends and our own experience in order to determine the adequacy of our environmental and asbestos reserves. However, there can be no assurance that the reserves we have established are adequate. In addition, we are reviewing whether to adopt the survival ratio reserve methodology for our asbestos and environmental exposures, an asbestos and environmental exposure reserving methodology commonly utilized by our publicly held insurance company peers. If we had adopted the survival ratio reserve methodology as of December 31, 2008, our net reserve for asbestos and environmental exposures would have been approximately $5.1 million, representing an increase in net losses and net loss adjustment expenses of approximately $2.1 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Outlook — Reserving Methodology for Legacy Asbestos and Environmental Exposures.”

If we cannot sustain our relationships with independent agencies, we may be unable to operate profitably.

We market and sell our insurance products and services primarily through direct contracts with more than 570 independent, non-exclusive agencies. Our products are marketed by independent wholesale and retail agencies, some of which account for a large portion of our revenues. Other insurance companies compete with us for the services and allegiance of these agents. These agents may choose to direct business to our competitors, or may direct less desirable business to us. Our business relationships are generally governed by agreements with agents that may be terminated on short notice. For the six months ended June 30, 2009, approximately 5.9% and 15.7% of our total direct premiums written were derived from various offices of Appalachian Underwriters, Inc. and the Insurance Office of America, Inc., respectively, and no other agent accounted for more than [5%] of our direct premiums written. For the year ended December 31, 2008, approximately 14% of our total direct premiums written were derived from the agent whose single account with us in 2008 was Progressive Employer Services, Inc., or PES, our then largest policyholder. The policy with PES was cancelled in October 2008. For the year ended December 31, 2008, approximately 9% and 7% of our total direct premiums written were derived from various offices of Appalachian Underwriters, Inc. and the Insurance Office of America, Inc., respectively, and no other agent accounted for more than [4%] of our direct premiums written. As a result, our continued profitability depends, in part, on the marketing efforts of our independent agencies and on our ability to offer workers’ compensation insurance that meets the requirements and preferences of our independent agencies and their customers. A significant decrease in business from, or the entire loss of, our largest agency or several of our other large agencies would have a material adverse effect on our business, financial condition and results of operations.

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We have filed a lawsuit against our former largest customer regarding amounts we contend are due and owing and are in dispute. This customer is controlled by an individual who was one of our stockholders as of December 31, 2008. We may never receive any of the disputed amounts that we contend are due and owing.

For the years ended December 31, 2008 and 2007, approximately 16% and 15% of our direct premiums written, respectively, were attributable to one customer, PES. The policy was cancelled in October 2008 for non-payment of premium and duplicate coverage. PES is a company controlled by Steven Herrig, an individual who, as of December 31, 2008, beneficially owned shares of our common stock through Westwind Holding Company, LLC, or Westwind, a company controlled by Mr. Herrig. Westwind’s stock ownership represented approximately 15.8% of our outstanding common stock as of December 31, 2008. Most of PES’s employees are located in Florida, where workers’ compensation insurance premium rates are established by the state. Premiums receivable from PES totaled approximately $8.3 million as of June 30, 2009 and December 31, 2008. This amount is comprised of approximately $1.1 million for billed but unpaid premium audits for the 2006 policy year, approximately $2.0 million for a billed but unpaid experience rate modification as determined by NCCI, approximately $300,000 for billed but unpaid premium installments for the 2008 policy year and approximately $4.9 million of estimated but unbilled premium audits for the 2007 and 2008 policy years.

We have filed a lawsuit against PES to collect these and additional amounts we believe are due and owing. See “Business — Legal Proceedings — Actions Involving Progressive Employer Services, et al.” We have the right to access certain collateral pledged by Westwind to offset against premium and other amounts owed by PES and Westwind to Guarantee Insurance, including funds held under reinsurance treaties, which totaled approximately $3.3 million as of June 30, 2009 and December 31, 2008. Additionally, in March 2009, we exercised a call option on all of our outstanding common stock owned by Westwind to partially satisfy the amounts we contend are due and owing. On May 11, 2009, Westwind filed a complaint in Florida State Court related to the exercise of the call option, claiming breach of contract and conversion, seeking damages of $2.2 million and other damages as determined by the court. There can be no assurance that we will prevail in the lawsuit or that, if we prevail, we ultimately will be able to collect any amounts awarded. PES has contended that we have failed to arrange for the issuance of a dividend from Guarantee Insurance to PES from the segregated portfolio cell controlled by it in the amount of $3.9 million and that we have failed to provide PES with certain information. Moreover, PES may bring claims against us alleging that our conduct has damaged it. As the litigation continues, we and PES may identify additional amounts in dispute. If we are unable to recover from PES any of the $8.3 million premiums receivable plus the $2.2 million that we have offset against the premiums receivable through the exercise of our call option, we would recognize a pre-tax loss in the amount of such unrecovered amount.

If we do not obtain reinsurance from traditional reinsurers or segregated portfolio captives on favorable terms, our business, financial condition and results of operations could be adversely affected.

We purchase reinsurance to manage our risk and exposure to losses. Reinsurance is a transaction between insurance companies in which an original insurer, or ceding company, remits a portion of its premiums to a reinsurer, or assuming company, as payment for the reinsurer’s commitment to indemnify the original insurer for a portion of its insurance liability. In return, the reinsurer assumes insurance risk from the ceding company. We participate in quota share and excess of loss reinsurance arrangements. Our quota share reinsurers include Swiss Reinsurance America Corporation, one of the largest reinsurers in the United States and rated “A+” by A.M. Best Company, ULLICO Casualty Company, rated “B+” (Good) by A.M Best and Harco National Insurance Company rated “A−” (Very Good) by A.M. Best. Under our traditional business quota share reinsurance agreement effective July 1, 2008, we ceded 50% of all net retained liabilities arising from all traditional business premiums written, excluding certain states, for all losses up to $500,000 per occurrence, subject to various restrictions and exclusions. Effective January 1, 2009, coverage from one of the reinsurers under this quota share agreement, which comprised 37.5% of the total 50.0% coverage, expired, the participation of the other quota share reinsurer was increased from 12.5% to 25.0% and previously excluded states were added to the coverage. We entered into an additional traditional business quota share agreement

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pursuant to which we ceded 37.83% of our gross unearned premium reserves as of December 31, 2008. Additionally, effective January 1, 2009, we entered into a traditional business quota share agreement pursuant to which we cede 68% of all traditional business written in Florida, Georgia and New Jersey during calendar year 2009 for all losses up to $1.0 million per occurrence, subject to various restrictions, exclusions and limitations. We do not have any other quota share reinsurance arrangements for our traditional business.

We reinsure, on a quota share basis, a substantial portion of our underwriting risk on our alternative market business to segregated portfolio captives in which our policyholders or other parties have an economic interest. Generally, we cede between 50% and 90% of the premium and losses under such alternative market policies to segregated portfolio captives, up to $1 million per occurrence subject to various restrictions and exclusions, including an aggregate limit on the captive’s reinsurance obligations. For the year ended December 31, 2008, we ceded approximately 88% of our segregated portfolio captive alternative market gross premiums written under quota share reinsurance agreements with segregated portfolio captives. For the years ended December 31, 2007 and 2006, we ceded 82% and 87% of our segregated portfolio captive alternative market gross premiums written under quota share reinsurance agreements with segregated portfolio captives, respectively. On our segregated portfolio captive alternative market business, any losses in excess of the aggregate limit are borne by us. Thus, if we set this aggregate limit too low, our business, financial condition and results of operations would be adversely affected.

The excess of loss reinsurance for both our traditional and alternative market business under our 2009/2010 reinsurance program covers, subject to certain restrictions and exclusions, losses that exceed $1.0 million per occurrence up to $29.0 million per occurrence per life, with coverage of up to an additional $20.0 million per occurrence for certain losses involving injuries to several employees. Since Guarantee Insurance’s quota share reinsurance is included within its retention for purposes of its excess of loss reinsurance, its effective retention for a $1.0 million claim arising out of its traditional business covered by quota share reinsurance would be $875,000 in all states except Georgia, Florida and New Jersey where the effective retention is $195,000.

The excess of loss reinsurance for both our traditional and alternative market business under our 2008/2009 reinsurance program covers, subject to certain restrictions and exclusions, losses that exceed $1.0 million per occurrence up to $9.0 million per occurrence, with coverage of up to an additional $10.0 million per occurrence for certain losses involving injuries to several employees. However, effective July 1, 2008, the first layer of this excess of loss reinsurance for our traditional business ($4.0 million excess of a $1.0 million retention) is subject to an annual deductible of $1.0 million such that this reinsurance only applies to losses in excess of $1.0 million per occurrence after July 1, 2008 to the extent that such losses exceed $1.0 million in the aggregate. See “Business — Reinsurance.”

The availability, amount and cost of reinsurance are subject to market conditions and our experience with insured losses. There can be no assurance that our reinsurance agreements can be renewed or replaced prior to expiration upon terms as satisfactory to us as those currently in effect. If we are unable to renew or replace any of our quota share or excess of loss reinsurance agreements, our net liability on individual risks would increase, we would have greater exposure to catastrophic losses, our underwriting results would be subject to greater variability, and our underwriting capacity would be reduced. Any reduction or other changes in our reinsurance arrangements could materially adversely affect our business, financial condition and results of operations.

If we are not able to recover amounts due from our reinsurers, our business, financial condition and results of operations would be adversely affected.

Reinsurance does not discharge us of our obligations under our insurance policies. We remain liable to our policyholders even if we are unable to make recoveries that we believe we are entitled to receive under our reinsurance contracts. As a result, we are subject to credit risk with respect to our reinsurers. Losses are recovered from our reinsurers as claims are paid. With respect to long-term workers’ compensation claims, the creditworthiness of our reinsurers may change before we recover amounts to which we are entitled. If a reinsurer is unable to meet any of its obligations to us, we would be responsible for all claims and claim settlement expenses for which we would have otherwise received payment from the reinsurer. For example, we

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have experienced an increase in certain liabilities relating to some of our legacy exposures as a result of the insolvency of some participating pool reinsurers. See — “Guarantee Insurance has legacy commercial general liability claims, including asbestos and environmental liability claims.”

As of December 31, 2008, we had $42.1 million of gross exposures to reinsurers, comprised of reinsurance recoverables on paid and unpaid losses and loss adjustment expenses. Furthermore, as of December 31, 2008, we had $26.1 million of net exposure to reinsurers — $23.5 million from reinsurers licensed in Florida, which we refer to as authorized reinsurers, and $2.6 million from reinsurers not licensed in Florida, which we refer to as unauthorized reinsurers. If we are unable to collect amounts recoverable from our reinsurers, our business, financial condition and results of operations would be adversely affected.

We are subject to extensive state regulation; regulatory and legislative changes may adversely impact our business.

We are subject to extensive regulation by the Florida OIR, and the insurance regulatory agencies of other states in which we are licensed and, to a lesser extent, federal regulation. State agencies have broad regulatory powers designed primarily to protect policyholders and their employees, and not our stockholders. Regulations vary from state to state, but typically address:

•  standards of solvency, including risk-based capital measurements;

•  restrictions on the nature, quality and concentration of investments;

•  restrictions on the terms of insurance policies;

•  restrictions on the way premium rates are established and the premium rates are charged;

•  procedures for adjusting claims, which can affect the ultimate amount for which a claim is settled;

•  standards for appointing general agencies;

•  limitations on transactions with affiliates;

•  restrictions on mergers and acquisitions;

•  medical privacy standards;

•  restrictions on the ability of insurance companies to pay dividends;

•  establishment of reserves for unearned premiums, losses and other purposes;

•  licensing requirements and approvals that affect our ability to do business;

•  certain required methods of accounting; and

•  potential assessments for state guaranty funds, second injury funds and other mandatory pooling arrangements.

We may be unable to comply fully with the wide variety of applicable laws and regulations that are frequently undergoing revision. In addition, we follow practices based on our interpretations of laws and regulations that we believe are generally followed by the insurance industry. These practices may be different from interpretations of insurance regulatory agencies. As a result, insurance regulatory agencies could preclude us from conducting some or all of our activities or otherwise penalize or fine us. Moreover, in order to enforce applicable laws and regulations or to protect policyholders, insurance regulatory agencies have relatively broad discretion to impose a variety of sanctions, including examinations, corrective orders, suspension, revocation or denial of licenses and the takeover of insurance companies. As a result, if we fail to comply with applicable laws or regulations, insurance regulatory agencies could preclude us from conducting some or all of our activities or otherwise penalize us. The extensive regulation of our business may increase the cost of our insurance and may limit our ability to obtain premium rate increases or to take other actions to increase our profitability. For example, as a result of a financial examination by the Florida OIR in 2006 for the year ended December 31, 2004, Guarantee Insurance was fined $40,000 for various violations including failure to

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maintain a minimum statutory policyholders’ surplus. Also, as a result of writing premiums in South Carolina in an inadvertent breach of our agreement with the South Carolina Department of Insurance not to write any new business in South Carolina without the Department’s consent, we may be required to pay a fine or face other disciplinary action.

Guarantee Insurance is subject to periodic examinations by state insurance departments in the states in which it is licensed. In March 2008, the Florida OIR completed its financial examination of Guarantee Insurance as of and for the year ended December 31, 2006. In its examination report, the Florida OIR made a number of findings relating to Guarantee Insurance’s failure to comply with corrective comments made in earlier examination reports by the Florida OIR for the year ended December 31, 2004 and by the South Carolina Department of Insurance for the year ended December 31, 2005. The Florida OIR also made a number of proposed adjustments to the statutory financial statements of Guarantee Insurance for the year ended December 31, 2006, attributable to, among other things, corrections of accounting errors and an upward adjustment in Guarantee Insurance’s reserves for unpaid losses and loss adjustment expenses. These proposed adjustments resulted in a $119,000 net decrease in Guarantee Insurance’s reported policyholders surplus but did not cause Guarantee Insurance to be in violation of a consent order issued by the Florida OIR in 2006 in connection with the redomestication of Guarantee Insurance from South Carolina to Florida that requires Guarantee Insurance to maintain a minimum statutory policyholders surplus of the greater of $9.0 million or 10% of total liabilities excluding taxes, expenses and other obligations due or accrued, and Guarantee Insurance was not required to file an amended 2006 annual statement with the Florida OIR reflecting these adjustments.

In connection with the Florida OIR examination report for the year ended December 31, 2006, the Florida OIR issued a consent order requiring Guarantee Insurance to pay a penalty of $50,000, pay $25,000 to cover administrative costs and undergo an examination prior to June 1, 2008 to verify that it has addressed all of the matters raised in the examination report. In addition, the consent order required Guarantee Insurance to hold annual stockholder meetings, maintain complete and accurate minutes of all stockholder and board of director meetings, implement additional controls and review procedures for its reinsurance accounting, perform accurate and timely reconciliations for certain accounts, establish additional procedures in accordance with Florida OIR information technology specialist recommendations, correctly report all annual statement amounts, continue to maintain adequate loss and loss adjustment reserves and continue to maintain a minimum statutory policyholders surplus of the greater of $9.0 million or 10% of total liabilities excluding taxes, expenses and other obligations due or accrued. The consent order required Guarantee Insurance to provide documentation of compliance with these requirements. In 2008, the Florida OIR engaged a consultant to perform a target examination of Guarantee Insurance to assess its compliance with these requirements. In August 2008, the consultant’s target examination fieldwork was completed, and the Florida OIR issued its report on the target examination, concluding that, with certain immaterial exceptions, Guarantee Insurance was in compliance with all of the findings from the examination report for the year ended December 31, 2006.

State laws require insurance companies to maintain minimum surplus balances and place limits on the amount of insurance a company may write based on the amount of that company’s surplus. These limitations may restrict the rate at which our insurance operations can grow.

In May 2009 in connection with a Florida OIR targeted examination, we advised the Florida OIR that all intercompany receivables would be settled within 30 days. As of September 30, 2009, Guarantee Insurance had approximately $2.1 million in intercompany receivables that have been outstanding for more than 30 days, and approximately $975,000 that had been outstanding for more than 90 days (although subsequent to September 30, 2009, these balances were repaid). Because some of the intercompany receivables were outstanding for more than 30 days, the Florida OIR may object to these transactions or take other regulatory action against us. In addition, under statutory accounting rules, Guarantee Insurance is required to record the amount of any intercompany receivables that have been outstanding for more than 90 days as a nonadmitted asset. Therefore, to the extent that any intercompany receivables have been outstanding for more than 90 days, Guarantee Insurance will be required to nonadmit the amount of such receivables, which will result in a corresponding decrease in the surplus of Guarantee Insurance. If the decrease in Guarantee Insurance’s surplus were to cause Guarantee Insurance to be out of compliance with certain ratios or minimum surplus levels as

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required by the Florida OIR, we could face possible regulatory action and would be required to obtain additional reinsurance, reduce our insurance writings or add capital to Guarantee Insurance.

State laws also require insurance companies to establish reserves for payments of policyholder liabilities and impose restrictions on the kinds of assets in which insurance companies may invest. These restrictions may require Guarantee Insurance to invest in assets more conservatively than it would if we were not subject to state law restrictions and may prevent it from obtaining as high a return on its assets as it might otherwise be able to realize.

State regulation of insurance company financial transactions and financial condition are based on statutory accounting principles, or SAP. State insurance regulators closely monitor the financial condition of insurance companies reflected in SAP financial statements and can impose significant operating restrictions on an insurance company that becomes financially impaired. Regulators generally have the power to impose restrictions or conditions on the following kinds of activities of a financially impaired insurance company: transfer or disposition of assets, withdrawal of funds from bank accounts, extension of credit or advancement of loans and investment of funds.

Many states have laws and regulations that limit an insurer’s ability to withdraw from a particular market. For example, states may limit an insurer’s ability to cancel or not renew policies. Furthermore, certain states prohibit an insurer from withdrawing from one or more lines of business in the state, except pursuant to a plan that is approved by the state insurance department. The state insurance department may disapprove a plan that may lead to market disruption. Laws and regulations that limit cancellation and non-renewal and that subject program withdrawals to prior approval requirements may restrict our ability to exit unprofitable markets.

Licensing laws and regulations vary from state to state. In all states, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally such authorities are vested with relatively broad and general discretion as to the granting, renewing and revoking of licenses and approvals. Licenses may be denied or revoked for various reasons, including the violation of regulations and conviction of crimes. Possible sanctions which may be imposed by regulatory authorities include the suspension of individual employees, limitations on engaging in a particular business for specified periods of time, revocation of licenses, censures, redress to clients and fines.

In some instances, we follow practices based on interpretations of laws and regulations generally followed by the industry, which may prove to be different from the interpretations of regulatory authorities.

We currently are not rated by A.M. Best or any other insurance rating agency, and if we do not receive a favorable rating from A.M. Best after the offering, or if we do obtain such a rating and then fail to maintain it, our business, financial condition and results of operations may be adversely affected.

Rating agencies rate insurance companies based on their financial strength and their ability to pay claims, factors that are relevant to agents and policyholders. We have never been rated by any nationally recognized independent rating agency. The ratings assigned by nationally recognized independent rating agencies, particularly A.M. Best, may become material to our ability to maintain and expand our business. Ratings from A.M. Best and other rating agencies are used by some insurance buyers, agents and brokers as an indicator of financial strength and security.

A.M. Best ratings tend to be more important to our alternative market customers than our traditional business customers. A favorable A.M. Best rating would increase our ability to sell our alternative market products to larger employers. We believe that a favorable rating would also open significant new markets for our products and services. Our failure to obtain or maintain a favorable rating may have a material adverse affect on our business plan.

We expect to apply to A.M. Best for a rating as soon as practicable. We may not be given a favorable rating or if we are given a favorable rating such rating may be downgraded, which may adversely affect our ability to obtain business and may adversely affect the price we can charge for the insurance policies we write. The ratings of A.M. Best are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time. Other companies in our industry that

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have been rated and have had their rating downgraded have experienced negative effects. A.M. Best ratings are directed toward the concerns of policyholders and insurance agencies and are not intended for the protection of investors or as a recommendation to buy, hold or sell securities. Although we are not currently rated by A.M. Best, if we obtain an A.M. Best rating after the offering, our competitive position relative to other companies will be determined in part by our A.M. Best rating.

If we are unable to realize our investment objectives, our business, financial condition and results of operations may be adversely affected.

Investment income is an important component of our net income. As of June 30, 2009 and December 31, 2008, our investment portfolio, including cash and cash equivalents, had a carrying value of $55.1 and $63.4 million, respectively. For the six months ended June 30, 2009 and the year ended December 31, 2008, we had net investment income of $920,000 and $2.0 million, respectively. Our investment portfolio is managed by Gen Re — New England Asset Management (a subsidiary of Berkshire Hathaway, Inc.), an independent asset manager, pursuant to investment guidelines approved by Guarantee Insurance’s board of directors. Although these guidelines stress diversification and capital preservation, our investments are subject to a variety of risks, including risks related to general economic conditions, interest rate fluctuations and market volatility. For example, in 2008 and 2007, credit markets were significantly impacted by sub-prime mortgage losses, increased mortgage defaults and worldwide market dislocations. Furthermore, financial markets experienced substantial and unprecedented volatility as a result of further dislocations in the credit markets, including the bankruptcy of Lehman Brothers Holdings Inc. In 2008, we recognized an other-than-temporary-impairment charge of approximately $350,000 related to investments in certain bonds issued by Lehman Brothers Holdings, Inc., which filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court, and approximately $875,000 related to investments in certain common stocks purchased in 2005.

In addition, our investment portfolio includes asset-backed and mortgage-backed securities. As of June 30, 2009 and December 31, 2008, asset-backed and mortgage-backed securities constituted approximately 24% and 26% of our invested assets, respectively, including cash and cash equivalents. As with other fixed income investments, the fair market value of these securities fluctuates depending on market and other general economic conditions and the interest rate environment. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. Changes in interest rates could have an adverse effect on the value of our investment portfolio and future investment income. For example, changes in interest rates can expose us to prepayment risks on asset-backed and mortgage-backed securities included in our investment portfolio. When interest rates fall, asset-backed and mortgage-backed securities are prepaid more quickly than expected and the holder must reinvest the proceeds at lower interest rates. In periods of increasing interest rates, asset-backed and mortgage-backed securities are prepaid more slowly, which may require us to receive interest payments that are below the interest rates then prevailing for longer than expected.

We also seek to manage our investment portfolio such that the security maturities provide adequate liquidity relative to our expected claims payout pattern. However, the duration of our insurance liabilities may differ from our expectations. If we need to liquidate invested assets prematurely in order to satisfy our claim obligations and the fair value of such assets is below our original cost, we may recognize losses on investments, which could have a material adverse effect on our business, financial condition and results of operations.

Additionally, our fixed maturity securities were reclassified as available for sale at December 31, 2008 and, accordingly, are carried at market value. Decreases in the value of our fixed securities may have a material adverse effect on our business, financial condition and results of operations.

General economic conditions may be adversely affected by a variety of factors, including U.S. involvement in hostilities with other countries, large-scale acts of terrorism and the threat of hostilities or terrorist acts. These and other factors affect the capital markets and, consequently, the value of our investment portfolio and

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our investment income. Any significant decline in our investment income would adversely affect our business, financial condition and results of operations.

We are more vulnerable to negative developments in the workers’ compensation insurance industry than companies that also write other lines of insurance.

Our business involves providing insurance services related to underwriting, workers’ compensation insurance policies, and we have no current plans to focus our efforts on offering other lines of insurance. As a result, negative developments in the economic, competitive or regulatory conditions affecting the workers’ compensation insurance industry could have a material adverse effect on our business, financial condition and results of operations. Negative developments in the workers’ compensation insurance industry could have a greater effect on us than on more diversified insurance companies that also sell other lines of insurance.

New agreements involving fronting arrangements or distribution and insurance services relationships with other carriers or acquisitions could result in operating difficulties and other harmful consequences.

In 2009, we started producing business and performing insurance services for our BPO customer. We are seeking to enter into similar business process outsourcing relationships with additional insurance companies. Developing the technology infrastructure necessary to service or facilitate new relationships will require substantial time and effort on our part, and the integration and management of these relationships may divert management time and focus from operating our current business.

We have limited experience in acquiring other companies, and we may have difficulty integrating the operations of companies that we may acquire and may incur substantial costs in connection therewith.

Our business plan includes growing our revenues through the acquisition of other insurance services operations and insurance companies. However, our experience acquiring companies has been limited to our acquisition of Guarantee Insurance and our proposed acquisition of PF&C. See “Summary — Recent Developments — Acquisition of Shell Insurance Company.” We have evaluated, and expect to continue to evaluate, a wide array of potential strategic transactions. From time to time, we may engage in discussions regarding potential acquisitions. The costs and benefits of future acquisitions are uncertain. Any of these transactions could be material to our business, financial condition and results of operations. In addition, the process of integrating the operations of an acquired company may create unforeseen operating difficulties and expenditures and is risky. The areas where we may face risks include:

•  the need to implement or remediate controls, procedures and policies appropriate for a public company at companies that, prior to the acquisition, lacked these controls, procedures and policies;

•  diversion of management time and focus from operating our business to acquisition integration challenges;

•  cultural challenges associated with integrating employees from the acquired company into our organization;

•  retaining employees from the businesses we acquire; and

•  the need to integrate each company’s accounting, management information, human resource and other administrative systems to permit effective management.

We operate in a highly competitive industry, and others may have greater financial resources to compete effectively.

The market for workers’ compensation insurance products and risk management services is highly competitive. Competition in our business is based on many factors, including pricing (with respect to insurance products, either through premiums charged or policyholder dividends), services provided, underwriting practices, financial ratings assigned by independent rating agencies, capitalization levels, quality of care management services, speed of claims payments, reputation, perceived financial strength, effective loss

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prevention, ability to reduce claims expenses and general experience. In some cases, our competitors offer lower priced products and services than we do. If our competitors offer more competitive prices, payment plans, services or commissions to independent agencies, we could lose market share or have to reduce our prices in order to maintain market share, which would adversely affect our profitability. Our competitors are insurance companies, self-insurance funds, state insurance pools and workers’ compensation insurance service providers, many of which are significantly larger and possess considerably greater financial, marketing, management and other resources than we do. Consequently, they can offer a broader range of products, provide their services nationwide and capitalize on lower expenses to offer more competitive pricing.

With respect to our insurance services business, we believe PRS’s principal competitors in the nurse case management and cost containment services market are CorVel Corporation, GENEX Services, Inc. and various other smaller providers. In the general agency market, we believe we compete with numerous national wholesale agents and brokers.

With respect to our insurance business, we believe our principal competitors are American International Group, Inc., Liberty Mutual Insurance Company and Hartford Insurance Company, as well as smaller regional carriers. Many of our competitors are substantially larger and have substantially greater market share and capital resources than we have.

State insurance regulations require maintenance of minimum levels of surplus and of ratios of net premiums written to surplus. Accordingly, competitors with more surplus than us have the potential to expand in our markets more quickly and to a greater extent than we can. Additionally, greater financial resources permit a carrier to gain market share through more competitive pricing, even if that pricing results in reduced underwriting margins or an underwriting loss. Many of our competitors are multi-line carriers that can price the workers’ compensation insurance that they offer at a loss in order to obtain other lines of business at a profit. If we are unable to compete effectively, our business, financial condition and results of operations could be materially adversely affected.

An inability to effectively manage the growth of our operations could make it difficult for us to compete and affect our ability to operate profitably.

Our continuing growth strategy includes expanding in our existing markets, acquiring insurance services companies, entering new geographic markets and further developing our agency relationships. Our growth strategy is subject to various risks, including risks associated with our ability to:

•  identify profitable new geographic markets for entry;

•  attract and retain qualified personnel for expanded operations;

•  identify potential acquisition targets and successfully acquire them;

•  expand existing and develop new agency relationships;

•  identify, recruit and integrate new independent agencies; and

•  augment our internal monitoring and control systems as we expand our business.

The effects of emerging claim and coverage issues on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until after we have issued insurance policies that are affected by the changes. As a result, the full extent of our liability under an insurance policy may not be known until many years after the policy is issued. For example, medical costs associated with permanent and partial disabilities may increase more rapidly or be higher than we currently expect. Changes of this nature may expose us to higher claims than we anticipated when we wrote the underlying policy. As of

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December 31, 2008, approximately 0.4%, 1%, 2% and 6% of our total reported claims for accident years 2004, 2005, 2006 and 2007, respectively, remained open.

As more fully described under “Business — Legal Proceedings,” we are involved in certain litigation matters. Litigation is subject to inherent uncertainties, and if there were an outcome unfavorable to us, our business, financial condition and results of operations could be materially adversely affected.

Our business is dependent on the efforts of our senior management and other key employees because of their industry expertise, knowledge of our markets and relationships with the independent agencies that sell our insurance.

We believe our success will depend in substantial part upon our ability to attract and retain qualified executive officers, experienced underwriting talent and other skilled employees who are knowledgeable about our business. We rely substantially on the services of our executive management team and other key employees. The key executive officers and employees upon whom we rely are Steven M. Mariano, Chairman of the Board, President and Chief Executive Officer; Michael W. Grandstaff, Senior Vice President and Chief Financial Officer; Charles K. Schuver, Senior Vice President and Chief Underwriting Officer of Guarantee Insurance; Timothy J. Ermatinger, Chief Executive Officer of PRS Group, Inc.; Richard G. Turner, Senior Vice President and Executive Vice President of Alternative Markets and Theodore G. Bryant, Senior Vice President, Counsel and Secretary. We entered into employment agreements with each of these officers in 2008. Although we are not aware of any planned departures or retirements, if we were to lose the services of members of our senior management team, our business, financial condition and results of operations could be adversely affected. We do not currently maintain key man life insurance policies with respect to our employees.

Our status as an insurance holding company with no direct operations could adversely affect our ability to pay dividends in the future.

Patriot Risk Management is a holding company that transacts business through its operating subsidiaries. Patriot Risk Management’s primary assets are the capital stock of these operating subsidiaries. Thus, the ability of Patriot Risk Management to pay dividends to our stockholders depends upon the surplus and earnings of our subsidiaries and their ability to pay dividends to Patriot Risk Management. Payment of dividends by our insurance subsidiary is restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds, and could be subject to contractual restrictions in the future, including those imposed by indebtedness we may incur in the future. See “Business — Regulation — Dividend Limitations.” As a result, Patriot Risk Management may not be able to receive dividends from Guarantee Insurance, its insurance company subsidiary or may not receive dividends in amounts necessary to pay dividends on our capital stock.

Neither PRS nor PUI is statutorily restricted from paying dividends to Patriot Risk Management, although our credit facilities prohibit us and our operating subsidiaries from paying any dividends on our and their respective capital stock without the consent of our lenders. In addition, future debt agreements may contain certain prohibitions or limitations on the payment of dividends. Because Guarantee Insurance is, and if we acquire it, PF&C will be, regulated by the Florida OIR, both companies will be subject to significant regulatory restrictions limiting their ability to declare and pay dividends.

At the time we acquired Guarantee Insurance, it had a large statutory unassigned deficit. See Note 13 to our audited consolidated financial statements as of December 31, 2008 and for the year then ended, which financial statements are included elsewhere in this prospectus (our “Consolidated Financial Statements”). As of June 30, 2008, Guarantee Insurance’s statutory unassigned deficit was $96.8 million. Under Florida law, insurance companies may only pay dividends out of available and accumulated surplus funds derived from realized net operating profits on their business and net realized capital gains, except under limited circumstances with the prior approval of the Florida OIR. Moreover, Florida law has several different tests that limit the payment of dividends, without the prior approval of the Florida OIR, to an amount generally equal to 10% of the surplus or gain from operations, with additional restrictions. However, pursuant to a consent order issued by the Florida OIR on December 29, 2006 in connection with the redomestication of Guarantee

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Insurance from South Carolina to Florida, Guarantee Insurance is prohibited from paying dividends, without approval of the Florida OIR, until December 29, 2009. Therefore, it is unlikely that Guarantee Insurance will be able to pay dividends for the foreseeable future without prior approval of the Florida OIR. Currently, we do not intend to pay cash dividends on our common stock.

Additional capital that we may require in the future may not be available to us or may be available to us only on unfavorable terms.

Our future capital requirements will depend on many factors, including state regulatory requirements, the financial stability of our reinsurers, future acquisitions and our ability to write new business and establish premium rates sufficient to cover our estimated claims. We may need to raise additional capital or curtail our growth if the portion of our net proceeds of this offering to be contributed to the capital of our insurance subsidiaries is insufficient to support future operating requirements or cover claims.

If we need to raise additional capital, equity or debt financing may not be available to us or may be available only on terms that are not favorable to us. In the case of equity financings, dilution to our stockholders could result and the securities sold may have rights, preferences and privileges senior to the common stock sold in this offering. In addition, under certain circumstances, we may sell our common stock, or securities convertible or exchangeable into shares of our common stock, at a price per share less than the market value of our common stock. In the case of debt financings, we may be subject to unfavorable interest rates and covenants that restrict our ability to operate our business freely. We may need to finance our expansion or future acquisitions with borrowings under one or more financing facilities. As of the date of this prospectus, we do not have any commitment for any such facility. If we cannot obtain financing on commercially reasonable terms, we may be required to modify our expansion plans, delay acquisitions or incur higher than anticipated financing costs, any of which could have an adverse impact on the execution of our growth strategy and business. If we cannot obtain adequate capital on favorable terms or at all, we may be unable to support future growth or operating requirements, and, as a result, our business, financial condition and results of operations could be adversely affected.

Assessments for state guaranty funds and second injury funds and other mandatory pooling arrangements may reduce our profitability.

Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which require the insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies. These obligations are funded by assessments, which are expected to continue in the future. State guaranty associations levy assessments, up to prescribed limits, on all member insurance companies in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent or failed insurance companies are engaged. See “Business — Regulation.” Accordingly, the assessments levied on Guarantee Insurance may increase as it increases its premiums written. Some states also have laws that establish second injury funds to reimburse insurers and employers for claims paid to injured employees for aggravation of prior conditions or injuries. These funds are supported by assessments based on premiums or paid losses. For the years ended December 31, 2008 and 2007, gross expenses incurred in connection with assessments for state guaranty funds and second injury funds were $4.1 million and $3.4 million, respectively. Our alternative market customers reimburse us for their pro rata share of any such amounts that we are assessed with respect to premiums written for such customers.

In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual market programs to provide insurance to those employers who cannot procure coverage from an insurance carrier on a negotiated basis. Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating insurance companies. Although we price our insurance to account for obligations we may have under these pooling arrangements, we may not be successful in estimating our liability for these obligations. It is possible that losses from our participation in these pools may exceed the premiums we receive from the pools. Accordingly, mandatory pooling arrangements may cause a decrease in our profits. Guarantee Insurance currently participates in the NCCI national workers’

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compensation insurance pool. Net underwriting income (losses) associated with this mandatory pooling arrangement for the years ended December 31, 2008 and 2007 were approximately ($98,000) and $159,000, respectively. As we write policies in new states that have mandatory pooling arrangements, we will be required to participate in additional pooling arrangements. Furthermore, the impairment, insolvency or failure of other insurance companies in these pooling arrangements would likely increase our liability under these pooling arrangements. The effect of assessments or changes in assessments could reduce our profitability in any given period or limit our ability to grow our business.

The outcome of insurance industry investigations and regulatory proposals could adversely affect our business, financial condition and results of operations.

The United States insurance industry has in recent years become the focus of investigations and increased scrutiny by regulatory and law enforcement authorities, as well as class action attorneys and the general public, relating to allegations of improper special payments, price-fixing, bid-rigging, improper accounting practices and other alleged misconduct, including payments made by insurers to brokers and the practices surrounding the placement of insurance business. Formal and informal inquiries have been made of a large segment of the industry, and a number of companies in the insurance industry have received or may receive subpoenas, requests for information from regulatory agencies or other inquiries relating to these and similar matters. For example, on September 28, 2007, we received a Subpoena from the New Jersey Office of the Insurance Fraud Prosecutor regarding insurance policies issued to one of our policyholders. We have responded to the subpoena and expect no further action. These efforts have resulted and are expected to result in both enforcement actions and proposals for new state and federal regulation. Some states have adopted new disclosure requirements in connection with the placement of insurance business. It is difficult to predict the outcome of these investigations, whether they will expand into other areas not yet contemplated, whether activities and practices currently thought to be lawful will be characterized as unlawful, what form any additional laws or regulations will have when finally adopted and the impact, if any, of increased regulatory and law enforcement action and litigation on our business, financial condition and results of operations.

Recently, Congress has examined a possible repeal of the McCarran-Ferguson Act, which exempts the insurance industry from federal anti-trust laws. There can be no assurance that the McCarran-Ferguson Act will not be repealed, or that any such repeal, if enacted, would not have a material adverse effect on our business, financial condition and results of operations.

We may have exposure to losses from terrorism for which we are required by law to provide coverage.

When writing workers’ compensation insurance policies, we are required by law to provide workers’ compensation benefits for losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on our business would depend upon the nature, extent, location and timing of such an act as well as the availability of any reinsurance that we purchase for terrorism losses and of any assistance for the payment of such losses provided by the Federal government pursuant to the Terrorism Risk Insurance Act of 2002, or TRIA.

TRIA provides co-assistance to commercial property and casualty insurers for payment of losses from an act of terrorism which is declared by the U.S. Secretary of Treasury to be a “certified act of terrorism.” Assistance under the TRIA program is subject to other limitations and restrictions. Such assistance is only available for losses from a certified act of terrorism if aggregate insurance industry losses from the act exceed $100 million. As originally enacted, TRIA only applied to acts of terrorism committed on behalf of foreign persons or interests. However, legislation extending the program through December 31, 2014 removed this restriction so that TRIA now applies to both domestic and foreign terrorism occurring in the U.S. Under the TRIA program, the federal government covers 85% of the losses from covered certified acts of terrorism in excess of a deductible amount. This deductible is calculated as 20% of an affiliated insurance group’s prior year premiums on commercial lines policies (with certain exceptions, such as commercial auto insurance policies) covering risks in the United States. We estimate that our deductible would be approximately $23.5 million for 2009. Because TRIA does not cover 100% of our exposure to terrorism losses and there are substantial limitations and restrictions on the protection against terrorism losses provided to us by our

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reinsurance, the risk of severe losses to us from acts of terrorism remains. Accordingly, events constituting acts of terrorism may not be covered by, or may exceed the capacity of, our reinsurance and TRIA protections and could adversely affect our business, financial condition and results of operations.

The federal terrorism risk assistance provided by TRIA will expire at the end of 2014 and may not be renewed. Any renewal may be on substantially less favorable terms.

Risks Related to Our Common Stock and This Offering

There has been no prior public market for our common stock, and, therefore, you cannot be certain that an active trading market or a specific share price will be established.

Currently, there is no public trading market for our common stock, and it is possible that an active trading market will not develop upon completion of this offering or that the market price of our common stock will decline below the initial public offering price. We are applying to have our shares of common stock approved for listing on the New York Stock Exchange under the symbol “[          ].” The initial public offering price per share will be determined by negotiation among us and the underwriters and may not be indicative of the market price of our common stock after completion of this offering.

The trading price of our common stock may decline after this offering.

The trading price of our common stock may decline after this offering for many reasons, some of which are beyond our control, including, among others:

•  our results of operations;

•  changes in expectations as to our future results of operations, including financial estimates and projections by securities analysts and investors;

•  results of operations that vary from those expected by securities analysts and investors;

•  developments in the healthcare or insurance industry;

•  changes in laws and regulations;

•  announcements of claims against us by third parties;

•  future sales of our common stock;

•  rising levels of claims costs, including medical and prescription drug costs, that we cannot anticipate at the time we establish our premium rates;

•  fluctuations in interest rates, inflationary pressures and other changes in the investment environment that affect returns on invested assets;

•  changes in the frequency or severity of claims;

•  the financial stability of our reinsurers and changes in the level of reinsurance capacity and our capital and surplus;

•  new types of claims and new or changing judicial interpretations relating to the scope of liabilities of insurance companies;

•  volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes or terrorist attacks; and

•  price competition.

In addition, the stock market in general has experienced significant volatility that often has been unrelated to the operating performance of companies whose shares are traded. These market fluctuations could adversely affect the trading price of our common stock, regardless of our actual operating performance. As a result, the

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trading price of our common stock may be less than the initial public offering price, and you may not be able to sell your shares at or above the price you pay to purchase them.

Public investors will suffer immediate and substantial dilution as a result of this offering.

The initial public offering price per share is significantly higher than our net tangible book value per share of our common stock. Accordingly, if you purchase shares in this offering, you will suffer immediate and substantial dilution of your investment. Based upon the issuance and sale of [          ] shares of our common stock at an assumed initial offering price of $[     ] per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will incur immediate dilution of approximately $[     ] in the net tangible book value per share if you purchase common stock in this offering. See “Dilution.” In addition, investors in this offering will:

•  pay a price per share that substantially exceeds the book value of our assets after subtracting liabilities; and

•  contribute [     ]% of the total amount invested to date to fund our company based on an assumed initial offering price to the public of $[     ] per share, which is the midpoint of the price range set forth on the cover page of this prospectus, but will own only [     ]% of the shares of common stock outstanding after completion of this offering.

Future sales of our common stock may affect the trading price of our common stock and the future exercise of options may lower the price of our common stock.

We cannot predict what effect, if any, future sales of our common stock, or the availability of shares for future sale, will have on the trading price of our common stock. Sales of a substantial number of shares of our common stock in the public market after completion of this offering, or the perception that such sales could occur, may adversely affect the trading price of our common stock and may make it more difficult for you to sell your shares at a time and price that you determine appropriate. See “Shares Eligible for Future Sale” for further information regarding circumstances under which additional shares of our common stock may be sold. Upon completion of this offering, there will be [          ] shares of our common stock outstanding. An additional [          ] shares of common stock will be issuable upon the exercise of warrants we intend to issue to our existing stockholders upon completion of this offering, at an exercise price equal to the initial public offering price. Moreover, [          ] additional shares of our common stock are issuable upon the exercise of options granted under our equity compensation plans and [          ] shares will be issuable upon the exercise of outstanding options that we intend to grant to our directors, executive officers and other employees upon the completion of this offering, at an exercise price equal to the initial public offering price. Following completion of this offering, we intend to register all [          ] of these shares and also the [          ] shares reserved for issuance under the 2009 Stock Incentive Plan. See “Description of Capital Stock” and “Executive Compensation.” We and our current directors, executive officers and stockholders have entered into 180-day lock-up agreements. The lock-up agreements are described in “Shares Eligible for Future Sale — Lock-Up Agreements.” An aggregate of [          ] shares of our common stock will be subject to these lock-up agreements upon completion of this offering.

Being a public company will increase our expenses and administrative workload and will expose us to risks relating to evaluation of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.

As a public company, we will need to comply with additional laws and regulations, including the Sarbanes-Oxley Act of 2002 and related rules of the Securities and Exchange Commission, or the SEC, and requirements of the New York Stock Exchange. We were not required to comply with these laws and requirements as a private company. Complying with these laws and regulations will require the time and attention of our board of directors and management and will increase our expenses. Among other things, we will need to: design, establish, evaluate and maintain a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company

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Accounting Oversight Board; prepare and distribute periodic reports in compliance with our obligations under the federal securities laws; establish new internal policies, principally those relating to disclosure controls and procedures and corporate governance; institute a more comprehensive compliance function; and involve to a greater degree our outside legal counsel and accountants in the above activities. We anticipate that our annual expenses in complying with these requirements will be approximately $500,000 to $1,500,000.

In addition, we also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance. We may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage. These factors could also make it more difficult for us to attract and retain qualified executives and members of our board of directors, particularly directors willing to serve on our audit committee.

We are in the process of evaluating our internal control systems to allow management to report on, and our independent auditors to assess, our internal controls over financial reporting. We plan to perform the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We are required to comply with Section 404 in our annual report for the year ending December 31, 2010. However, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations. Furthermore, upon completion of this process, we may identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board rules and regulations that remain unremediated.

If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory agencies such as the SEC. In addition, failure to comply with Section 404 or the report by us of a material weakness may cause investors to lose confidence in our financial statements or the trading price of our common stock to decline. If we fail to remediate any material weakness, our financial statements may be inaccurate, our access to the capital markets may be restricted and the trading price of our common stock may decline.

As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that materially affect, or are reasonably likely to materially affect, internal controls over financial reporting. A “control deficiency” exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A “material weakness” is a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Our independent registered public accounting firm has in the past identified certain deficiencies in internal controls that it considered to be control deficiencies and material weaknesses. If we fail to remediate these internal control deficiencies and material weaknesses and maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results.

During their audit of our financial statements for the year ended December 31, 2006, BDO Seidman, LLP, our independent registered public accounting firm (independent auditors), identified certain deficiencies in internal controls that they considered to be control deficiencies and material weaknesses. Specifically, our independent auditors identified material weaknesses relating to: (1) a lack of independent reconciliation regarding the schedule of premiums receivable, and (2) problems regarding the files maintained for reinsurance agreements, making it difficult to determine which agreement was in force and which versions of the various agreements are in force.

In response, we initiated corrective actions to remediate these control deficiencies and material weaknesses, including the implementation of timely account reconciliations, formal purchasing policies, accurate premium tax accruals, the appropriate segregation of accounting duties, a formal impairment analysis for intangible assets, proper accounting for equity-based compensation in accordance with SFAS No. 123(R) and enhanced reinsurance documentation and risk transfer analysis. Our independent auditors did not identify any material weaknesses during their audit of our 2007 and 2008 financial statements. However, during their audit of our financial statements for the year ended December 31, 2008, our independent auditors identified certain deficiencies in internal controls that they considered to be significant control deficiencies, but not material weaknesses. It is

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possible that we or our independent auditors may identify additional significant deficiencies or material weaknesses in our internal control over financial reporting in the future. Any failure or difficulties in implementing and maintaining these controls could cause us to fail to meet the periodic reporting obligations that we will become subject to after this offering or result in material misstatements in our financial statements. The existence of a material weakness could result in errors to our financial statements requiring a restatement of our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, which could lead to a decline in our stock price.

Due to the concentration of our capital stock ownership with our founder, Chairman, President and Chief Executive Officer, Steven M. Mariano, he may be able to influence stockholder decisions, which may conflict with your interests as a stockholder.

Immediately upon completion of this offering, Steven M. Mariano, our founder, Chairman, President and Chief Executive Officer, directly and through trusts that he controls, will beneficially own shares representing approximately [     ]% of the voting power of our common stock. As a result of his ownership position, Mr. Mariano may have the ability to significantly influence matters requiring stockholder approval, including, without limitation, the election or removal of directors, mergers, acquisitions, changes of control of our company and sales of all or substantially all of our assets. Your interests as a stockholder may conflict with his interests, and the trading price of shares of our common stock could be adversely affected.

Provisions in our executive officers’ employment agreements and provisions in our certificate of incorporation and bylaws and under the laws of the State of Delaware and the State of Florida could impede an attempt to replace or remove our directors or otherwise effect a change of control of Patriot Risk Management, which could diminish the price of our common stock.

We have entered into employment agreements with our executive officers. These agreements provide for substantial payments upon a change in control. These payments may deter any transaction that would result in a change in control. See “Executive Compensation — Employment Agreements.”

Our charter and bylaws contain provisions that may entrench directors and make it more difficult for stockholders to replace directors even if the stockholders consider it beneficial to do so. In particular, stockholders are required to provide us with advance notice of stockholder nominations and proposals to be brought before any annual meeting of stockholders, which could discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or to introduce a proposal. In addition, our charter eliminates our stockholders’ ability to act without a meeting.

These provisions could delay or prevent a change of control that a stockholder might consider favorable. For example, these provisions may prevent a stockholder from receiving the benefit from any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may materially adversely affect the prevailing market price of our common stock if they are viewed as discouraging changes in management and takeover attempts in the future.

Further, our amended and restated certificate of incorporation and our amended and restated bylaws provide that the number of directors shall be fixed from time to time by our board of directors, provided that the board shall consist of at least three and no more than thirteen members. Our board of directors is divided into three classes with the number of directors in each class being as nearly equal as possible. Each director serves a three-year term. The classification and term of office for each of our directors is noted in the table listing our directors and executive officers under “Management — Directors, Executive Officers and Key Employees.” These provisions make it more difficult for stockholders to replace directors, which may materially adversely affect the prevailing market price of our common stock if they are viewed as discouraging changes in management and takeover attempts in the future.

In addition, Section 203 of the Delaware General Corporation Law may limit the ability of an “interested stockholder” to engage in business combinations with us. An interested stockholder is defined to include

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persons owning 15% or more of any class of our outstanding voting stock. See “Description of Capital Stock — Anti-Takeover Effects of Delaware Law” and “Our Certificate of Incorporation and Bylaws.”

Florida insurance law prohibits any person from acquiring 5% or more of our outstanding voting securities or those of any of our insurance subsidiaries without the prior approval of the Florida OIR. However, a party may acquire less than 10% of our voting securities without prior approval if the party files a disclaimer of affiliation and control. Any person wishing to acquire control of us or of any substantial portion of our outstanding shares would first be required to obtain the approval of the Florida OIR or file such a disclaimer. In addition, any transaction that would constitute a change of control of Guarantee Insurance, including a change of control of Patriot, may require pre-notification in other states in which Guarantee Insurance operates. Obtaining these approvals may result in the material delay of, or may deter, any such transaction.

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FORWARD-LOOKING STATEMENTS

Some of the statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and elsewhere in this prospectus may include forward-looking statements. These statements reflect the current views of our senior management with respect to future events and our financial performance. These statements include forward-looking statements with respect to our business and the insurance industry in general. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.

Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

•  greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices anticipate based on historical experience or industry data;

•  increased competition on the basis of coverage availability, claims management, loss control services, payment terms, premium rates, policy terms, types of insurance offered, overall financial strength, financial ratings and reputation;

•  regulatory risks, including further rate decreases in Florida and other states where we write business;

•  the cyclical nature of the workers’ compensation insurance industry;

•  negative developments in the workers’ compensation insurance industry;

•  decreased level of business activity of our policyholders;

•  decreased demand for our insurance;

•  adverse developments regarding our legacy asbestos and environmental claims arising from policies written or assumed prior to 1983;

•  changes in the availability, cost or quality of reinsurance and the failure of our reinsurers to pay claims in a timely manner or at all;

•  changes in regulations or laws applicable to us, our policyholders or the agencies that sell our insurance;

•  changes in rating agency policies or practices;

•  changes in legal theories of liability under our insurance policies;

•  developments in capital markets that adversely affect the performance of our investments;

•  loss of the services of any of our senior management or other key employees;

•  the effects of U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts; and

•  changes in general economic conditions, including inflation and other factors.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus, including in particular the risks described under “Risk Factors” beginning on page 12 of this prospectus. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Any forward-looking statements you read in this prospectus reflect our views as of the date of this prospectus with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. Before making a decision to purchase our common stock, you should carefully consider all of the factors identified in this prospectus that could cause actual results to differ.

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USE OF PROCEEDS

We estimate that our net proceeds from this offering will be approximately $[     ] million, based on an assumed initial public offering price of $[     ] per share, which is the mid-point of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. We estimate that our net proceeds will be approximately $[     ] million if the underwriters exercise their over-allotment option in full.

We intend to contribute approximately $[     ] million to Guarantee Insurance to support its premium writings. As described elsewhere in this prospectus, we have entered into a letter of intent to acquire PF&C, a shell property and casualty insurance company. The acquisition of PF&C is subject to various regulatory approvals. If we obtain these regulatory approvals and consummate the acquisition within 30 days after the date of this prospectus, we plan instead to use approximately $16.2 million of the net proceeds of this offering to pay the purchase price for PF&C, to contribute approximately $[     ] million to PF&C to support its premium writings, and to contribute approximately $[     ] million to Guarantee Insurance to support its premium writings.

In addition, we plan to use approximately $[     ] million of the net proceeds from this offering to pay off a loan from Mr. Mariano, our Chairman, President and Chief Executive Officer. We expect that the remaining $[     ] million, or $[     ] million if we acquire PF&C, will be used to support our anticipated growth and general corporate purposes and to fund other holding company operations, including the repayment of all or a portion of our existing indebtedness and potential acquisitions, although we have no current understandings or agreements regarding any such acquisitions (other than PF&C).

If the underwriters exercise all or any portion of their over-allotment option, we intend to use all or a substantial portion of the net proceeds from any such exercise to pay down the balance of our credit facilities with Brooke Credit Corporation (Brooke) and ULLICO, Inc. (ULLICO). If the over-allotment option is exercised in full, we will use approximately $[     ] million and $[     ] of the net proceeds therefrom to pay off the credit facilities with Brooke and ULLICO, respectively, and the remaining $[     ] million, or $[     ] million if we acquire PF&C, for general corporate purposes.

Pending the use of the net proceeds from this offering as discussed above, we may invest some of the proceeds in certain short-term high-grade instruments.

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DIVIDEND POLICY

We do not expect to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any additional future earnings to finance our operations and growth. Any future determination to pay cash dividends on our common stock will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operating results, capital requirements, any contractual, regulatory and other restrictions on the payment of dividends by us or by our subsidiaries to us, and other factors that our board of directors deems relevant.

Patriot Risk Management is a holding company and has no direct operations. Our ability to pay dividends in the future depends on the ability of our operating subsidiaries to pay dividends to us. Neither PRS nor PUI is statutorily restricted from paying dividends to us, although our credit facilities prohibit us and our operating subsidiaries from paying any dividends on our and their respective capital stock without the consent of our lenders. In addition, future debt agreements may contain certain prohibitions or limitations on the payment of dividends. Because Guarantee Insurance is, and if we acquire it, PF&C will be, regulated by the Florida OIR, both companies will be subject to significant regulatory restrictions limiting their ability to declare and pay dividends. In accordance with the terms of Guarantee Insurance’s redomestication to Florida which occurred on December 29, 2006, any and all dividends which may be paid by Guarantee Insurance prior to December 29, 2009 must be pre-approved by the Florida OIR.

At the time we acquired Guarantee Insurance, it had a large statutory unassigned deficit. As of June 30, 2009, Guarantee Insurance’s statutory unassigned deficit was $95.2 million. Under Florida law, insurance companies may only pay dividends out of available and accumulated surplus funds which are derived from realized net operating profits on their business and net realized capital gains, except under certain limited circumstances with the approval of the Florida OIR. Consequently, for the foreseeable future no dividends may be paid by Guarantee Insurance except with the prior approval of the Florida OIR.

For additional information regarding restrictions on the payment of dividends by us and our insurance company subsidiaries, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and “Business — Regulation — Dividend Limitations.”

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CAPITALIZATION

The table below sets forth our consolidated capitalization as of June 30, 2009 on an actual basis and on an as adjusted basis giving effect to (i) the sale of [          ] shares of common stock in this offering and (ii) the conversion of each outstanding share of Series A convertible preferred stock into [          ] shares of common stock at an assumed initial public offering price of $[     ] per share, which is the mid-point of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and our estimated offering expenses and assuming that the underwriters do not exercise their over-allotment option.

You should read this table in conjunction with the “Use of Proceeds, “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus and our financial statements and related notes included in the back of this prospectus.

	As of June 30, 2009
	Actual		As Adjusted
	(Unaudited)
	(In thousands)
Debt Outstanding
Notes payable	$	17,996	$	17,446
Surplus notes		1,187		1,187
Subordinated debentures		1,634		1,634
Total debt outstanding		20,817		20,267
Stockholders’ equity
Series A convertible preferred stock, par value $.001 per share, 1,200 shares authorized; 1,000 shares issued and outstanding, actual; no shares issued and outstanding, as adjusted(1)		1,000		—
Preferred stock, par value $.001 per share, 5,000,000 shares authorized; no shares issued and outstanding, actual; and as adjusted		—		—
Common stock, par value $.001 per share, 40,000,000 shares authorized, 346,026 shares issued and outstanding, actual; [          ] shares issued or outstanding, as adjusted		1		[     ]
Series B common stock, par value $.001 per share, 4,000,000 shares authorized, 800,000 shares issued and outstanding, actual; no shares authorized, issued or outstanding, as adjusted(2)		1		—
Additional paid-in capital		5,507		[     ]
Retained earnings		1,799		1,799
Accumulated other comprehensive income (loss), net of deferred income tax expense (benefit)		638	$	638
Total stockholders’ equity		8,946	$	[     ]
Total capitalization	$	29,763	$	[     ]

(1) At the closing of this offering, all outstanding shares of Series A convertible preferred stock will be automatically converted into [          ] shares of common stock, based on an assumed initial public offering price of $[     ] per share, which is the mid-point of the price range set forth on the cover page of this prospectus.

(2) At the closing of this offering, all outstanding shares of Series B common stock will be automatically converted into shares of common stock on a one-for-one basis.

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The number of shares of common stock shown to be outstanding after this offering excludes:

•  up to [          ] shares of common stock that may be issued pursuant to the underwriters’ over-allotment option;

•  163,500 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2009;

•  [          ] shares of common stock issuable upon the exercise of stock options we intend to grant to our directors, executive officers and other employees upon completion of this offering, at an exercise price equal to the initial public offering price;

•  [          ] shares of common stock issuable upon the exercise of warrants we intend to issue to our existing stockholders upon completion of this offering, at an exercise price equal to the initial public offering price; and

•  [          ] additional shares available for future issuance under our 2009 Stock Incentive Plan.

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DILUTION

Our net tangible book value as of June 30, 2009 is presented on a pro forma basis, assuming the conversion of each outstanding share of Series A convertible preferred stock into [          ] shares of common stock based on an assumed public offering price of $[     ] per share, which is the mid-point of the price range set forth on the cover page of this prospectus. As of June 30, 2009, our pro forma net tangible book value was $[     ] million, or $[     ] per share of common stock. Our pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities divided by the number of shares of common stock outstanding. After giving effect to the issuance of [     ] shares of our common stock at the assumed initial public offering price of $[     ] per share, which is the mid-point of the price range set forth on the cover page of this prospectus, and the application of the estimated net proceeds therefrom, and after deducting estimated underwriting discounts and commissions and our estimated offering expenses, our pro forma net tangible book value as of June 30, 2009 would have been approximately $[     ] million, or $[     ] per share of common stock. This amount represents an immediate increase in net tangible book value of $[     ] per share to our existing stockholders and an immediate dilution of $[     ] per share from the assumed initial public offering price of $[     ] per share issued to new investors purchasing shares in this offering. The table below illustrates the dilution on a per share basis:

Assumed initial public offering price per share	$
Pro forma net tangible book value per share as of June 30, 2008
Increase in pro forma net tangible book value per share attributable to this offering	$
Pro forma net tangible book value per share after this offering
Dilution per share to new investors in this offering		$	(1	)

(1) If the underwriters’ over-allotment is exercised in full, dilution per share to new investors will be $[     ].

The table below sets forth, as of June 30, 2009, the number of shares of our common stock issued (assuming the conversion of each share of our Series A convertible preferred stock into [     ] shares of common stock), the total consideration paid and the average price per share paid by our existing stockholders and our new investors in this offering, after giving effect to the issuance of [     ] shares of common stock in this offering at the assumed initial public offering price of $[     ] per share, before deducting underwriting discounts and commissions and our estimated offering expenses.

Average

Shares Issued

Total Consideration

Price

Number

Percent

Amount

Percent

per Share

Existing stockholders

[     ]

[     ]

%

$

[     ]

[     ]

%

$

[     ]

New investors

[     ]

[     ]

$

[     ]

[     ]

[     ]

Total

[     ]

100.0

%

$

[     ]

100.0

%

[     ]

This table does not give effect to:

•  up to [          ] shares of common stock that may be issued pursuant to the underwriters’ over-allotment option;

•  163,500 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2009;

•  [          ] shares of common stock issuable upon the exercise of stock options we intend to grant to our directors, executive officers and other employees upon completion of this offering, at an exercise price equal to the initial public offering price;

•  [          ] shares of common stock issuable upon the exercise of warrants we intend to issue to our existing stockholders upon completion of this offering, at an exercise price equal to the initial public offering price; and

•  [          ] additional shares available for future issuance under our 2009 Stock Incentive Plan.

To the extent that options with an exercise price below the initial price to the public are exercised, there will be further dilution to new investors.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth selected consolidated financial information as of such dates and for such periods indicated below. The following income statement data for the six months ended June 30, 2009 and 2008 and balance sheet data as of June 30, 2009 were derived from our unaudited consolidated financial statements included elsewhere in this prospectus. Such unaudited financial statements include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of our financial position and results of operations. The income statement data for the years ended December 31, 2008, 2007 and 2006 and balance sheet data as of December 31, 2008 and 2007 were derived from our audited consolidated financial statements included elsewhere in this prospectus. The income statement data for the years ended December 31, 2005 and 2004 and balance sheet data as of December 31, 2006, 2005 and 2004 were derived from our audited consolidated financial statements that are not included in this prospectus. These historical results are not necessarily indicative of results to be expected in any future period. You should read the following summary financial information together with the other information contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere.

	Six Months
	Ended June 30,						Years Ended December 31,
	2009			2008			2008			2007			2006			2005			2004
	In thousands, except per share data
Income Statement Data
Gross premiums written	$	62,555		$	69,732		$	117,563		$	85,810		$	62,372		$	47,576		$	30,911
Ceded premiums written		30,789			40,438			71,725			54,894			42,986			23,617			22,702
Net premiums written		31,766			29,294			45,838			30,961			19,386			23,959			8,209
Revenues
Net premiums earned		21,770			20,104			49,220			24,613			21,053			21,336			2,948
Insurance services income		3,787			3,008			5,657			7,175			4,369			6,429			5,952
Net investment income		920			980			2,028			1,326			1,321			1,077			233
Net realized gains (losses) on investments		743			56			(1,037	)		(5	)		(1,346	)		(2,298	)		(4,632	)
Total revenues		27,220			24,148			55,868			33,109			25,397			26,544			4,978
Expenses
Net losses and loss adjustment expenses		12,105			11,956			28,716			15,182			17,839			12,022			2,616
Net policy acquisition and underwriting expenses		6,632			5,495			13,535			6,023			3,834			3,168			2,016
Other operating expenses		4,960			4,233			10,930			8,519			9,704			6,378			4,989
Interest expense		734			725			1,437			1,290			1,109			1,129			555
Total expenses		24,431			22,409			54,618			31,014			32,486			22,697			10,176
Other income		—			219			1,469			—			796			—			110
Loss from write-off of deferred equity offering costs(1)		—			—			(3,486	)		—			—			—			—
Gain on early extinguishment of debt(2)		—			—			—			—			6,586			—			—
Income (loss) before income tax expense benefit		2,789			1,958			(767	)		1,947			3,099			1,787			(5,088	)
Income tax expense (benefit)		1,023			250			(643	)		(432	)		1,489			687			(751	)
Net income (loss)	$	1,766		$	1,708		$	(124	)	$	2,379		$	1,610		$	1,100		$	(4,337	)
Earnings Per Share
Basic	$	1.70		$	1.26		$	(0.09	)	$	1.77		$	1.16		$	0.88			NM	(3)
Diluted		1.69			1.25			(0.09	)		1.76			1.15			0.87			NM	(3)
Weighted Average Common Shares Outstanding:
Basic		1,037			1,361			1,361			1,342			1,392			1,251			NM	(3)
Diluted		1,046			1,370			1,361			1,351			1,398			1,258			NM	(3)
Return on average equity(4)		43.9	%		55.7	%		NM(3	)		58.5	%		107.0	%		NM(3	)		NM	(3)
Selected Insurance Ratios(5)
Net loss ratio		55.6	%		59.5	%		57.5	%		61.7	%		84.7	%		56.3	%		NM	(3)
Net expense ratio		30.5	%		27.3	%		27.1	%		24.5	%		18.2	%		14.8	%		NM	(3)
Net combined ratio		86.1	%		86.8	%		84.6	%		86.2	%		102.9	%		71.1	%		NM	(3)

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	June 30,		December 31,
	2009		2008		2007		2006		2005		2004
	In thousands
Balance Sheet Data
Investments	$	50,888	$	55,089	$	56,816	$	32,543	$	20,955	$	16,446
Cash and cash equivalents		4,179		8,333		4,946		17,841		20,420		3,965
Amounts recoverable from reinsurers		52,779		42,134		47,519		41,531		22,955		10,978
Premiums receivable, net		76,406		58,826		36,748		19,450		21,943		19,244
Prepaid reinsurance premiums		37,443		33,731		14,963		7,466		4,402		14,925
Other assets		16,079		13,179		14,248		11,838		9,563		8,957
Total assets	$	237,774	$	211,292	$	175,237	$	130,669	$	100,238	$	74,515
Reserves for losses and loss adjustment expenses	$	83,013		74,550		69,881		65,953		39,478		19,885
Unearned and advanced premium reserves		58,160		44,613		29,160		15,643		13,214		20,185
Reinsurance funds withheld and balances payable		45,167		47,449		44,073		26,787		25,195		15,697
Debt and accrued interest		21,243		22,592		16,907		11,741		11,995		10,379
Other liabilities		21,245		14,951		9,780		7,851		10,040		8,324
Total liabilities		228,828		204,155		169,801		127,975		99,922		74,470
Stockholders’ equity		8,946		7,137		5,436		2,694		316		45
Total liabilities and stockholders’ equity	$	237,774	$	211,292	$	175,237	$	130,669	$	100,238	$	74,515

(1) In 2008, we wrote off approximately $3.5 million of deferred equity offering costs incurred in connection with our prior efforts to consummate an initial public offering in 2007 and 2008.

(2) In 2006, Guarantee Insurance entered into a settlement and termination agreement with the former owner of Guarantee Insurance that allowed for an early extinguishment of debt in the amount of $8.8 million in exchange for $2.2 million in cash and release of the indemnification agreement previously entered into by the parties. As a result, we recognized a gain on the early extinguishment of debt on a pre-tax basis of $6.6 million. We also recognized other income in connection with the forgiveness of accrued interest associated with the early extinguishment of debt on a pre-tax basis of $796,000.

(3) We do not believe this metric is meaningful for the period indicated.

(4) Return on average equity for a given period (annualized in the case of periods less than one year) is calculated by dividing net income for that period by average stockholders’ equity as of the beginning and end of the period.

(5) The net loss ratio is calculated by dividing net losses and loss adjustment expenses by net earned premiums. The net expense ratio is calculated by dividing net policy acquisition and underwriting expenses (which are comprised of gross policy acquisition costs and other gross expenses incurred in our insurance operations, net of ceding commissions earned from our reinsurers) by net earned premiums. The net combined ratio is the sum of the net loss ratio and the net expense ratio.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this prospectus. This discussion includes forward-looking statements that are subject to risks, uncertainties and other factors described under the captions “Risk Factors” and “Forward-Looking Statements.” These factors could cause our actual results for the second half of 2009 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements.

Overview

We produce, underwrite and administer alternative market and traditional workers’ compensation insurance plans and provide claims services for insurance companies, segregated portfolio captives and reinsurers. Through our wholly owned insurance company subsidiary, Guarantee Insurance, we generally participate in a portion of the insurance underwriting risk. In our insurance services segment, we generate fee income by providing workers’ compensation claims services as well as agency and underwriting services. In our insurance segment, we generate underwriting income and investment income by providing alternative market workers’ compensation risk transfer solutions and traditional workers’ compensation insurance coverage.

Insurance Services Operations

Through our subsidiary, PRS Group, Inc. and its subsidiaries, which we collectively refer to as PRS, and our subsidiary, Patriot Underwriters, Inc. and its subsidiary, which we collectively refer to as PUI, we earn income for workers’ compensation claims services as well as agency and underwriting services. Workers’ compensation claims services include nurse case management, cost containment services and, beginning in 2009, claims administration and adjudication services. Cost containment services refer to workers’ compensation bill review and re-pricing services. Workers’ compensation agency and underwriting services include general agency services and, beginning in 2009, specialty underwriting, policy administration and captive management services. We currently provide these services to Guarantee Insurance for its benefit, for the benefit of segregated portfolio captives and for the benefit of Guarantee Insurance’s traditional business quota share reinsurers, all under the Patriot Risk Services brand. We also provide these services for the benefit of another insurance company under its brand, a practice which we refer to as business process outsourcing, as described below.

In the second quarter of 2009, we entered into an arrangement with ULLICO Casualty Company, which we refer to as our BPO customer, to gain access to workers’ compensation insurance business in certain additional states, including California and Texas. ULLICO is licensed to write workers’ compensation insurance in 47 states plus the District of Columbia and is rated “B+” (Good) by A.M Best. Under this arrangement, we earn commissions for producing business and insurance services income for providing underwriting, policy and claims administration, nurse case management and cost containment services and, in certain cases, services to segregated portfolio cell captives on the business we produce for this customer. Additionally, in certain cases, Guarantee Insurance assumes a portion of the premium and associated losses and loss adjustment expenses on the business we produce for our BPO customer. For the six months ended June 30, 2009, gross written premiums produced for our BPO customer, gross of approximately $2.2 million of premium rate credits attributable to large deductible policies, were approximately $8.9 million. For the six months ended June 30, 2009, gross earned premiums produced for our BPO customer, gross of approximately $152,000 of premium rate credits attributable to large deductible policies, were approximately $1.0 million.

We are seeking to enter into additional business process outsourcing relationships of a similar nature. These relationships may be solely distribution and insurance services relationships, where we do not assume any underwriting risk but earn commissions for producing business and insurance services income for providing underwriting, policy and claims administration, nurse case management and cost containment services and, in certain cases, services to segregated portfolio captives.

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Insurance Operations

We currently write insurance in 22 states and the District of Columbia. For the six months ended June 30, 2009, approximately 49% of our total direct and assumed premiums written involved workers’ compensation alternative market insurance solutions and approximately 51% represented workers’ compensation traditional business. For the six months ended June 30, 2009, approximately 38% of our total direct premiums written were concentrated in Florida.

For the six months ended June 30, 2009, approximately 51% of our alternative market business direct premiums written were concentrated in Florida, and approximately 15% and 11% were concentrated in New Jersey and Georgia, respectively. No other state accounted for more than 5% of our alternative market business direct premiums written for the six months ended June 30, 2009.

For the six months ended June 30, 2009, approximately 26% of our traditional business direct premiums written were concentrated in Florida, and approximately 22%, 9% and 7% were concentrated in New Jersey, New York, and Missouri, respectively. In addition, we wrote approximately 6% of our traditional business in each of Arkansas, Indiana and Georgia. No other state accounted for more than 4% of our traditional business direct premiums written for the six months ended June 30, 2009.

Investment income is an important part of our insurance operations. We hold invested assets associated with the statutory surplus we maintain for the benefit of our policyholders. Additionally, because a period of time elapses between the receipt of premiums and the ultimate settlement of claims, we hold invested assets associated with our reserves for losses and loss adjustment expenses which we believe will be paid at a future date. Generally, the period of time that elapses from the receipt of premium to the ultimate settlement of claims for workers’ compensation insurance is longer than many other property and casualty insurance products. Accordingly, we are generally able to generate more investment income on our loss and loss adjustment expense reserves than insurance companies operating in most other lines of business. From December 31, 2004 to June 30, 2009, our investment portfolio, including cash and cash equivalents, increased from $20.4 million to $55.1 million.

We utilize quota share and excess of loss reinsurance to maintain what we believe are appropriate leverage ratios and reduce our exposure to losses and loss adjustment expenses. Quota share reinsurance is a form of proportional reinsurance in which the reinsurer assumes an agreed upon percentage of each risk being insured and shares all premiums and losses with us in that proportion. Excess of loss reinsurance covers all or a specified portion of losses on underlying insurance policies in excess of a specified amount, or retention. The cost and limits of the reinsurance coverage we purchase vary from year to year based upon the availability of reinsurance at acceptable prices and our desired level of retention. Retention refers to the amount of risk we retain for our own account. See “Business — Reinsurance.”

Under the segregated portfolio cell captive insurance plans in our alternative market business, we provide workers’ compensation insurance to employers and facilitate the establishment of a segregated portfolio cell within a segregated portfolio captive by coordinating the necessary interactions among the party controlling the cell, the insurance agency, the segregated portfolio captive, its manager and insurance regulators in the jurisdiction where the captive is domiciled. Segregated portfolio cells may be controlled by policyholders, parties related to policyholders, insurance agencies or others. Once the segregated portfolio cell is established, Guarantee Insurance enters into a reinsurance agreement with the segregated portfolio captive acting on behalf of the segregated portfolio cell. Guarantee Insurance generally cedes on a quota share basis to the segregated portfolio captive 50% to 90% of the risk on the workers’ compensation policy up to a level specified in the captive reinsurance agreement, and retains 10% to 50% of such risk. If the aggregate covered losses for the segregated portfolio cell exceed the level specified in the reinsurance agreement, the segregated portfolio captive reinsures the entire amount of the excess losses up to the aggregate liability limit specified in the captive reinsurance agreement. If the aggregate losses for the segregated portfolio cell exceed the aggregate liability limit, Guarantee Insurance retains 100% of those excess losses. Any amount of losses in excess of $1.0 million per occurrence is not covered by the captive reinsurance agreement. To the extent that any loss exceeds $1.0 million per occurrence, the amount of such loss in excess of $1.0 million is reinsured under

43

Guarantee Insurance’s excess of loss reinsurance program. See “Business — Reinsurance — Alternative Market Business.”

Under our traditional business, Guarantee Insurance has three quota share reinsurance treaties inforce on January 1, 2009 with Swiss Reinsurance America Corporation, one of the largest reinsurers in the United States and rated “A+” by A.M. Best Company, and two other authorized reinsurers. Any loss in excess of $1.0 million is also reinsured under Guarantee Insurance’s excess of loss reinsurance program for traditional business. See “Business — Reinsurance — Traditional Business”.

The workers’ compensation insurance industry is cyclical in nature and influenced by many factors, including price competition, medical cost increases, natural and man-made disasters, changes in interest rates, changes in state laws and regulations and general economic conditions. A hard market cycle in the workers’ compensation insurance industry is characterized by decreased competition that results in higher premium rates, more restrictive policy coverage terms and lower commissions paid to agencies. In contrast, a soft market cycle is characterized by increased competition that results in lower premium rates, expanded policy coverage terms and higher commissions paid to agencies. We believe that the current workers’ compensation insurance market has been experiencing a soft market cycle in which underwriting capacity and price competition have increased. In our traditional workers’ compensation business, we have experienced increased price competition since 2007 in certain markets. In addition, for the six months ended June 30, 2009 compared to the same period in 2008, we have experienced a decrease in traditional business gross premiums written generally attributable to lower payrolls associated with increases in overall unemployment.

For the six months ended June 30, 2009, we wrote approximately 60% of our direct premiums written in administered pricing states — Florida, Indiana and New Jersey. In administered pricing states, insurance rates are set by the state insurance regulators and are adjusted periodically. Rate competition generally is not permitted in these states. Therefore, rather than setting rates for the policies, our underwriting efforts in these states for our traditional business relate primarily to the selection of the policies we choose to write at the premium rates that have been set.

The Florida OIR has approved average statewide rate decreases in each of the past three years, and has also approved a rate decrease for 2010. If a state insurance regulator lowers premium rates, our insurance operations will be less profitable, and we may choose not to write policies in that state. We have responded to these rate decreases by expanding our alternative market business in Florida and strengthening our collateral on that business where appropriate. In addition, we have the ability to offer different kinds of policies in administered pricing states, including retrospectively rated policies and dividend policies, for which an insured can receive a return of a portion of the premium paid if the insured’s claims experience is favorable. We expect an increase in Florida experience modifications, which permit us to increase the premiums we charge based on a policyholder’s loss history. We anticipate that our ability to adjust to these market changes will create opportunities as our competitors with higher expense ratios find the Florida market less desirable.

The cyclical nature of the industry, the actions of our competitors, state insurance regulation and general economic factors could cause our revenues and net income from insurance operations to fluctuate. We manage our insurance operations across market cycles by striving to maintain premium rates in non-administrative pricing states, deploy capital judiciously, manage our expenses and focus on underserved sectors within our target markets that we believe will provide opportunities for favorable underwriting margins.

In September 2003, our wholly-owned subsidiary, Guarantee Insurance Group, Inc., acquired Guarantee Insurance, a shell property and casualty insurance company that was not then writing new business, for a purchase price of approximately $9.5 million, in the form of $750,000 in cash and a note in the amount of approximately $8.8 million. At that time, Guarantee Insurance had a number of commercial general liability claims, including asbestos and environmental claims, that had been in run-off since 1983. The former owner of Guarantee Insurance agreed to indemnify us for certain losses in excess of reserves arising from these claims up to the amount of the original purchase price. On March 30, 2006, we entered into a settlement and termination agreement with the seller where the note issued as part of the purchase price was released in exchange for a cash payment of $2.2 million and the release of the seller’s agreement to indemnify us for losses in excess of reserves. In 2006, we recognized a pre-tax $6.6 million gain on early extinguishment of

44

debt in connection with this settlement and termination agreement. As of June 30, 2009, we held net reserves in the amount of approximately $4.3 million for losses attributable to the legacy claims.

Principal Revenue and Expense Items

Our revenues consist primarily of the following:

Premiums Earned

Premiums earned represent the earned portion of our net premiums written. Net premiums written are equal to gross premiums written less premiums ceded to reinsurers. Gross premiums written include the estimated annual direct premiums written from each insurance policy we write or renew during the reporting period based on the policy effective date or the date the policy is bound, whichever is later, as well as premiums assumed.

Premiums are earned on a daily pro rata basis over the term of the policy. At the end of each reporting period, premiums written that are not yet earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy. Our insurance policies typically have a term of one year. Thus, for a one-year policy written on July 1, 2008 for an employer with constant payroll during the term of the policy, we would earn half of the premiums in 2008 and the other half in 2009.

Many of our policies renew on January 1 of each year. As a result, we have experienced some seasonality in our gross and net premiums written in that generally we write more new and renewal policies during the first quarter of the calendar year. The actual premium we earn on a policy is based on the actual payroll during the term of the policy. We conduct premium audits on our traditional and alternative market policyholders annually upon the expiration of each policy, including when the policy is renewed. The purpose of these audits is to verify that policyholders have accurately reported their payroll expenses and employee job classifications and therefore have paid us the premium required under the terms of their policies. In addition to annual audits, we selectively perform interim audits on certain classes of business if significant or unusual claims are filed or if the monthly reports submitted by a policyholder reflect a payroll pattern or any aberrations that cause underwriting, safety or fraud concerns.

Insurance Services Income

Insurance services income is a key component of our hybrid business model. In 2009, we began producing business and performing insurance services for our BPO customer. We earn commissions for producing business and insurance services income for providing underwriting, policy and claims administration, nurse case management and cost containment services and, in certain cases, services to segregated portfolio cell captives on the business we produce for our BPO customer. Additionally, in certain cases, Guarantee Insurance assumes a portion of the premium and associated losses and loss adjustment expenses on the business we produce for our BPO customer. Commission income and income attributable to underwriting, policy and claims administration services and services to segregated portfolio cell captives associated with this business are recognized on a pro rata basis over the terms of the policies, which are typically annual, and are included in insurance services income in our consolidated statements of income. Income attributable to nurse case management and cost containment services is recognized in the period during which such services are provided, and are also included in insurance services income in our consolidated statements of income. Expenses incurred in connection with the generation of commission income and insurance services income attributable to this business are principally comprised of (i) commissions to retail agencies and certain marketing and underwriting costs, which are recognized on a pro rata basis over the terms of the policies, which are typically annual, and (ii) claims costs, which are expensed as incurred. All such expenses are included in other operating expenses in our consolidated statements of income. We have a fronting arrangement with our BPO customer under which, in certain cases, Guarantee Insurance assumes a portion of the premium and associated losses and loss adjustment expenses on the business we produce. The portion of risk Guarantee Insurance assumes, which is mutually determined by the parties for each policy, ranged from 0% to 90% on business produced during the second quarter of 2009. We incur fronting fees in connection with

45

business assumed under this arrangement, which are recognized on a pro rata basis over the terms of the policies, which are typically annual, and are included in net policy acquisition and underwriting expenses in our consolidated statements of income. In connection with business assumed by us under this arrangement, we will provide collateral in the form of cash, letters of credit or other forms of acceptable collateral, as required by the agreement. No collateral was required as of June 30, 2009.

Our unconsolidated insurance services segment fee income includes all nurse case management, cost containment and other insurance services fee income earned by PRS and PUI. However, the fees earned by PRS and PUI that are attributable to the portion of the insurance risk that Guarantee Insurance retains and assumes from other insurance companies are eliminated upon consolidation. Therefore, our consolidated insurance services income consists of fees earned by PRS and PUI that are attributable to the portion of the insurance risk assumed by segregated portfolio cell captives and our quota share reinsurers and retained by our BPO customer. With respect to business written by Guarantee Insurance, the fees earned by PRS represent the fees paid by segregated portfolio captives and our quota share reinsurers for services performed on their behalf and for which Guarantee Insurance is reimbursed through a ceding commission. For financial reporting purposes, we treat these ceding commissions as a reduction in net policy acquisition and underwriting expenses. With respect to business produced for our BPO customer, the fees earned by PRS and PUI represent fees paid by the BPO customer attributable to the portion of insurance risk it retains.

Because our consolidated insurance services income is currently generated principally from the services we provide to Guarantee Insurance for the benefit of segregated portfolio captives and our quota share reinsurers, our consolidated insurance services income is currently substantially dependent on Guarantee Insurance’s premium and risk retention levels. However, we expect that our nurse case management, cost containment and other insurance services operations will become less dependent over time on Guarantee Insurance’s premium and risk retention levels as we expand our business process outsourcing relationships and develop additional general agency appointments and enter into agreements with other BPO customers for nurse case management, cost containment and other insurance services.

General agency services on Guarantee Insurance’s alternative market segregated portfolio captive business were provided by PRS prior to 2008, pursuant to which Guarantee Insurance paid PRS a general agency commission, a portion of which was retained by PRS and a portion of which was paid by PRS as commission compensation to the producing agents. Effective January 1, 2008, Guarantee Insurance began working directly with agents to market segregated portfolio captive business and paying commissions directly to the producing agents. As a result, PRS ceased earning general agency commissions and ceased paying commissions to producing agents attributable to Guarantee Insurance business.

Net Investment Income and Net Realized Gains and Losses on Investments

Our net investment income includes interest and dividends earned on our invested assets, net of investment expenses. In 2007, we purchased tax exempt municipal debt securities, which are classified as available-for-sale, to help increase the after-tax contribution of net investment income. Tax exempt securities typically have an adverse effect on net investment income and pre-tax investment portfolio yields, which effect is generally offset by a reduction in aggregate effective federal income tax rates.

We assess the performance of our investment portfolio using a standard tax equivalent yield metric. Investment income that is tax exempt is grossed up by our marginal federal tax rate of 34% to express yield on tax-exempt securities on the same basis as taxable securities. Net realized gains and losses on investments are reported separately from our net investment income. Net realized gains occur when investment securities are sold for more than their costs or amortized costs, as applicable. Net realized losses occur when investment securities are sold for less than their costs or amortized costs, as applicable, or are written down as a result of an other-than-temporary impairment.

Our expenses consist primarily of the following:

Losses and Loss Adjustment Expenses Incurred

Losses and loss adjustment expenses incurred represent our largest expense item. Losses and loss adjustment expenses are comprised of paid losses and loss adjustment expenses, estimates of future claim

46

payments on claims reported in the period, changes in those estimates from prior reporting periods and costs associated with investigating, defending and servicing reported claims. These expenses fluctuate based on the amount and types of risks we insure. We record losses and loss adjustment expenses related to estimates of future claim payments based on case-by-case valuations and statistical analyses. We seek to establish reserves at the most likely ultimate exposure based on our historical claims experience. More serious claims typically take several years to close, and we revise our estimates as we receive additional information about the condition of injured employees and as industry conditions change. Our ability to estimate losses and loss adjustment expenses accurately at the time we price our insurance policies is a critical factor in our profitability.

Net Policy Acquisition and Underwriting Expenses

Net policy acquisition and underwriting expenses represent the costs we incur in connection with our insurance operations, principally costs to acquire, underwrite and administer traditional and alternative market workers’ compensation insurance policies. These expenses include commissions, salaries and benefits related to insurance operations, state and local premium taxes and fees and other operating costs, partially offset by ceding commissions we earn from reinsurers under our reinsurance program.

Other Operating Expenses

Other operating expenses represent the costs we incur other than those associated with our insurance operations, principally costs incurred in connection with our insurance services operations and holding company expenses. The costs associated with our insurance services operations include the cost of providing nurse case management services, preferred provider network costs for access to discounted health care services and commissions to producing agents.

Interest Expense

Interest expense represents amounts we incur on our outstanding indebtedness based on the applicable interest rates during the relevant periods.

Income Tax Expense

Income tax expense represents both current and deferred federal income taxes incurred.

Measurement of Results

We use various measures to analyze the growth and profitability of our operations.

For our insurance services operations, we measure growth in terms of fee income produced from insurance services, which is dependent on the number and size of claims being managed as well as the amount of premium we produce for other insurance companies. For our insurance operations, we measure growth in terms of gross and net premiums written and we measure underwriting profitability by examining our net loss, net expense and combined ratios. A combined ratio is the sum of the net loss ratio and the net underwriting expense ratio, each calculated as described below. We also measure our gross and net premiums written to surplus ratios to assess the adequacy of capital in relation to premiums written. We measure profitability in terms of pre-tax net income, net income and return on average equity.

Premiums Written

Gross premiums written represent the estimated gross premiums for the duration of the policy, recognized at the inception of the policy. We use gross premiums written to measure our sales for our insurance operations. Gross premiums written also correlates to our ability to generate net premiums earned and, with respect to the premiums we cede to segregated portfolio cell captives and our quota share reinsurers, ceding commissions and insurance services income.

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Loss Ratio

We use calendar year and accident year loss ratios to measure our underwriting profitability. A calendar year loss ratio measures losses and loss adjustment expense for insured events occurring during a particular year, together with changes in loss reserves from prior accident years, as a percentage of premiums earned during that year. An accident year loss ratio measures losses and loss adjustment expenses for insured events occurring in a particular year, regardless of when they are reported, as a percentage of premium earned during that year. The net loss ratio is calculated by dividing net losses and loss adjustment expenses by net earned premiums. The net loss ratio measures claims experience, net of the effects of reinsurance, and therefore is a measure of the effectiveness of our underwriting efforts. We report our net loss ratio on both a calendar year and accident year basis.

Net Expense Ratio

The net expense ratio is calculated by dividing net policy acquisition and underwriting expenses (which are comprised of gross policy acquisition costs and other gross expenses incurred in our insurance operations, net of ceding commissions earned from our reinsurers) by net earned premiums. The expense ratio measures our operational efficiency in producing, underwriting and administering our insurance operations. The gross expense ratio is calculated before the effect of ceded reinsurance. We calculate our expense ratio on a net basis (after the effect of ceded premium and related ceding commissions) to measure the results of our consolidated insurance operations. Ceding commissions reduce our gross underwriting expenses in our insurance operations.

Combined Ratio

We use the combined ratio to measure the underwriting profitability of our insurance operations. The combined ratio is the sum of the net loss ratio and the net expense ratio.

Net Income and Return on Average Equity

We use net income to measure our profits and return on average equity to measure the effectiveness in utilizing our stockholders’ equity to generate net income on a consolidated basis. In determining return on average equity for a given period, net income is divided by the average of stockholders’ equity at the beginning and end of that period and annualized in the case of periods less than one year.

Outlook

Set forth below are certain of our objectives with respect to our business subsequent to this initial public offering. We caution you that these objectives may not materialize and are not indicative of the actual results that we will achieve. Many factors and future developments may cause our actual results to differ materially and significantly from the information set forth below. See “Risk Factors” and “Forward-Looking Statements.”

Upon completion of this initial public offering, the majority of the net proceeds of the offering will be contributed to Guarantee Insurance and, if we acquire it, PF&C, and deployed in accordance with our primary investment objectives of preserving capital and achieving an appropriate risk adjusted return, with an emphasis on liquidity to meet claims obligations.

Return on Average Equity

One of the key financial measures that we will use to evaluate our operating performance will be return on average equity. We will calculate return on average equity for a given year by dividing net income by the average of stockholders’ equity for that year. Our return on average equity was 44.9% and 58.5% for the years ended December 31, 2008 and 2007, respectively. With the increased capitalization as a result of this initial public offering, we expect our return on average equity to decline from our historical levels. Our objective over the long term is to produce a return on average equity of at least 15%. To help achieve our return on

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average equity objective, we may consider funding our operations, in part, with borrowings or other non-equity sources of capital in the future.

Indebtedness

We may utilize additional debt, as appropriate, to maintain a net leverage ratio on our insurance operations that satisfies the regulatory authorities that oversee Guarantee Insurance’s operations. Furthermore, we may utilize additional debt, as appropriate, in connection with the acquisition of an insurance or insurance services organization or book of business. Over the long term, we expect to target a debt to equity ratio of 10% to 25%.

Insurance Services Operations

Insurance Services Income

Our unconsolidated insurance services income comprised approximately 20% of total unconsolidated revenues for 2008. Primarily in connection with our BPO insurance services business, which commenced in the second quarter of 2009, we target our unconsolidated insurance services income to increase to 25% to 35% of total unconsolidated revenues in the near term.

Pre-Tax Margin on Insurance Services Income

Our pre-tax margin on unconsolidated insurance services income was 36% for 2008. Primarily due to economies of scale related to generally fixed holding company expenses allocated to the insurance services segment, we target our pre-tax margin on unconsolidated insurance services income to increase to 40% to 45% in the near term.

Insurance Operations

Mix of Business

Alternative market and traditional direct premiums written comprised approximately 41% and 59% of our total direct premiums written, respectively, for 2008. Upon completion of this offering, we plan to increase our alternative market business more significantly than our traditional business. In the near term, we target our alternative our alternative market direct premiums written to comprise 50% to 70% of our total direct premiums written.

Underwriting Ratios

The net loss ratio is calculated by dividing consolidated net losses and loss adjustment expenses by net earned premiums. The net expense ratio is calculated by dividing consolidated net policy acquisition and underwriting expenses (which are comprised of gross policy acquisition costs and other gross expenses incurred in our insurance operations, net of ceding commissions earned from our reinsurers) by net earned premiums. The net combined ratio is the sum of the net loss ratio and the net expense ratio. Our net loss ratio, net expense ratio and net combined ratio were 58.3%, 27.5% and 85.8% for 2008. In the near term, we target a net combined ratio of less than 85% and a net loss ratio at between 55% and 65%. We expect our net expense ratio to decline over time as our alternative market direct premiums written increase in proportion to our total direct premiums written due to the fact that ceding commissions on our segregated portfolio cell captive business, which are recognized as a contra-expense, generally exceed our gross expense ratio. Additionally, we expect our net expense ratio to decline over time as our total direct premiums written increase and we realize certain economies of scale.

Aggregate Risk Retention Levels and Operating Leverage

Our aggregate risk retention level, as measured by dividing alternative market and traditional net premiums written by alternative market and traditional direct and assumed premiums written, was 39% for 2008. We increased in our risk retention level on traditional business effective January 1, 2009 in connection

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with changes in certain quota share reinsurance agreements. See “Business — Reinsurance — Traditional Business”. As a result, we expect our aggregate risk retention level to increase slightly in 2009. Thereafter, for the near term, we target our aggregate risk retention level to decrease to 25% to 35% due to our expected increase in the proportion of alternative market direct premiums written, a substantial portion of which is comprised of segregated portfolio cell captive arrangements on which we generally retain between 10% and 50% of the underwriting risk.

Our net operating leverage ratio, as measured by dividing net premiums earned by average stockholders’ equity, was approximately 7.8 to 1 for 2008. With the increased capital from this offering, we expect our net operating leverage ratio to decrease significantly. In the near term, we target a net leverage ratio of between 0.5 to 1 and 0.8 to 1. Actual operating leverage ratios may vary from targets due to factors that affect our ratings with various organizations and capital adequacy requirements imposed by insurance regulatory authorities. These factors include the amount of our statutory surplus and stockholders’ equity, premium growth, debt facilities, quality and terms of reinsurance and business mix.

Investment Leverage Ratio

We expect most of our investment portfolio to continue to principally consist of high quality fixed income securities. We plan to continue to pursue competitive investment returns while maintaining a diversified portfolio of securities with a primary emphasis on the preservation of principal through high credit quality issuers with limited exposure to any one issuer. We expect our investment income to increase as our invested assets grow. As we fully deploy the capital from this offering, we expect to target an investment leverage ratio, which is the ratio of average invested assets to average equity, of between 1.25 to 1 and 1.75 to 1.

Reserving Methodology for Legacy Asbestos and Environmental Exposures

When we acquired Guarantee Insurance in 2003, it had certain asbestos and environmental liability exposures arising out of the sale of general liability insurance and participations in reinsurance assumed through underwriting management organizations, commonly referred to as pools. Generally, reserves for asbestos and environmental claims cannot be estimated with traditional loss reserving techniques that rely on historical accident year development factors due to the uncertainties surrounding asbestos and environmental liability claims. As of December 31, 2008, we had established reserves, net of reinsurance recoverables on unpaid losses, of approximately $3.0 million attributable to asbestos and environmental exposures. These reserves are attributable to 22 direct claims, Guarantee Insurance’s share of two reinsurance pool claims and our estimate of the impact of unreported claims. In one of these pools, Guarantee Insurance reinsured the risks of other insurers and then ceded a portion (generally 80%) of these reinsurance risks to other reinsurers, which we call participating pool reinsurers. Under this structure, Guarantee Insurance remains obligated for the total liability under each reinsurance contract it issued, to the extent any of the participating pool reinsurers fails to pay its share. Over time, Guarantee Insurance’s net liabilities under these reinsurance contracts have increased from approximately 20% to approximately 50% of the pooled risks, due to the insolvency of some participating pool reinsurers. In the other pool, Guarantee Insurance is one of a number of participating pool reinsurers, and its liability is based on the percentage share of the pool obligations it reinsures. Our reserves for direct asbestos and environmental liability claims are based on a detailed review of each case. Our reserves for pooled asbestos and environmental liability exposures are based on our share of aggregate reserves established by pool administrators through their consultation with independent actuarial consultants.

We believe that our reserve methodology results in net reserves for asbestos and environmental claims that are adequate to cover the ultimate cost of losses and loss adjustment expenses thereon. However, we believe that adopting the survival ratio reserve methodology for asbestos and environmental exposures would make our reserve methodology for these exposures generally consistent with our publicly held insurance company peers. Accordingly, we are evaluating the possibility of adopting this methodology. Under the survival ratio reserve methodology, our net reserve for asbestos and environmental liability exposures would be estimated based on a multiple of approximately 15 times our average net paid asbestos and environmental claims the three most recent years. If we had adopted the survival ratio reserve methodology as of December 31, 2008, our net reserve for asbestos and environmental exposures would have been approximately

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$5.1 million, representing an increase in net losses and loss adjustment expenses of approximately $2.1 million.

We expect to make a decision with respect to the adoption of the survival ratio reserve methodology in connection with the preparation of our financial statements for the fourth quarter of 2009. If we adopt this methodology, our pre-tax income for the period in which we increase our reserves will decrease by a corresponding amount.

Critical Accounting Policies

The following is a description of the accounting policies management considers important to the understanding of our financial condition and results of operations.

Reserves for Losses and Loss Adjustment Expenses

We record reserves for estimated losses under insurance policies that we write and for loss adjustment expenses related to the investigation and settlement of policy claims. Our reserves for losses and loss adjustment expenses represent the estimated cost of all reported and unreported losses and loss adjustment expenses incurred and unpaid at any given point in time based on facts and circumstances known to us at the time. Our reserves for losses and loss adjustment expenses are estimated using case-by-case valuations and statistical analyses. These estimates are inherently uncertain. In establishing these estimates, we make various assumptions regarding a number of factors, including frequency and severity of claims, length of time to achieve the ultimate settlement of claims, projected inflation of medical costs and wages, insurance policy coverage interpretations, judicial determinations and regulatory changes. Due to the inherent uncertainty associated with these estimates, our actual liabilities may be different from our original estimates. On a quarterly basis, we review our reserves for losses and loss adjustment expenses to determine whether any further adjustments are appropriate. Any resulting adjustments are included in the current period’s results. We do not discount loss and loss adjustment expense reserves for the time value of money from the date claims are incurred to the date they are paid. Additional information regarding our reserves for losses and loss adjustment expenses can be found in “Business — Loss and Loss Adjustment Expense Reserves.”

As a result of unfavorable development on prior accident year reserves, our estimate for incurred losses and loss adjustment expenses increased by approximately $1.6 million and $1.3 million for the six months ended June 30, 2009 and for the year ended December 31, 2008, respectively. As a result of favorable development on prior accident year reserves, our estimate for incurred losses and loss adjustment expenses decreased by approximately $3.5 million for the year ended December 31, 2007. As a result of unfavorable development on prior accident year reserves, our estimate for incurred losses and loss adjustment expenses increased by approximately $2.5 million for the year ended December 31, 2006. See “Business — Reconciliation of Reserves for Losses and Loss Adjustment Expenses.’’

Amounts Recoverable from Reinsurers

Amounts recoverable from reinsurers represent the portion of our paid and unpaid losses and loss adjustment expenses that is assumed by reinsurers. These amounts are reported on our balance sheet as assets and do not reduce our reserves for losses and loss adjustment expenses because reinsurance does not relieve us of our primary obligation to our policyholders. We are required to pay claims even if a reinsurer fails to pay us under the terms of a reinsurance contract. We calculate amounts recoverable from reinsurers based on our estimates of the underlying losses and loss adjustment expenses and the terms and conditions of our reinsurance contracts, which could be subject to interpretation. In addition, we bear credit risk with respect to our reinsurers, which can be significant because some of the unpaid losses and loss adjustment expenses for which we have reinsurance coverage remain outstanding for extended periods of time.

We have reinsurance agreements with both authorized and unauthorized reinsurers. Authorized reinsurers are licensed or otherwise authorized to conduct business in the state of Florida, Guarantee Insurance’s state of domicile. Under statutory accounting principles, Guarantee Insurance receives credit on its statutory financial statements for all paid and unpaid losses ceded to authorized reinsurers. Unauthorized reinsurers are not

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licensed or otherwise authorized to conduct business in the state of Florida. Under statutory accounting principles, Guarantee Insurance receives credit for paid and unpaid losses ceded to unauthorized reinsurers to the extent these liabilities are secured by funds held, letters of credit or other forms of acceptable collateral. With respect to authorized reinsurers, we manage our credit risk by generally selecting reinsurers with a financial strength rating of “A−” (Excellent) or better by A.M. Best and by performing quarterly credit reviews of our reinsurers. With respect to unauthorized reinsurers, including segregated portfolio captives, we manage our credit risk by generally maintaining collateral, typically in the form of funds withheld and letters of credit, to cover reinsurance recoverable balances. If one of our reinsurers suffers a credit downgrade, we may consider various options to lessen the risk of asset impairment, including commutation, novation and additional collateral.

In order to qualify for reinsurance accounting and provide accounting benefit to us, reinsurance agreements must transfer insurance risk to the reinsurer. Risk transfer standards under generally accepted accounting principles (GAAP) require that (a) the reinsurer assume significant insurance risk (underwriting risk and timing risk) under the reinsured portions of the underlying insurance agreements, and (b) it be reasonably possible that the reinsurer may realize a significant loss from the transaction. In determining whether the degree of risk transfer is adequate to qualify for reinsurance accounting, each reinsurance contract is evaluated on its own facts and circumstances. To the extent that the accounting risk transfer thresholds are not met, the reinsurance transaction is accounted for as a deposit. The treatment of reinsurance transactions as deposits does not mean that economic risk has not been transferred, but rather that the nature and the amount of the risk transferred do not sufficiently satisfy GAAP risk transfer criteria to be afforded reinsurance accounting treatment. We evaluate our reinsurance contracts at their inception and upon subsequent amendments to determine whether reinsurance accounting or deposit accounting is appropriate.

Our reinsurance recoverable balance was carried net of an allowance for doubtful accounts of $300,000 at June 30, 2009 and December 31, 2008. For the six months ended June 30, 2009 and the years ended December 31, 2008, 2007 and 2006, we did not, in the aggregate, experience material difficulties in collecting balances from our reinsurers. No assurance can be given, however, regarding the future ability of our reinsurers to meet their obligations.

Premiums Receivable

Premiums receivable are uncollateralized policyholder obligations due under normal policy terms requiring payment within a specified period from the invoice date. Premium receivable balances are reviewed for collectability and management provides an allowance for estimated doubtful accounts, which reduces premiums receivable. Our premiums receivable were carried net of an allowance for uncollectible accounts, based upon a specific impairment basis methodology, of $800,000 at June 30, 2009 and December 31, 2008. Due to an increase in the aging of our premiums receivable and exposure to uncollateralized balances, we may establish an additional allowance for accounts that may not be collectible but which we have not specifically identified as impaired. We believe that this methodology is consistent with the methodology utilized by our publicly held insurance company peers. We anticipate that the additional allowance amount that may be required based upon this analysis is between $500,000 and $1.0 million. This additional allowance, if determined by management to be appropriate, would be recorded in the fourth quarter of 2009. No assurance can be given regarding the future ability of our policyholders to meet their obligations.

Revenue Recognition

Through PRS, we earn insurance services income by providing nurse case management and cost containment services to Guarantee Insurance, on its behalf, on behalf of the segregated portfolio captives and on behalf of Guarantee Insurance’s quota share reinsurers. Through PRS and PUI, we also earn insurance services income by providing nurse case management, cost containment, claims administration, sales, underwriting, policy administration and, in certain cases, segregated portfolio captive management services to our BPO customer.

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Insurance service income for nurse case management services is based on a monthly charge per claimant. Insurance service income for cost containment services is based on a percentage of claim savings. Insurance services income for claims administration is based on a percentage of gross earned premiums produced for our BPO customer before deducting premium rate credits attributable to large deductible policies. Insurance services income for sales, underwriting and segregated portfolio cell captive setup, policy administration and captive management services is based on a percentage of gross written premiums produced for our BPO customer, reduced by an allowance for estimated insurance services income that will not be received due to the cancellation of policies prior to expiration and reductions in payrolls. Insurance services income for policy administration and captive management is based on a percentage of gross earned premium produced for our BPO customer.

Insurance services segment income includes all insurance services income earned by PRS and PUI. However, the insurance services income earned by PRS from Guarantee Insurance that is attributable to the portion of the insurance risk that Guarantee Insurance retains or assumes from our BPO customer is eliminated upon consolidation. Therefore, our consolidated insurance services income consists of the fees earned by PUI and the portion of fees earned by PRS that are attributable to the portion of the insurance risk assumed by the segregated portfolio captives, assumed by Guarantee Insurance’s quota share reinsurers or retained by our BPO customer.

Premiums are earned pro rata over the terms of the policies which are typically annual. The portion of premiums that will be earned in the future is deferred and reported as unearned premiums. We estimate earned but unbilled premiums at the end of the period by analyzing historical earned premium adjustments made and applying an adjustment percentage to premiums earned for the period. For the year ended December 31, 2008, we reduced our earned but unbilled premium percentage to reflect lower payrolls which we believe were largely reflective of employment trends in the economy. For the six months ended June 30, 2009 and the year ended December 31, 2007, we did not experience any material changes in estimates related to premiums earned, including earned but unbilled premiums. No assurance can be given that there will be no material changes in estimates related to premiums earned, including earned but unbilled premiums, in the future.

Deferred Policy Acquisition Costs and Deferred Ceding Commissions

We defer commission expenses, premium taxes and certain marketing, sales and underwriting costs that vary with and are primarily related to the acquisition of insurance policies. We also defer associated ceding commissions. These acquisition costs are capitalized and charged to expense ratably as premiums are earned. In calculating deferred policy acquisition costs and deferred ceding commissions, we only include costs to the extent of their estimated realizable value, which gives effect to the premiums expected to be earned, anticipated losses and settlement expenses and certain other costs we expect to incur as the premiums are earned, less related net investment income. Judgments as to the ultimate recoverability of deferred policy acquisition costs and deferred ceding commissions are highly dependent upon estimated future profitability of unearned premiums. If unearned premiums are less than our expected claims and expenses after considering investment income, we reduce the related deferred policy acquisition costs. For the six months ended June 30, 2009 and the years ended December 31, 2008 and 2007, we did not, in the aggregate, experience material changes in our deferred policy acquisition costs or deferred ceding commissions in connection with changes in estimated recoverability. No assurance can be given, however, regarding the future recoverability of deferred policy acquisition costs or deferred ceding commissions.

Deferred Income Taxes

We use the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities resulting from a tax rate change will impact our net income or loss in the reporting period that includes the enactment date of the tax rate change. In assessing whether our deferred tax assets will be

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realized, we consider whether it is more likely than not that we will generate future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, tax planning strategies and projected future taxable income in making this assessment. If necessary, we will establish a valuation allowance to reduce the deferred tax assets to the amounts that are more likely than not to be realized.

At December 31, 2006, we provided a full valuation allowance on the deferred tax asset attributable to net operating loss carry forwards generated by The Tarheel Group, Inc., or Tarheel. On April 1, 2007, when our majority stockholder contributed all the outstanding capital stock of Tarheel to Patriot Risk Management, we determined that our operating performance, coupled with our expectations to generate future taxable income, indicated that it was more likely than not that we would be able to utilize this asset to offset future taxes and, accordingly, we reversed this valuation allowance. The deferred tax asset associated with net operating loss carry forwards from Tarheel and its subsidiary, Tarheel Insurance Management Company, or TIMCO, was fully utilized as of June 30, 2009. As of June 30, 2009 and December 31, 2008, no other deferred tax assets have been deemed more likely than not to be unrealizable and, accordingly, no valuation allowance was deemed necessary for unrealizable deferred tax assets. No assurance can be given, however, regarding the future realization of deferred tax assets.

Assessments

We are subject to various assessments related to our insurance operations, including assessments for state guaranty funds and second injury funds. State guaranty fund assessments are used by state insurance oversight agencies to pay claims of policyholders of impaired, insolvent or failed insurance companies and the operating expenses of those agencies. Second injury funds are used by states to reimburse insurers and employers for claims paid to injured employees for aggravation of prior conditions or injuries. In some states, these assessments may be partially recovered through a reduction in future premium taxes. In accordance with SFAS No. 5, “Accounting for Contingencies”, we establish a provision for these assessments at the time the amounts are probable and estimable. Assessments based on premiums are generally paid one year after the calendar year in which the policies are written. Assessments based on losses are generally paid within one year of when claims are paid by us. For the six months ended June 30, 2009 and the years ended December 31, 2008 and 2007, we did not experience any material changes in our estimates of assessments for state guaranty funds and second injury funds. No assurance can be given, however, regarding the future changes in estimates of such assessments.

Share-Based Compensation Costs

In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R requires the compensation costs relating to stock options granted or modified after December 31, 2005 to be recognized in financial statements using the fair value of the equity instruments issued on the grant date of such instruments and to be recognized as compensation expense over the period during which an individual is required to provide service in exchange for the award (typically the vesting period). We adopted SFAS 123R effective January 1, 2006, and the impact of the adoption was not significant to our financial statements for the years ended December 31, 2008, 2007 or 2006. We estimate share-based compensation costs of approximately $[     ], $[     ], $[     ] and $[     ] for the three months ending December 31, 2009 and the years ending December 31, 2010, 2011 and 2012, respectively, relating to stock options that we have granted and expect to grant to our management and members of our board of directors, recognized on a pro rata basis over the vesting period. As of June 30, 2009, we had 163,500 outstanding options. For the six months ended June 30, 2009 and the years ended December 31, 2008 and 2007, we did not experience any material changes in our estimates of share-based compensation costs. No assurance can be given, however, regarding the future changes in estimates of share-based compensation costs.

The fair value of the underlying common stock for all option grants made between December 2005 and July 2007 was determined by the board of directors to be $8.02, which was based on the board’s evaluation of our financial condition and results of operations. Our financial condition, as measured by our internal financial

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statements and by Guarantee Insurance’s statutory surplus levels and uncertainties related to our abilities to increase premium writings due to surplus constraints, did not change materially between December 2005 and July 2007. We did not secure an independent appraisal to verify that valuation because we concluded that an independent appraisal would not result in a more meaningful or accurate determination of fair value under the circumstances.

The intrinsic value of outstanding vested and unvested options based on the midpoint of the price range set forth on the cover page of this prospectus is $[     ] and $[     ], respectively. As of June 30, 2009, there were 163,500 outstanding options.

The increase from the $8.02 per share fair value as of each stock option grant date from December 30, 2005 to July 10, 2007 to the estimated initial public offering price is largely attributable to two principal factors:

•  The first factor is the liquidity driven valuation premium inherently available to a company as it transitions from privately held to publicly traded status.

•  The second factor relates to our growth prospects, which have improved because the additional capital from this offering will allow us to increase our gross premiums written and retain more of our business, together with improved prospects for claim and cost containment and insurance services income.

No options or stock awards were granted during the six months ended June 30, 2009 or the year ended December 31, 2008.

See Note 8 to our consolidated interim financial statements as of June 30, 2009 and for the six months then ended and Note 12 to our consolidated financial statements as of December 31, 2008 and for the year then ended for more information regarding our stock option plans, stock options and stock awards granted during 2007 and 2006. No stock options or stock awards were granted during 2008 or for the six months ended June 30, 2009.

Impairment of Invested Assets

Impairment of an invested asset results in a reduction of the carrying value of the asset and the realization of a loss when the fair value of the asset declines below our carrying value and the impairment is deemed to be other-than-temporary. We regularly review our investment portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of our invested assets. We consider various factors in determining if a decline in the fair value of a security is other-than-temporary, including the scope of the decline in value, the amount of time that the fair value of the asset has been below carrying value, the financial condition of the issuer and our intent and ability to hold the asset for a period sufficient for us to recover its value.

For the six months ended June 30, 2009, we did not recognize any other-than-temporary impairments. For the year ended December 31, 2008, we recognized an other-than-temporary impairment charge of approximately $875,000 related to investments in certain equity securities. Additionally, during 2008, we recognized an other-than-temporary-impairment charge of approximately $350,000 on our investment of approximately $400,000 in certain Lehman Brothers Holdings, Inc. bonds as a result of Lehman Brothers’ bankruptcy. For the year ended December 31, 2007, we did not recognize any other than temporary impairments. For the year ended December 31, 2006, Tarheel invested approximately $950,000 in Foundation Insurance Company, a limited purpose captive insurance subsidiary of Tarheel that reinsured workers’ compensation program business, in order to permit Foundation to settle certain obligations relating to its business. We wrote down this investment in 2006. No assurance can be given regarding future changes in estimates related to other-than-temporary impairment of our investment securities.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 141R, “Business Combinations.” SFAS No. 141R is effective for acquisitions

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during the fiscal years beginning after December 15, 2008 and early adoption is prohibited. This statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Management is reviewing this guidance; however, the effect of the statement’s implementation will depend upon the extent and magnitude of future acquisitions, if any.

In February 2008, the FASB approved the issuance of FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-2 defers the effective date of SFAS No. 157 until January 1, 2009 for non-financial assets and non-financial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. The implementation of this FSP did not have a material impact on our results of operation or financial position.

In March 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60.” SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. Earlier application is not permitted except for disclosures about the risk-management activities of the insurance enterprise, which is effective for the first interim period beginning after the issuance of SFAS No. 163. This statement requires an insurance enterprise to recognize a claim liability prior to an insured event when there is evidence that credit deterioration has occurred in an insured financial obligation. This statement also clarifies how FASB Statement No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Finally, this statement requires expanded disclosures about financial guarantee contracts focusing on the insurance enterprise’s risk-management activities in evaluating credit deterioration in its insured financial obligations. The effect of the statement’s implementation was not material to our results of operations or financial position. As of June 30, 2009, we had no financial guarantee contracts that required expanded disclosures under this statement.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP FAS 157-4 provides further clarification of the principles established by SFAS No. 157 for determining the fair values of assets and liabilities in inactive markets and those transacted in distressed situations. FSP 157-4 is effective for periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. Retrospective application is not permitted. The adoption of FSP 157-4 did not have a material impact on our results of operations or financial position.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP, which is limited to debt securities, provides guidance that aims to make other-than-temporary impairments (“OTTI”) of debt securities more operational and improve the presentation of OTTI in the financial statements. FSP FAS 115-2 and FAS 124-2 is effective for periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 during the period ended June 30, 2009, did not have any impact on our results of operations or financial position.

In April 2009, the FASB issued FSP 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP 107-1 and APB 28-1 amend FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments,” to require an entity to provide disclosures about fair value of financial instruments in interim financial information. FSP 107-1 and APB 28-1 are effective for periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The adoption of FSP 107-1 and APB 28-1 during the period ended June 30, 2009 did not have a material impact on our disclosures since our financial instruments are currently carried at fair value.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. It requires the disclosure of the date through which an

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entity has evaluated subsequent events and the basis for that date. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009. The adoption of this standard did not have any impact on our results of operations or financial position.

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

Results of Operations

Our results of operations are discussed below in two parts. The first part discusses our consolidated results of operations. The second part discusses our results of operations by segment.

Consolidated Results of Operations

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Overview of Operating Results.  Net income for the six months ended June 30, 2009 was $1.8 million compared to $1.7 million for the comparable period in 2008. Income before income taxes for the six months ended June 30, 2009 was $2.8 million compared to $2.0 million for the comparable period in 2008. The $831,000 increase in income before income taxes was principally the result of an 8% increase in net premiums earned, a 26% increase in insurance services income, a 0.7 percentage point decrease in net combined ratio and a $687,000 increase in net realized gains on investments, partially offset by a 17% increase in other operating expenses.

Gross Premiums Written.  Gross premiums written were $62.6 million for the six months ended June 30, 2009 compared to $69.7 million for the comparable period in 2008, a decrease of $7.2 million or 10%. The decrease was principally attributable to our January 1, 2009 non-renewal of PES, our then largest alternative market policyholder, which represented approximately $11.8 million of gross premiums written upon renewal for the six months ended June 30, 2008. Additionally, the decrease was generally attributable to lower payrolls associated with increases in overall unemployment. This was partially offset by the commencement of a relationship during the second quarter of 2009 pursuant to which we assumed approximately $3.9 million of

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premiums written by our BPO customer for which we provide general agency and underwriting services and claims services. Gross premiums written by line of business were as follows:

	Six Months Ended
	June 30,
	2009		2008
	In thousands
Direct business:
Alternative market	$	26,710	$	32,841
Traditional business		30,692		36,307
Total direct business		57,402		69,148
Assumed business
Assumed from BPO customer	$	3,864	$	—
Assumed from NCCI National Workers’ Compensation Insurance Pool		1,289		—
Total assumed business		5,153		584
Total	$	62,555	$	69,732

Gross premiums written on alternative market business were $26.7 million for the six months ended June 30, 2009, compared to $32.8 million for the comparable period in 2008, a decrease of $6.1 million or 19%. The decrease in alternative market gross premiums written was primarily attributable to the January 1, 2009 non-renewal of our then largest alternative market policyholder, which represented approximately $11.8 million of gross premiums written upon renewal for the six months ended June 30, 2008. Additionally, the decrease was generally attributable to lower payrolls associated with increases in overall unemployment. These factors were partially offset by the fact that approximately $1.5 million of traditional business was transferred to or renewed as alternative market agency captive business during the six months ended June 30, 2009.

Gross premiums written on traditional business were $30.7 million for the six months ended June 30, 2009 compared to $36.3 million for the comparable period in 2008, a decrease of $5.6 million or 15%. The decrease in traditional business gross premiums written was generally attributable to lower payrolls associated with increases in overall unemployment, and also to the fact that approximately $1.5 million of traditional business was transferred to or renewed as alternative market agency captive business during the six months ended June 30, 2009.

Net Premiums Written.  Net premiums written were $31.8 million for the six months ended June 30, 2009 compared to $29.3 million for the comparable period of 2008, an increase of $2.5 million or 8%. The increase in net premiums written was attributable to a $9.6 million decrease in ceded premiums written, to $30.8 million for the six months ended June 30, 2009 from $40.4 million for the comparable period in 2008. The decrease in ceded premiums written was partially offset by the $7.2 million decrease in gross premiums written discussed above. Ceded written premiums on alternative market business decreased by $9.5 million to $14.3 million for the six months ended June 30, 2009 compared to $23.8 million for the comparable period of 2008, primarily attributable to the January 1, 2009 non-renewal of our then largest alternative market policyholder, which was subject to a 90% cession to the segregated portfolio cell captive. The decrease in ceded premiums written on alternative market business was also partially attributable to an increase in guaranteed cost policies issued to certain professional employer organizations and professional temporary staffing organizations on which we retained all of the risk, which we include as alternative market business.

Net Premiums Earned.  Net premiums earned were $21.8 million for the six months ended June 30, 2009, compared to $20.1 million for the comparable period in 2008, an increase of $1.7 million or 8%. The increase was commensurate with the increase in net premiums written.

Insurance Services Income.  Consolidated insurance services income was $3.8 million for the six months ended June 30, 2009, compared to $3.0 million for the comparable period in 2008, an increase of $779,000 or 26%. The increase was attributable to an increase in unconsolidated insurance services income to $7.2 million for the six months ended June 30, 2009 from $5.8 million for the comparable period in 2008, an increase of

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$1.4 million or 23%. Unconsolidated insurance services income from core nurse case management and cost containment services increased to $6.9 million for the six months ended June 30, 2009 from $4.8 million for the comparable period in 2008, an increase of $2.0 million or 42%, due to the increase in Guarantee Insurance exposures serviced by PRS. This increase in unconsolidated insurance services income from core nurse case management and cost containment services was partially offset by a $387,000 decrease in unconsolidated fees for general agency services provided to Guarantee Insurance during the six months ended June 30, 2008. These services were terminated in 2008. The increase in unconsolidated insurance services income from core nurse case management and cost containment services was also partially offset by a $380,000 decrease in unconsolidated fees for reinsurance brokerage services. The majority of these services were also terminated in 2008.

Insurance services income earned by PRS from Guarantee Insurance that is attributable to the portion of the insurance risk that Guarantee Insurance retains, and assumes from our BPO customer, is eliminated upon consolidation. Therefore, our consolidated insurance services income consists of the fees earned by PRS that are attributable to the portion of the insurance risk assumed by segregated portfolio captives and our quota share reinsurers.

Net Investment Income.  Net investment income was $920,000 for the six months ended June 30, 2009, compared to $980,000 for the comparable period in 2008, a decrease of $60,000 or 6%. The decrease in net investment income was attributable to a decrease in our average investment portfolio during the period, principally associated with the payment of reinsurance premiums in early 2009 associated with a quota share reinsurance agreement we entered into effective December 31, 2008, pursuant to which we ceded unearned premium reserves, net of ceding commissions, of approximately $8.1 million in order for Guarantee Insurance to satisfy certain regulatory leverage ratio requirements.

Net Realized Gains on Investments.  Net realized gains on investments were $743,000 for the six months ended June 30, 2009, compared to $56,000 for the comparable period of 2008, an increase of $687,000. The increase was attributable to the sale of certain asset-backed and mortgage-backed securities, the proceeds of which were used to pay net reinsurance premiums of approximately $8.1 million as discussed above.

Net Losses and Loss Adjustment Expenses.  Net losses and loss adjustment expenses were $12.1 million for the six months ended June 30, 2009, compared to $12.0 million for the comparable period in 2008, an increase of $149,000 or 1%. Our consolidated calendar period net loss ratio was 55.6% for the six months ended June 30, 2009, compared to 59.5% for comparable period in 2008, a decrease of 3.9 percentage points. The decrease in the loss ratio was principally the result of favorable accident period loss experience for the six months ended June 30, 2009. For the six months ended June 30, 2009, we recorded unfavorable development of approximately $1.6 million on our workers’ compensation business, primarily attributable to the 2007 accident year, and approximately $280,000 on our legacy asbestos and environmental exposures and commercial general liability exposures from prior accident years. For the six months ended June 30, 2008, we recorded unfavorable development of approximately $175,000 on our workers’ compensation business and approximately $700,000 on our legacy asbestos and environmental exposures and commercial general liability exposures from prior accident years.

Net Policy Acquisition and Underwriting Expenses.  Net policy acquisition and underwriting expenses were $6.6 million for the six months ended June 30, 2009, compared to $5.5 million for the comparable period in 2008, an increase of $1.1 million or 21%. The increase was the net result in changes in our gross expense ratio and effective ceding commission ratio as described below.

Net policy acquisition and underwriting expenses are comprised of gross policy acquisition and underwriting expenses, which include agent commissions, premium taxes and assessments and general

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operating expenses associated with insurance operations, net of ceding commissions on ceded quota share reinsurance premiums on traditional and alternative market business, as follows:

	Six Months Ended
	June 30,
	2009			2008
	Dollar amounts in thousands
Direct and assumed business:
Gross policy acquisition and underwriting expenses	$	15,099		$	14,144
Gross premiums earned		49,105			43,039
Gross policy acquisition and underwriting expense ratio		30.7	%		32.9	%
Alternative market and traditional business ceded on a quota share basis:
Ceding commissions		8,467			8,649
Ceded premiums earned		25,298			22,952
Effective ceding commission rate		33.5	%		37.7	%
Excess of loss reinsurance ceded premiums earned		2,037			(17	)
Net business:
Net policy acquisition and underwriting expenses		6,632			5,495
Net premiums earned		21,770			20,104
Net policy acquisition and underwriting expense ratio		30.5	%		27.3	%

Gross policy acquisition and underwriting expenses were $15.1 million for the six months ended June 30, 2009, compared to $14.1 million for the comparable period in 2008, an increase of $1.0 million or 7%. The increase in gross policy acquisition and underwriting expenses was generally consistent with the growth in gross premiums earned. Our gross expense ratio was 30.7% for the six months ended June 30, 2009, compared to 32.9% for the comparable period in 2008. The decrease in our gross expense ratio was principally attributable to emerging economies of scale for the six months ended June 30, 2009 compared to the comparable period in 2008.

Ceding commissions on alternative market and traditional business ceded on a quota share basis were $8.5 million for the six months ended June 30, 2009 compared to $8.6 million for comparable period in 2008, a decrease of $182,000 or 2%. Our blended effective ceding commission rate on alternative market and traditional business quota share reinsurance was 33.5% for the six months ended June 30, 2009, compared to 37.7% for the comparable period in 2008. The decrease in the blended effective ceding commission rate was attributable to a lower ceding commission rate on a traditional business quota share reinsurance treaty we entered into effective January 1, 2009.

Our net policy acquisition and underwriting expense ratio was 30.5% for the six months ended June 30, 2009, compared to 27.3% for the comparable period in 2008. The increase in our net expense ratio was principally attributable to a lower ceding commission rate on a traditional business quota share reinsurance treaty entered into effective January 1, 2009.

Other Operating Expenses.  Other operating expenses, which are primarily comprised of holding company expenses and expenses attributable to our insurance services operations, were $5.0 million for the six months ended June 30, 2009, compared to $4.2 million for the comparable period in 2008, an increase of $727,000 or 17%. Other operating expenses included approximately $4.2 million and $3.7 million associated with insurance services operations for the six months ended June 30, 2009 and 2008, respectively, and $785,000 and $478,000 associated with holding company operations for the six months ended June 30, 2009 and 2008, respectively. The increase in expenses associated with insurance services operations was primarily attributable to marketing, underwriting and policy administration costs incurred by PUI in connection with gross premiums written by our BPO customer.

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The increase in expenses associated with holding company operations was primarily attributable to a reduction in the percentage of holding company expenses allocated to insurance and insurance services segments. Allocable holding company operating expenses, which include all expenses other than holding company stock compensation expense, loan guaranty fees and amortization of capitalized loan costs, are incurred for the benefit of the holding company and our operating segments and allocated to each segment based on the proportion of such costs devoted to each segment. For the six months ended June 30, 2009, approximately 64% of allocable holding company operating expenses were allocated to the insurance and insurance services segments. For the comparable period in 2008, approximately 90% of allocable holding company operating expenses were allocated to the insurance and insurance services segments. The decrease in the portion of allocable holding company expenses allocated to insurance and insurance services segments was attributable to the increase in holding company resources devoted to capital raising efforts and other holding company matters for the six months ended June 30, 2009. This was partially offset by a true-up of state income tax expenses for the six months ended June 30, 2009, resulting in a state income tax benefit of approximately $540,000.

Interest Expense.  Interest expense was $734,000 for the six months ended June 30, 2009 compared to $725,000 for the comparable period in 2008, an increase of $9,000 or 1%. The increase in interest expense was attributable to an additional loan for approximately $5.4 million we obtained effective December 31, 2008. Our debt generally bears interest at a fixed percentage above the Federal Reserve prime rate. The increase in interest expense associated with the additional loan for approximately $5.4 million was largely offset by the fact that the Federal Reserve prime rate was 3.25% for the six months ended June 30, 2009, and ranged from 7.25% to 5.00% for the six months ended June 30, 2008.

Income Tax Expense.  Federal income tax expense was $1.0 million for the six months ended June 30, 2009, compared to $250,000 for the comparable period in 2008. For the six months ended June 30, 2009, our income tax expense at the statutory rate, which was approximately $948,000, was reduced by approximately $110,000 for tax exempt investment income and increased by approximately $185,000 for other items, net. For the six months ended June 30, 2008, our income tax expense at the statutory rate, which was approximately $666,000, was reduced by approximately $169,000 and $290,000 for tax exempt investment income and a decrease in reserves for uncertain tax positions, respectively, and increased by approximately $43,000 for other items, net.

2008 Compared to 2007

Overview of Operating Results.  Our net loss for 2008 was $124,000 compared to net income of approximately $2.4 million for 2007. Our loss before income taxes for 2008 was $767,000 compared to income before income taxes of $1.9 million for 2007. The $2.7 million decrease in income before income taxes was the result of the write-off of approximately $3.5 million of deferred equity offering costs in 2008 incurred in connection with our efforts to consummate an initial public offering and other-than-temporary impairment charges on our investment portfolio of approximately $1.2 million, together with a $1.7 million increase in holding company expenses in 2008, principally attributable to increased staffing and other internal costs in anticipation of an initial public offering and associated expanded business opportunities. These charges were partially offset by a 1.6 percentage point decrease in our combined ratio from insurance operations, together with a 103% increase in net premiums earned, and the recognition of approximately $1.5 million of other income in 2008 associated with gains on the commutation of certain alternative market segregated portfolio cell captive reinsurance treaties.

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Gross Premiums Written.  Gross premiums written were $117.6 million for 2008 compared to $85.8 million for 2007, an increase of $31.8 million or 37%. Gross premiums written by line of business were as follows:

	2008		2007
	In thousands
Direct business:
Alternative market	$	47,374	$	34,316
Traditional business		69,182		50,599
Total direct business		116,556		84,915
Assumed business(1)		1,007		895
Total	$	117,563	$	85,810

(1) Represents premiums assumed as a result of our participation in the NCCI National Workers’ Compensation Insurance Pool.

Gross premiums written on alternative market business for 2008 were $47.4 million for 2008 compared to $34.3 million for 2007, an increase of $13.1 million or 38%. The increase in alternative market gross premiums written was primarily attributable to business with certain professional employer organizations and professional temporary staffing organizations on which we retain the risk. These plans may be converted to risk sharing arrangements in the future. The increase was also attributable to an increase in segregated portfolio cell captive reinsurance business and certain large deductible plans, the latter of which we began writing in 2008.

Gross premiums written on traditional business were $69.2 million for 2008, compared to $50.6 million for 2007, an increase of $18.6 million or 37%. The increase in traditional business gross premiums written was attributable to an increase in policy counts. Traditional business policy counts increased by 75%, to 5,305 at December 31, 2008 from 3,034 at December 31, 2007. The increase in policy counts was principally attributable to our geographic expansion beyond Florida and the Midwest, together with the expansion of our traditional business pay-as-you-go plan. The increase in policy counts was partially offset by an 11% decrease in average annual in-force premium per policy, from approximately $16,400 at December 31, 2007 to approximately $12,000 at December 31, 2008. The decrease in average annual in-force premium per policy was principally attributable to mandatory rate decreases in the state of Florida, an administered pricing state where we wrote approximately 30% of our traditional business direct premiums written in 2008. The majority of the increase in gross premiums written on traditional business in 2008 came from New Jersey, where gross premiums written on traditional business were $9.7 million for 2008 compared to $2.4 million for 2007, an increase of $7.3 million or 307%.

Net Premiums Written.  Net premiums written were $45.8 million for 2008, compared to $31.0 million for 2007, an increase of $14.9 million or 48%. The $31.8 million period-over-period increase in gross premiums written was partially offset by a $16.9 million increase in ceded premiums written. The increase in ceded premiums written was primarily attributable to (i) an increase in gross premiums written on traditional business (which was subject to a 50% quota share reinsurance treaty excluding certain states), (ii) an increase in premiums written on alternative market business ceded to segregated portfolio cell captives (which was generally subject to 50% to 90% quota share reinsurance treaties) and (iii) a quota share reinsurance agreement we entered into effective December 31, 2008 pursuant to which we ceded 37.83% of our gross unearned premium reserves, or approximately $12.9 million. These increases in ceded premiums written were partially offset by the commutation of certain alternative market segregated portfolio cell captive reinsurance agreements in 2008, which resulted in a reduction in ceded premiums written of approximately $8.2 million.

Net Premiums Earned.  Net premiums earned were $49.2 million for 2008, compared to $24.6 million for 2007, an increase of $24.6 million or 100%. The increase was attributable to the increase in net premiums written, exclusive of the effects of the quota share reinsurance agreement we entered into effective

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December 31, 2008, for which no ceded premium was earned in 2008 because premiums are recognized as revenue on a pro rata basis over the terms of the policies written.

Insurance Services Income.  Consolidated insurance services income earned by PRS was $5.7 million for 2008, compared to $7.0 million for 2007, a decrease of $1.4 million or 19%. Consolidated insurance services income in 2008 and 2007 was generated principally from nurse case management, cost containment and captive management services provided for the benefit of segregated portfolio captives and our quota share reinsurers. In addition, consolidated insurance services income in 2007 was generated from general agency services on Guarantee Insurance business, pursuant to which Guarantee Insurance paid PRS general agency commission compensation, a portion of which was retained by PRS and a portion of which was paid by PRS as commission compensation to the producing agents. Effective January 1, 2008, Guarantee Insurance began working directly with agents to market segregated portfolio captive business and paying commissions directly to the producing agents. As a result, PRS ceased earning general agency commissions and ceased paying commissions to the producing agents on Guarantee Insurance business.

Insurance services income earned by PRS from Guarantee Insurance that is attributable to the portion of the insurance risk that Guarantee Insurance retains and assumes from other insurance companies is eliminated upon consolidation. Therefore, our consolidated insurance services income consists of the fees earned by PRS that are attributable to the portion of the insurance risk assumed by segregated portfolio captives and our quota share reinsurers.

The decrease in consolidated insurance services income was attributable to lower fees associated with general agency services, which decreased to $361,000 in 2008 from $2.3 million in 2007 due to termination of these services for Guarantee Insurance effective January 1, 2008, as discussed above. This decrease was partially offset by an increase in consolidated insurance services income associated with nurse case management and cost containment services, which increased to $5.1 million in 2008 from $4.6 million in 2007 due to an increase in the number of claims subject to nurse case management and bill review. Consolidated insurance services income attributable to services provided to parties other than segregated portfolio captives and our quota share reinsurers increased to $241,000 in 2008 from $98,000 in 2007.

Net Investment Income.  Net investment income was $2.0 million for 2008, compared to $1.3 million for 2007. Gross investment income was $2.5 million in both 2008 and 2007. The average of our beginning and ending investment portfolio, including cash and cash equivalents, increased to $62.6 million for 2008, compared to $57.1 million for 2007, an increase of $5.5 million, or 10%. The increase in our net investment income attributable to the increase in invested assets was partially offset by the fact that the tax adjusted yield on our debt portfolio fell to 4.99% at December 31, 2008 from 5.19% at December 31, 2007, due to prevailing market conditions in the debt securities market. The increase in our net investment income attributable to the increase in invested assets was also offset by a lower pre-tax yield on tax-exempt state and political subdivision debt securities, which we began to own in the second quarter of 2007. Investment expenses were $478,000 for 2008 compared to $1.2 million for 2007, a decrease of $714,000 or 60%. Investment expenses are principally comprised of interest expense credited to funds-held balances on alternative market segregated portfolio captive arrangements. Interest is credited to funds-held balances based on 3-month U.S. Treasury bill rates. The decrease in investment expenses was primarily attributable to a decrease in short term interest rates due to prevailing credit market conditions as well as a decrease in funds-held balances.

Net Realized Losses on Investments.  Net realized losses on investments were approximately $1.0 million for 2008, compared to $5,000 for 2007. Net realized losses on investments in 2008 include an other-than-temporary impairment charge of approximately $875,000 related to investments in certain equity securities purchased in 2005 and approximately $350,000 on our investment of approximately $400,000 in certain bonds issued by Lehman Brothers Holdings, Inc., which filed for bankruptcy in September 2008.

Other Income.  Other income was $1.5 million for 2008. We did not recognize other income for 2007. Other income for 2008 represents the recapture of funds held balances and other collateral pursuant to the commutation of six segregated portfolio cell captives in 2008.

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Loss From Write-Off of Deferred Equity Offering Costs.  In 2008, we recorded a loss from the write-off of deferred equity offering costs of approximately $3.5 million, principally representing legal and audit expenses incurred in 2007 and 2008 in connection with our efforts to consummate an initial public offering, which was suspended in the fourth quarter of 2008 due to market conditions.

Net Losses and Loss Adjustment Expenses.  Net losses and loss adjustment expenses were $28.7 million for 2008 compared to $15.2 million for 2007, an increase of $13.5 million or 89%. The increase was attributable to a 103% increase in net premiums earned. Our calendar year net loss ratio was 57.5% for 2008 compared to 61.7% for 2007, a decrease of 4.2 percentage points. The decrease in the loss ratio was principally the result of favorable loss experience for accident year 2008, which was 54.9% compared to 75.7% for accident year 2007.

The favorable 2008 accident year loss ratio was partially offset by adverse development in 2008 on prior accident year net losses and loss adjustment expenses of approximately $584,000 and $710,000 on workers’ compensation and legacy commercial general liability, asbestos and environmental exposures, respectively. In 2007, incurred losses and loss adjustment expenses attributable to prior accident years decreased by approximately $3.5 million. Of this $3.5 million, approximately $2.2 million relates to favorable development on workers’ compensation reserves attributable to the fact that 165 claims incurred in 2004 and 2005 were ultimately settled in 2007 for approximately $600,000 less than the specific case reserves that had been established for these exposures at December 31, 2006. In addition, as a result of this favorable case reserve development during 2007, we reduced our loss development factors utilized in estimating claims incurred but not yet reported resulting in a reduction of estimated incurred but not reported reserves as of December 31, 2007. The $3.5 million of favorable development in 2007 also reflects approximately $1.3 million of favorable development on legacy asbestos and environmental exposures and commercial general liability exposures as a result of the further run-off of this business and additional information received from pool administrators on pooled business in which we participate. See “Business — Legacy Claims.”

Net Policy Acquisition and Underwriting Expenses.  Net policy acquisition and underwriting expenses were $13.5 million for 2008 compared to $6.0 million for 2007, an increase of $7.5 million.

Net policy acquisition and underwriting expenses are comprised of gross policy acquisition and underwriting expenses, which include agent commissions, premium taxes and assessments and general operating expenses associated with insurance operations, net of ceding commissions on ceded quota share reinsurance premiums on traditional and alternative market segregated portfolio captive business, as follows:

	2008			2007
	Dollar amounts in thousands
Direct and assumed business:
Gross policy acquisition and underwriting expenses	$	31,499		$	22,644
Gross premiums earned		100,070			73,715
Gross policy acquisition and underwriting expense ratio		31.5	%		30.7	%
Alternative market and traditional business ceded on a quota share basis:
Ceding commissions		17,964			16,621
Ceded premiums earned		46,748			44,589
Effective ceding commission rate		38.4	%		37.3	%
Excess of loss reinsurance ceded premiums earned		3,402			4,513
Net business:
Net policy acquisition and underwriting expenses		13,535			6,023
Net premiums earned		49,920			24,613
Net policy acquisition and underwriting expense ratio		27.1	%		24.5	%

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Gross policy acquisition and underwriting expenses were $31.5 million for 2008, compared with $22.6 million for 2007, an increase of $8.9 million or 39%. The increase in gross policy acquisition and underwriting expenses was generally consistent with the growth in gross premiums earned. Our gross expense ratio was 31.5% for 2008 compared to 30.7% for 2007. The increase in our gross expense ratio was principally attributable to incremental expenses for professional fees and additional compensation and compensation-related costs associated with the hiring of additional members of senior management as we positioned our company for growth and diversification as well as establishing infrastructure to support the requirements of being a publicly held company. These additional expenses were partially offset by (i) economies of scale as certain of our gross policy acquisition and underwriting expenses did not increase in proportion to gross premiums earned, (ii) a decrease in the portion of holding company expenses allocated to insurance operations as discussed more fully under Other Operating Expenses, and (iii) lower commission expenses in connection with the fact that, effective January 1, 2008, Guarantee Insurance began working directly with agents to market segregated portfolio captive insurance business and paying commissions directly to the producing agents rather than paying a higher general agency commission to PRS.

Ceding commissions on alternative market and traditional business ceded on a quota share basis were $18.0 million for 2008, compared to $16.6 million for 2007, an increase of $1.3 million or 8%. Our blended effective ceding commission rate on alternative market and traditional business quota share reinsurance was 38.4% for 2008 compared to 37.3% for 2007. The increase was principally attributable to the proportional increase in ceded quota share reinsurance premiums on our alternative market business, which have a higher effective ceding commission rate than ceded premiums on our traditional business.

Our net policy acquisition and underwriting expense ratio was 27.1% for 2008, compared to 24.5% for 2007. The ceding commission rates we earn on our alternative market business and traditional business quota share reinsurance are higher than our gross policy acquisition and underwriting expense ratio. Accordingly, if we cede more business on a quota share basis, our net policy acquisition and underwriting expense ratio decreases, and if we cede less business on a quota share basis, our net policy acquisition and underwriting expense ratio increases. The increase in our net expense ratio was principally the result of the fact that a smaller portion of our gross premiums were ceded on a quota share basis in 2008. To a lesser extent, the increase in our net expense ratio was due to the increase in our gross expense ratio.

Other Operating Expenses.  Other operating expenses, which are primarily comprised of holding company expenses and expenses attributable to our insurance services operations, were $10.9 million for 2008, compared to $8.5 million for 2007, an increase of $2.4 million or 28%. Other operating expenses included approximately $7.8 million and $7.1 million associated with insurance services operations for 2008 and 2007, respectively, and $3.1 million and $1.4 million associated with holding company operations for 2008 and 2007, respectively. The increase in expenses associated with insurance services operations was attributable to the increase in insurance services income associated with nurse case management and cost containment services. The increase was also attributable to a higher allocation of holding company expenses to our insurance services operations.

The increase in expenses associated with holding company operations reflects a substantial reduction in the proportion of holding company expenses allocated to the insurance segment, partially offset by an increase in the proportion of holding company expenses allocated to the insurance services segment. Allocable holding company operating expenses, which include all expenses other than holding company stock compensation expense, loan guaranty fees and amortization of capitalized loan costs, are incurred for the benefit of the holding company and our operating segments and allocated to each segment based on the proportion of such costs devoted to each segment. For 2008, approximately 30% of allocable holding company operating expenses were allocated to the insurance segment, approximately 30% were allocated to the insurance services segment and approximately 40% were retained by the holding company based on our estimate of costs devoted to the insurance segment, insurance services segment and holding company matters. These allocations principally reflect the time and effort devoted to our planned initial public offering during 2008. For 2007, approximately 80% of allocable holding company operating expenses were allocated to the insurance segment, approximately 8% were allocated to the insurance services segment and approximately 12% were retained by the holding

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company, as we determined that a higher proportion of holding company costs were devoted to insurance operations.

Interest Expense.  Interest expense was $1.4 million for 2008, compared to $1.3 million for 2007, an increase of $147,000 or 11%. The increase was attributable to the fact that we borrowed an additional $5.7 million in September 2007 and another $1.5 million from Mr. Mariano, our Chairman and Chief Executive Officer and the beneficial owner of a majority of our outstanding shares, in June 2008. Interest expense associated with these additional borrowings was substantially offset by a decrease in the effective interest rate on the debt, which is based on the Federal Reserve prime rate.

Income Tax Expense.  We recognized an income tax benefit of approximately $643,000 for 2008, compared to $432,000 for 2007. For 2008, our income tax benefit at the statutory rate, which was approximately $261,000, was increased by approximately $238,000 related to tax exempt investment income and a $290,000 reduction in the reserve for uncertain tax positions, partially offset by the tax effect of other permanent tax differences of approximately $146,000.

For 2007, our income tax expense at the statutory rate, which was approximately $662,000, was reduced by approximately $1.9 million attributable to a change in the valuation allowance related to the deferred tax asset arising from Tarheel net operating loss carry forwards. For the three months ended March 31, 2007 and the years ended December 31, 2006 and 2005, management did not consider it more likely than not that Tarheel would generate future taxable income against which Tarheel net operating loss carry forwards could be utilized and, accordingly, maintained a 100% valuation allowance on the deferred tax asset attributable to Tarheel net operating loss carry forwards. On April 1, 2007, Mr. Mariano, our Chairman, President and Chief Executive Officer and the beneficial owner of a majority of our outstanding shares, contributed all the outstanding capital stock of Tarheel to Patriot Risk Management with the result that Tarheel and its subsidiary, TIMCO, became wholly-owned indirect subsidiaries of Patriot Risk Management. In conjunction with the business contribution, management deemed the prospects for Tarheel business to generate future taxable income and utilize Tarheel net operating loss carry forwards, subject to annual limitations, to be more likely than not and, accordingly, eliminated the valuation allowance on the deferred tax asset associated with Tarheel net operating losses.

Additionally, our income tax expense at the statutory rate for 2007 was reduced by approximately $85,000 related to tax exempt investment income and increased by approximately $711,000 in connection with the increase in the reserve for uncertain tax positions and approximately $192,000 of other net permanent tax differences.

2007 Compared to 2006

Overview of Operating Results.  Net income for 2007 was $2.4 million compared to $1.6 million for 2006. The $769,000 increase in net income is comprised of a $1.1 million decrease in pre-tax net income and a $1.9 million decrease in income tax expense. The $1.1 million decrease in pre-tax net income is comprised principally of a $7.4 million decrease in pre-tax net income related to the 2006 gain on early extinguishment of debt and associated other income, which represents the forgiveness of accrued interest on the extinguished debt, partially offset by an increase in pre-tax net income related to (i) a 16.7 percentage point decrease in our combined ratio from insurance operations, (ii) a $437,000 increase in pre-tax net income from insurance services operations and (iii) a decrease in net realized losses of $1.3 million.

The $1.9 million decrease in income tax expense is principally attributable to the fact that we maintained a valuation allowance equal to 100% of the deferred tax assets associated with net operating loss carry forwards attributable to Tarheel operations until April 2007, at which time we reversed the valuation allowance, as discussed more fully below.

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Gross Premiums Written.  Gross premiums written for 2007 were $85.8 million compared to $62.4 million for 2006, an increase of $23.4 million or 38%. Gross premiums written by line of business were as follows:

	2007		2006
	In thousands
Direct business:
Alternative market	$	34,316	$	33,921
Traditional business		50,599		26,636
Total direct business		84,915		60,557
Assumed business(1)		895		1,815
Total	$	85,810	$	62,372

(1) Represents premiums assumed as a result of our participation in the NCCI National Workers’ Compensation Insurance Pool.

Gross premiums written on alternative market business for 2007 were $34.3 million compared to $33.9 million for 2006, an increase of $395,000 or 1%.

The increase was attributable to traditional business, for which gross premiums written for 2007 were $50.6 million compared to $26.6 million for 2006, an increase of $24.0 million or 90%. The increase in traditional business gross premiums written was attributable to an increase in policy counts. Traditional business policy counts increased by 127%, from 1,340 at December 31, 2006 to 3,034 at December 31, 2007. The increase in policy counts was principally attributable to the expansion of the traditional business pay-as-you-go plan. The increase in policy counts was partially offset by an 11% decrease in average annual in-force premium per policy, from approximately $18,500 at December 31, 2006 to approximately $16,400 at December 31, 2007. The decrease in average annual in-force premium per policy was principally attributable to mandatory rate decreases in the state of Florida, an administered pricing state where we wrote approximately 41% of our traditional business direct premiums written in 2007. The majority of the increase in gross premiums written on traditional business came from Florida, where gross premiums written on traditional business were $20.8 million for 2007 compared to $7.1 million for 2006, an increase of $13.7 million or 193%.

Net Premiums Written.  Net premiums written for 2007 were $31.0 million compared to $19.4 million for 2006, an increase of $11.6 million or 60%. The $23.4 million period-over-period increase in gross premiums written was partially offset by a $11.9 million increase in ceded premiums written. The increase in ceded premiums written was primarily attributable to the increase in gross premiums written on traditional business, which was subject to a 50% quota share reinsurance treaty (excluding certain states) for the full year 2007, but only the second half of 2006.

Net Premiums Earned.  Net premiums earned for 2007 were $24.6 million compared to $21.1 million for 2006, an increase of $3.6 million or 17%. The increase was attributable to the increase in net premiums written, recognized as revenue on a pro rata basis over the terms of the policies written.

Insurance Services Income.  Consolidated insurance services income by PRS for 2007 was $7.0 million compared to $7.2 million for 2006, a decrease of $148,000 or 2%. Consolidated insurance services income in 2007 and 2006 was generated principally from nurse case management and cost containment services provided for the benefit of segregated portfolio captives and our quota share reinsurers. In addition, as consideration for providing general agency services on Guarantee Insurance business, Guarantee Insurance paid PRS general agency commission compensation, a portion of which was retained by PRS and a portion of which was paid by PRS as commission compensation to the producing agents.

The decrease in consolidated insurance services income was attributable to lower fees associated with general agency services, which decreased to $2.3 million in 2007 from $3.0 million in 2006 due to lower earned premium associated with Guarantee Insurance business subject to general agency services. This decrease was partially offset by an increase in consolidated insurance services income associated with nurse

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case management and cost containment services, which increased to $4.6 million in 2007 from $3.6 million in 2006 due to an increase in the number of claims subject to nurse case management and bill review and a larger portion of the insurance risk assumed by our quota share reinsurers. Consolidated insurance services income attributable to services provided to parties other than segregated portfolio captives and our quota share reinsurers decreased to $107,000 in 2007 from $373,000 in 2006, primarily as a result of the termination or sale of service relationships that Tarheel had with other third parties.

Net Investment Income.  Net investment income for 2007 and 2006 was $1.3 million. Gross investment income for 2007 was $2.5 million compared to $2.1 million for 2006, an increase of $465,000 or 23%. The increase is a reflection of a higher weighted average invested asset base, the result of growth in net premiums written and the corresponding lag between the collection of premiums and the payment of claims. The increase in gross investment income attributable to a higher invested asset base was somewhat offset by the fact that a portion of our fixed maturity securities at December 31, 2007 were tax-exempt state and political subdivision debt securities, which generate lower pre-tax yields. We had no tax-exempt state and political subdivision debt securities at December 31, 2006. Investment expenses for 2007 were $1.2 million compared to $732,000 for 2006, an increase of $461,000 or 63%. Investment expenses are principally comprised of interest expense credited to funds-held balances related to alternative market segregated portfolio captive arrangements. The increase in investment expenses was attributable to an increase in funds-held balances from December 31, 2006 to December 31, 2007.

Net Realized Losses on Investments.  Net realized losses on investments for 2007 were $5,000 compared to $1.3 million for 2006. In 2007, We did not recognize any other-than-temporary impairments. In 2006, we recognized realized losses of approximately $1.7 million in connection with Tarheel’s investment in Foundation, which was deemed to be other-than-temporarily impaired. This was partially offset by realized gains on the sales of equity securities.

Other Income.  We did not recognize any other income for 2007. For 2006, we recognized $796,000 of other income in connection with the forgiveness of accrued interest associated with the early extinguishment of debt.

Net Losses and Loss Adjustment Expenses.  Net losses and loss adjustment expenses were $15.2 million for 2007 compared to $17.8 million for 2006, a decrease of $2.7 million or 15%, despite an increase in net premiums earned. The decrease was attributable to a lower calendar year net loss ratio which was 61.7% for 2007 compared to 84.7% for 2006, a decrease of 23.0 percentage points. The decrease in the loss ratio was principally the result of favorable development in 2007 on both workers’ compensation and legacy reserves associated with prior accident years, combined with unfavorable development in 2006 on both workers’ compensation and legacy reserves associated with prior accident years. Our net loss ratio was 75.7% for accident year 2007 compared to 72.8% for accident year 2006, an increase of 2.9 percentage points.

As a result of favorable development on prior accident year reserves, incurred losses and loss adjustment expenses decreased by approximately $3.5 million for the year ended December 31, 2007. Of this $3.5 million, approximately $2.2 million relates to favorable development on workers’ compensation reserves attributable to the fact that 165 claims incurred in 2004 and 2005 were ultimately settled in 2007 for approximately $600,000 less than the specific case reserves that had been established for these exposures at December 31, 2006. In addition, as a result of this favorable case reserve development during 2007, we reduced our loss development factors utilized in estimating claims incurred but not yet reported resulting in a reduction of estimated incurred but not reported reserves as of December 31, 2007. The $3.5 million of favorable development in 2007 also reflects approximately $1.3 million of favorable development on legacy asbestos and environmental exposures and commercial general liability exposures as a result of the further run-off of this business and additional information received from pool administrators on pooled business that we participate in. See “Business — Legacy Claims.”

As a result of adverse development on prior accident year reserves, incurred losses and loss adjustment expenses increased by approximately $2.5 million for the year ended December 31, 2006. Of the $2.5 million, approximately $2.0 million relates to workers’ compensation claims and approximately $500,000 to legacy asbestos and environmental exposures and commercial general liability exposures. The adverse development

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on workers’ compensation claims primarily resulted from approximately $1.5 million of unallocated loss adjustment expenses paid in 2006 related to the 2004 and 2005 accident years in excess of amounts reserved for these expenses as of December 31, 2005. In addition, based upon additional information that became available on known claims during 2006, we strengthened our reserves by approximately $500,000 for the 2004 and 2005 accident years. The reserves for legacy claims were increased due to information received from pool administrators as well as additional consideration of specific outstanding claims.

Net Policy Acquisition and Underwriting Expenses.  Net policy acquisition and underwriting expenses were $6.0 million for 2007 compared to $3.8 million for 2006, an increase of $2.2 million or 57%.

Net policy acquisition and underwriting expenses are comprised of gross policy acquisition and underwriting expenses, which include agent commissions, premium taxes and assessments and general operating expenses associated with insurance operations, net of ceding commissions on ceded quota share reinsurance premiums on traditional and alternative market segregated portfolio captive business, as follows:

	2007			2006
	Dollar amounts in thousands
Direct and assumed business:
Gross policy acquisition and underwriting expenses	$	22,644		$	18,622
Gross premiums earned		73,715			60,672
Gross policy acquisition and underwriting expense ratio		30.7	%		30.7	%
Alternative market and traditional business ceded on a quota share basis:
Ceding commissions		16,621			14,788
Ceded premiums earned		44,589			37,391
Effective ceding commission rate		37.3	%		39.5	%
Excess of loss reinsurance ceded premiums earned		4,513			2,228
Net business:
Net policy acquisition and underwriting expenses		6,023			3,834
Net premiums earned		24,613			21,053
Net policy acquisition and underwriting expense ratio		24.5	%		18.2	%

Gross policy acquisition and underwriting expenses were $22.6 million for 2007 compared with $18.6 million for 2006, an increase of $4.0 million or 22%. The increase in gross policy acquisition and underwriting expenses was generally consistent with the growth in gross premiums earned. Our gross expense ratio was 30.7% for both 2007 and 2006.

Ceding commissions on alternative market and traditional business ceded on a quota share basis were $16.6 million for 2007 compared to $14.8 million for 2006, an increase of $1.8 million or 12%. Our blended effective ceding commission rate on alternative market and traditional business quota share reinsurance was 37.3% for 2007 compared to 39.5% for 2006. The decrease was principally attributable to the proportional increase in ceded quota share reinsurance premiums on our traditional business, which have a lower effective ceding commission rate than ceded premiums on our alternative market business.

Our net policy acquisition and underwriting expense ratio was 24.5% for 2007 compared to 18.2% for 2006. The ceding commission rates we earn on our alternative market business and traditional business quota share reinsurance are higher than our gross policy acquisition and underwriting expense ratio. Accordingly, if we cede more business on a quota share basis, our net policy acquisition and underwriting expense ratio decreases, and if we cede less business on a quota share basis, our net policy acquisition and underwriting expense ratio increases. In addition, on our alternative market business quota share reinsurance, we recoup a portion our excess of loss reinsurance costs from the segregated portfolio captives. Accordingly, our excess of loss reinsurance costs are lower, in proportion to gross earned premium, on our alternative market business. The increase in our net expense ratio was principally the result of an increase in excess of loss ceded earned

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premium associated with the increase in our traditional business and, to a lesser extent, the fact that a smaller portion of our gross premiums were ceded on a quota share basis in 2007 at a lower blended effective ceding commission rate.

Other Operating Expenses.  Other operating expenses, which are primarily comprised of holding company expenses and expenses attributable to our insurance services operations, were $8.5 million for 2007 compared to $9.7 million for 2006, a decrease of $1.2 million or 12%. For 2007, other operating expenses included approximately $7.1 million associated with insurance services operations and $1.4 million associated with holding company operations. For 2006, other operating expenses included approximately $6.4 million associated with insurance services operations and $3.3 million associated with holding company operations. The decrease in other operating expenses was primarily attributable to a higher allocation of holding company expenses to insurance operations in 2007 compared to 2006, resulting in an increase in net policy acquisition and underwriting expenses and a corresponding decrease in other operating expenses.

Interest Expense.  Interest expense for 2007 was $1.3 million compared to $1.1 million for 2006, an increase of $181,000 or 16%. The increase was attributable to the fact that we borrowed an additional $5.7 million in September 2007 at an interest rate equal to the Federal Reserve prime rate plus 4.5%.

Income Tax Expense.  We recognized an income tax benefit of $432,000 for 2007 compared to an income tax expense of $1.5 million for 2006. The decrease in income tax expense was principally the result of changes in the valuation allowance related to the deferred tax asset arising from Tarheel net operating loss carry forwards. For the three months ended March 31, 2007 and the years ended December 31, 2006 and 2005, management did not consider it more likely than not that Tarheel would generate future taxable income against which Tarheel net operating loss carry forwards could be utilized and, accordingly, maintained a 100% valuation allowance on the deferred tax asset attributable to Tarheel net operating loss carry forwards. On April 1, 2007, Mr. Mariano, our Chairman, President and Chief Executive Officer and the beneficial owner of a majority of our outstanding shares, contributed all the outstanding capital stock of Tarheel to Patriot Risk Management with the result that Tarheel and its subsidiary, TIMCO, became wholly-owned indirect subsidiaries of Patriot Risk Management. In conjunction with the business contribution, management deemed the prospects for Tarheel business to generate future taxable income and utilize Tarheel net operating loss carry forwards, subject to annual limitations, to be more likely than not and, accordingly, eliminated the valuation allowance on the deferred tax asset associated with Tarheel net operating losses.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting and financial reporting for uncertain tax positions. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition, measurement and presentation of uncertain tax positions taken or expected to be taken in an income tax return. We adopted the provisions of FIN 48 effective January 1, 2007. Reserves for uncertain tax positions associated with FIN 48 were approximately $421,000 and $711,000 at December 31, 2008 and 2007, respectively. We had no accrued interest or penalties related to uncertain tax positions as of December 31, 2008 or 2007.

Excluding changes in the valuation allowance and excluding the effect of changes in reserve for uncertain tax positions in accordance with FIN 48, our effective tax rate was approximately 39% for 2007 compared to 33% for 2006. The increase in effective tax rate, exclusive of changes in the valuation allowance and reserve for uncertain tax positions, was primarily attributable to Tarheel pre-tax net losses in the first quarter of 2007 for which no tax benefit was recognized due to the then uncertainty of ultimate recoverability.

Segment Information

We manage our operations through two business segments: insurance services and insurance. The insurance services segment provides workers’ compensation claims services and agency and underwriting services. Workers compensation claims services include nurse case management, cost containment services and claims administration and adjudication services. Cost containment services refer to workers’ compensation bill review and re-pricing services. Workers’ compensation agency and underwriting services include general agency services and specialty underwriting, policy administration and captive management services. We

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currently provide the services principally to Guarantee Insurance, segregated portfolio captives and Guarantee Insurance’s quota share reinsurers. In the insurance segment, we provide workers’ compensation policies to businesses. These products include both alternative market products and traditional insurance. The products offered in our insurance segment encompass a variety of options designed to fit the needs of our policyholders and employer groups.

We consider many factors in determining reportable segments including economic characteristics, production sources, products or services offered and regulatory environment. Certain items are not allocated to segments, including gains on the early extinguishment of debt, holding company expenses and interest expense. The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained in the notes to our consolidated financial statements. We manage our segments on the basis of both pre-tax and after-tax net income, and, accordingly, our business segment results are shown for all periods to include pre-tax net income (losses), income tax expenses (benefits) and net income (losses). Business segment results are as follows:

	Six Months
	Ended June 30,					Year Ended December 31,
	2009		2008			2008			2007			2006			2005
						In thousands
Insurance Services Segment
Revenues — insurance services income	$	7,198	$	5,833		$	12,308		$	11,325		$	10,208		$	6,552
Pre-tax net income	$	3,023	$	2,078		$	4,452		$	4,201		$	3,764		$	2,358
Income tax expense (benefit)		1,033		710			1,513			(481	)		1,744			938
Net income	$	1,990	$	1,368		$	2,939		$	4,682		$	2,020		$	1,420
Insurance Segment
Revenues:
Premiums earned, net	$	21,770	$	20,104		$	49,220		$	24,613		$	21,053		$	21,336
Investment income, net		920		980			2,028			1,326			1,321			1,077
Net realized gains (losses) on investments		743		56			(1,037	)		(5	)		393			(1,348	)
Total revenues	$	23,433	$	21,140		$	50,211		$	25,934		$	22,767		$	21,065
Pre-tax net income (loss)	$	1,286	$	1,083		$	2,773		$	431		$	(1,939	)	$	3,692
Income tax expense (benefit)		485		(51	)		495			951			(689	)		1,198
Net income	$	801	$	1,134		$	2,278		$	(520	)	$	(1,250	)	$	2,494

Insurance Services Segment Results of Operations

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Insurance Services Income.  Unconsolidated insurance services income was $7.2 million for the six months ended June 30, 2009, compared to $5.8 million for the comparable period in 2008, an increase of $1.4 million or 23%. Unconsolidated insurance services income from nurse case management and cost containment services increased to $6.9 million for the six months ended June 30, 2009 from $4.8 million for the comparable period in 2008, an increase of $2.0 million or 42%, due to the increase in Guarantee Insurance exposures serviced by PRS. We also recognized approximately $100,000 of fee income for the six months ended June 30, 2009 associated with underwriting and claims administration services performed for our BPO customer. This was partially offset by a $387,000 decrease in unconsolidated fees for general agency services provided to Guarantee Insurance during the six months ended June 30, 2008. These services were terminated in 2008. The increase in unconsolidated insurance services income from nurse case management and cost containment services was also partially offset by a $381,000 decrease in unconsolidated fees for reinsurance brokerage services. The majority of these services were also terminated in 2008.

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Pre-Tax Net Income.  Pre-tax net income for the insurance services segment was $3.0 million for the six months ended June 30, 2009, compared to $2.1 million for the comparable period in 2008, an increase of $945,000 or 45%. The increase in pre-tax net income was attributable to the increase in unconsolidated insurance services income, partially offset by an increase in operating expenses to $4.2 million for the six months ended June 30, 2009 from $3.7 million for the comparable period in 2008. The increase in expenses associated with insurance services operations was primarily attributable to marketing, underwriting and policy administration costs incurred by PUI in connection with gross premiums written by another insurance company for which we provide general agency and underwriting services and claims services.

Income Tax Expense.  Income tax expense for the insurance services segment was $1.0 million for the six months ended June 30, 2009, compared to $710,000 for the comparable period in 2008. The effective tax rate for the insurance services segment was approximately 34% for the six months ended June 30, 2009 and 2008.

Net Income.  Net income for the insurance services segment was $2.0 million for the six months ended June 30, 2009, compared to $1.4 million for the comparable period in 2008. The increase in net income was attributable to the increase in pre-tax net income as discussed above, partially offset by the increase in operating expenses and income tax expense.

2008 Compared to 2007

Insurance Services Income.  Unconsolidated insurance services income was $12.3 million for 2008, compared to $11.3 million for 2007, an increase of $1.0 million or 9%. Unconsolidated insurance services income for both years was comprised of nurse case management and cost containment services provided to Guarantee Insurance, for our benefit and for the benefit of segregated portfolio captives and our quota share reinsurers. Unconsolidated insurance services income from nurse case management and cost containment services increased to $11.0 million in 2008, compared to $7.2 million in 2007, due to an increase in the number of claims subject to nurse case management and medical bill review.

Unconsolidated insurance services income in 2007 was also generated from general agency services on Guarantee Insurance business, pursuant to which Guarantee Insurance paid PRS general agency commission compensation, a portion of which was retained by PRS and a portion of which was paid by PRS as commission compensation to the producing agents. Effective January 1, 2008, Guarantee Insurance began working directly with agents to market segregated portfolio captive business and paying commissions directly to the producing agents. As a result, PRS ceased earning general agency commissions and ceased paying commissions to the producing agents on Guarantee Insurance business. Unconsolidated insurance services income from general agency services was $361,000 for 2008, which was attributable to premiums earned in 2008 but written prior to January 1, 2008, compared to $3.1 million for 2007.

Unconsolidated insurance services income from reinsurance brokerage services was $685,000 for 2008, compared to $967,000 for 2007, a decrease of $282,000 or 29%. The decrease in unconsolidated insurance services income from reinsurance brokerage services was attributable to the fact that we appointed a third-party reinsurance broker of record in 2008, from whom we were paid a portion of the reinsurance commissions pursuant to a commission sharing agreement. Unconsolidated insurance services income attributable to services provided to parties other than segregated portfolio captives and our quota share reinsurers increased to $241,000 in 2008 from $98,000 in 2007.

Pre-Tax Net Income.  Pre-tax net income for the insurance services segment was $4.5 million for 2008, compared to $4.2 million for 2007, an increase of $251,000 or 6%. The increase in pre-tax net income was generally commensurate with the increase in unconsolidated insurance services income. Expenses associated with the insurance services segment, which include general expenses for nurse case managers, bill review administrators and all associated activities and infrastructure, network access fees and commissions, increased at a lower rate than the increase in insurance services income due to improved economies of scale. This was offset by an increase in expenses allocated from the holding company to the insurance services segment, which are allocated based on the proportion of such costs devoted to the segment. For 2008 and 2007, approximately 30% and 8% of holding company expenses were allocated to the insurance services segment, respectively.

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Income Tax Expense.  Income tax expense for the insurance services segment was $1.5 million for 2008, compared to an income tax benefit of $481,000 for 2007. In 2007, we recorded a $1.9 million decrease in the valuation allowance related to the deferred tax asset arising from net operating loss carryforwards on the insurance services operations of Tarheel. On April 1, 2007, Mr. Mariano, our Chairman, President and Chief Executive Officer and the beneficial owner of a majority of our outstanding shares, contributed all the outstanding capital stock of Tarheel to us with the result that Tarheel and its subsidiary, TIMCO, became our wholly-owned indirect subsidiaries. In conjunction with the business contribution, management deemed the prospects for Tarheel business to generate future taxable income and utilize Tarheel net operating loss carryforwards, subject to annual limitations, to be more likely than not and, accordingly, eliminated the valuation allowance on the deferred tax asset associated with Tarheel net operating losses. The effective tax rate for the insurance services segment, excluding the decrease in the valuation allowance for 2007, was approximately 34% for 2008 and 32% for 2007.

Net Income.  Net income for the insurance services segment was $2.9 million for 2008 compared to $4.7 million for 2007. The decrease in net income was attributable to the decrease in the valuation allowance on the deferred tax asset associated with Tarheel net operating losses for 2007, partially offset by the increase in pre-tax net income as discussed above.

2007 Compared to 2006

Insurance Services Income.  Unconsolidated insurance services income for 2007 was $11.3 million compared to $10.2 million for 2006, an increase of $1.1 million or 11%. The increase in unconsolidated insurance services income was principally attributed to nurse case management and cost containment services, which increased to $7.2 million in 2007 from $4.8 million in 2006 due to an increase in the number of claims subject to nurse case management and cost containment. Additionally, unconsolidated insurance services income attributable to reinsurance brokerage fees from Guarantee Insurance increased to $967,000 for 2007 compared to $624,000 for 2006. These increases were partially offset by a $1.5 million decrease in commissions associated with general agency services, which decreased to $2.7 million in 2007 from $4.2 million in 2006 due to lower earned premium associated with segregated portfolio cell captives serviced by PRS. Additionally, services provided to parties other than segregated portfolio captives and our quota share reinsurers decreased to $107,000 in 2007 from $373,000 in 2006.

Pre-Tax Net Income.  Pre-tax net income for 2007 for the insurance services segment was $4.2 million compared to $3.8 million for 2006, an increase of $437,000 or 12%. Expenses associated with the insurance services segment, which include general expenses for nurse case managers, bill review administrators and all associated activities and infrastructure, network access fees and commissions, increased at a lower rate than the increase in insurance services income due to improved economies of scale.

Income Tax Expense (Benefit).  Income tax benefit for the insurance services segment was $481,000 for 2007, compared to income tax expense of $1.7 million for 2006. In 2007, we recorded a $1.9 million decrease in the valuation allowance related to the deferred tax asset arising from Tarheel net operating loss carryforwards as discussed above. Excluding changes in the valuation allowance, the effective tax rate for the insurance services segment was approximately 34% for both 2007 and 2006.

Net Income.  Net income for the insurance services segment was $4.7 million for 2007, compared to $2.0 million for 2006. The increase in net income was commensurate with the increase in pre-tax net income and the changes in the valuation allowance on the deferred tax asset associated with Tarheel net operating losses discussed above.

Insurance Segment Results of Operations

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net Premiums Earned.  Net premiums earned were $21.8 million for the six months ended June 30, 2009, compared to $20.1 million for the comparable period in 2008, an increase of $1.7 million or 8%. The increase was commensurate with the increase in net premiums written.

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Net Investment Income.  Net investment income was $920,000 for the six months ended June 30, 2009, compared to $980,000 for the comparable period in 2008, a decrease of $60,000 or 6%. The decrease in net investment income was attributable to a decrease in our average investment portfolio during the period, principally associated with the payment of reinsurance premiums in early 2009 associated with a quota share reinsurance agreement we entered into effective December 31, 2008, pursuant to which we ceded unearned premium reserves, net of ceding commissions, of approximately $8.1 million.

Net Realized Gains on Investments.  Net realized gains on investments were $743,000 for the six months ended June 30, 2009, compared to $56,000 for the comparable period of 2008, an increase of $687,000. The increase was attributable to the sale of certain asset-backed and mortgage-backed securities, the proceeds of which were used to pay net reinsurance premiums of approximately $8.1 million as discussed above.

Pre-Tax Income.  Pre-tax net income for the insurance segment was $1.3 million for the six months ended June 30, 2009, compared to $1.1 million for the comparable period in 2008, an increase of $203,000 or 19%. The increase was principally attributable to the increase in net realized gains on investments. To a lesser extent, the increase was attributable to a decrease in our unconsolidated loss and loss adjustment expense ratio to 70.5% for the six months ended June 30, 2009 from 71.1% for the comparable period in 2008. These factors were partially offset by an increase in unconsolidated net policy acquisition and underwriting expenses to $6.8 million for the six months ended June 30, 2009 from $6.1 million for the comparable period in 2008.

Income Tax Expense.  Income tax expense for the insurance segment was $485,000 for the six months ended June 30, 2009, compared to an income tax benefit of $51,000 for the comparable period in 2008. The effective tax rate for the insurance segment was approximately 38% for the six months ended June 30, 2009. For the six months ended June 30, 2008, our insurance segment recognized a decrease in reserves for uncertain tax positions of approximately $290,000, resulting in an effective income tax benefit rate for the period of 5%.

Net Income.  Net income for the insurance segment was $801,000 for the six months ended June 30, 2009, compared to $1.1 million for the comparable period in 2008, a decrease of $333,000 or 29%. The decrease in net income was the result of an increase in income tax expense, partially offset by an increase in pre-tax income, as discussed above.

2008 Compared to 2007

Net Premiums Earned.  Net premiums earned were $49.2 million for 2008, compared to $24.6 million for 2007, an increase of $24.6 million or 100%. The increase was attributable to the increase in net premiums written, exclusive of the effects of the quota share reinsurance agreement we entered into effective December 31, 2008 for which no ceded premium was earned in 2008, recognized as revenue on a pro rata basis over the terms of the policies written.

Net Investment Income.  Net investment income was $2.0 million for 2008, compared to $1.3 million for 2007. Gross investment income was $2.5 million for both 2008 and 2007. The average of our beginning and ending investment portfolio, including cash and cash equivalents, increased to $62.6 million for 2008 compared to $57.1 million for 2007, an increase of $5.5 million, or 10%. The increase in our invested asset base was partially offset by the fact that the tax adjusted yield on our debt portfolio fell to 4.99% at December 31, 2008 from 5.19% at December 31, 2007 due to prevailing market conditions in the debt securities market. The increase in our invested asset base was also offset by lower pre-tax yield tax-exempt state and political subdivision debt securities, which we began to own in the second quarter of 2007. Investment expenses were $478,000 for 2008 compared to $1.2 million for 2007, a decrease of $714,000 or 60%. Investment expenses are principally comprised of interest expense credited to funds-held balances on alternative market segregated portfolio captive arrangements. Interest is credited to funds-held balances based on 3-month U.S. Treasury Bill rates. The decrease in investment expenses was primarily attributable to a decrease in short term interest rates due to prevailing credit market conditions.

Net Realized Losses on Investments.  Net realized losses on investments were approximately $1.0 million for 2008, compared to $5,000 for 2007. Net realized losses on investments in 2008 include an other-than-temporary impairment charge of approximately $875,000 related to investments in certain equity securities and

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approximately $350,000 on investment of approximately $400,000 in certain Lehman Brothers Holdings, Inc. bonds, as a result of Lehman Brothers’ bankruptcy filing.

Pre-Tax Income.  Pre-tax net income for the insurance segment was approximately $2.8 million for 2008, compared to $431,000 for 2007. The increase in pre-tax net income was primarily attributable to an increase in underwriting income attributable to a $24.6 million, or 100%, increase in net earned premiums and, to a lesser extent, a decrease in the portion of holding company expenses allocated to the segment and an increase in net investment income. These factors were partially offset by other-than-temporary impairment charges of approximately $1.0 million and lower commission expenses in connection with the fact that, effective January 1, 2008, Guarantee Insurance began working directly with agents to market segregated portfolio captive insurance business and paying commissions directly to the producing agents rather than paying a higher general agency commission to PRS. Holding company expenses are allocated to the insurance segment based on the proportion of such costs devoted to the segment. For 2008 and 2007, approximately 30% and 80% of holding company expenses were allocated to the insurance services segment, respectively.

Income Tax Expense.  Income tax expense for the insurance segment was approximately $495,000 for 2008, compared to $951,000 for 2007. For 2008, the income tax expense for the insurance segment at the statutory rate, which was approximately $943,000, was reduced by approximately $238,000 related to tax exempt investment income and $290,000 related to the reduction in reserve for uncertain tax positions. For 2007, the income tax expense for the insurance segment at the statutory rate, which was approximately $146,000, was increased by approximately $711,000 in connection with the increase in reserve for uncertain tax positions, together with other net permanent tax differences.

Net Income.  Net income for the insurance segment was approximately $2.3 million for 2008, compared to a net loss of $520,000 for 2007. The increase in net income was attributable to the increase in pre-tax net income and changes in the reserve for uncertain tax positions as discussed above.

2007 Compared to 2006

Net Premiums Earned.  Net premiums earned were $24.6 million for 2007, compared to $21.1 million for 2006, an increase of $3.5 million or 17%. The increase was attributable to the increase in net premiums written, as discussed above, recognized as revenue on a pro rata basis over the terms of the policies written.

Net Investment Income.  Net investment income for 2007 and 2006 was $1.3 million. Gross investment income was $2.5 million for 2007, compared to $2.1 million for 2006, an increase of $465,000 or 23%. The increase is a reflection of a higher weighted average invested asset base, the result of growth in net premiums written and the lag between the collection of premiums and the payment of claims. The increase in gross investment income attributable to a higher invested asset base was somewhat offset by the fact that a portion of our fixed maturity securities at December 31, 2007 were tax-exempt state and political subdivision debt securities, which generate lower pre-tax yields. We had no tax-exempt state and political subdivision debt securities at December 31, 2006. Investment expenses were $1.2 million for 2007 compared to $732,000 for 2006, an increase of $461,000 or 63%. Investment expenses are principally comprised of interest expense credited to funds held balances related to our alternative market segregated portfolio captive reinsurers. The increase in investment expenses was attributable to an increase in funds held balances from December 31, 2006 to December 31, 2007.

Net Realized Gains (Losses) on Investments.  Our insurance segment had $5,000 of net realized losses on investments for 2007, compared to $393,000 of net realized gains on investments for 2006. Realized gains and losses on investments occur from time to time in connection with the sale of debt securities prior to their maturity and equity securities.

Pre-Tax Net Income (Loss).  Pre-tax net income for the insurance segment was $431,000 for 2007, compared to a pre-tax loss of $1.9 million for 2006. The increase in pre-tax net income primarily reflects a lower calendar year loss ratio in 2007 as discussed above.

Income Tax Expense (Benefit).  Income tax expense for the insurance segment was $951,000 for 2007, compared to an income tax benefit of $689,000 for 2006. For 2007, the income tax expense for the insurance

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segment at the statutory rate, which was approximately $146,000, was increased by approximately $711,000 in connection with the increase in reserve for uncertain tax positions, together with other net permanent tax differences. For 2006, the income tax benefit for the insurance segment was approximately 36% of the insurance segment’s pre-tax net loss.

Net Income (Loss).  Net loss for the insurance segment was $520,000 for 2007 compared to a net loss of $1.3 million for 2006. The reduction in the net loss was commensurate with the increase in pre-tax net income, partially offset by the increase in income tax expense.

Liquidity and Capital Resources

Sources and Uses of Funds

Patriot Risk Management is organized as a holding company with two principal operating units — (i) PRS and PUI and (ii) Guarantee Insurance Group. Patriot Risk Management’s principal liquidity needs include debt service, payments of income taxes, payment of certain holding company costs not attributable to subsidiary operations and, in the future, may include stockholder dividends.

Historically, Patriot Risk Management’s principal source of liquidity has been, and we expect will continue to be, dividends from PRS, as well as financing through borrowings, issuances of our securities and fees received under intercompany agreements as described below. In addition, we expect to retain approximately $20 million of the net proceeds from this offering at the holding company for general corporate purposes.

At the time we acquired Guarantee Insurance, it had a large statutory unassigned deficit. As of June 30, 2009, Guarantee Insurance’s statutory unassigned deficit was $95.2 million. Under Florida law, insurance companies may only pay dividends out of available and accumulated surplus funds derived from realized net operating profits on their business and net realized capital gains, except under limited circumstances with the prior approval of the Florida OIR. Moreover, pursuant to a consent order issued by the Florida OIR on December 29, 2006 in connection with the redomestication of Guarantee Insurance from South Carolina to Florida, Guarantee Insurance is prohibited from paying dividends, without Florida OIR approval, until December 29, 2009. Therefore, it is unlikely that Guarantee Insurance will be able to pay dividends for the foreseeable future without the prior approval of the Florida OIR. Currently, Guarantee Insurance does not plan to pay cash dividends on its common stock.

We presently expect that the net proceeds that the holding company retains from this offering, projected cash flows from dividends from our insurance and insurance services operating companies, and cash flows from intercompany agreements with our insurance and insurance services companies will provide Patriot Risk Management with sufficient liquidity to repay our debt, pay income taxes on behalf of Patriot and fund holding company operating expenses not attributable to subsidiary operations for the next two years.

We plan to contribute approximately $[     ] million of the net proceeds from this offering to Guarantee Insurance to support its premium writings. As described elsewhere in this prospectus, we have entered into a letter of intent to acquire PF&C, a shell property and casualty insurance company. Our acquisition of PF&C is subject to various regulatory approvals. If we obtain these regulatory approvals and consummate the acquisition within 30 days after the date of this prospectus, we plan instead to use approximately $16.2 million of the net proceeds from this offering to pay the purchase price for PF&C, to contribute approximately $[     ] million to, PF&C to support its premium writings, and to contribute approximately $[     ] million to Guarantee Insurance, to support its premium writings.

In addition, we plan to use approximately $[     ] million of the net proceeds from this offering to pay off a loan from Mr. Mariano, our Chairman, President and Chief Executive Officer.

We expect that the remaining $[     ] million, or [     ] million if we acquire PF&C, will be used to support our anticipated growth and general corporate purposes and to fund other holding company operations, including the repayment of all or a portion of the Brooke loans and the ULLICO loan and potential

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acquisitions, although we have no current understandings or agreements regarding any such acquisitions (other than PF&C).

If the underwriters exercise all or any portion of their over-allotment option, we intend to use all or a substantial portion of the net proceeds from any such exercise to pay down the balance of our credit facilities with Brooke and ULLICO. If the over-allotment option is exercised in full, we will use approximately $[     ] million of the net proceeds to pay off these credit facilities and the remaining $[     ] million, or $[     ] million if we acquire PF&C, for general corporate purposes.

Pursuant to a tax allocation agreement by and among Patriot Risk Management and its subsidiaries, Patriot Risk Management computes and pays federal income taxes on a consolidated basis. At the end of each consolidated return year, each subsidiary computes and pays to Patriot Risk Management its respective share of the federal income tax liability primarily based on separate return calculations. During the six months ended June 30, 2009, Guarantee Insurance paid approximately $300,000 to Patriot Risk Management under this agreement.

Pursuant to a Management Services Agreement dated as of January 1, 2004 between Patriot Risk Management and Guarantee Insurance, Patriot Risk Management provides Guarantee Insurance with strategic planning and capital raising, prospective acquisition management, human resources and benefits administration and certain other management services. Patriot Risk Management bills Guarantee Insurance for its share of the actual costs of such services on a monthly basis. During the six months ended June 30, 2009, Patriot Risk Management recouped approximately $762,000 from Guarantee Insurance under this agreement. Additionally, Patriot Risk Management bills PRS for a portion of the actual costs for such services. During the six months ended June 30, 2009, Patriot Risk Management recouped approximately $699,000 from PRS for its share of such services.

Guarantee Insurance has entered into a Managed Care Services Agreement with Patriot Risk Services, dated as of January 1, 2006, under which Patriot Risk Services provides nurse case management and cost containment services for its benefit and for the benefit of segregated portfolio captives and our quota share reinsurers. During the six months ended June 30, 2009, Patriot Risk Services earned a total of $6.9 million under this agreement, $3.2 million of which represented consideration for services performed for the benefit of Guarantee Insurance and are eliminated in consolidation. The remaining $3.7 million earned by Patriot Risk Services under this agreement represents income derived from segregated portfolio captives, our quota share reinsurers and other insurance companies for services performed on their behalf and is reflected as insurance services income on our consolidated income statement.

Guarantee Insurance has also entered into a Subrogation Services Agreement and an Investigation Services Agreement, each dated as of January 1, 2009, with Patriot Recovery, Inc. pursuant to which Patriot Recovery, Inc. provides subrogation recovery services and investigative services, respectively, to Guarantee Insurance. During the six months ended June 30, 2009, Patriot Recovery, Inc. earned only a nominal amount of fee income under these agreements.

Operating Activities

In our insurance services operations, our principal source of operating funds is insurance services income generated by PRS. PRS currently provides a range of insurance services primarily to Guarantee Insurance, for its benefit and for the benefit of segregated portfolio captives and our quota share reinsurers. PRS and PUI also provide insurance services to our BPO customer. Our primary use of operating funds in our insurance services operations is for the payment of operating expenses.

In our insurance operations, our principal sources of operating funds are premium collections and investment income. Premiums are generally collected over the terms of the policies. Installments booked but deferred and not yet due represent estimated future premium amounts to be paid ratably over the terms of in-force policies based upon established payment arrangements.

Our primary uses of operating funds in our insurance operations include payments of claims, reinsurance premiums and operating expenses. Currently, we pay claims using cash flow from operations and invest our

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excess cash in debt securities. We forecast claim payments based on our historical trends as well as loss development factors from the NCCI. We seek to manage the funding of claim payments by actively managing available cash and forecasting cash flows on a short- and long-term basis. Claims paid, net of reinsurance, were $18.2 million, $13.5 million and $10.4 million for 2008, 2007 and 2006, respectively. Since our inception in 2004, we have funded claim payments from cash flow from operations, principally premiums, net of amounts ceded to our reinsurers, and net investment income. With the proceeds of this offering, we presently expect to maintain sufficient cash flows from operations to meet our anticipated claim obligations and operating needs for the next two years. However, depending on our level of premium writings, retention and acquisition activity, we may need to raise more capital over time to support our operations.

Other factors may also influence our need to raise additional capital. As of September 30, 2009, Guarantee Insurance had approximately $2.7 million of intercompany receivables, $975,000 of which had been outstanding for more than 90 days (although subsequent to September 30, 2009, all intercompany receivables that had been outstanding for more than 30 days were repaid). Under statutory accounting rules, Guarantee Insurance is required to record the amount of any intercompany receivables that have been outstanding for more than 90 days as a non-admitted asset. Therefore, to the extent that any intercompany receivables have been outstanding for more than 90 days, Guarantee Insurance will be required to non-admit the amount of such receivables, which will result in a corresponding decrease in the surplus of Guarantee Insurance. At year end, if the amount of our premium writings relative to the amount of our surplus causes Guarantee Insurance to be out of compliance with certain statutory leverage ratios, we may need to obtain additional reinsurance, reduce our insurance writings or raise additional capital before year end to contribute to Guarantee Insurance in order to satisfy regulatory leverage ratio requirements. See “Risk Factors — Risks Related to Our Business — We are subject to extensive state regulation; regulatory and legislative changes may adversely impact our business.”

We purchase reinsurance to help protect us against severe claims and catastrophic events and to help maintain desired capital ratios. Based on our estimates of future claims, we believe we are sufficiently capitalized to satisfy the deductibles, retentions and aggregate limits in our 2009/2010 reinsurance program. We reevaluate our reinsurance program at least annually, taking into consideration a number of factors, including cost of reinsurance, liquidity requirements, operating leverage and coverage terms. If we decrease our retention levels, or maintain our current retention levels and the cost of reinsurance increases, assuming no material change in our loss ratio, our cash flows from operations would decrease because we would cede a greater portion of our premiums written to our reinsurers. Conversely, if we increase our retention levels, or maintain our current retention levels and the cost of reinsurance declines, assuming no material change in our loss ratio, our cash flow from operations would increase. We do not have any immediate plans to materially increase or reduce our retention levels subsequent to this offering.

Investment Activities

Our investment portfolio, including cash and cash equivalents, was approximately $55.1 million at June 30, 2009. The first priority of our investment strategy is capital preservation, with a secondary focus on achieving an appropriate risk adjusted return. We seek to manage our investment portfolio such that the security maturities provide adequate liquidity relative to our expected claims payout pattern. We expect to maintain sufficient liquidity from funds generated from operations to meet our anticipated insurance obligations and operating and capital expenditure needs, with excess funds invested in accordance with our investment guidelines. We anticipate that all of our debt securities would be available to be sold in response to changes in interest rates or changes in the availability of and yields on alternative investments. Accordingly, our debt securities are classified as available for sale and, in accordance with SFAS 115, stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income net of deferred income taxes.

Financing Activities

We had a note payable to the former owner of Guarantee Insurance, with a principal balance of $8.8 million as of March 30, 2006. On that date, we entered into a settlement and termination agreement with

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the former owner of Guarantee Insurance that allowed for the early extinguishment of the $8.8 million note payable for $2.2 million in cash and release of the indemnification agreement previously entered into by the parties. We recognized an associated gain on the early extinguishment of debt of $6.6 million in 2006.

Effective March 30, 2006, we entered into a loan agreement for $8.7 million with an interest rate equal to the Federal Reserve prime rate plus 4.5% (7.75% at June 30, 2009). The loan was originally entered into with Brooke and was subsequently syndicated among 23 banks. This loan, which we refer to as the Original Brooke loan, is, now administered by Quivira Capital, LLC. The proceeds of the Original Brooke loan, net of loan and guaranty fee costs, totaled approximately $7.2 million and were used to provide $3.0 million of additional surplus to Guarantee Insurance, pay the $2.2 million early extinguishment of debt noted above, provide $750,000 to Tarheel to settle certain liabilities of Foundation Insurance Company, redeem common stock for approximately $1.0 million and for general corporate purposes. In September 2007, we borrowed an additional $5.7 million from the same lender under the same interest rate terms as the Original Brooke loan, and we refer to this loan together with the Original Brooke loan as the Brooke loans. The proceeds of the additional loan, net of loan and guaranty fee costs, totaled approximately $4.9 million and were used to provide $3.0 million of additional surplus to Guarantee Insurance and to pay federal income taxes of approximately $1.9 million on our 2006 gain on early extinguishment of debt. The principal balance and accrued interest associated with this loan at June 30, 2009 were approximately $11.8 million and $38,000, respectively. Principal and interest payments, based on the prevailing Federal Reserve prime rate at June 30, 2009, are approximately $185,000 per month. Due to the variable rate, payment amounts may change.

On December 31, 2008, we borrowed $5.4 million from ULLICO under the same terms as the Brooke loans. The proceeds of this loan, which we refer to as the ULLICO loan, net of loan and guaranty fee costs, totaled approximately $5.0 million and were used to provide additional surplus to Guarantee Insurance. The principal balance and accrued interest associated with the ULLICO loan at June 30, 2009 were approximately $5.2 million and $16,000, respectively. Principal and interest payments, based on the prevailing Federal Reserve prime rate at June 30, 2009, are approximately $81,000 per month. Due to the variable rate, payment amounts may change.

The Brooke loans and the ULLICO loan are guaranteed by Mr. Mariano, our Chairman, President and Chief Executive Officer and the beneficial owner of a majority of our outstanding shares. Mr. Mariano has pledged all of the shares of our capital stock beneficially owned by him, and which may be acquired by him in the future, as security for his guarantee of the ULLICO loan. We pay a guaranty fee of 4% of the principal balance on these loans to Mr. Mariano each year.

The Brooke loans and the ULLICO loan are secured by a first lien on all the assets of Patriot Risk Management, PRS Group, Inc., Guarantee Insurance Group, Patriot Risk Services, Patriot Underwriters, Inc. and Patriot Risk Management of Florida (each a “borrower”). In connection with the ULLICO loan, the lenders under the Brooke loan and ULLICO entered into an intercreditor agreement under which the parties agreed that repayment and collateral security for the Brooke loan and the ULLICO loan will be on a pari passu basis. The loan agreements, as amended, contain covenants including, among other things, a prohibition on the sale, transfer or conveyance of the assets securing the loans that are not in the ordinary course of business by a borrower without the lender’s consent, certain limitations on the incurrence of future indebtedness, financial covenants requiring us to maintain consolidated stockholders’ equity exceeding $5.5 million on a GAAP basis and Guarantee Insurance to maintain policyholders’ surplus exceeding $14.5 million on a GAAP basis, limitations on certain changes in management and the board of directors without the lender’s consent and a prohibition on making material changes to agency relationships or business operations without each lender’s consent. Additionally, none of the borrowers may pay dividends on its capital stock without each lender’s consent.

The lenders may declare outstanding amounts under the loan agreements to be due and payable immediately by us if any borrower defaults. Additionally, certain affiliates of the borrowers are prohibited

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from soliciting, writing, processing or servicing insurance policies of our customers for a period of five years if there has been a default. Events of default include among others, the following:

•  non-payment of principal or interest within ten days of the payment due date or any other material nonperformance;

•  failure to maintain an employment agreement with Steven M. Mariano or find a suitable replacement for him if he should die or become legally incapacitated;

•  insolvency of any borrower or Guarantee Insurance;

•  cessation of Steven M. Mariano’s direct or indirect 51% or more ownership and/or profit interest in us or 51% or more voting control of Patriot Risk Management;

•  transfer of direct or indirect ownership of the other borrowers;

•  regulatory supervision, control or rehabilitation of Guarantee Insurance, failure of Guarantee Insurance to meet certain risk based capital ratios, or revocation or suspension of Guarantee Insurance’s certificate of authority by the state of Florida or any other regulatory body having authority over it;

•  material impairment of the value of collateral;

•  deviation by Guarantee Insurance from certain underwriting guidelines without the prior written consent of the lenders;

•  entry by Guarantee Insurance into any contract that involves the payment of expenses in excess of 10% of the borrowers’ combined annual revenues without the prior written consent of the lenders;

•  failure of Guarantee Insurance to perform its business obligations under material contracts; and

•  attempts by other creditors of a borrower to collect any debt any borrower owes through a court proceeding.

At June 30, 2009, we were in compliance with the financial covenants of these loans. Although we were not in compliance with certain non-financial covenants, we expect to obtain a waiver from the lenders regarding these covenants, as well as a waiver of the event of default provision relating to Mr. Mariano ceasing to control at least 51% of Patriot Risk Management.

On June 26, 2008, we borrowed $1.5 million from our Chairman, President, Chief Executive Officer and the beneficial owner of a majority of our outstanding shares, pursuant to a promissory note that bears interest at the rate equal to the Federal Reserve prime rate plus 3% (6.25% at June 30, 2009). The net proceeds of the loan totaled approximately $1.3 million and were contributed to the surplus of Guarantee Insurance to support its premium writings. The principal balance of the loan is payable on demand by the lender, subject to the cash flow requirements of Patriot. We make monthly interest payments of approximately $7,000 on the loan. For the six months ended June 30, 2009, we made principal payments on the loan totaling $429,000. The principal balance and accrued interest associated with this loan at June 30, 2009 were approximately $1.1 million and $1,000, respectively. Concurrently with the loan, Mr. Mariano personally borrowed $1.5 million to fund his loan to us. The loan to Mr. Mariano contains terms similar to the terms contained in the note between us and Mr. Mariano. Because Mr. Mariano personally obtained this loan for our benefit, we paid him a loan origination fee of $187,000.

In connection with the Brooke loans, the loan from Mr. Mariano and the ULLICO loan, we incurred approximately $2.5 million in issuance costs, which have been capitalized and are being amortized over the estimated terms of the debt. Unamortized debt issuance costs of approximately $1.8 million are included in other assets on the unaudited consolidated balance sheet as of June 30, 2009.

Between July and August 2004, Guarantee Insurance issued five fully subordinated surplus notes in the aggregate amount of $1.3 million to certain policyholders. The aggregate principal balance and accrued interest associated with these notes at June 30, 2009 were approximately $1.2 million and $172,000, respectively. The notes are unsecured, are subordinated to all general liabilities and claims of policyholders

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and creditors of Guarantee Insurance, have stated maturities of five years and an interest rate of 3%. The principal and interest due under the subordinated surplus notes are not carried as a legal liability of Guarantee Insurance, but are considered to be a special surplus on Guarantee Insurance’s statutory financial statements. No payments of interest or principal may be made on these subordinated notes unless either (i) the total adjusted capital and surplus of Guarantee Insurance exceeds 400% of the authorized control level risk-based capital (calculated in accordance with the rules promulgated by the NAIC) stated in Guarantee Insurance’s most recent annual statement filed with the appropriate state regulators, or (ii) Guarantee Insurance obtains regulatory approval to make such payments.

Between May and August 2005, we issued subordinated debentures totaling approximately $2.0 million. The debentures had an initial 3-year term, subject to renewal at the end of the term, generally for an additional 3-year term. Certain of the subordinated debentures are subject to renewal for up to two additional 1-year terms. The debentures bear interest at the rate of 3%. The principal balance and accrued interest on these debentures as of June 30, 2009 were approximately $1.6 million and $199,000, respectively.

The following table summarizes our outstanding notes payable, surplus notes payable and subordinated debentures, including accrued interest thereon, as of June 30, 2009:

						Interest			Principal
						Rate at			and
Year of					Interest Rate	June 30,			Accrued
Issuance		Description	Years Due		Terms	2009			Interest
									In thousands
	2006/2007	Notes payable to Brooke		2009 — 2016	Federal Reserve prime rate plus 4.5%		7.75	%	$	11,813
	2008	Note payable to ULLICO		2009 — 2016	Federal Reserve prime rate plus 4.5%		7.75			5,166
	2008	Note payable to Steven Mariano		2009	Federal Reserve prime rate plus 3.0%		6.25			1,072
	2004	Surplus notes payable		2009	3.0%		3.00			1,359
										19,410
	2005	Subordinated debentures		2009	3.0%		3.00			1,833
									$	21,243

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

Net cash used in operating activities was $7.9 million for the six months ended June 30, 2009, compared to $3.1 million for the comparable period in 2008, an increase of $4.9 million. The increase in net cash used in operating activities was primarily attributable to the payment of reinsurance premiums associated with a quota share reinsurance agreement we entered into effective December 31, 2008, pursuant to which we ceded unearned premium reserves, net of ceding commissions, of approximately $8.1 million. The components of net cash used in operating activities are as follows:

	Six Months Ended
	June 30,
	2009			2008
	In thousands
Net income	$	1,766		$	1,708
Non-cash decreases in net income		623			205
Changes in balances generally reflecting growth in net premiums written(1)		(9,523	)		(13,794	)
Changes in balances generally reflecting claim payment patterns(2)		(2,182	)		6,655
Other items(3)		1,410			2,170
	$	(7,906	)	$	(3,056	)

(1) Includes premiums receivable, unearned and advanced premium reserves, reinsurance funds withheld and balances payable, prepaid reinsurance premiums and funds held by ceding companies and other amounts due from reinsurers

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(2)	Includes reserves for losses and loss adjustment expenses and reinsurance recoverable balances on paid and unpaid losses and loss adjustment expenses
(3)	Principally changes in other assets and accounts payable and accrued expenses

Net cash provided by investing activities was $4.6 million for the six months ended June 30, 2009 compared to $1.7 million for the comparable period in 2008, an increase of $2.9 million. For the six months ended June 30, 2009, the principal components of net cash provided by investing activities included sales and maturities of debt securities of $15.9 million and sales of equity securities of $329,000, partially offset by purchases of debt securities of $8.1 million, net purchases of short-term investments of $3.3 million and purchases of fixed assets of $212,000. For the six months ended June 30, 2008, the principal components of net cash provided by investing activities included sales and maturities of debt securities of purchases of debt securities of $9.9 million, partially offset by purchases of debt securities of $8.0 million, net purchases of short-term investments of $144,000 and purchases of fixed assets of $159,000.

Net cash used in financing activities was $876,000 for the six months ended June 30, 2009 compared to net cash provided by financing activities of $1.0 million for the comparable period in 2008. For the six months ended June 30, 2009, net cash used in financing activities included repayment of notes payable of $1.4 million, partially offset by the payment of a receivable from a related party for Series A convertible preferred stock of $500,000. For the six months ended June 30, 2008, net cash provided by financing activities included proceeds from notes payable of $1.5 million, partially offset by repayment of notes payable of $532,000.

2008 Compared to 2007

Net cash used in operating activities was $4.4 million for 2008 compared to net cash provided by operating activities of $7.1 million for 2007, a decrease of $11.5 million. The components of net cash provided by (used in) operating activities are as follows:

	2008			2007
	In thousands
Net income (loss)	$	(124	)	$	2,379
Non-cash decreases in net income		688			202
Changes in balances generally reflecting growth in net premiums written(1)		(21,974	)		5,877
Changes in balances generally reflecting claim payment patterns(2)		10,054			(2,060	)
Other items(3)		6,971			729
	$	(4,385	)	$	7,127

(1) Includes premiums receivable, unearned and advanced premium reserves, reinsurance funds withheld and balances payable, prepaid reinsurance premiums and funds held by ceding companies and other amounts due to reinsurers

(2)	Includes reserves for losses and loss adjustment expenses and reinsurance recoverable balances on paid and unpaid losses and loss adjustment expenses
(3)	Principally changes in accounts payable and accrued expenses

Net cash provided by investing activities was $1.4 million for 2008 compared to net cash used in investing activities of $25.0 million for 2007, an increase of $26.4 million. For 2008, the components of net cash provided by investing activities included proceeds from sales and maturities of debt securities of $19.1 million, partially offset by purchases of debt securities, net purchases of short-term investments and purchases of fixed assets totaling $17.6 million. For 2007, the components of net cash used by investing activities included purchases of debt securities and fixed assets and net purchases of short-term investments $46.1 million, partially offset by proceeds from sales and maturities of debt and equity securities totaling $21.1 million.

Net cash provided by financing activities was $6.3 million for 2008 compared to $5.0 million for 2007, an increase of $1.3 million. For 2008, net cash provided by financing activities included proceeds from notes

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payable of approximately $6.9 million and proceeds from the issuance of preferred stock, net of receivable from related party, of $500,000. These factors were partially offset by the repayment of notes payable of approximately $1.1 million. For 2007, net cash used by financing activities include proceeds from notes payable to Brooke of $5.7 million, partially offset by repayment of notes payable of $586,000 and net disbursements for the redemption of common stock of $100,000.

2007 Compared to 2006

Net cash provided by operating activities was $7.1 million in 2007 compared to $5.0 million in 2006, an increase of $2.1 million. The components of net cash provided by operating activities are as follows:

	2007			2006
	In thousands
Net income	$	2,379		$	1,610
Non-cash income derived from early extinguishment of debt and related other income		—			(7,382	)
Non-cash charges related to net realized investment losses		5			1,346
Other non-cash decreases (increases) in net income		202			1,081
Changes in balances typically reflecting growth in net premiums written(1)		5,877			3,414
Changes in balances typically reflecting claim payment patterns(2)		(2,060	)		7,899
Other items(3)		724			(2,979	)
	$	7,127		$	4,989

(1) Includes premiums receivable, unearned and advanced premium reserves, reinsurance funds withheld and balances payable, prepaid reinsurance premiums and funds held by ceding companies and other amounts due to reinsurers

(2)	Includes reserves for losses and loss adjustment expenses and reinsurance recoverable balances on paid and unpaid losses and loss adjustment expenses
(3)	Principally changes in accounts payable and accrued expenses

Net cash used in investing activities was $25.0 million in 2007 compared to $13.7 million in 2006, an increase of $11.3 million. In 2007, the primary components of net cash used in investing activities included purchases of debt securities, short-term investments and fixed assets totaling $46.1 million, offset by proceeds from sales and maturities of debt and equity securities totaling $21.1 million. In 2006, the primary components of net cash used in investing activities included purchases of debt securities and, to a much lesser extent, equity securities and fixed assets totaling $25.2 million, offset by proceeds from sales and maturities of debt and equity securities and short-term investments totaling $11.5 million. The increase in net cash used in investing activities in 2007 over 2006 was attributable to increased cash flows from higher premium volume, together with the deployment of $5.7 million of additional proceeds from notes payable as discussed below.

Net cash provided by financing activities was $5.0 million in 2007 compared to $6.1 million in 2006, a decrease of $1.1 million. In 2007, we received $5.7 million of proceeds from notes payable, redeemed common stock for $100,000 and made interest and principal payments on notes payable totaling $586,000. In 2006, we received $8.7 million of proceeds from notes payable, issued common stock for $1.4 million, redeemed common stock for $1.0 million, made interest and principal payments on notes payable totaling $2.3 million and paid dividends of $600,000.

Investment Portfolio

Our primary investment objective is capital preservation. Our secondary objectives are to achieve an appropriate risk-adjusted return and maintain an appropriate match between the duration of our investment portfolio and the duration of the claims obligations in our insurance operations.

At December 31, 2006, we did not anticipate that our fixed maturity securities would be available to be sold in response to changes in interest rates or changes in the availability of and yields on alternative

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investments and, accordingly, these securities were classified as held to maturity. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115 (As Amended) “Accounting for Certain Investments in Debt and Equity Securities,” our fixed maturity securities at December 31, 2006 were stated at amortized cost.

In 2007, we purchased state and political subdivision debt securities with the intent that such securities would be available to be sold in response to changes in interest rates or changes in the availability of and yields on alternative investments. Accordingly, we classified these state and political subdivision debt securities as available for sale. In accordance with SFAS 115, these state and political subdivision debt securities were stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income net of deferred income taxes.

At December 31, 2007, the increased volatility in the debt securities market substantially increased the likelihood that we would, on a routine basis, desire to sell our debt securities and redeploy the proceeds into alternative asset classes or into alternative securities with better yields or lower exposure to decreases in fair value. We anticipated that all of our debt securities would be available to be sold in response to changes in interest rates or changes in the availability of and yields on alternative investments. Accordingly, we transferred all of our debt securities that were not already classified as available for sale from held to maturity to available for sale. In accordance with SFAS 115, all of our debt securities at December 31, 2008 and 2007 were stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income net of deferred income taxes. In connection with the transfer of debt securities from held to maturity to available for sale, we recognized a net unrealized gain of approximately $215,000, which is included in other comprehensive income for the year ended December 31, 2007.

Our fixed maturity securities, which are classified as available-for-sale, and certain cash equivalent investments are managed by Gen Re — New England Asset Managers (a subsidiary of Berkshire Hathaway, Inc.), an independent asset manager that operates under investment guidelines approved by our board of directors. Cash and cash equivalents include cash on deposit, commercial paper, short-term municipal securities, pooled short-term money market funds and certificates of deposit. Our fixed maturity securities available for sale include obligations of the U.S. Treasury or U.S. agencies, obligations of states and their subdivisions, long-term certificates of deposit, U.S. dollar-denominated obligations of U.S. corporations, mortgage-backed securities, collateralized mortgage obligations, mortgages guaranteed by the Federal National Mortgage Association and the Government National Mortgage Association, and asset-backed securities. We did not have any equity securities at June 30, 2009. Our real estate portfolio consists of one rental property in Florida. See “Business — Investments.”

We manage our investment credit risk through a diversification strategy that reduces our exposure to any business sector or security. See “Business — Investments” for additional information. Our investment portfolio,

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including cash and cash equivalents, had a carrying value of $55.1 million at June 30, 2009, and is summarized below:

			Percentage of
	Fair Value		Portfolio
	(In thousands)
Debt securities available for sale:
U.S. government securities	$	4,114		7.5	%
U.S. government agencies		309		0.6
Asset-backed and mortgage-backed securities		13,144		23.8
State and political subdivisions		17,741		32.1
Corporate securities		11,772		21.4
Total fixed maturity securities		47,080		85.4
Short-term investments		3,560		6.5
Real estate held for the production of income		248		0.5
Cash and cash equivalents		4,179		7.6
Total investments, including cash and cash equivalents	$	55,067		100.0	%

At June 30, 2009, 100% of our debt securities available for sale were rated “investment grade” (credit rating of AAA to BBB- by Standard & Poor’s Corporation, or S&P) and 97.4% of our debt securities available for sale were rated A or better by Standard & Poor’s Corporation. The following table shows the distribution of our fixed maturity securities available for sale as of June 30, 2009 as rated by S&P. Actual ratings do not differ from ratings exclusive of guarantees by third parties as of June 30, 2009.

S&P Credit Rating
AAA	49.3	%
AA	27.5
A	20.7
BBB	2.4
Below BBB	0.1
Total	100.0	%

Approximately 46% of the fair value of our state and political subdivision debt securities are guaranteed by third parties, as follows. We have no direct investments in these financial guarantee companies.

			Percentage of Total
			State and Political
			Subdivision
Guarantor	Fair Value		Securities
	(In thousands)
Ambac Assurance Corporation	$	1,643		9.3	%
Financial Guaranty Insurance Company		3,297		18.5
Financial Security Assurance, Inc.		1,638		9.2
MBIA, Inc.		1,502		8.5
Total	$	8,080		45.5	%

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We seek to manage our investment portfolio such that the security maturities provide adequate liquidity relative to our expected claims payout pattern. A summary of the carrying value of our fixed maturity securities available for sale as of June 30, 2009, by contractual maturity, is as follows:

	Fair		Percentage of
	Value		Portfolio
	(In thousands)
Due in one year or less	$	4,351		9.2	%
Due after one year through five years		20,457		43.5
Due after five years		9,128		19.4
		33,936		72.1
Asset-backed and mortgage-backed securities		13,144		27.9
Total	$	47,080		100.0	%

We regularly review our investment portfolio to identify other-than-temporary impairments in the fair values of our securities. We consider various factors in determining whether a decline in the fair value of a security is other-than-temporary, including:

•  how long and by how much the fair value of the security has been below its cost;

•  the financial condition and near-term prospects of the issuer of the security, including any specific events that may affect our operations or earnings;

•  our intent and ability to keep the security for a sufficient time period for us to recover our value;

•  any downgrades of the security by a rating agency; and

•  any reduction or elimination of dividends, or nonpayment of scheduled interest payments.

The financial markets have recently experienced substantial and unprecedented volatility as a result of dislocations in the credit markets, including the bankruptcy of Lehman Brothers Holdings Inc. For the six months ended June 30, 2009, we did not recognize any other-than-temporary impairments. For 2008, we recognized an other-than-temporary impairment charge of approximately $875,000 related to investments in certain equity securities. Additionally, during 2008, we recognized an other-than-temporary-impairment charge of approximately $350,000 on our approximately $400,000 investment in certain Lehman Brothers Holdings, Inc. bonds. We do not believe that our investment portfolio contains any material exposure to subprime mortgage securities.

Effective January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (Observable Units) and the reporting entity’s own assumptions about market participants’ assumptions (Unobservable Units). The hierarchy level assigned to each security in our available-for-sale debt and equity securities

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portfolio is based upon our assessment of the transparency and reliability of the inputs used in the valuation as of the measurement date. The three hierarchy levels are as follows:

	Definition
Level 1	Observable unadjusted quoted prices in active markets for identical securities
Level 2	Observable inputs other than quoted prices in active markets for identical securities, including:
	(i)  quoted prices in active markets for similar securities,
	(ii)  quoted prices for identical or similar securities in markets that are not active,
	(iii)  inputs other than quoted prices that are observable for the security (e.g. interest rates, yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates, and
	(iv)  inputs derived from or corroborated by observable market data by correlation or other means
Level 3	Unobservable inputs, including the reporting entity’s own data, as long as there is no contrary data indicating market participants would use different assumptions

At December 31, 2008, all of our debt securities were classified as Level 1 or Level 2 under SFAS No. 157. If securities are traded in active markets, quoted prices are used to measure fair value (Level 1). All of our Level 2 securities are priced based on observable inputs, including (i) quoted prices in active markets for similar securities, (ii) quoted prices for identical or similar securities in markets that are not active or (iii) other observable inputs, including interest rates, volatilities, prepayment speeds, credit risks and default rates for the security. Our management is responsible for the valuation process and uses data from outside sources to assist with establishing fair value. As part of our process of reviewing the reasonableness of data obtained from outside sources, we review, in consultation with our investment portfolio manager, pricing changes that differ from those expected in relation to overall market conditions.

The following table presents our debt securities available for sale, classified by the SFAS No. 157 valuation hierarchy, as of June 30, 2009:

June 30, 2009 (Unaudited)

	Fair Value Measurement, Using
	Quoted
	Prices
	in Active
	Markets		Significant
	for		Other		Significant
	Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	In thousands
U.S. government securities	$	3,855	$	258	$	—	$	4,113
U.S. government agencies		—		309		—		309
Asset-backed and mortgage-backed securities		—		13,144		—		13,144
State and political subdivisions		—		17,742		—		17,742
Corporate securities		—		11,772		—		11,772
	$	3,855	$	43,225	$	—	$	47,080

The tax equivalent book yield on our investment portfolio was 4.56% and the average duration of the portfolio was 2.96 years at June 30, 2009.

Contractual Obligations and Commitments

We manage risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated life insurance companies. In the event these companies are unable to meet their obligations under these annuity contracts, we could be liable to the claimants, but our reinsurers remain obligated to indemnify us for all or part of these obligations in accordance with the terms of our reinsurance contracts. At

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December 31, 2008, we were contingently liable for annuities totaling $952,000 in connection with the purchase of structured settlements related to the resolution of claims. Loss reserves eliminated by these annuities at December 31, 2008 totaled $1.4 million. Each of the life insurance companies issuing these annuities, or the entity guaranteeing the life insurance company, has an A.M. Best Company rating of “A” (Excellent) or better.

The table below provides information with respect to our long-term debt and contractual commitments as of December 31, 2008:

			Payment Due by Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	In thousands
Reserves for losses and loss adjustment expenses(1)	$	74,550	$	29,820	$	26,092	$	14,910	$	3,728
Notes payable(2)		28,208		5,466		7,610		7,257		7,875
Surplus notes payable(2)		1,359		1,359		—		—		—
Subordinated debentures(2)(3)		1,928		1,928		—		—		—
Non-cancelable operating leases		2,014		1,139		875		—		—
Other obligations		165		165		—		—		—
	$	108,224	$	37,949	$	36,505	$	22,167	$	11,603

(1) The payment of reserves for losses and loss adjustment expenses by period are based on actuarial estimates of expected payout patterns and are not contractual liabilities as to a time certain. Our contractual liability is to provide benefits under the policy. As a result, our estimated payment of reserves for losses and loss adjustment expenses by period is subject to the same uncertainties associated with estimating loss and loss adjustment expense reserves generally and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid. For a discussion of loss and loss adjustment expense reserves, see “Business — Reserves for Losses and Loss Adjustment Expenses.” Actual payment of reserves for losses and loss adjustment expenses by period will vary, perhaps materially, from the table above to the extent that reserves for losses and loss adjustment expenses vary from actual ultimate claims and as a result of variations between expected and actual payout patterns. Our business, financial condition and results of operations may be adversely affected if our actual losses and loss adjustment expenses exceed our estimated loss and loss adjustment expense reserves. See “Risk Factors — Risks Related to Our Business” for a discussion of the uncertainties associated with estimating loss and loss adjustment expense reserves.

(2) Amounts include interest at rates in effect on December 31, 2008 associated with these obligations. The principal balance and accrued interest on our notes payable at December 31, 2008 was $18.0 million. The interest rate on our notes payable to Brooke and ULLICO, which together comprise approximately 94% of our total notes payable principal balance at December 31, 2008, is equal to the Federal Reserve prime rate plus 4.5% (7.75% at June 30, 2009 as utilized in the commitment table above) and may change on a daily basis. The interest rate on our notes payable to Mr. Mariano, our Chairman and Chief Executive Officer and the beneficial owner of the majority of our shares, which comprise approximately 6% of our total notes payable principal balance at December 31, 2008, is equal to the Federal Reserve prime rate plus 3.0% (6.25% at June 30, 2009 as utilized in the commitment table above) and may change on a daily basis. The note payable to Mr. Mariano is payable on demand, and, accordingly, the outstanding principal balance and interest payments on this note are reflected as due in less than 1 year. Payments on our notes payable to Brooke and ULLICO Inc. include guaranty fees payable to Mr. Mariano and do not contemplate prepayment. However, pursuant to the credit agreements and amendments thereto, notes payable may be prepaid. There is no prepayment premium. The principal and accrued interest on our surplus notes payable at December 31, 2008 was $1.4 million. The principal and accrued interest on our subordinated debentures at December 31, 2008 was $1.8 million. Interest rates on our surplus notes payable and subordinated

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debentures are fixed at 3.0%. See “— Liquidity and Capital Resources” for further discussion of our notes payable, surplus notes payable and subordinated debentures.

(3) Subordinated debentures are subject to renewal generally for an additional term of three years. Certain of the subordinated debentures are subject to renewal for up to two additional one-year terms.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial instruments. The major components of market risk affecting us are credit risk and interest rate risk. We did not own any equity securities at June 30, 2009. We currently have no exposure to foreign currency risk.

Credit Risk.  Credit risk is the potential loss arising principally from adverse changes in the financial condition of the issuers of our fixed maturity securities and the financial condition of our reinsurers. We manage our credit risk related to the issuers of our fixed maturity securities by generally investing in fixed maturity securities that have a credit rating of “A−” or better by Standard & Poor’s. We and our independent asset manager also monitor the financial condition of all issuers of our fixed maturity securities. To limit our risk exposure, we employ diversification policies that limit our credit exposure to any single issuer or business sector. At December 31, 2008, 99.9% of our fixed maturity securities available for sale were rated “investment grade” (credit rating of AAA to BBB-) by Standard & Poor’s and 99.0% of our fixed maturity securities available for sale were rated A or better by Standard & Poor’s. See “Business — Investments.”

We are subject to credit risk with respect to our reinsurers. Although our reinsurers are obligated to reimburse us to the extent we cede risk to them, we are ultimately liable to our policyholders on all risks we have reinsured. As a result, reinsurance contracts do not limit our ultimate obligations to pay claims, and we might not collect amounts recoverable from our reinsurers. With respect to authorized reinsurers, we manage our credit risk by generally selecting reinsurers with a financial strength rating of “A−” (Excellent) or better by A.M. Best and by performing quarterly credit reviews of our reinsurers. At December 31, 2008, 96.9% of our gross exposures to authorized reinsurers were from reinsurers rated “A−” (Excellent) or better by A.M. Best. With respect to unauthorized reinsurers, which include segregated portfolio captives, we manage our credit risk by generally maintaining collateral, typically in the form of funds withheld and letters of credit, to secure reinsurance recoverable balances. At December 31, 2008, 94.8% of our gross exposures to unauthorized reinsurers were collateralized. If one of our reinsurers suffers a credit downgrade, we may consider various options to lessen the risk of asset impairment including commutation, novation and additional collateral. See “Business — Reinsurance.”

We are subject to credit risk with respect to our customers. If a customer becomes insolvent or otherwise does not pay the full amount of the premium due on a policy, we may not receive adequate payment to compensate us for the risk incurred under the policy. If we are unable to recover the full amount of our premiums receivable, we recognize a pre-tax loss in the amount of any such unrecovered amount. We currently have an $8.3 premium receivable from PES, our former second largest stockholder. See “Risk Factors — Risks Related to our Company — We have filed a lawsuit against our former largest customer regarding amounts we contend are due and owing and are in dispute. This customer is controlled by an individual who was one of our stockholders as of December 31, 2008. We may never receive any of the disputed amounts that we contend are due and owing.”

Interest Rate Risk.  We have fixed maturity debt securities available for sale with a fair value of $54.4 million and notes payable with a fair value of $18.0 million at December 31, 2008, both of which are subject to interest rate risk. Interest rate risk is the risk that we may incur losses due to adverse changes in

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interest rates. Fluctuations in interest rates have a direct impact on the market valuation of our fixed maturity securities and the cost to service our notes payable.

The table below summarizes the interest rate risk associated with our fixed maturity debt securities held at December 31, 2008 by illustrating the sensitivity of fair value to selected hypothetical changes in interest rates, and the associated impact on our stockholders’ equity. We classify our fixed maturity securities as available-for-sale. These fixed maturity securities available-for-sale are carried on our balance sheet at fair value. Temporary changes in the fair value of our fixed maturity securities available for sale impact the carrying value of these securities and are reported in stockholders’ equity as a component of other comprehensive income, net of deferred taxes. The selected scenarios in the table below are not predictions of future events, but rather are intended to illustrate the effect such events may have on the fair value of our fixed maturity securities and on our stockholders’ equity.

			Estimated Increase
			(Decrease) in
						Stockholders’
Hypothetical Change in Interest Rates	Fair Value		Fair Value			Equity
	In thousands
200 basis point increase	$	51,448	$	(2,925	)	$	(1,931	)
100 basis point increase		52,791		(1,582	)		(1,044	)
No change		54,373		—			—
100 basis point decrease		56,156		1,783			1,177
200 basis point decrease		58,130		3,757			2,479

Inflation

Inflation rates may impact our financial condition and results of operations in several ways. Fluctuations in rates of inflation influence interest rates, which in turn affect the market value of our investment portfolio and yields on new investments. Inflation also affects the portion of reserves for losses and loss adjustment expenses that relates to hospital and medical expenses and property claims and loss adjustment expenses, but not the portion of reserves for losses and loss adjustment expenses that relates to workers’ compensation indemnity payments for lost wages, which are fixed by statute. Adjustments for inflationary effects are included as part of our review of loss reserve estimates. Increased costs are considered in setting premium rates, and this is particularly important in the health care area where hospital and medical inflation rates have exceeded general inflation rates. Operating expenses, including payrolls, are affected to a certain degree by the inflation rate.

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BUSINESS

Overview

We produce, underwrite and administer alternative market and traditional workers’ compensation insurance plans and provide claims services for insurance companies, segregated portfolio captives and reinsurers. Through our wholly owned insurance company subsidiary, Guarantee Insurance, we generally participate in a portion of the insurance underwriting risk. In our insurance services segment, we generate fee income by providing workers’ compensation claims services as well as agency and underwriting services. Workers’ compensation claims services include nurse case management, cost containment services and claims administration and adjudication services. Workers’ compensation agency and underwriting services include general agency services and specialty underwriting, policy administration and captive management services. Claims services and agency and underwriting services are performed almost entirely for the benefit of Guarantee Insurance, segregated portfolio captives and Guarantee Insurance’s traditional business quota share reinsurers, all under the Patriot Risk Services brand. We also provide these services for the benefit of another insurance company under its brand, a practice which we refer to as business process outsourcing. In our insurance segment, we generate underwriting income and investment income by providing alternative market workers’ compensation risk transfer solutions and traditional workers’ compensation insurance coverage.

We provide insurance services, alternative market workers’ compensation risk transfer solutions and traditional workers’ compensation insurance coverage in Florida and 22 other jurisdictions. We believe that our insurance services capabilities, specialized alternative market product knowledge and our hybrid business model allow us to achieve attractive returns through a range of industry pricing cycles and provide a substantial competitive advantage in areas that are underserved by competitors, which are generally insurance service providers or insurance carriers. Although we currently focus our business in the Midwest and Southeast, we believe that there are opportunities to market our insurance services, alternative market workers’ compensation risk transfer solutions and traditional workers’ compensation insurance coverage in other areas of the United States.

Our Services and Products

Workers’ Compensation Insurance Services

Through our subsidiary, PRS Group, Inc. and its subsidiaries, which we collectively refer to as PRS, and our subsidiary, Patriot Underwriters, Inc. and its subsidiary, which we collectively refer to as PUI, we earn income for workers’ compensation claims services as well as agency and underwriting services. Workers’ compensation claims services include nurse case management, cost containment services and claims administration and adjudication services. Cost containment services refer to workers’ compensation bill review and re-pricing services. Workers’ compensation agency and underwriting services include general agency services and specialty underwriting, policy administration and captive management services. We currently provide these services principally to Guarantee Insurance for its benefit, for the benefit of segregated portfolio captives and for the benefit of Guarantee Insurance’s traditional business quota share reinsurers. We also provide these services to another insurance company, ULLICO Casualty Company, which we refer to as our BPO customer, for business that PUI produces for ULLICO Casualty Company pursuant to a fronting agreement between the two companies. ULLICO Casualty Company is licensed to write workers’ compensation insurance in 47 states plus the District of Columbia and is rated “B+” (Good) by A.M Best.

Our unconsolidated insurance services segment fee income includes all nurse case management, cost containment and other insurance services fee income earned by PRS and PUI. However, the fees earned by PRS and PUI that are attributable to the portion of the insurance risk that Guarantee Insurance retains and assumes from other insurance companies are eliminated upon consolidation. Therefore, our consolidated insurance services income consists of fees earned by PRS and PUI that are attributable to the portion of the insurance risk assumed by segregated portfolio cell captives and our quota share reinsurers and retained by our BPO customer. With respect to business written by Guarantee Insurance, the fees earned by PRS represent the fees paid by segregated portfolio captives and our quota share reinsurers for services performed on their behalf

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and for which Guarantee Insurance is reimbursed through a ceding commission. For financial reporting purposes, we treat these ceding commissions as a reduction in net policy acquisition and underwriting expenses. With respect to business produced for our BPO customer, the fees earned by PRS and PUI represent fees paid by the BPO customer attributable to the portion of insurance risk it retains.

In 2009, we began producing business and performing insurance services for our BPO customer. We earn commissions for producing business and insurance services income for providing underwriting, policy and claims administration, nurse case management and cost containment services and, in certain cases, services to segregated portfolio cell captives on the business we produce for this customer. Additionally, we assume up to 90% of the premium and associated losses and loss adjustment expenses on the business we produce for our BPO customer, as mutually determined on a policy-by-policy basis.

Workers’ Compensation Insurance Products

Alternative Market Business.  Through Guarantee Insurance, we provide alternative market workers’ compensation risk transfer solutions, including workers’ compensation policies or arrangements where the policyholder, an agent or another party generally bears a substantial portion of the underwriting risk. For example, the policyholder, an agent or another party may bear a substantial portion of the underwriting risk through the reinsurance of the risk by a segregated portfolio captive that is controlled by the policyholder, an agent or another party. A segregated portfolio captive refers to a captive reinsurance company that operates as a single legal entity with segregated pools of assets, or segregated portfolio cells, the assets and associated liabilities of which are solely for the benefit of the segregated portfolio cell participants. Through our segregated portfolio captive arrangements, we generally retain between 10% and 50% of the underwriting risk and earn a ceding commission from the segregated portfolio captive, which is payment to Guarantee Insurance by the captive of a commission as compensation for providing underwriting, policy and claims administration, captive management and investment portfolio management services.

Our alternative market business also includes other arrangements through which we share underwriting risk with our policyholders, such as large deductible policies or policies for which the final premium is based on the insured’s actual loss experience during the policy term, which we refer to as retrospectively rated policies. Unlike our traditional workers’ compensation policies, these arrangements align our interests with those of the policyholders or other parties participating in the risk-sharing arrangements, allowing them to share in the underwriting profit or loss. In addition, our alternative market business includes guaranteed cost policies issued to certain professional employer organizations and professional temporary staffing organizations on which we retain the risk. The excess of loss reinsurance on these policies is provided by the same reinsurer that covers our segregated portfolio captive insurance plans, retrospectively rated plans and large deductible plans, and these plans may be converted to risk sharing arrangements in the future.

We typically provide alternative market risk transfer solutions to:

•  larger and medium-sized employers such as hospitality companies, construction companies, professional employer organizations, clerical and professional temporary staffing companies, industrial companies and car dealerships;

•  low to medium hazard classes and some higher hazard classes; and

•  accounts with annual premiums ranging from $200,000 to $3 million.

Traditional Business.  Through Guarantee Insurance, we also provide traditional workers’ compensation insurance coverage. We manage insurance risk through the use of quota share and excess of loss reinsurance. Quota share reinsurance is a form of proportional reinsurance in which the reinsurer assumes an agreed upon percentage of each risk being insured and shares all premiums and losses with us in that proportion. Excess of loss reinsurance covers all or a specified portion of losses on underlying insurance policies in excess of a specified amount, or retention. We typically provide traditional workers’ compensation insurance coverage to:

•  small to medium-sized employers in a broad array of industries, including clerical and professional services, food services, retail and wholesale operations and industrial services;

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•  low to medium hazard classes; and

•  accounts with annual premiums below $250,000.

Our Competitive Strengths

We believe we have the following competitive strengths:

•  Exclusive Focus on Workers’ Compensation Services and Products.  Our operations are focused exclusively on workers’ compensation insurance services, workers’ compensation alternative market risk management solutions and traditional workers’ compensation insurance coverage. We believe this focus allows us to provide superior services and products to our customers relative to multiline insurance service providers and multiline insurance carriers. Furthermore, a significant portion of our services and products are provided in Florida, and we believe that certain of our multiline competitors that offer workers’ compensation coverage as part of a package policy including commercial property coverage tend to compete less for Florida workers’ compensation business because of property-related loss experience.

•  Hybrid Business Model.  In addition to the fee income we earn for nurse case management, cost containment and other insurance services, we also earn ceding commissions on our alternative market business involving segregated portfolio cell captives and we earn underwriting and investment income on our alternative market and traditional workers’ compensation business. Because our nurse case management and cost containment service income is principally related to workers’ compensation claim frequency and medical costs, the operating results of our insurance services segment are not materially dependent on fluctuations or trends in prevailing workers’ compensation insurance premium rates. We believe that by changing the emphasis we place on our insurance services segment and ceding commission-based alternative market business relative to our traditional workers’ compensation business, we will be better able to achieve attractive returns and growth through a range of market cycles.

•  Targeted Market for Alternative Market Risk Transfer Solutions.  Although other insurers generally only offer alternative market products to large corporate customers, we offer alternative market workers’ compensation solutions to medium-sized employers as well as larger companies, enabling them and others to share in the claims experience and benefit from favorable loss experience.

•  Enhanced Traditional Business Product Offerings.  In our traditional business, we offer a number of flexible payment plans, including pay-as-you-go plans in which we partner with payroll service companies and our independent agents and their small employer clients to collect premiums and payroll information on a monthly or bi-weekly basis. Pay-as-you-go plans provide us with current payroll data and allow employers to remit premiums through their payroll service provider in an automated fashion. Flexible payment plans give employers a way to purchase workers’ compensation insurance without having to make a large upfront premium deposit payment. We believe that flexible payment plans, including pay-as-you-go plans, for small employers provide us with the opportunity to earn more favorable underwriting margins due to several factors:

i.  favorable cash flows afforded under this plan can be more important to smaller employers than a price differential;

ii. smaller employers are generally less able to obtain premium rate credits and discounts; and

iii.  the premium remittance mechanism results in a more streamlined renewal process and a lower frequency of business being re-marketed at renewal, leading to more favorable retention rates.

•  Specialized Underwriting Expertise.  We select and price our alternative market and traditional business products based on the specific risk associated with each potential policyholder rather than solely on the policyholder’s industry class. We utilize state-specific actuarial models on accounts with annual premiums over $100,000. In our alternative market business, we seek to align our interests with those of our policyholders or other parties participating in the risk-sharing arrangements by having them share in the underwriting profits and losses. We believe that we can compete effectively for alternative

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market and traditional insurance business based on our specialized underwriting focus and our accessibility to our clients. We generally compete on these attributes more so than on price, which we believe is generally not a differentiating factor in the states in which we write most of our business. For the six months ended June 30, 2009 and year ended December 31, 2008, we reported consolidated net loss ratios of 55.6% and 57.5%, respectively. The net loss ratio is the ratio between losses and loss adjustment expenses incurred and net premiums earned, and is a measure of the effectiveness of our underwriting efforts.

•  Effective Claims Management, Nurse Case Management and Cost Containment Services.  Guarantee Insurance began writing business as a subsidiary of Patriot Risk Management in the first quarter of 2004. As our business has grown, we have been successful in reasonably estimating our total liabilities for losses and loss adjustment expenses, establishing and maintaining adequate case reserves and rapidly closing claims. We provide our customers with an active claims management program. Our claims department employees average more than 12 years of workers’ compensation insurance industry experience, and members of our claims management team average more than 24 years of workers’ compensation experience. In addition, our nurse case management and bill review professionals have extensive training and expertise in assisting injured workers to return to work quickly. As of December 31, 2008, approximately 6%, 2%, 1% and 0.4% of total reported claims for accident years 2007, 2006, 2005 and 2004, respectively, remained open. Final net paid losses and loss adjustment expenses associated with closed claims for these accident years were approximately 5% less than the initial reserves established for them.

•  Strong Distribution Relationships.  We maintain relationships with our network of more than 570 independent, non-exclusive agencies in 23 jurisdictions by emphasizing personal interaction and superior service and maintaining an exclusive focus on alternative market workers’ compensation solutions and traditional workers’ compensation insurance coverage. Our experienced underwriters work closely with our independent agents to market our products and serve the needs of prospective policyholders.

•  Proven Leadership and Experienced Management.  The members of our senior management team average over 20 years of insurance industry experience and over 15 years of workers’ compensation insurance experience. Their authority and areas of responsibility are consistent with their functional and state-specific experience.

Our Strategy

We believe that the net proceeds from this offering will provide us with the additional capital necessary to increase the amount of insurance that we write and to make strategic acquisitions of insurance services operations and insurance companies. We plan to continue pursuing profitable growth and favorable returns on equity, and believe that our competitive strengths will help us achieve our goal of delivering attractive returns to our investors. Our strategy to achieve these goals is to:

•  Expand in Our Existing Markets.  In all of the states in which we operate, we believe that a significant portion of total workers’ compensation insurance premium is written by numerous companies that individually have a small market share. We believe that our market share in each of the states in which we currently write business does not exceed 2%. We plan to continue to take advantage of our competitive position to expand in our existing markets. We believe that our risk selection, claims management, nurse case management and cost containment capabilities position us to profitably increase market share in our existing markets.

•  Expand into Additional Markets.  We are licensed to write workers’ compensation insurance in 27 jurisdictions, and we also hold 4 inactive licenses. For the six months ended June 30, 2009, we wrote traditional and alternative market business in 23 jurisdictions, principally in those jurisdictions that we believe provide the greatest opportunity for near-term profitable growth. For the six months ended June 30, 2009, approximately 80% of our traditional and alternative market business was written in Florida, New Jersey, Missouri, Georgia, Indiana and New York. We wrote approximately 38% of our

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direct premiums written in Florida for the six months ended June 30, 2009. In 2009, we entered into an agreement to produce business and perform insurance services for our BPO customer to gain access to workers’ compensation insurance business in certain additional states, including California and Texas. We are in negotiations with two other insurance companies, and are seeking additional agreements with other insurance companies, with respect to similar arrangements. We plan to expand our business in states where we believe we can profitably write business. To do this, we plan to continue to leverage our talented pool of personnel, some of whom have prior expertise operating in states in which we do not currently operate. In addition, we may seek to acquire other insurance companies, books of business or other workers’ compensation policy and claims administration providers, general agencies or general underwriting organizations as we expand in our existing markets and into additional markets.

•  Expand Nurse Case Management, Cost Containment and Other Insurance Services Operations.  We plan to continue to generate fee income through our insurance services segment by offering workers’ compensation nurse case management and cost containment services to segregated portfolio captives and our quota share reinsurers. We plan to offer these services, together with general agency, general underwriting and policy and claims administration services, to other regional and national insurance companies and self-insured employers. We also plan to increase our insurance services income by expanding both organically and through strategic acquisitions of workers’ compensation policy and claims administration service providers, general agencies or general underwriting organizations. Taking advantage of our hybrid business model, we plan to identify and acquire insurance services operations that will create synergies with our alternative market and traditional workers’ compensation business.

•  Obtain a Favorable Rating from A.M. Best. We have expanded our business profitability without an A.M. Best rating, and we believe that we can continue to do so with the net proceeds from this offering. However, we are seeking, and believe that we are well positioned to obtain, a favorable rating from A. M. Best upon completion of this offering. We believe that a favorable rating from A.M. Best would increase our ability to market to large employers and create new opportunities for our products and services in rating sensitive markets.

•  Leverage Existing Infrastructure.  We service our insurance services customers and policyholders through regional offices in three states, each of which we believe has been staffed to accommodate a certain level of insurance services business and premium growth. We plan to realize economies of scale in our workforce and leverage other scalable infrastructure costs.

Our Organization

Patriot Risk Management, Inc. was incorporated in Delaware in April 2003 by Steven M. Mariano, our Chairman, President and Chief Executive Officer. In September 2003, our wholly owned subsidiary, Guarantee Insurance Group, Inc., acquired Guarantee Insurance Company (“Guarantee Insurance”), a shell property and casualty insurance company that was not writing new business at the time we acquired it. At that time, Guarantee Insurance had approximately $3.2 million in loss and loss adjustment expense reserves relating to commercial general liability claims that had been in run-off since 1983, and was licensed to write insurance business in 41 states and the District of Columbia. Guarantee Insurance is domiciled in Florida and began writing business as a subsidiary of Patriot Risk Management in the first quarter of 2004. Guarantee Insurance is currently licensed to write workers’ compensation insurance in 27 jurisdictions, and also holds 4 inactive licenses.

In 2005, we formed PRS Group, Inc. as a wholly owned subsidiary and incorporated Patriot Risk Services, Inc. and Patriot Re International, Inc. as wholly owned subsidiaries of PRS Group, Inc. PRS provides nurse case management and cost containment services for the benefit of Guarantee Insurance, segregated portfolio captives and our quota share reinsurers. Patriot Re International, Inc. is licensed as a reinsurance intermediary broker in 2 jurisdictions, although Patriot Re’s business was in run-off through the second quarter of 2009 and is currently inactive.

In 2008, we formed Patriot Recovery, Inc. to assist us in investigation and subrogation activities.

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On October 27, 2009, we entered into a letter of intent with Argonaut Insurance Company to acquire Argonaut-Southwest Insurance Company, a shell property and casualty insurance company domiciled in Illinois for a cash price of $1.2 million plus the statutory surplus of that company as of September 30, 2009, which was approximately $15.0 million. We plan to rename Argonaut-Southwest as Patriot Fire & Casualty Insurance Company when we acquire it.

In connection with, and as a condition to our acquisition of PF&C, we are seeking to have it redomesticated to Florida. Both the redomestication and acquisition are subject to regulatory approvals by both the Illinois and Florida insurance departments. If we receive all regulatory approvals for this transaction, we plan to acquire PF&C within 30 days after the date of this prospectus. There can be no assurance that we will obtain the necessary regulatory approvals to complete this acquisition. We do not believe that our failure to acquire PF&C will adversely affect our business plan.

As of December 31, 2008, PF&C had approximately $17.7 million of total assets, comprised principally of cash and invested assets, and had approximately $2.7 of total liabilities, of which approximately $2.6 million represented ceded reinsurance premiums payable. For the year ended December 31, 2008, PF&C had approximately $3.7 million of direct premiums written, $2.7 million of direct premiums earned and $140,000 of net income, nearly all of which income represented investment income. The operations of PF&C for the years ended December 31, 2008, 2007 and 2006 were substantially different from our operations, and it will be a condition to closing the consummation of the acquisition that all in-force business is indemnity reinsured by an affiliate of Argonaut Insurance Company, and further that all of the liabilities of PF&C be transferred out of PF&C prior to or as soon as practicable after the closing. All of the in-force business is currently reinsured to an affiliate of Argonaut Insurance Company. PF&C’s annual historical financial statements for the years ended December 31, 2008, 2007 and 2006 and presentation of the pro forma effects of such business combination would not be meaningful to the understanding of our operations and, accordingly, have not been included in this prospectus.

PF&C is licensed to write workers’ compensation insurance in Arizona, Arkansas, California, Illinois, Louisiana, Mississippi, New Jersey, New Mexico, Oklahoma, Oregon, and Texas. Guarantee Insurance is licensed in each of these jurisdictions except for Arizona, California, Illinois, Oregon, and Texas. We intend to contribute a substantial portion of the proceeds of this offering to Guarantee Insurance and, if we acquire it, to PF&C, to support their premium writings. We intend to use a portion of the net proceeds of this offering to pay the purchase price to acquire PF&C within 30 days after the date of this prospectus. We believe that the acquisition of PF&C will allow us to obtain licenses to write business in additional states and offer, in certain states, separate rating plans from those offered through Guarantee Insurance, thus allowing us and our producers additional rating flexibility to write a broader range of risks than might be possible under the rating plans of only a single insurer.

In February 2008, we renamed several of our companies. Prior to February 2008, Patriot Risk Management, Inc. was named SunCoast Holdings, Inc.; Guarantee Insurance Group, Inc. was named Brandywine Insurance Holdings, Inc.; and PRS Group, Inc. was named Patriot Risk Management, Inc. In 2009, we renamed two of our inactive subsidiaries as Patriot Underwriters, Inc. and Patriot General Agency, Inc. We plan to license these entities, as appropriate, and use them to provide general agency and general underwriting services to third parties. General agency services were provided to third parties by certain PRS Group, Inc. subsidiaries in 2008 and 2007. Patriot Risk Services, Inc. is currently licensed as an insurance agent or producer in 19 jurisdictions. Patriot Insurance Management Company is currently licensed as an insurance agent or producer in 34 jurisdictions. Patriot Underwriters, Inc. is licensed as an insurance producer in 39 jurisdictions. Patriot General Agency, Inc. is licensed as an insurance producer in 39 jurisdictions. We plan to utilize Patriot Underwriters, Inc. and Patriot General Agency, Inc. to provide general agency and general underwriting services to third parties and cease providing general agency services through Patriot Risk Services, Inc. and Patriot Insurance Management Company.

Patriot Risk Management, Inc. is an insurance holding company that was incorporated in Delaware in 2003. Our principal subsidiaries are Guarantee Insurance Company, Patriot Underwriters, Inc. and Patriot Risk

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Services, Inc. Our executive offices are located at 401 East Las Olas Boulevard, Suite 1540, Fort Lauderdale, Florida 33301, and our telephone number at that location is (954) 670-2900.

Industry Overview and Outlook

Workers’ compensation insurance is a system established under state and federal laws under which employers are required to pay for their employees’ medical, disability, vocational rehabilitation and death benefit costs for injuries, death or occupational diseases arising out of employment, regardless of fault. The principal concept underlying workers’ compensation laws is that employees injured in the course and scope of their employment have only the legal remedies available under workers’ compensation laws and do not have any other recourse against their employer. An employer’s obligation to pay workers’ compensation benefits does not depend on any negligence or wrongdoing on the part of the employer and exists even for injuries that result from the negligence or fault of another person, a co-employee or, in most instances, the injured employee.

Insurance Services

Insurance services include workers’ compensation general agency and underwriting services, including policy administration, and claims services. Claims services include nurse case management, cost containment and claims administration.

With respect to claims services, workers’ compensation nurse case management and cost containment services are intended to help control the cost of workers’ compensation claims through intervention and ongoing review of services proposed and provided. Claims case management and cost containment techniques were originally developed to stem the rising costs of medical care for employers and health insurance companies. Employers and workers’ compensation insurance companies have been slow to implement nurse case management and cost containment techniques to workers’ compensation claims, primarily because the aggregate costs of workers’ compensation claims are relatively small compared to costs associated with group health benefits and because state-by-state regulations related to workers’ compensation are far more complex than those related to group health insurance. However, we believe that employers and insurance carriers have been increasing their focus on nurse case management and cost containment to control their workers’ compensation costs.

An increasing number of states have adopted legislation encouraging the use of workers’ compensation nurse case management and cost containment to assist employers in controlling their workers’ compensation costs. These laws generally provide employers an opportunity to channel injured employees into provider networks. In certain states, these laws require licensed organizations to offer certain specified services, such as utilization management, case management, peer review and provider bill review. We believe that these laws generally establish a framework within which we can provide our customers with a full range of nurse case management and cost containment services for greater workers’ compensation cost control.

Certain states do not permit employers to restrict a claimant’s choice of provider, making it more difficult for employers to utilize, or engage other organizations to provide, nurse case management and cost containment techniques. However, in certain states, employers have the right to direct employees to a specific primary healthcare provider during the onset of a workers’ compensation case, subject to the right of the employee to change physicians after a specific period. In addition, workers’ compensation laws vary from state to state, making it difficult for multi-state employers to adopt uniform policies to administer, manage and control the costs of benefits. As a result, we believe that effective nurse case management and cost containment requires approaches tailored to the specified regulatory environment in which the employer is operating.

Insurance

Workers’ compensation insurance policies generally provide that the insurance carrier will pay all benefits that the insured employer may become obligated to pay under applicable workers’ compensation laws. Each state has a regulatory and adjudicatory system that quantifies the level of wage replacement to be paid,

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determines the level of medical benefits to be provided and the cost of permanent impairment and specifies the options in selecting medical providers available to the injured employee or the employer. These state laws generally require two types of benefits for injured employees: medical benefits, which include expenses related to diagnosis and treatment of the injury, as well as any required rehabilitation, and indemnity payments, which consist of temporary wage replacement, permanent disability payments and death benefits to surviving family members. To fulfill these mandated financial obligations, virtually all employers are required to purchase workers’ compensation insurance or, if permitted by state law or approved by the U.S. Department of Labor, to self-insure. The employers may purchase workers’ compensation insurance from a private insurance carrier, a state-sanctioned assigned risk pool or a self-insurance fund, which is an entity that allows employers to obtain workers’ compensation coverage on a pooled basis. Employers, agents and other parties may also participate in workers’ compensation underwriting risk through a segregated portfolio captive that is controlled by the policyholder, agent or another party, or through other risk sharing arrangements, such as large deductible policies or retrospectively rated policies.

We believe the challenges faced by the workers’ compensation insurance industry over the past few years have created significant opportunity for us to increase the amount of business we write. According to the 2009 NCCI State of the Line Report, the workers compensation insurance industry combined ratio for both 2008 (preliminary) and 2007 was 101%, an eight-point increase from 2006’s combined ratio of 93%. Large carriers that traditionally compete for business on price rather than service dominate the industry. As the industry experiences an average underwriting loss (greater than 100% combined ratio), the large carriers charge higher prices and workers’ compensation clients may turn elsewhere for the lowest cost option. When the commodity portion of the market constricts, we believe more business moves towards specialty carriers like us.

Generally, market opportunities for commercial workers’ compensation insurers are more favorable when residual markets are less active and less profitable. Residual market organizations generally serve as “insurers of last resort,” issuing policies to those who are not able to find traditional coverage in the voluntary market. These organizations come in several forms, including joint underwriting associations, health associations, and compensation funds. The 2009 NCCI State of the Line Report shows that residual market policy year premium volume decreased from approximately $1.2 billion in 2006 to approximately $1.0 billion in 2007 and a projected $0.7 billion in 2008. According to the report, market share for the residual market decreased from approximately 10% in 2006 to approximately 8% in 2007 and approximately 6% in 2008 (preliminary).

According to the 2009 NCCI State of the Line Report, medical costs remain an area of concern. The report indicates that medical costs increased by approximately 7% per year from 2002 through 2007. The report projects that medical costs will comprise approximately 58% of total workers compensation claim costs in 2008, compared to approximately 53% in 1998 and 46% in 1988. To help control the impact of rising medical costs on workers’ compensation, we believe that states will continue to enact medical fee schedules and insurers will continue to aggressively manage vendor selection and performance and to control prescription drug expenditures through the use of generic drugs and care management initiatives.

For the six months ended June 30, 2009 and the years ended December 31, 2008 and 2007, we wrote approximately 60%, 67% and 70%, of our direct premiums written, respectively, in administered pricing states — Florida, Indiana, New Jersey, and, prior to October 1, 2008, New York. Effective October 1, 2008, New York is no longer an administered pricing state. In 2008, we wrote approximately 46% of our direct premiums written in Florida. In administered pricing states, insurance rates are set by the state insurance regulators and are adjusted periodically. Rate competition generally is not permitted in these states. Therefore, rather than setting rates for the policies, our underwriting efforts in these states for our traditional business relate primarily to the selection of the policies we choose to write at the premium rates that have been set.

The Florida OIR has approved workers’ compensation rate decreases each year over the past several years. In August 2009, the NCCI submitted a filing proposing an overall workers’ compensation rate level decrease of 6.8%, effective January 1, 2010, which was approved by the Florida OIR on October 15, 2009. In October 2008, the Florida OIR approved an average statewide rate decrease of 18.6% effective January 1, 2009. In February 2009, the Florida OIR approved an average statewide rate increase of 6.4%, effective April 1, 2009, associated with the Florida Supreme Court’s decision to eliminate statutory limits on attorneys’

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fees that were imposed as a result of 2003 reforms. In June 2009, the Florida OIR approved a rollback to the rates that became effective on January 1, 2009 in connection with Florida legislation that restored the limit on attorneys’ fees and clarified related statutory language that the Florida Supreme Court had determined to be ambiguous. In October 2007, the NCCI submitted an amended filing calling for a Florida statewide rate decrease of 18.4%, which was approved by the Florida OIR on October 31, 2007 and was effective January 1, 2008. In October 2006, the Florida OIR approved an average statewide rate decrease of 15.7%, effective January 1, 2007.

Significant declines in claim frequency and an improvement in loss development in Florida since the legislature enacted certain reforms in 2003 are two principal reasons for the mandated premium level decreases. We have responded to these rate decreases by expanding our alternative market business in Florida and strengthening our collateral on reinsurance balances on Florida alternative market business. We expect an increase in Florida experience modifications, which serve as a basic factor in the calculation of premiums. We anticipate that our ability to adjust to these market changes will create opportunities as our competitors find the Florida market less desirable.

Business Segments

We operate in two business segments:

•  Insurance Services Segment.  In our insurance services segment, we generate fee income by providing workers’ compensation claims services as well as agency and underwriting services. Workers’ compensation claims services include nurse case management, cost containment services and, beginning in the second quarter of 2009, claims administration and adjudication services. Workers’ compensation agency and underwriting services include general agency services and, beginning in the second quarter of 2009, specialty underwriting, policy administration and captive management services. Nurse case management and cost containment services are performed for the benefit of Guarantee Insurance, segregated portfolio captives and our traditional business quota share reinsurers under the Patriot Risk Services brand. In addition, claims services and agency and underwriting services are performed for the benefit of another insurance company, which we refer to as our BPO customer, through business process outsourcing relationships.

•  Insurance Segment.  In our insurance segment, we provide workers’ compensation alternative market insurance solutions and traditional workers’ compensation policies for small to mid-sized employers as well as larger companies, generally with annual premiums of less than $3 million. In the alternative market, we write policies under which the policyholder, an agent or another party bears a substantial portion of the underwriting risk through a segregated portfolio captive. Alternative market business also includes other arrangements through which we share underwriting risk with our policyholders, including large deductible policies and retrospectively rated policies, all of which allow policyholders to share in their own claims experience. We also write workers’ compensation business for employers with annual premiums generally below $250,000 for which Guarantee Insurance bears substantially all of the underwriting risk (subject to reinsurance arrangements), which we refer to as traditional business. For employers with larger annual premiums, we evaluate whether the risk is appropriate for our traditional business or more suited to an alternative market solution.

Insurance Services Segment

Operating Strategy

Through PRS and, beginning in 2009, PUI, the primary insurance services provided by us are claims services, including nurse case management and cost containment services for workers’ compensation claims. In the second quarter of 2009, we began providing these claims services, together with claims administration and adjudication services and general agency and underwriting services to our BPO customer.

Our consolidated insurance services income is currently generated principally from the services we provide to Guarantee Insurance for the benefit of segregated portfolio captives and our quota share reinsurers.

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For the six months ended June 30, 2009, services performed for Guarantee Insurance, segregated portfolio captives, our quota share reinsurers and our BPO customer accounted for approximately 97% of unconsolidated revenues of PRS and PUI. For the years ended December 31, 2008, 2007 and 2006, services performed for Guarantee Insurance, segregated portfolio captives and our quota share reinsurers accounted for substantially all of PRS unconsolidated revenues. Accordingly, our consolidated insurance services income is currently substantially dependent on Guarantee Insurance’s premium and risk retention levels. However, we expect our nurse case management, cost containment and other insurance services operations will become less dependent over time on Guarantee Insurance’s premium and risk retention levels as we expand our business process outsourcing relationships, obtain additional general agency appointments and secure other third-party insurance services contracts for nurse case management, cost containment and claims administration and adjudication services.

To complement our organic insurance services growth, we intend to expand our insurance services operations through additional targeted strategic relationships and explore acquisition opportunities. These relationships may involve fronting arrangements, where we assume a portion of the underwriting risk, or distribution and insurance services relationships, where we do not assume any underwriting risk but earn commissions for producing business and insurance services income for providing nurse case management and cost containment services and, in certain cases, services to segregated portfolio cell captives. In addition, we may seek to acquire other workers’ compensation policy and claims administration providers, general agencies or general underwriting organizations as we expand in our existing markets and into additional markets. Although we are not currently engaged in discussions with any potential acquisition candidates, we are routinely pursuing and evaluating acquisition opportunities that would enable us to expand our insurance services operations.

Customers

Our insurance services revenues for the six months ended June 30, 2009 and the years ended December 31, 2008, 2007 and 2006 were derived principally from Guarantee Insurance, segregated portfolio captives and our quota share reinsurers. In the second quarter of 2009, we began providing claims services and general agency and underwriting services to our BPO customer, and we plan to further expand our customer base for these services.

Products and Services

PRS and PUI earn insurance services income for the following services:

Claims Services

•  Nurse Case Management.  PRS provides nurse case management services for the benefit of Guarantee Insurance, segregated portfolio captives and our quota share reinsurers. In the second quarter of 2009, PRS also began providing nurse case management services for the benefit of our BPO customer. PRS’s nurse case managers have nationally recognized credentials accepted by workers’ compensation insurers, including the following: Registered Nurse, Certified Rehabilitation Registered Nurse and State Qualified Rehabilitation Provider. Upon receipt of the notice of injury, Guarantee Insurance claims are assigned to a nurse case manager. PRS’s nurse case managers do not provide health care services to the claimant. The nurse case manager’s role is to assist in resolving the claim and returning the injured worker to work as efficiently as possible. PRS nurse case managers actively monitor each file pursuant to a process that includes peer review and utilization guidelines for treatment. PRS’s nurse case managers contact the injured worker within 24 hours after claim filing to assess and assist in the early-intervention process. We believe that early intervention is essential for medical management and early return to work. PRS’s nurse case managers remain active on the claim from inception until claim resolution. The nurse case manager and the Guarantee Insurance adjuster work together to achieve the overall goal of helping the injured employee return to work and closing the claim. The case management process remains active during the course of treatment to help ensure there is medically necessary treatment towards resolution and the injured worker returns to work or pre-injury status. PRS

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provides these nurse case management services for a flat monthly fee over the life of the claim. For the six months ended June 30, 2009 and the year ended December 31, 2008, fees earned by PRS for nurse case management services represented approximately 50% and 47% of total unconsolidated insurance services income, respectively.

•  Cost Containment Services.  PRS provides cost containment services for the benefit of Guarantee Insurance, segregated portfolio captives and our quota share reinsurers. In the second quarter of 2009, PRS also began providing cost containment services for the benefit of our BPO customer. PRS has developed an extensive preferred provider network of physicians, clinics, hospitals, pharmacies and the like. Participating in PPO networks allows access to discounted services, which yield medical costs savings. For the years ended December 31, 2008 and 2007, PRS cost containment activities reduced medical bills by an average of 54% and 45%, resulting in a total savings in medical costs of $20.5 million and $10.6 million, respectively. PRS provides these bill review services on a percentage of savings basis. For the six months ended June 30, 2009 and the year ended December 31, 2008, fees earned by PRS for cost containment services represented approximately 46% and 43% of total unconsolidated insurance services income, respectively.

•  Claims Administration and Adjudication Services.  In the second quarter of 2009, PRS began providing workers’ compensation claims administration and adjudication services for the benefit of our BPO customer. Claims administration and adjudication services are provided pursuant to and in compliance with state rules and regulations as well as client-specific process guidelines. For the six months ended June 30, 2009, fees earned by PRS for claims administration and adjudication services represented less than 1% of total unconsolidated insurance services income.

General Agency and Underwriting Services

•  General Agency Service.  PRS began acting as a general agent for other insurance companies in late 2007. Through its subsidiary, Patriot General Agency, Inc., PUI replaced PRS as the provider of general agency and underwriting services in 2009. We facilitate the placement of workers’ compensation submissions on behalf of independent retail agents throughout the country, and receive commission income as a percentage of premiums written. PRS and PUI have never taken underwriting risk. For the six months ended June 30, 2009 and the year ended December 31, 2008, fees earned by us for general agency services provided to other insurance companies represented approximately 1% and 2% of total unconsolidated insurance services income, respectively. During the second quarter of 2009, we began offering general agency services to our BPO customer and plan to further expand our general agency services through additional business processing relationships and carrier appointments.

•  General Underwriting Services.  Through PUI, we provide workers’ compensation general underwriting services to our BPO customer. This customer, which does not specialize in workers’ compensation coverage, contracted with us to source, underwrite, process and service workers’ compensation insurance business on its behalf. We earn insurance services fee income for providing these services. Our BPO customer benefits from a specialty book of workers’ compensation insurance business, written on its insurance policies, without the need for it to build the necessary infrastructure and distribution network. For the six months ended June 30, 2009, fees earned by us for general underwriting services provided to our BPO customer represented approximately 1% of total unconsolidated insurance services income.

•  Reinsurance Intermediary Services.  Through a reinsurance co-brokerage agreement that we entered into in 2008 with an independent third party reinsurance intermediary, PRS placed excess of loss reinsurance and quota share reinsurance for Guarantee Insurance. This reinsurance co-brokerage agreement was terminated in the second quarter of 2009, and we do not expect reinsurance intermediary services to be a material component of our future insurance services income. For the six months ended June 30, 2009 and the year ended December 31, 2008, fees earned by us for reinsurance intermediary services represented approximately 2% and 6% of total unconsolidated insurance services income, respectively.

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Marketing

PRS and PUI market their claims services and general agency and underwriting services, respectively, through direct contact with insurance companies, reinsurance intermediaries and other insurance and claims service providers. Additionally, PRS and PUI participate in insurance conventions and industry activities and advertise in insurance industry publications.

Insurance Segment

Operating Strategy

We are committed to individual account underwriting and to selecting quality risks. Within our insurance segment, we have two lines of business: alternative market insurance solutions and traditional business. For alternative market insurance solutions, our business is comprised of various risk classifications and hazard levels. For higher risk classifications and hazard levels, we seek to mitigate our risk by retaining only a small portion of the exposure, securing adequate collateral to protect our interests in the event of adverse claims experience and charging an appropriate premium for the underlying risks. For traditional business, we generally write low to medium risk classifications and hazard levels, such as clerical office, light manufacturing, artisan contractors and the service industry.

Alternative Market Insurance Solutions.  Through our subsidiary, Guarantee Insurance, we provide alternative market workers’ compensation risk transfer solutions, including workers’ compensation policies or arrangements where the policyholder, an agent or another party generally bears a substantial portion of the underwriting risk. For example, the policyholder, an agent or another party may bear a substantial portion of the underwriting risk through the reinsurance of the risk by a segregated portfolio captive that is controlled by the policyholder, an agent or another party. A segregated portfolio captive refers to a captive reinsurance company that operates as a single legal entity with segregated pools of assets, or segregated portfolio cells, the assets and associated liabilities of which are solely for the benefit of the segregated portfolio cell participants. Through our segregated portfolio captive arrangements, we generally retain between 10% and 50% of the underwriting risk and earn a ceding commission from the captive, which is payment to Guarantee Insurance by the captive of a commission as compensation for providing underwriting, policy and claims administration, captive management and investment portfolio management services.

Our alternative market business also includes other arrangements through which we share underwriting risk with our policyholders, such as large deductible policies or policies for which the final premium is based on the insured’s actual loss experience during the policy term, which we refer to as retrospectively rated policies. Unlike our traditional workers’ compensation policies, these arrangements align our interests with those of the policyholders or other parties participating in the risk-sharing arrangements, allowing them to share in the underwriting profit or loss. In addition, our alternative market business includes guaranteed cost policies issued to certain professional employer organizations and professional temporary staffing organizations on which we retain the risk. The excess of loss reinsurance on these policies is provided by the same reinsurer that covers our segregated portfolio captive insurance plans, retrospectively rated plans and large deductible plans, and these plans may be converted to risk sharing arrangements in the future.

Many of our alternative market insurance solutions allow policyholders to share in their own claims experience and be rewarded for low claims costs rather than simply paying fixed premiums. In other cases, agencies or other parties participate in the risk. We believe that other insurers generally offer alternative market insurance solutions to larger corporate customers. We offer our alternative market solutions to middle market clients, generally with stable profitable claims experience. We typically provide alternative market insurance solutions for:

•  larger and medium-sized employers such as hospitality companies, construction companies, professional employer organizations, clerical and professional temporary staffing companies, industrial companies and car dealerships;

•  a broad spectrum of risk classifications and hazard levels; and

•  accounts with annual premiums ranging from $200,000 to $3 million.

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Traditional Business.  We began writing workers’ compensation policies through Guarantee Insurance in the first quarter of 2004. We focus on servicing small to mid-sized employers in a broad array of industries, including clerical and professional services, food services, retail and wholesale operations and industrial services located in Florida and other states in the Southeast and Midwest United States that generally have fewer than 300 employees. In certain circumstances, we also write traditional policies for larger employers. We typically write these policies for:

•  low to medium risk classifications and hazard levels; and

•  accounts with annual premiums below $250,000.

Alternative Market Segregated Portfolio Captives and Traditional Business Policyholders

As of June 30, 2009, there were 24 segregated portfolio cells with in-force policies in our alternative market segregated portfolio captive program. One agency-owned segregated portfolio captive cell comprised 42% of our total alternative market gross premiums written for the six months ended June 30, 2009. Four other captive cells individually comprised between 5% and 9% of our total alternative market gross premiums written for the six months ended June 30, 2009. No other captive cell comprised more than 5% of our total alternative market gross premiums written for the six months ended June 30, 2009. The average annual in-force premium per segregated portfolio captive cell as of June 30, 2009, including and excluding the segregated portfolio captive cell that comprised 42% of our total alternative market gross premiums written, was approximately $1.2 million and $858,000, respectively. Our renewal rates on alternative market business that we elected to quote for renewal for the year ended December 31, 2008 were 100% and approximately 97%, based on segregated portfolio cell counts and in-force premium, respectively.

As of June 30, 2009, we had approximately 5,900 traditional workers’ compensation policyholders and an average annual premium per policyholder of approximately $11,700. Our policy renewal rates on traditional business that we elected to quote for renewal for the year ended December 31, 2008 were approximately 94% and 91%, based on policy counts and in-force premium, respectively.

Products

All states require employers to provide workers’ compensation benefits to their employees for injuries and occupational diseases arising out of employment, regardless of whether such injuries or disease result from the employer’s or the employee’s negligence. Employers may either insure their workers’ compensation obligations or, subject to regulatory approval, self-insure their liabilities. Workers’ compensation statutes require that a policy cover three types of benefits: medical expenses, disability benefits and death benefits. Our workers’ compensation insurance policies also provide employers liability coverage, which provides coverage for an employer if an injured employee sues the employer for damages as a result of the employee’s injury.

Through Guarantee Insurance, we offer a range of workers’ compensation products and a variety of payment options designed to fit the needs of our policyholders and employer groups. Working closely with our independent agents, our underwriting staff helps determine which type of workers’ compensation insurance solution is appropriate for each risk.

Alternative Market Insurance Solutions.  We provide a variety of services to employers, insurance agencies or other parties who wish to bear a substantial portion of the underwriting risk with respect to workers’ compensation exposures, including fronting, claims adjusting, claims administration and investment management services. We earn a ceding commission as compensation for these services. Our alternative market customers are subject to, at a minimum, monthly self-reporting of payroll figures. Our alternative market insurance solutions include the following:

•  Segregated portfolio captive insurance plans.  We offer segregated portfolio captive plans to medium-sized and large employers in a broad array of industries, including hospitality companies, construction companies, professional employer organizations, clerical and professional temporary staffing companies, industrial companies and car dealerships, using offshore captive facilities. Prior to the advent of segregated portfolio captive programs, only very large risks could afford the capitalization and

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administrative costs associated with captive insurance company formation. Our approach utilizes standardized agreements and processes that allow employers with annual premiums as low as $200,000 to participate. Through our captive insurance plans, we write a workers’ compensation policy for the employer and facilitate the establishment of a segregated portfolio cell within a segregated portfolio captive by coordinating the necessary interactions among the party controlling the cell, the insurance agency, the segregated portfolio captive, our manager and insurance regulators in the jurisdiction where the captive is domiciled. These segregated portfolio cells may be controlled by policyholders, insurance agencies, parties related to policyholders or other parties.

Once the segregated portfolio cell is established, Guarantee Insurance enters into a reinsurance agreement (“Captive Reinsurance Agreement”) with the segregated portfolio captive acting on behalf of the segregated portfolio cell. Guarantee Insurance generally cedes on a quota share basis to the segregated portfolio captive 50% to 90% of the risk on the workers’ compensation policy up to a level specified in the captive reinsurance agreement, and retains 10% to 50% of such risk. Any amount of losses in excess of $1.0 million per occurrence is not covered by the captive reinsurance agreement. If the aggregate covered losses for the segregated portfolio cell exceed the level specified in the reinsurance agreement, the segregated portfolio captive reinsures the entire amount of the excess losses up to the aggregate liability limit specified in the captive reinsurance agreement. If the aggregate losses for the segregated portfolio cell exceed the aggregate liability limit, Guarantee Insurance retains 100% of those excess losses, except to the extent that any loss exceeds $1.0 million per occurrence, in which case the amount of such loss in excess of $1.0 million is reinsured under Guarantee Insurance’s excess of loss reinsurance program.

Because reinsurance does not relieve Guarantee Insurance of liability under the underlying workers’ compensation policies and Guarantee Insurance’s ability to collect for losses incurred is limited to the assets of the segregated portfolio cell, we generally protect ourselves from potential credit risk related to a segregated portfolio cell by holding collateral, including funds withheld for the account of the cell, to provide for payment of the reinsurance obligations incurred by the segregated portfolio captive on behalf of the cell. Funds withheld consists of ceded premiums net of ceding commissions, less claims paid on behalf of the segregated portfolio cell, together with collateral that the segregated portfolio captive posts on behalf of the cell in the form of cash. Funds withheld also include interest credited to the funds withheld account. In certain cases, the segregated portfolio cell captive also provides letters of credit or other financial instruments acceptable to Guarantee Insurance as collateral. In addition, we generally require the party controlling the segregated portfolio cell to guarantee the payment to Guarantee Insurance of all liabilities and obligations related to the cell that are owed under the captive reinsurance agreement and related agreements.

Segregated portfolio captives are generally required to provide collateral to us with respect to a cell in an amount that is greater than or equal to the ceded reserves that Guarantee Insurance initially estimates will be required on the underlying workers’ compensation policies relating to such cell. On an ongoing basis, we evaluate the adequacy of the collateralization of the segregated portfolio cell reserves. If we determine that the amount of collateral is inadequate, we seek additional collateral or otherwise evaluate the likelihood, based on available information, that the full amount of the reinsurance recoverable balance from the cell is collectible. If we deem it probable, based on available information, that all or a portion of a cell’s uncollateralized reinsurance recoverable balance is not collectible, we establish an allowance for such uncollectible reinsurance recoverable.

In order for the party controlling a segregate portfolio cell to receive any funds withheld attributable to our segregated portfolio captive insurance program, that party must formally request a dividend. However, dividends may only be declared by the board of the segregated portfolio captive out of the profits of the segregated portfolio cell under the captive reinsurance agreement or out of monies otherwise available for distribution in accordance with applicable law. In practice, upon receipt of a dividend request, Guarantee Insurance determines whether all expenses and liabilities with respect to the cell have been reasonably provided for or paid. If Guarantee Insurance approves the dividend request, we will submit a formal request to the domiciliary captive manager, supported with relevant

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financial justification for final approval. If approved by applicable regulatory authorities and the board of the segregated portfolio captive, Guarantee Insurance will remit the remaining funds attributable to the cell to the captive for payment to the party controlling the cell.

For the six months ended June 30, 2009 and the year ended December 31, 2008, approximately 74% and 78% of our direct premiums written on alternative market business were derived from captive insurance arrangements, respectively. For the six months ended June 30, 2009 and the year ended December 31, 2008, we ceded approximately 71% and 88%, respectively, of our segregated portfolio captive alternative market gross premiums written under quota share reinsurance agreements with segregated portfolio captives.

The following schematic illustrates the basic elements of a segregated portfolio captive arrangement, with our subsidiaries shaded:

* Ceded premiums, net of ceding commission, are held by Guarantee Insurance for the account of the segregated portfolio cell and, along with the collateral, constitute the loss fund for payment of reinsured claims.

•  Large deductible plans.  In 2008, we began offering large deductible plans as an alternative market insurance solution. Under these plans, we generally receive a lower premium than we would for a traditional plan, but the insured retains a greater share of the underwriting risk through a higher per-occurrence deductible. This gives the policyholder greater incentive to exercise effective loss controls. The per-occurrence deductibles on these plans range from $100,000 to $1,000,000, with various levels of aggregate protection. Under these plans, the policyholder is responsible for payments of claims that fall below the deductible. Guarantee Insurance pays the below-the-deductible portion of the claim and bills the policyholder for reimbursement. These types of programs require collateral from the policyholder based upon its individual loss profile and the loss development factors in the states where it is insured. For the six months ended June 30, 2009 and the year ended December 31, 2008, approximately 11% and 6% of our direct premiums written on alternative market business were derived from large deductible plans, respectively.

•  Retrospectively rated plans.  Under retrospectively rated plans, we charge an initial premium that is subject to adjustment at the end of the policy period. Retrospectively rated policies use formulae to adjust premiums based on the policyholder’s actual losses and loss adjustment expenses incurred and paid during the policy period, subject to a minimum and maximum premium. These policies are typically subject to annual adjustments until claims are closed. Unlike policyholder dividend plans in

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our traditional business (described below), retrospective premium adjustments are established contractually and are not determined at the discretion of the board of directors of Guarantee Insurance. Guarantee Insurance generally offers retrospectively rated policies to employers with minimum annual premiums of $100,000. For the six months ended June 30, 2009 and the year ended December 31, 2008, approximately 3% and 4% of our direct premiums written on alternative market business were derived from retrospectively rated policies, respectively.

•  Guaranteed cost policies with no risk sharing features. Our alternative market business also includes policies issued to certain professional employer organizations and professional temporary staffing organizations on which we retain the risk. The excess of loss reinsurance on these policies is provided by the same reinsurer that covers our segregated portfolio captive insurance plans, retrospectively rated plans and large deductible plans, and these plans may be converted to risk sharing arrangements in the future. For the six months ended June 30, 2009 and the year ended December 31, 2008, approximately 12% of our direct premiums written on alternative market business were derived from these guaranteed cost policies issued to certain professional employer organizations and professional temporary staffing organizations.

Traditional Business.  Through Guarantee Insurance, we also provide traditional workers’ compensation insurance coverage, under which Guarantee Insurance bears substantially all of the underwriting risk, subject to reinsurance arrangements. We manage that risk through the use of quota share and excess of loss reinsurance. Quota share reinsurance is a form of proportional reinsurance in which the reinsurer assumes an agreed upon percentage of each risk being insured and shares all premiums and losses with us in that proportion. Excess of loss reinsurance covers all or a specified portion of losses on underlying insurance policies in excess of a specified amount, or retention. We typically provide traditional workers’ compensation insurance coverage to small to medium-sized employers in a broad array of industries, including clerical and professional services, food services, retail and wholesale operations and industrial services, generally in low to medium risk classifications and hazard levels.

We write the following types of traditional workers’ compensation insurance business:

•  Guaranteed cost plans.  Our basic traditional product is a guaranteed cost policy, under which the premium for a policyholder is set in advance based upon rate filings approved by the insurance regulator and varies based only upon changes in the policyholder’s employee class codes and payroll. The premium does not increase or decrease based upon an updated participating employee census during the policy period. We regularly audit the payroll records of our policyholders to help ensure that appropriate premiums are being charged and paid and adjust premiums as appropriate. For the six months ended June 30, 2009 and the year ended December 31, 2008, approximately 77% and 76% of our direct premiums written on traditional business were derived from guaranteed cost products, respectively.

•  Pay-as-you-go plans.  We offer a monthly self-reporting option, under which a policyholder’s monthly premium payments are calculated by the policyholder using actual monthly payroll figures. We refer to these as pay-as-you-go plans. Pay-as-you-go plans are a relatively recent innovation in the workers’ compensation industry. With pay-as-you-go plans, the insured works with a payroll vendor to collect accurate payrolls and corresponding premiums to be remitted to us. Pay-as-you-go plans have become popular with insureds, and as a result some payroll companies now own their own insurance agency and some traditional insurance agencies now own their own payroll company. We believe that pay-as-you-go plans are a more efficient method of underwriting and administering workers’ compensation. These plans reduce our credit exposure for additional premiums that we determine we are owed based on payroll audits. Furthermore, the plans create a more precise ongoing workers’ compensation insurance expense and more predictable ongoing cash flow expectations for our policyholders. We began offering pay-as-you-go plans in late 2006. For the six months ended June 30, 2009 and the year ended December 31, 2008, approximately 15% and 18% of our direct premiums written on traditional business were derived from pay-as-you-go plans, respectively.

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•  Policyholder dividend plans.  Generally, under a policyholder dividend plan a fixed premium is charged based upon rate filings approved by the insurance regulator, but the insured may receive a dividend based upon favorable loss experience during the policy period. We began offering policyholder dividend plans in Florida and other states in 2007. Eligibility for these plans varies based upon the nature of the policyholder’s operations, value of premium generated, loss experience and existing controls intended to minimize workers’ compensation claims and costs. Policyholder dividends, which are to be paid at the discretion of the board of directors of Guarantee Insurance and in accordance with law, cannot be guaranteed and are generally based upon the policyholder’s loss experience and other terms stipulated in the policyholder dividend plan filed with the appropriate insurance regulators and policy terms, including the applicable dividend endorsements. We plan to pay dividends, if any, 18 months after policy expiration. For the six months ended June 30, 2009 and the year ended December 31, 2008, approximately 8% and 6% of our direct premiums written on traditional business were derived from policyholder dividend plans, respectively.

The following table sets forth gross premiums written and net premiums earned for alternative market and traditional business:

	Six Months
	Ended June 30,				Years Ended December 31,
	2009		2008		2008		2007		2006
	In thousands
Gross premiums written:
Direct business:
Alternative market	$	26,710	$	32,841	$	47,374	$	34,316	$	33,921
Traditional business		30,692		36,307		69,182		50,599		26,636
Total direct business		57,402		69,148		116,566		84,915		60,557
Assumed business
Assumed from BPO Customer	$	3,864	$	—	$	—	$	—	$	—
Assumed from NCCI National Workers’ Compensation Pool		1,289		—		—		—		—
Total assumed business		5,153		584		1,007		895		1,815
Total	$	62,555	$	69,732	$	117,563	$	85,810	$	62,372
Net premiums earned:
Direct business:
Alternative market	$	7,153	$	5,397	$	15,733	$	3,054	$	2,852
Traditional business		13,014		14,129		32,456		20,490		16,584
Total direct business		20,167		19,526		48,189		23,544		19,436
Assumed business(1)
Assumed from BPO Customer	$	519	$	—	$	—	$	—	$	—
Assumed from NCCI National Workers’ Compensation Pool		1,086		—		—		—		—
Total assumed business		1,603		578		1,031		1,069		1,617
Total	$	21,770	$	20,104	$	49,220	$	24,613	$	21,053

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The following tables set forth the total gross written premium for the six months ended June 30, 2009 and year ended December 31, 2008:

	Six Months Ended June 30, 2009
	Alternative Market
	Business					Traditional Business					Total
	Premium		Percentage			Premium		Percentage			Premium		Percentage
	In thousands (other than percentages)
Florida	$	13,582		50.8	%	$	8,010		26.1	%	$	21,592		37.6	%
New Jersey		4,076		15.3			6,860		22.4			10,936		19.1
Georgia		2,832		10.6			1,692		5.5			4,524		7.9
New York		1,304		4.9			2,616		8.5			3,920		6.8
Missouri		766		2.9			2,255		7.3			3,021		5.3
Arkansas		400		1.5			1,738		5.7			2,138		3.7
Indiana		329		1.2			1,760		5.7			2,089		3.6
Pennsylvania		480		1.8			1,056		3.4			1,536		2.7
Alabama		1,044		3.9			438		1.4			1,482		2.6
Other States		1,897		7.1			4,267		14.0			6,164		10.7
Total	$	26,710		100.0	%	$	30,692		100.0	%	$	57,402		100.0	%

	Year Ended December 31, 2008
	Alternative Market
	Business					Traditional Business					Total
	Premium		Percentage			Premium		Percentage			Premium		Percentage
	In thousands (other than percentages)s
Florida	$	32,977		69.6	%	$	20,658		29.9	%	$	53,635		46.0	%
New Jersey		1,792		3.8			9,681		14.0			11,473		9.8
Missouri		981		2.1			8,590		12.4			9,571		8.2
Georgia		4,097		8.6			4,508		6.5			8,605		7.4
Indiana		255		0.5			6,330		9.1			6,585		5.6
New York		2,586		5.5			3,510		5.1			6,096		5.2
Arkansas		474		1.0			4,523		6.5			4,997		4.3
Alabama		1,465		3.1			1,068		1.5			2,533		2.2
Oklahoma		492		1.0			1,834		2.7			2,326		2.0
Other States		2,255		4.8			8,480		12.3			10,735		9.2
Total	$	47,374		100.0	%	$	69,182		100.0	%	$	116,556		100.0	%

Marketing and Distribution

We distribute our alternative market solutions and traditional workers’ compensation plans exclusively through a network of independent agencies. We select agencies based on several key factors, such as size and scope of the agency’s operations, loss ratio of its existing business, targeted classes of business, reputation of the agency and our principals, producers and business philosophy. We target agencies that we believe share our service philosophy and are likely to send us the quality of business we are seeking. We invest a substantial amount of time in developing relationships with our agents, and we believe that this gives us the opportunity to underwrite the most profitable business in each state in which we write premiums. As of September 30, 2009, Guarantee Insurance had direct contracts with more than 570 independent non-exclusive agencies, with approximately 235 in the Midwest and 60 in the Northeast and 275 in the Southeast, including approximately 220 in Florida. As we seek to expand geographically, we plan to continue to devote considerable time developing strong relationships with quality agents that share our service philosophy.

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Working in conjunction with our agents, we evaluate whether a given risk is appropriate for the traditional or alternative market. Our alternative market insurance solutions are attractive to our agents’ larger employer customers with favorable loss profiles because they are able to share in the risk and reduce their workers’ compensation insurance costs if they continue to realize favorable loss experience.

We assign marketing representatives and underwriters based on relationships with agents and not necessarily based on geographic area. Our marketing efforts directed at agencies are implemented by our field underwriters, marketing staff and client services personnel. These personnel are assigned to specific agencies and work with these agencies in making sales presentations to potential policyholders.

We hold annual planning meetings with our agents to discuss the prior year’s results and to determine financial goals for the coming year. It is imperative to our success that we understand the goals and objectives of our agents. To date, this understanding has been an integral factor in our success. The relationships with our agencies are managed primarily through our field marketing and underwriting staff. However, key management personnel also maintain strong relationships with most of our agencies’ principals.

With our focus on workers’ compensation insurance, our range of workers’ compensation insurance solutions and products and our quality of service, we believe we are able to compete with larger, better capitalized and highly rated insurance company competitors by forming close relationships with our agents and focusing on small to mid-sized businesses. We strive to provide excellent customer service to our agents and policyholders, including fast turnaround of policy submissions, in order to attract and retain business. Our “pay-as-you-go” plan, pursuant to which we partner with payroll service companies and their clients to collect premiums and payroll information on a monthly basis, is attractive to our agents’ smaller business customers. Using this program, we are able to underwrite smaller businesses without requiring a large premium down payment, which eases the cash flow burden for these companies.

We also take an active role in several program and trade associations. These marketing efforts include print advertising in trade magazines as well as involvement in associations. We target the trade organizations that service the classes of business that we seek to write. This involvement helps to build client loyalty not only at the agency level, but at the insured level as well.

Underwriting

We do not use a class underwriting approach that targets specific classes of business or industries in which the acceptability of a risk is determined by the entire class or industry. Our underwriting strategy is to identify and target individual risks based on the individual characteristics of a prospective insured. However, we do not underwrite exposures involving occupational disease or exposures that are excluded from our reinsurance agreements. See “— Reinsurance.”

Our underwriters develop close relationships with our independent agency network through telephone and Internet contact and personal visits. Underwriters’ personal interaction with agents provides an enhanced understanding of the businesses we underwrite and the needs of both the agents and prospective insureds. Our underwriters have authority to underwrite individual risks both in the field and in the office. The extent of their authority is based on their personal industry experience and the individual risk characteristics of the prospective business. Risks outside of an underwriter’s authority are referred to underwriting management for underwriting approval. None of our agents has authority to bind Guarantee Insurance on policies for either alternative market or traditional business.

In assessing a risk, the underwriter and underwriting management review the individual exposures and consider many factors, including an employer’s prior loss experience, risk environment, commitment to loss prevention, willingness to offer modified duty or return to work to injured employees, safety record and operations.

In addition, the underwriters also evaluate losses in the employer’s specific industry, geographic area and other non-employer specific conditions. These and other factors are documented on our underwriting risk worksheet. Our underwriting risk worksheet was created as a way to document the decision process, the factors that went into making the decision to write the business and any information pertinent to the risk itself.

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We apply experience modification factors to a policyholder’s rate either to increase the policy premium due to a history of prior losses or to reduce the policy premium due to a favorable prior claims history.

Our underwriting strategy focuses on developing a relationship with the insured and the agent to promote account safety, long-term loyalty and continued profitability. Our loss prevention professionals visit many policyholders to ascertain the policyholder’s willingness to comply with our underwriting and loss prevention philosophy.

Our underwriting process and risk management techniques are substantially similar for our alternative market insurance solutions and our traditional business, except that we employ two additional underwriting criteria on alternative market business. Using an actuarial loss development model, we trend past losses and develop pricing for the prospective policy year. We also conduct a financial review of the prospective insured. We may write higher risk classifications and hazard levels in the alternative market than we do in our traditional business due to the fact that alternative market plans are generally either largely reinsured to a segregated portfolio captive or written on a large deductible or retrospectively rated policy, reducing our underwriting exposure. In addition, we believe that most of our alternative market insurance solutions provide an incentive for the policyholder to achieve favorable loss experience, which helps mitigate the exposures typically associated with higher risk classifications and hazard levels.

Loss Control

Our loss control process begins with a request from our underwriting department to perform an inspection. Our inspections focus on a policyholder’s operations, loss exposures and existing safety controls designed to prevent potential loss. The factors considered in our inspections include employee experience, employee turnover, employee training, previous loss history and corrective actions, and workplace conditions, including equipment condition and, where appropriate, use of fall protection, respiratory protection or other safety devices. Our inspectors travel to employers’ worksites to perform these safety inspections.

During our relationship with our policyholders, we seek to emphasize workplace safety by periodically visiting the workplace, assisting the policyholder in designing and implementing enhanced safety management programs, providing current industry-specific safety-related information and conducting rigorous post-accident management.

Our loss control department is comprised of two loss control representatives. Outside of Florida, we utilize third-party vendors to provide inspection services.

Our loss control procedures support our loss reduction and prevention philosophy, which involves adhering to the early-return-to-work programs and implementing recommended safety practices. To the extent we are permitted by law, we will cancel or not renew the policy of a policyholder that is not willing to comply with our loss control procedures and risk reduction and prevention philosophy.

Pricing

Generally, premiums for our alternative market workers’ compensation insurance solutions and our traditional workers’ compensation insurance business are a function of the state regulatory environment, the amount of the insured employer’s payroll, the insured employer’s risk class code, and factors reflecting the insured employer’s historical loss experience.

We write business in both “administered pricing” and “competitive rating” states. In administered pricing states, insurance rates are set by the state insurance regulators and are adjusted periodically. Rate competition generally is not permitted in these states and, consequently, our alternative market insurance solutions can be an important competitive factor. For example, by adjusting the amount of collateral required from a segregated portfolio captive or through the use of high deductible or retrospectively rated policies, we seek to maintain appropriate pricing in administered pricing states for business that would be difficult to insure through a traditional guaranteed cost plan. Florida, Indiana and New Jersey are administered pricing states, while the rest of the states in which we operate are competitive rating states. In both administrative pricing and competitive rating states, we strive to achieve proper risk selection through disciplined underwriting. In competitive rating

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states, we have more flexibility to charge premium rates that reflect the risk we are taking based on each employer’s profile. In administered pricing states, we are able to maintain appropriate pricing by adjusting collateral requirements, using consent-to-rate programs and applying experience modification factors to our rates.

Through our consent-to-rate program, the Florida OIR allows insurers to charge a rate that exceeds the state-established rate when deemed necessary by the insurer. Use of this program is limited to 10% of the number of an insurer’s policies written in Florida. The insurer is responsible for determining the additional premium based on the specific characteristics of a policyholder that result in the need for additional premium, such as poor loss history, lack of prior experience, inadequate rate for exposure and specific lack of safety programs and procedures. The goal of the consent-to-rate program in Florida is for policyholders to be able to obtain coverage while working to improve their risk profile and to realize premium reductions over time and ultimately eliminate the consent-to-rate factor as improvements are achieved. This program enables us to maintain appropriate pricing in Florida’s administered pricing environment. We look for strong partnerships with, and commitments from, our policyholders and agents with respect to participation in this program. We use the consent-to-rate program primarily when rehabilitation of a policyholder is required or the exposures of a policyholder warrant additional premium. Approximately 1% of our Florida policies written in 2008 were written pursuant to the consent-to-rate program, which represented approximately 3% of our direct premiums written in Florida in 2008. Through this program, we have been able to underwrite otherwise uncertain accounts that exhibited a strong commitment to improve their working conditions and risk profile.

In competitive rating states, the state approves a set of competitive prices that provides for expected payments. Regulators then permit pricing flexibility primarily through two variables: (1) the selection of the competitive pricing multiplier insurers apply to competitive prices to determine their insurance rates and (2) schedule rating modifications that allow insurers to adjust premiums upwards or downwards for specific risk characteristics of the policyholder, such as type of work conducted, on-site medical facilities, level of employee safety, use of safety equipment and policyholder management practices. In competitive pricing states, we use both variables to calculate a policy premium that we believe will cover the claims costs and policy acquisition and underwriting expenses and produce an acceptable underwriting profit for it.

Claims

We believe that the claims management process is an integral part of our success. Establishing claims benchmarks, reviewing outcomes and conducting routine random audits help us achieve our claims adjudication goals and objectives. Our claims management program strives to ensure that the injured worker’s medical care restores health in an effective and efficient manner, promotes the early return to work and provides appropriate and prompt payment of benefits while producing an economical net claim cost.

We have established claims controls and a claims adjudication infrastructure to assist us in meeting these goals. The foundation of our claims quality and service excellence is built on the following set of goals and initiatives, which we collectively refer to as best practices:

•  Coverage Verification.  Immediate analysis and documentation of confirmation of coverage.

•  Contact.  Contact with the parties involved in the loss within 24 hours of the receipt of a claim. When the claim is received, the adjuster and a telephonic case manager registered nurse will make contact with the injured worker, employer and/or medical provider. We believe that having both an adjuster and nurse case manager make these contacts and assist in establishing the most appropriate and efficient medical treatment helps restore health and return the injured party to work as soon as practical.

•  Investigation.  Within 14 days of receipt of a claim, a claim adjudication and management strategy is developed, including the identification and communication of what we believe to be the most appropriate medical treatment and indemnity benefits to be paid.

•  Recovery and Cost Offsets.  Effective recognition, investigation and pursuit of recovery and cost offsets. Recoveries can be for a third-party claim and, in certain states (e.g., South Carolina and Georgia), for second injury fund claims. In some jurisdictions, such as Florida, where the claimant may

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also be eligible for social security disability benefits, the amount of such benefits received can be offset from the weekly workers’ compensation rate using a prescribed formula.

•  Evaluation.  Appropriate analysis of claim exposure to probable ultimate cost. The claim file should reflect the action plan necessary to resolve the claim, while complying with applicable state laws, rules and regulations and corporate, insurer, reinsurer and employer reporting requirements.

•  Medical/Disability/Rehabilitation Management.  Appropriate assistance in managing medical care and treatment, utilizing a broad range of techniques designed to return the injured worker to work as quickly as practical. We believe that the most successful technique in returning injured workers back to work as soon as possible is ongoing communication with the injured worker, medical provider and employer. Consistent contact with the medical provider, including requests for light duty restrictions as appropriate, can hasten an injured worker’s return to work. In many cases, the medical provider does not know the employer is able to make reasonable accommodations or offer the injured worker alternative work during recuperation. We reinforce the value of a working employee with the employer and assist in the identification of suitable light duty work when appropriate. Securing an employer’s cooperation to identify suitable jobs and assisting in promptly returning employees to work can substantially reduce overall claim costs.

•  Negotiation and Disposition.  Timely claim negotiation and disposition to achieve an equitable, cost-effective result.

•  Litigation Management.  A proactive initiative by claims staff to manage litigation and, where necessary, involve defense counsel who are committed to providing aggressive, high quality, efficient representation under the direction of the claims management team.

•  Supervision.  Consistent supervision of the claim by our claims staff with precise, documented guidance and coaching throughout the life of the claim that clearly pursues resolution and strives to ensure best practices of claims handling.

•  Data Quality.  Clear understanding of the importance of data quality, reflected through prompt, accurate and thorough maintenance of claims data, resulting in timely and accurate reporting.

•  Customer Service.  Prompt initial contact and ongoing contact with insured employers, including thorough and prompt responses to requests.

•  Privacy.  An ongoing commitment to maintaining the integrity of claimant data and safeguarding medical and other information pertaining to injured workers and healthcare providers.

To help execute these initiatives and achieve these goals, we target experienced claims adjusters with a minimum of 5 years of experience handling workers’ compensation claims within their jurisdictions of assignment. Our claims department employees average more than 12 years of workers’ compensation insurance industry experience, and members of our claims management team average more than 24 years of workers’ compensation experience. To facilitate effective claims handling, we seek to limit the average number of claims handled at a time to approximately 125 per lost time adjuster and approximately 250 per medical-only adjuster.

Once a policy is bound, we send a claims kit to the insured outlining the policy provisions, mandated posting notices, information on how to report a claim and the importance of reporting all claims on a timely basis and answers to frequently asked questions. We make available a toll-free reporting line for insureds or employers to report injuries, available 24 hours a day, seven days a week, and can receive notices of injury via the Internet as well.

We use preferred provider organization networks and bill review services to reduce our overall claim costs. We assign authority levels for settlement authority and reserve placement to adjusters based upon their level of experience and position. Management must approve any changes of reserves that fall above the adjuster’s authority to help ensure proper action plans are current in the claim. Claims that are reserved at $50,000 or more must have a large loss report created that outlines the facts of the claim, as well as the

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reasons for the reserve requested. This report is reviewed by senior management. In addition, our claims adjusters coordinate with our underwriters and loss control personnel when it appears that there may be safety issues at the insured’s location or if the work conducted by the injured employee at the time of the accident does not match the class codes on the policy.

We monitor open claims for potential subrogation, which is the recovery of a portion of paid medical and indemnity losses from a third party that has liability for the losses suffered. We review new reported claims daily to help ensure timely identification of potential subrogation recoveries. We seek to place third parties on notice and keep them apprised of the status of the subject claim at regular intervals, including amounts paid by us for medical and indemnity benefits. We keep claims referred for subrogation open until a recovery has been received or a determination made that no subrogation is available.

Florida and many of the other states in which we operate require that all insurance carriers establish a special investigative unit to investigate and report fraudulent activities. Our in-house special investigations unit, or SIU, has established guidelines for fraud investigation that exceed minimum SIU standards in each jurisdiction in which we operate and have been approved by the State of Florida.

Our SIU operates in conjunction with the claims, audit, collections, loss prevention and underwriting departments to determine whether an allegation of fraud is valid. We investigate allegations of fraud on the part of both policyholders and injured workers. Files referred to our SIU are reviewed to determine whether an investigation should be opened. If an investigation is opened, SIU gathers the information necessary to submit to the appropriate division of insurance fraud for further investigation.

We also utilize an internal control specialist, or ICS, to monitor the adjusters’ compliance with best practices for claims handling. The ICS reviews specific areas of performance such as timely contact, proper coverage determination, investigations, litigation management, reserve integrity, documentation, supervision and direction, resolution and case closure action plans. On a monthly basis, the ICS reviews a certain number of claims by adjuster and evaluates our adjusters’ performance. We have utilized these reviews to assist in the development of additional training programs and coaching points with our adjusters. The use of these ICS reviews assists us in determining that our claims procedures and protocols are being carried out by our claims staff and our performance standards and goals are being consistently met.

Claims administration for our alternative market business is handled in a manner substantially similar to our traditional business. We have dedicated adjusters assigned to alternative market plans, both for the medical only and lost time claims, to help ensure a smooth working relationship. Our alternative market insurance solutions tend to involve higher risk classifications and hazard levels than our traditional policies. However, we generally retain little underwriting risk on our alternative market business, and we generally maintain a higher level of contact and communication with our alternative market customers as they have a shared incentive to resolve claims as effectively as possible and to assist employees to return to work. As a result, the claims closure rates for the alternative market tend to be slightly higher than the traditional market. As with claims in our traditional business, we review reserve adequacy on our alternative market business on a regular basis until claims are closed.

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We strive for rapid closure of claims in order to reduce the cost of medical and indemnity expenses. The table below sets forth our open claim counts by accident year and our open claims as a percentage of reported claims for alternative market and traditional business, in the aggregate, as of December 31, 2008, together with industry average open claims as a percent of reported claims:

						Worker’s
						Compensation
	Patriot					Industry Average
	As of December 31, 2008					Open Claims as a
			Open Claims as a			Percent of
	Number of		Percentage of			Reported Claims as of
	Open Claims		Reported Claims			December 31, 2008
Current accident year		1,745		25.8	%		30.0	%
Prior accident year		314		6.3	%		8.6	%
Second prior accident year		85		1.8	%		4.3	%
Third prior accident year		38		1.0	%		2.6	%
Fourth prior accident year		4		0.4	%		1.8	%

Industry data from Highline Data, an affiliate of The National Underwriter Company and a provider of insurance industry financial performance data.

Policyholder Audits

We conduct premium audits on our alternative market and traditional business policyholders annually upon the expiration of each policy, including when the policy is renewed. The purpose of these audits is to verify that policyholders have accurately reported their payroll expenses and employee job classifications, and therefore have paid the premium required under the terms of their policies. In addition to annual audits, we selectively perform interim audits on certain classes of business if significant or unusual claims are filed or if the monthly reports submitted by a policyholder reflect a payroll pattern or any aberrations that cause underwriting, safety or fraud concerns.

Reinsurance

Reinsurance is a transaction between insurance companies in which an original insurer, or ceding company, remits a portion of its premiums to a reinsurer, or assuming company, as payment for the reinsurer’s commitment to indemnify the original insurer for a portion of its insurance liability. Reinsurance agreements may be proportional in nature, under which the assuming company shares proportionally in the premiums and losses of the ceding company. This arrangement is known as quota share reinsurance. Reinsurance agreements may also be structured so that the assuming company indemnifies the ceding company against all or a specified portion of losses on underlying insurance policies in excess of a specified amount, which is called an attachment level or retention, in return for a premium, usually determined as a percentage of the ceding company’s primary insurance premiums. This arrangement is known as excess of loss reinsurance. Excess of loss reinsurance may be written in layers, in which a reinsurer or group of reinsurers accepts a band of coverage up to a specified amount. One form of excess of loss reinsurance is so-called “clash cover” reinsurance which only covers occurrences resulting in losses involving more than one reinsured policy or, in the case of workers’ compensation insurance, more than one injured worker. Any liability exceeding the outer limit of a reinsurance program is retained by the ceding company. The ceding company also bears the credit risk of a reinsurer’s insolvency.

Reinsurance can be facultative reinsurance or treaty reinsurance. Under facultative reinsurance, each policy or portion of a risk is reinsured individually. Under treaty reinsurance, an agreed-upon portion of a class of business is automatically reinsured.

Reinsurance is very important to our business. Guarantee Insurance reinsures a portion of its exposures and pays to the reinsurers a portion of the premiums received on all policies reinsured. Insurance policies written by Guarantee Insurance are reinsured with other insurance companies principally to:

•  reduce net liability on individual risks;

•  mitigate the effect of individual loss occurrence (including catastrophic losses);

•  stabilize underwriting results;

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•  decrease underwriting leverage; and

•  increase its underwriting capacity.

We determine the amount and scope of reinsurance coverage to purchase each year based on a number of factors. These factors include the evaluation of the risks accepted, consultations with reinsurance representatives and a review of market conditions, including the availability and pricing of reinsurance.

The cost and limits of the reinsurance coverage we purchase vary from year to year based upon the availability of reinsurance at an acceptable price, our catastrophe exposure and our desired level of retention. Retention refers to the amount of risk that we retain for our own account.

We regularly monitor our reinsurance requirements and review the availability, the amount and cost of reinsurance and our experience with insured losses. The availability, amount and cost of reinsurance are subject to market conditions and to our experience with insured losses. There can be no assurance that our reinsurance agreements can be renewed or replaced prior to expiration upon terms as favorable as those currently in effect. If we are unable to renew or replace our reinsurance agreements, or elect to reduce or eliminate our quota share reinsurance, our net liability on individual risks would increase, we would have greater exposure to catastrophic losses, our underwriting results would be subject to greater variability, and our underwriting capacity would be reduced.

Guarantee Insurance purchases both quota share and excess of loss reinsurance. The protection afforded by such reinsurance is subject to various limitations and restrictions. For example, it excludes coverage for certain high-risk occupations, such as tunnel construction, mining and the handling of explosives. In addition, the majority of this reinsurance either excludes or limits coverage for occupational diseases or excludes coverage for risks with known occupational disease exposures. The majority of this reinsurance also excludes or limits coverage for extra contractual damages, including punitive, exemplary, compensatory and consequential damages, as well as for losses paid in excess of policy limits. It also includes sunset clauses, which limit reinsurance coverage to claims reported to reinsurers within 84 months of the inception of the contract period for the reinsurance. In addition, many of our reinsurance policies include commutation clauses, which permit the reinsurers to terminate their obligations by making a final payment to us based on an estimate of their remaining reinsurance liabilities, which may ultimately prove to be inadequate. Also, certain reinsurance purchased by us excludes all coverage for terrorism losses, while other reinsurance excludes coverage for terrorism losses involving nuclear, biological or chemical explosion, pollution or contamination, applies an aggregate limit on the recovery of terrorism losses and/or otherwise limits coverage for terrorism losses.

Alternative Market Business

Combined Quota Share and Aggregate Excess of Loss Reinsurance.  In the alternative market, Guarantee Insurance issues workers’ compensation and employers’ liability coverage to employers that share in the income and losses associated with this insurance, including the loss experience and expenses under such policies, primarily through the employers’ participation in a segregated portfolio captive reinsurance facility. Each segregated portfolio captive reinsures, on a quota share basis, a percentage (typically 50% to 90%) of the premiums and losses on the insurance that Guarantee Insurance issues for participating employers. If aggregate covered losses exceed the level specified in the reinsurance agreement, the segregated portfolio captive reinsures the entire amount of the excess losses up to the aggregate liability limit specified in the agreement. If the aggregate losses for the segregated portfolio cell exceed the aggregate liability limit, Guarantee Insurance retains 100% of those excess losses. Losses in excess of $1.0 million per occurrence are not covered by this reinsurance agreement. To the extent that any loss exceeds $1.0 million per occurrence, the amount of such loss in excess of $1.0 million is reinsured under Guaranteed Insurance’s excess of loss reinsurance program. In addition, the segregated portfolio captive’s liability with respect to the underlying workers’ compensation policies is limited to the assets held in the segregated portfolio cell for that employer’s benefit.

Excess of Loss Reinsurance.  Guarantee Insurance has purchased excess of loss reinsurance for alternative market workers’ compensation losses in excess of $1.0 million per occurrence. Guarantee Insurance generally cedes between 50% and 90% of the losses falling within this $1.0 million retention under the segregated cell captive reinsurance agreements as described above. Some of the excess of loss reinsurance

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purchased by Guarantee Insurance applies solely to our alternative market business, while other excess of loss reinsurance applies to both the alternative market and the traditional business.

July 1, 2005 through June 30, 2006.  For alternative market workers’ compensation policies that commence during the period from July 1, 2005 through June 30, 2006, Guarantee Insurance retains $1.0 million per occurrence and cedes losses greater than this $1.0 million retention. This reinsurance applied to both traditional and alternative market business and is described below in the section describing excess of loss reinsurance for traditional business.

July 1, 2006 through April 30, 2007.  For alternative market workers’ compensation policies that commenced during the period July 1, 2006 through April 30, 2007, Guarantee Insurance retains $1.0 million per occurrence. We purchased excess of loss reinsurance in the amount of $4.0 million per occurrence for this alternative market business, but commuted this reinsurance effective May 1, 2007. Depending on the date of the loss occurrence, additional reinsurance protection was provided by excess of loss and clash cover reinsurance attaching over $5.0 million per occurrence, which is described below in the section relating to excess of loss reinsurance for traditional business.

May 1, 2007 through June 30, 2008.  For alternative market workers’ compensation policies that commence during the period from May 1, 2007 through June 30, 2008, Guarantee Insurance retains $1.0 million per occurrence and cedes losses greater than this $1.0 million retention. Pursuant to the reinsurance agreement, which is with National Indemnity Company, a subsidiary of Berkshire Hathaway, Inc. rated A++ (Superior) by A.M. Best Company, the first layer excess of loss reinsurance for such claims and for losses occurring after May 1, 2007 under alternative market policies in force prior to that date provides $4.0 million of coverage per occurrence excess of Guarantee Insurance’s $1.0 million retention. The agreement reinsures losses in excess of $1.0 million up to $5.0 million per occurrence and has an aggregate limit of $16.0 million during the contract period. In addition, depending on the date of the loss occurrence, additional reinsurance protection is provided by excess of loss and clash cover reinsurance attaching over $5.0 million per occurrence, which is described below in the section dealing with excess of loss reinsurance for traditional business.

July 1, 2008 through June 30, 2009.  Guarantee Insurance has obtained excess of loss reinsurance for our alternative market policies from National Indemnity Company effective July 1, 2008 in an amount of $4.0 million per occurrence in excess of a $1.0 million retention. This reinsurance applies to losses occurring during the period July 1, 2008 through June 30, 2009 and has an aggregate limit of $16.0 million during the contract period. It excludes coverage for participation in assigned risk pools. The reinsurance for the period ended June 30, 2008 was written on a “risk attaching” basis. Coverage incepting July 1, 2008 is written on a “losses occurring” basis and applies to losses occurring during the period July 1, 2008 through June 30, 2009. Additional reinsurance is provided by excess of loss and clash cover reinsurance attaching over $5.0 million per occurrence, which is described below in the section dealing with excess of loss reinsurance for traditional business. In addition, certain alternative market insurance policies, commencing during the period July 1, 2008 through June 30, 2009, for which Guarantee Insurance typically cedes 50% to 90% of losses to a segregated portfolio captive controlled by an insurance agency, are not reinsured under the excess of loss reinsurance purchased for Guarantee Insurance’s alternative market business but instead are reinsured under the first layer of excess of loss reinsurance purchased for Guarantee Insurance’s traditional business, which is also described in the section below under the heading “Traditional Business — Excess of Loss Reinsurance.”

July 1, 2009 through June 30, 2010.  Guarantee Insurance has obtained excess of loss reinsurance for our alternative market policies from two reinsurers — National Fire and Liability Company, a subsidiary of Berkshire Hathaway, Inc. rated A+ (Superior) by A.M. Best Company, and from ULLICO Casualty Company effective July 1, 2009, in an amount of $4.0 million per occurrence in excess of a $1.0 million retention. This reinsurance, under which 90% of the coverage is provided by National Fire and Liability Company, and the remaining 10% is provided by ULLICO Casualty Company, applies to losses occurring during the period July 1, 2009 through June 30, 2010, reinsures losses in excess of $1.0 million up to $5.0 million per occurrence, and has an aggregate limit of $16.0 million during the contract period. It excludes coverage for participation in assigned risk pools and has other limitations. For example, it reinsures employer’s liability

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losses at lower limits than those applicable to Guarantee Insurance’s statutory workers’ compensation liabilities and has a lower aggregate limit for employer’s liability losses. Additional reinsurance is provided by excess of loss and clash cover reinsurance attaching over $5.0 million per occurrence, which is described in the section below under the heading “Traditional Business — Excess of Loss Reinsurance.” In addition, certain alternative market insurance policies, commencing during the period July 1, 2009 through June 30, 2010, for which Guarantee Insurance typically cedes 50% to 90% of losses to a segregated portfolio captive controlled by an insurance agency, are not reinsured under the excess of loss reinsurance purchased for Guarantee Insurance’s alternative market business but instead are reinsured under the first layer of excess of loss reinsurance purchased for Guarantee Insurance’s traditional business, which is also described in the section below under the heading “Traditional Business— Excess of Loss Reinsurance.”

Traditional Business

Quota Share Reinsurance.  Effective July 1, 2006, Guarantee Insurance entered into a quota share reinsurance agreement with National Indemnity Company. Pursuant to this agreement, Guarantee Insurance ceded 50% of our traditional business, excluding South Carolina, Georgia and Indiana, in force on July 1, 2006 and 50% of our new and renewal traditional business, excluding these states, effective during the period from July 1, 2006 through June 30, 2007. Effective July 1, 2007, Guarantee Insurance entered into a second quota share reinsurance agreement with National Indemnity Company pursuant to which we ceded 50% of our new and renewal traditional business, excluding South Carolina, Georgia and Indiana, effective during the period from July 1, 2007 through June 30, 2008. Both of these quota share agreements covered all losses up to $500,000 per occurrence, subject to various restrictions and exclusions. Under these agreements, Guarantee Insurance ceded premiums and received a ceding commission in return.

Effective July 1, 2008, Guarantee Insurance entered into a third quota share reinsurance agreement with both National Indemnity Company and Swiss Reinsurance America Corporation, which is also rated A+ (Superior) by A.M. Best Company. Pursuant to this agreement, Guarantee Insurance again ceded 50% of our new and renewal traditional business, excluding South Carolina, Georgia and Indiana, effective on or after July 1, 2008. National Indemnity Company provided 75% of this reinsurance coverage, while Swiss Reinsurance America Corporation provided the remaining 25%. The agreement covered 50% of net retained liabilities for losses up to $500,000 per occurrence arising from all subject traditional business. The agreement was written on a “losses occurring” basis and applies to losses occurring during the contract period, which extends from July 1, 2008 through January 1, 2009 for National Indemnity Company’s share of the reinsured risks and from July 1, 2008 through June 30, 2009 for Swiss Reinsurance America Corporation’s share of the reinsured risks. The quota share reinsurance for prior periods was written on a “risk attaching” basis to cover all losses insured under policies commencing during the reinsurance contract period, including losses that occur after the end of that period. This prior reinsurance has been cut off with an adjustment of reinsurance premium for all losses occurring after June 30, 2008. These losses are covered by the reinsurance incepting July 1, 2008. The change from reinsurance written on a “risk attaching” basis to reinsurance written on a “losses occurring” basis will facilitate early termination of the reinsurance at the option of Guarantee Insurance. Guarantee Insurance has the option of terminating the reinsurance upon 15 days’ prior notice. Effective January 1, 2009, coverage from National Indemnity Company expired, coverage from Swiss Reinsurance America Corporation was increased from 12.5% to 25.0% and previously excluded stated were added to the coverage.

Guarantee Insurance entered into an additional quota share agreement with Harco National Insurance Company pursuant to which we ceded 37.83% of Guarantee Insurance’s traditional business gross unearned premium reserves as of December 31, 2008 and 37.83% of the first $500,000 of losses and certain loss adjustment expenses incurred on all subject business in force at December 31, 2008, subject to various restrictions and exclusions. Under this agreement, Guarantee Insurance ceded unearned premium reserves and received a ceding commission, which varies based on loss experience. In return, Harco National Insurance Company is obligated to pay its pro rata share of losses and loss adjustment expenses.

Effective January 1, 2009, Guarantee Insurance entered into a quota share agreement with ULLICO Casualty Company, an insurance company from which we borrowed $5.4 million on December 31, 2008.

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Pursuant to the quota share agreement, Guarantee Insurance ceded 68% of traditional new and renewal business in the states of Georgia, New Jersey and Florida on the first $1.0 million of incurred losses and certain loss adjustment expenses, subject to various restrictions and exclusions. The quota share agreement covers losses occurring during the contract period of January 1, 2009 to December 31, 2009, under traditional new and renewal policies issued during that period. ULLICO is obligated to pay its pro rata share of losses and certain loss adjustment expenses, subject to an aggregate cap of 90% of the gross earned premium income on the subject policies.

Excess of Loss Reinsurance.  In addition to quota share reinsurance, Guarantee Insurance purchases excess of loss reinsurance. Effective July 1, 2007, Guarantee Insurance’s retention for its reinsured statutory workers’ compensation liabilities is $1.0 million per occurrence. All of Guarantee Insurance’s excess of loss agreements are subject to various restrictions and exclusions.

The following description of Guarantee Insurance’s excess of loss reinsurance for its statutory workers’ compensation liabilities covers the period from July 1, 2005 through June 30, 2010. Different layers of this excess of loss reinsurance were renewed at different times during the applicable calendar year. All of the layers in the 2009/2010 program are scheduled to expire on June 30, 2010. In addition, until July 1, 2008, the first layer of this reinsurance was written on a “risk attaching” basis, while certain upper layers of this reinsurance apply only to losses occurring during the reinsurance contract period. Thus, for periods prior to July 1, 2008, a single loss may be reinsured under first layer reinsurance covering a particular period based on the date of policy issuance and under upper layer reinsurance covering a later period based on the date of the loss occurrence. Effective July 1, 2008, all layers of this excess of loss reinsurance are written on a “losses occurring” basis.

Guarantee Insurance purchases first layer excess of loss reinsurance that applies solely to its traditional business. It purchases upper layers of excess of loss reinsurance (including clash cover reinsurance that only applies if an occurrence involves injuries to multiple employees) that apply to both our traditional and alternative market business. As a result, losses from both business segments would be applied against any aggregate limits for such upper layers.

July 1, 2005 through June 30, 2006.  For workers’ compensation claims covered under policies for its traditional business that commence during the period July 1, 2005 through June 30, 2006, Guarantee Insurance retains $750,000 per occurrence. Guarantee Insurance cedes losses greater than this $750,000 retention. The excess of loss reinsurance for such claims totals $19.3 million per occurrence provided in four layers, including in the two upper layers, certain clash covers that only apply if an occurrence involves injuries to multiple employees.

•  For losses incurred under policies commencing during the period July 1, 2005 through June 30, 2006, the first layer of excess of loss reinsurance provides $250,000 of coverage per occurrence excess of Guarantee Insurance’s $750,000 retention. This layer reinsures losses in excess of the $750,000 retention up to $1.0 million and only applies to our traditional business.

•  For losses incurred under policies commencing during the period July 1, 2005 through June 30, 2006, the second layer of excess of loss reinsurance provides $4.0 million of coverage per occurrence excess of $1.0 million. This layer reinsures losses in excess of $1.0 million up to $5.0 million, subject to a maximum amount of recovery under this layer equal to 225% of the total reinsurance premiums paid by Guarantee Insurance for the layer. This means that regardless of the number of occurrences covered by this reinsurance with incurred losses in excess of $1.0 million, the aggregate amount paid under the layer would not exceed an amount equal to 225% of the total reinsurance premiums for the layer. The amount of these premiums is $3,850,000, subject to adjustment. This reinsurance applies to both traditional and alternative market business.

•  The third layer of excess of loss reinsurance consists of two separate clash cover treaties. Each of these treaties provides $5.0 million of coverage per occurrence in excess of $5.0 million. Each reinsures losses in excess of $5.0 million up to $10.0 million. The first of these treaties, which applied to losses incurred under policies commencing during the period from July 1, 2005 through June 30, 2006, was

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commuted in 2006 and no longer is in force. The second of these treaties, which has not been commuted and remains in force, applies to losses occurring from January 1, 2006 through December 31, 2006. This second treaty covers both traditional and alternative market business but excludes coverage for participation in assigned risk pools.

•  The fourth layer of excess of loss reinsurance also consists of two separate clash cover treaties. Each of these treaties provides $10.0 million of coverage per occurrence in excess of $10.0 million. Each reinsures losses in excess of $10.0 million up to $20.0 million. The first of these treaties, which applied to losses incurred under policies commencing from July 1, 2005 through June 30, 2006, was commuted in 2006 and no longer is in force. The second of these treaties, which has not been commuted and remains in force, applies to losses occurring from January 1, 2006 through December 31, 2006. This second treaty covers both traditional and alternative market business but excludes coverage for participation in assigned risk pools.

July 1, 2006 through June 30, 2007.  For workers’ compensation claims covered under traditional policies that commence during the period July 1, 2006 through June 30, 2007, Guarantee Insurance retains $750,000 per occurrence and cedes losses greater than this $750,000 retention. The amount of the excess of loss reinsurance that applies to such claims totals $19.3 million per occurrence provided in three layers, including in the two upper layers certain clash covers.

•  For losses incurred under policies commencing during the period July 1, 2006 through June 30, 2007, the first layer of excess of loss reinsurance provides $4.3 million of coverage per occurrence excess of Guarantee Insurance’s $750,000 retention. This layer has an annual aggregate deductible of $250,000 and reinsures losses in excess of the $750,000 retention up to $5.0 million. Pursuant to these deductible provisions, Guarantee Insurance must pay $250,000 in combined statutory workers’ compensation and employers’ liability losses incurred in the twelve-month contract period in addition to its $750,000 retention before it is entitled to any excess of loss reinsurance recovery under this layer.

•  The second layer of excess of loss reinsurance consists of two separate treaties. Each of these treaties provides $5.0 million of coverage per occurrence in excess of $5.0 million. Each reinsures losses in excess of $5.0 million up to $10.0 million. The first of these treaties is a clash cover, which applies to losses occurring from January 1, 2006 through December 31, 2006. The second is not a clash cover and applies to losses occurring from January 1, 2007 through June 30, 2008, subject to an aggregate limit of $10.0 million. This aggregate limit means that regardless of the number of occurrences during the 18-month contract period with incurred losses in excess of $5.0 million, the aggregate amount paid under this treaty would not exceed $10.0 million. Both of these treaties cover traditional and alternative market business but exclude coverage for participation in assigned risk pools.

•  The third layer of excess of loss reinsurance consists of two separate clash cover treaties. Each of these treaties provides $10.0 million of coverage per occurrence in excess of $10.0 million. Each reinsures losses in excess of $10.0 million up to $20.0 million. The first of these treaties applies to losses occurring from January 1, 2006 through December 31, 2006. The second applies to losses occurring from January 1, 2007 through June 30, 2008, subject to an aggregate limit of $20.0 million. Both of these treaties cover traditional and alternative market business but exclude coverage for participation in assigned risk pools.

July 1, 2007 through June 30, 2008.  For workers’ compensation claims covered under traditional insurance policies that commence during the period from July 1, 2007 through June 30, 2008, Guarantee Insurance retains $1.0 million per occurrence and cedes losses greater than this $1.0 million retention. The amount of the excess of loss reinsurance that applies to such claims totals $19.0 million per occurrence, provided in three layers, including a clash cover treaty in the highest layer.

•  Pursuant to a workers’ compensation excess of loss reinsurance agreement between Guarantee Insurance and Midwest Employers Casualty Company, the first layer of the excess of loss reinsurance provides $4.0 million of coverage per occurrence excess of Guarantee Insurance’s $1.0 million retention for

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losses insured under policies commencing during the period July 1, 2007 through June 30, 2008. It reinsures losses in excess of $1.0 million up to $5.0 million.

•  Pursuant to a workers’ compensation excess of loss reinsurance agreement between Guarantee Insurance and reinsurers Max Re, Ltd., Aspen Insurance UK Limited and various underwriters at Lloyd’s London, the second layer of excess of loss reinsurance provides $5.0 million of coverage per occurrence in excess of $5.0 million for losses occurring on or after January 1, 2007 and prior to July 1, 2008. This second layer reinsures losses in excess of $5.0 million up to $10.0 million and has an aggregate limit of $10.0 million. The second layer covers both traditional and alternative market business and excludes coverage for participation in assigned risk pools.

•  The third layer of excess of loss reinsurance is a clash cover provided pursuant to a workers’ compensation excess of loss reinsurance agreement between Guarantee Insurance and the reinsurers Aspen Insurance UK Limited and various underwriters at Lloyd’s London. This reinsurance applies to losses occurring from January 1, 2007 through June 30, 2008 and provides $10.0 million of coverage per occurrence in excess of $10.0 million, subject to an aggregate limit of $20.0 million. This third layer reinsures losses in excess of $10.0 million up to $20.0 million. The third layer covers both traditional and alternative market business and excludes coverage for participation in assigned risk pools.

July 1, 2008 through June 30, 2009.  Guarantee Insurance has obtained excess of loss reinsurance, effective July 1, 2008, in the same three layers ($4.0 million excess of a $1.0 million retention, $5.0 million excess of $5.0 million and $10.0 million excess of $10.0 million) as were in place for the prior period ended June 30, 2008. The first layer of this coverage, provided by Midwest Employers Casualty Company, applies only to traditional insurance policies. The second layer, provided by Max Bermuda, Ltd., Aspen Insurance UK Limited and various underwriters at Lloyd’s London, applies to both traditional and alternative market insurance policies. The third layer, provided by Max Bermuda, Ltd., Tokio Millennium Reinsurance Limited, Aspen Insurance UK Limited and various underwriters at Lloyd’s London, applies to both traditional and alternative market insurance policies and is a clash cover.

The first layer of coverage for the prior period ended June 30, 2008 was written on a “risk attaching” basis. Coverage under all layers of excess of loss reinsurance incepting July 1, 2008 is written on a “losses occurring” basis and applies to losses occurring during the period July 1, 2008 through June 30, 2009. Coverage under the first layer of this new reinsurance is subject to an annual deductible of $1.0 million such that this reinsurance only applies to losses in excess of $1.0 million per occurrence during the period July 1, 2008 through June 30, 2009 to the extent that such losses exceed $1.0 million in the aggregate. Coverage under the second layer is subject to an aggregate limit of $10.0 million, while coverage under the third layer is subject to an annual limit of $20.0 million. All three layers exclude coverage for participation in assigned risk pools.

July 1, 2009 through June 30, 2010.  Guarantee Insurance has obtained excess of loss reinsurance, effective July 1, 2009, in four layers ($4.0 million excess of a $1.0 million retention, $5.0 million excess of $5.0 million, $10.0 million excess of $10.0 million and $30 million excess of $20 million). The first layer of this coverage, provided by a group of reinsurers led by Maiden Re, applies only to traditional insurance policies. The second layer, provided by a group of reinsurers led by the Amlin Syndicate at Lloyd’s, applies to both traditional and alternative market insurance policies. The third layer, provided by a group of reinsurers led by Amlin Syndicate, applies to both traditional and alternative market insurance policies and is a clash cover. The fourth layer provided by a group of reinsurers led by Amlin Syndicate Re is also a clash cover.

Coverage under all layers of excess of loss reinsurance incepting July 1, 2009 is written on a “losses occurring” basis and applies to losses occurring during the period July 1, 2009 through June 30, 2010. Coverage under the first layer of this reinsurance is subject to an annual deductible of $1.0 million such that this reinsurance applies only to losses in excess of $1.0 million per occurrence during the period July 1, 2009 through June 30, 2010, and then only to the extent that these excess loss amounts (amounts over $1 million per occurrence) exceed $1.0 million in the aggregate during the coverage period. Coverage under the first layer is subject to an annual aggregate limit of $20.0 million; coverage under the second layer is subject to an

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annual aggregate limit of $10.0 million; coverage under the third layer is subject to an annual aggregate limit of $20.0 million; and coverage under the fourth layer is subject to an annual aggregate limit of $60.0 million.

Recoverability of reinsurance.  Reinsurance does not discharge or diminish our obligation to pay claims covered under insurance policies we issue. However, it does permit us to recover losses on such risks from our reinsurers. We would be obligated to pay claims in the event these reinsurers were unable to meet their obligations. Therefore, we are subject to credit risk with respect to the obligations of our reinsurers. A reinsurer’s ability to perform its obligations may be adversely affected by events unrelated to workers’ compensation insurance losses.

We have reinsurance agreements with both authorized and unauthorized reinsurers. Authorized reinsurers are licensed or otherwise authorized to conduct business in the state of Florida (Guarantee Insurance’s state of domicile). Under statutory accounting principles, Guarantee Insurance receives credit on its statutory financial statements for all paid and unpaid losses ceded to authorized reinsurers. Unauthorized reinsurers are not licensed or otherwise authorized to conduct business in the state of Florida. Under statutory accounting principles, Guarantee Insurance receives credit for paid and unpaid losses ceded to unauthorized reinsurers to the extent these liabilities are secured by funds held, letters of credit or other forms of acceptable collateral.

On a routine basis, we review the financial strength of our authorized and unauthorized reinsurers, monitor the aging of reinsurance recoverables on paid losses and assess the adequacy of collateral underlying reinsurance recoverable balances. If a reinsurer is unable to meet any of its obligations under the reinsurance agreements, we would be responsible for the payment of all claims and claims expenses that we have ceded to such reinsurer. The collateral Guarantee Insurance maintains from certain reinsurers serves to mitigate this risk.

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As of December 31, 2008, approximately 87% of our reinsurance recoverable balances on paid and unpaid losses and loss adjustment expenses are either due from authorized reinsurers or are fully secured with collateral provided by unauthorized reinsurers. To date, we have not, in the aggregate, experienced difficulties in collecting balances from our reinsurers. However, we have historically maintained an allowance for the potential uncollectibility of reinsurance balances on paid and unpaid losses and loss adjustment expenses by authorized and unauthorized reinsurers. The table below sets forth our reinsurance recoverable balances as of December 31, 2008:

			Reinsurance Recoverable Balances
						Unpaid
			Paid Losses			Losses
			and Loss			and Loss
	A.M.		Adjustment			Adjustment							Net
	Best Rating		Expenses			Expenses		Total			Collateral(1)		Exposures
	In thousands
Authorized reinsurers:
National Indemnity Company (a subsidiary of Berkshire Hathaway, Inc.)		A++	$	2,301		$	13,435	$	15,736		$	—	$	15,736
Swiss Reinsurance America Corporation		A+		293			1,643		1,936			—		1,936
Midwest Employers Casualty Company		A+		1,474			1,674		3,148			—		3,148
Other authorized reinsurers				441			2,468		2,909			238		2,671
Total authorized reinsurers				4,509			19,220		23,729			238		23,491
Unauthorized reinsurers:
Excess of loss reinsurers:
With net exposures				—			—		—			—		—
With no net exposures				—			537		537			1,618		—
Total excess of loss reinsurers				—			537		537			1,618		—
Segregated portfolio cell captives:
With net exposures				—			3,011		3,011			1,574		1,437
With no net exposures				—			11,340		11,340			22,301		—
Total segregated portfolio cell captives				—			14,351		14,351			23,875		—
Legacy exposure reinsurers:
With net exposures				340			2,111		2,451			1,303		1,148
With no net exposures				93			1,273		1,366			2,350		—
Total legacy exposure reinsurers				433			3,384		3,817			3,653		1,148
Total unauthorized reinsurers				433			18,272		18,705			29,146		2,585
Total				4,942			37,492		42,434		$	29,384	$	26,076
Less allowance				(300	)		—		(300	)
Net			$	4,642		$	37,492	$	42,134

(1) Collateral is principally comprised of funds held by Guarantee Insurance under reinsurance treaties and letters of credit.

As of December 31, 2008, Guarantee Insurance had net exposures from five segregated portfolio captive cells totaling approximately $1.4 million. Individually, net exposures from these five segregated portfolio captive cells ranged from approximately $23,000 to approximately $498,000.

As of December 31, 2008, Guarantee Insurance had net exposures from six unauthorized reinsurers totaling approximately $1.1 million attributable to its legacy asbestos and environmental claims and

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commercial general liability claims which arose from the sale of general liability insurance and participations in reinsurance assumed through underwriting management organizations. See “— Legacy Claims.” Individually, net exposures from these six reinsurers ranged from approximately $44,000 to approximately $598,000.

Reserves for Losses and Loss Adjustment Expenses

We record reserves for estimated losses under insurance policies that we write and assume and for loss adjustment expenses related to the investigation and settlement of policy claims. Our reserves for losses and loss adjustment expenses represent the estimated cost of all reported and unreported losses and loss adjustment expenses incurred and unpaid at a given point in time. We do not discount loss and loss adjustment expense reserves for the time value of money attributable to the period that elapses from the date of loss to claim payment dates.

We seek to provide estimates of loss and loss adjustment expense reserves that equal ultimate incurred losses and loss adjustment expenses. Maintaining the adequacy of loss and loss adjustment reserve estimates is an inherent risk of the workers’ compensation insurance business. We use an independent actuarial consulting firm to assist in the evaluation of the adequacy of our loss and loss adjustment reserves. Workers’ compensation claims may be paid over a long period of time. Estimating reserves for these claims may be more uncertain than estimating reserves for other lines of insurance with shorter or more definite periods between occurrence of the claim and final determination of the loss. We endeavor to minimize this risk by closing claims promptly and by relying on the estimates of our professional claims adjusting staff, supplemented by actuarial estimation techniques.

The three main components of loss and loss adjustment expense reserves are (1) case reserves for reported claims and associated adjustment costs, (2) aggregate reserves for claims incurred but not reported and associated adjustment costs (IBNR reserves) and (3) aggregate reserves for adjusting and other claims administration costs, which includes expenses such as claims-related salaries and associated overhead.

Case reserves are estimates of future claim payments based upon periodic case-by-case evaluation and the judgment of our claims adjusting staff. When a claim is reported, we establish an initial case reserve for the estimated amount of our losses and loss adjustment expenses based on our estimate of the most likely outcome of the claim at that time. Generally, a case reserve is established within 14 days after the claim is reported and consists of anticipated medical costs, indemnity costs and specific adjustment expenses, which we refer to as defense and cost containment expenses, or DCC expenses. At any point in time, the amount paid on a claim, plus the reserve for future amounts to be paid represents the estimated total cost of the claim, or the case incurred loss and loss adjustment expense amount. The estimated amount of loss for a reported claim is based upon various factors, including:

•  type of loss;

•  severity of the injury or damage;

•  age and occupation of the injured employee;

•  estimated length of temporary disability;

•  anticipated permanent disability;

•  expected medical procedures, costs and duration;

•  our knowledge of the circumstances surrounding the claim;

•  insurance policy provisions, including coverage, related to the claim;

•  jurisdiction of the occurrence; and

•  other benefits defined by applicable statute.

The case incurred loss and loss adjustment expense amount can vary due to uncertainties with respect to medical treatment and outcome, length and degree of disability, employment availability and wage levels and

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judicial determinations. As changes occur, the case incurred loss and loss adjustment expense amount is adjusted. The initial estimate of the case incurred amount can vary significantly from the amount ultimately paid, especially in circumstances involving severe injuries with comprehensive medical treatment. Changes in case incurred amounts, or case development, are an important component of our historical claim data. Adjustments for inflationary effects are included as part of our review of loss reserve estimates, but our reserving system does not make explicit provision for the effects of inflation.

In addition to case reserves, we establish IBNR reserves, which are intended to provide for losses and loss adjustment expenses that have been incurred but not reported, aggregate changes in case incurred losses and loss adjustment expenses and recently reported claims for which an initial case reserve has not yet been established. In establishing our IBNR reserves, we project ultimate losses by accident year both through use of our historical experience and the use of industry experience by state. We project ultimate losses using 3 accepted actuarial methods and evaluate statistical information to determine which methods are most appropriate and whether adjustments are needed within the particular methods. This supplementary information may include open and closed claim counts, statistics related to open and closed claim count percentages, claim closure rates, average case reserves and average losses and loss adjustment expenses incurred on open claims, reported and ultimate claim severity, reported and projected ultimate loss ratios and loss payment patterns.

The third component of our reserves for losses and loss adjustment expenses is our adjusting and other expense reserves, which represent an estimate of the future aggregate costs of administering all known and unknown claims.

An additional component of our reserves for losses and loss adjustment expenses is the reserve for mandatory participation in pooling arrangements. We record reserves for mandatory pooling arrangements as those reserves are reported to us by the pool administrators.

The statistical and actuarial analysis we employ in estimating our loss and loss adjustment expense reserves uses 3 methods to project ultimate losses. Claims are grouped by accident year and adjusted by (1) state-specific NCCI loss development factors, modified as we deem appropriate; (2) development factors derived from our historical annual experience; and (3) development factors derived from our historical quarterly experience. NCCI loss development factors are measures over time of industry-wide claims reported, average case incurred amounts, case development, duration, severity and payment patterns. However, NCCI loss development factors do not take into consideration differences in our own claims reserving and claims management practices, the employment and wage patterns of our policyholders relative to the industry as a whole or other subjective factors. As a result, we modify the NCCI loss development factors to reflect these differences and the differences between ultimate benefits that serve as the basis of the NCCI factors and our excess of loss reinsurance per occurrence retentions. We also supplement the modified NCCI loss development factors with factors derived from our own quarterly and annual historical experience. We average the results from the use of modified NCCI factors, the results from the use of our own quarterly experience and the results from our own annual historical experience to arrive at our estimates for our reserves for losses and loss adjustment expenses.

We calculate the amount of our total losses and loss adjustment expenses that we estimate will ultimately be paid by our reinsurers, and subtract this amount from our estimated total gross reserves to produce our estimated total net reserves.

As of December 31, 2008, our estimate of our ultimate liability for losses and loss adjustment expenses was approximately $74.6 million and our estimate of amounts recoverable from reinsurers for unpaid losses and loss adjustment expenses was approximately $37.5 million. Accordingly, our reserves for losses and loss adjustments expenses, net of amounts recoverable from reinsurers, was approximately $37.1 million. This amount included approximately $1.8 million associated with our mandatory participation in the assumption of workers’ compensation business from NCCI, for which reserves are maintained as reported by NCCI. This amount also included approximately $4.5 million in net reserves for legacy asbestos and environmental and commercial general liability claims, approximately $525,000 of which related to 30 direct claims for which we maintain reserves, and approximately $4.0 million of which related to pooling arrangements, for which reserves are maintained as reported by the pool administrators.

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Our best estimate of our ultimate liability for losses and loss adjustment expenses was derived from the process and methodology described above, which relies on substantial judgment. There is inherent uncertainty in estimating our reserves for losses and loss adjustment expenses. It is possible that our actual losses and loss adjustment expenses incurred may vary significantly from our estimates. Accordingly, the ultimate settlement of losses and loss adjustment expenses may vary significantly from estimates included in our financial statements.

We have prepared a sensitivity analysis of our net reserves for losses and loss adjustment expenses as of December 31, 2008 by analyzing the effect of reasonably likely changes to the percentage weighting assigned to the modified NCCI loss development factors in deriving our estimates. We believe the results of this sensitivity analysis, which are summarized in the table below, constitute a reasonable range of the expected outcomes of our reserves for net losses and loss adjustment expenses.

For traditional and alternative market business, the low end of the range of our sensitivity analysis was derived from the assumption that the percentage weighting assigned to the modified NCCI factors was reduced to 25.0% rather than 33.3%, with the 75% remaining weight assigned to our quarterly and annual historical experience. The high end of the range of our sensitivity analysis was derived from the assumption that the percentage weighting assigned to the modified NCCI factors was increased from 33.0% to 50%, with the 50% remaining weight assigned to our quarterly and annual historical experience.

For assumed business, which was attributable to our mandatory participation in the assumption of workers’ compensation business from NCCI as of December 31, 2008, net reserves are maintained as reported by the NCCI. For legacy asbestos and environmental and commercial general liability claims, referred to as “legacy business”, net reserves are maintained based on (i) gross reserves reported by pool administrators, reduced by ceded reserves pursuant to our reinsurance arrangements on this business, and (ii) case-by-case reserve estimates made by us totaling approximately $525,000 on 30 direct claims. We believe that reserves reported by third parties for assumed business and the majority of legacy asbestos and environmental and commercial general liability claims represent the best estimate of our obligation for these claims, and we do not believe that it would be meaningful to prepare a sensitivity analysis on these net reserves. See “Risk Factors — Guarantee Insurance has legacy commercial general liability claims, including asbestos and environmental liability claims.”

For unallocated loss adjustment expenses, net reserves are maintained based on management’s estimate of the future aggregate costs of administering all known and unknown claims, and the low and high end of the range of our sensitivity analysis are reflected in proportion to the low and high end of the range of reserves on traditional and alternative market business.

									Unallocated
			Alternative						Loss
	Traditional		Market		Assumed		Legacy		Adjustment
	Business		Business		Business		Business		Expenses		Total
	In thousands
Low end of the range	$	19,410	$	8,521	$	1,767	$	4,523	$	1,683	$	35,904
Net reserves, as reported		20,001		9,018		1,767		4,523		1,749		37,058
High end of the range		21,181		10,022		1,767		4,523		1,881		39,374

The resulting range derived from this sensitivity analysis would have increased net reserves by approximately $2.3 million or decreased net reserves by approximately $1.2 million, at December 31, 2008. The increase would have reduced net income and stockholders’ equity by approximately $1.5 million. The decrease would have increased net income and stockholders equity by approximately $760,000. Because we rely heavily on reinsurance, the range derived from this sensitivity analysis is not as wide as it would likely be if we ceded a lower proportion of losses to reinsurers. If we reduce our use of reinsurance, we expect that the range between the high and low end of the sensitivity analysis would increase. A change in our reserves for net losses and loss adjustment expenses would not have an immediate impact on our liquidity, but would affect cash flow in future periods as the losses are paid.

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Given the numerous factors and assumptions used in our estimates of net reserves for losses and loss adjustment expenses, and consequently this sensitivity analysis, we do not believe that it would be meaningful to provide more detailed disclosure regarding specific factors and assumptions and the individual effects of these factors and assumptions on our net reserves. Furthermore, there is no precise method for subsequently reevaluating the impact of any specific factor or assumption on the adequacy of reserves because the eventual deficiency or redundancy is affected by multiple interdependent factors.

Reconciliation of Reserves for Losses and Loss Adjustment Expenses

The following table provides a reconciliation of our aggregate beginning and ending reserves for losses and loss adjustment expenses:

	2008			2007			2006
	In thousands
Balances, January 1	$	69,881		$	65,953		$	39,084
Less reinsurance recoverable		(43,317	)		(41,103	)		(21,699	)
Net balances, January 1		26,564			24,850			17,385
Incurred related to:
Current year		27,422			18,642			15,328
Prior years		1,294			(3,460	)		2,511
Total incurred		28,716			15,182			17,839
Paid related to:
Current year		6,171			4,668			3,290
Prior years		12,051			8,800			7,084
Total paid		18,222			13,468			10,374
Net balances, December 31		37,058			26,564			24,850
Plus reinsurance recoverable		37,492			43,317			41,103
Balances, December 31	$	74,550		$	69,881		$	65,953

There were no significant changes in the key assumptions utilized in the analysis and calculations of our loss reserves during the years ended December 31, 2008, 2007 or 2006.

As a result of unfavorable development on prior accident year reserves, incurred losses and loss adjustment expenses increased by approximately $1.3 million for the year ended December 31, 2008, reflecting approximately $600,000 of unfavorable development in 2008 on workers’ compensation reserves for prior accident years and approximately $700,000 of unfavorable development in 2008 on legacy asbestos and environmental exposures and commercial general liability exposures, the latter as discussed more fully below.

As a result of favorable development on prior accident year reserves, incurred losses and loss adjustment expenses decreased by approximately $3.5 million for the year ended December 31, 2007. Of this $3.5 million, approximately $2.2 million relates to favorable development on workers’ compensation reserves attributable to the fact that 165 claims incurred in 2004 and 2005 were ultimately settled in 2007 for approximately $600,000 less than the specific case reserves that had been established for these exposures at December 31, 2006. In addition, as a result of this favorable case reserve development during 2007, we reduced our loss development factors utilized in estimating claims incurred but not yet reported resulting in a reduction of estimated incurred but not reported reserves as of December 31, 2007. The $3.5 million of favorable development in 2007 also reflects approximately $1.3 million of favorable development on legacy asbestos and environmental exposures and commercial general liability exposures as a result of the further run-off of this business and additional information received from pool administrators on pooled business that we participate in. See “— Legacy Claims.”

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As a result of adverse development on prior accident year reserves, incurred losses and loss adjustment expenses increased by approximately $2.5 million for the year ended December 31, 2006. Of the $2.5 million, approximately $2.0 million relates to workers’ compensation claims and approximately $500,000 to legacy asbestos and environmental exposures and commercial general liability exposures. The adverse development on workers’ compensation claims primarily resulted from approximately $1.5 million of unallocated loss adjustment expenses paid in 2006 related to the 2004 and 2005 accident years in excess of amounts reserved for these expenses as of December 31, 2005. In addition, based upon additional information that became available on known claims during 2006, we strengthened our reserves by approximately $500,000 for the 2004 and 2005 accident years. The reserves for legacy claims were increased due to information received from pool administrators as well as additional consideration of specific outstanding claims.

Our gross reserves for losses and loss adjustment expenses of $74.6 million as of December 31, 2008 are expected to cover all unpaid losses and loss adjustment expenses related to open claims as of that date, as well as gross claims incurred but not reported. Our gross IBNR reserves represented approximately 40% of our total gross reserves as of December 31, 2008. At December 31, 2008, we had 2,186 open workers’ compensation claims with average gross case reserves for known losses and loss adjustment expenses of approximately $21,000. During 2008, approximately 7,000 new claims were reported, and approximately 6,400 claims were closed.

Legacy Claims

In addition to workers’ compensation insurance claims, Guarantee Insurance has exposure to certain legacy asbestos and environmental claims and commercial general liability claims which arose from the sale of general liability insurance and participations in reinsurance assumed through underwriting management organizations (“Pools”). Guarantee Insurance ceased offering direct general liability coverage in 1983. Participation with underwriting management organizations ended with the 1982 underwriting year.

As industry experience in dealing with these exposures has accumulated, various industry-related parties have evaluated newly emerging methods for estimating asbestos-related and environmental pollution liabilities, and these methods have attained growing credibility. In addition, outside actuarial firms and others have developed databases to supplement the information that can be derived from a company’s claim files.

The Pools estimate the full impact of the asbestos-related and environmental pollution liability by establishing full cost basis reserves for all known losses and computing incurred but not reported on previous experience and available industry data. Nonetheless, these liabilities are subject to greater than normal variation and uncertainty, and an indeterminable amount of additional liability may develop over time.

We estimate the full impact of the asbestos and environmental exposure by establishing full case basis reserves for all known losses and computing incurred but not reported losses based on previous experience and available industry data. These reserves are attributable to approximately 22 direct claims, Guarantee Insurance’s participation in two reinsurance pools and our estimate of the impact of unreported claims. Our reserves for direct asbestos and environmental liability exposures are based on a detailed review of each case. Our reserves for pooled asbestos and environmental liability exposures are based on our share of aggregate reserves established by pool administrators through their consultation with independent actuarial consultants.

We believe that our reserve methodology results in net reserves for asbestos and environmental claims that are adequate to cover the ultimate cost of losses and loss adjustment expenses thereon. However, we believe that adopting the survival ratio reserve methodology for asbestos and environmental exposures would make our reserve methodology for these exposures generally consistent with our publicly held insurance company peers. Accordingly, we are evaluating the possibility of adopting this methodology. Under the survival ratio reserve methodology, our net reserve for asbestos and environmental liability exposures would be estimated based on a multiple of approximately 15 times our average net paid asbestos and environmental claims the three most recent years. If we had adopted the survival ratio reserve methodology as of December 31, 2008, our net reserve for asbestos and environmental exposures would have been approximately $5.1 million, representing an increase in net losses and loss adjustment expenses of approximately $2.1 million.

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We expect to make a decision with respect to the adoption of the survival ratio reserve methodology in connection with the preparation of our financial statements for the fourth quarter of 2009. If we adopt this methodology, our pre-tax income for the period in which we increase our reserves will decrease by a corresponding amount.

The following table provides a reconciliation of our beginning and ending reserves for losses and loss adjustment expenses associated with legacy asbestos and environmental exposures which are included in the reconciliation of our aggregate beginning and ending reserves for losses and loss adjustment expenses above:

	Years Ended December 31,
	2008			2007			2006
	In thousands
Balances, January 1	$	6,789		$	6,999		$	7,302
Less reinsurance recoverable		(3,758	)		(3,402	)		(3,780	)
Net balances, January 1		3,031			3,597			3,522
Incurred related to claims in prior years		285			(169	)		363
Paid related to prior years		(323	)		(397	)		(288	)
Net balances, December 31		2,993			3,031			3,597
Plus reinsurance recoverable		3,785			3,758			3,402
Balances, December 31	$	6,778		$	6,789		$	6,999

The following table provides a reconciliation of our beginning and ending reserves for losses and loss adjustment expenses associated with legacy commercial general liability exposures, which are included in the reconciliation of our aggregate beginning and ending reserves for losses and loss adjustment expenses above:

	Years Ended December 31,
	2008			2007			2006
	In thousands
Balances, January 1	$	3,742		$	6,050		$	6,006
Less reinsurance recoverable		(1,996	)		(2,974	)		(2,949	)
Net balances, January 1		1,746			3,056			3,057
Incurred related to claims in prior years		424			(1,154	)		153
Paid related to prior years		(640	)		(176	)		(134	)
Net balances, December 31		1,530			1,746			3,076
Plus reinsurance recoverable		2,076			1,996			2,974
Balances, December 31	$	3,606		$	3,742		$	6,050

Loss and Loss Adjustment Expense Development

Accounting for workers’ compensation insurance requires us to estimate the liability for the expected ultimate cost of unpaid losses and loss adjustment expenses, referred to as loss and loss adjustment expense reserves, as of a balance sheet date. The amount by which estimated losses and loss adjustment expenses, measured subsequently by reference to payments and additional estimates, differ from those previously estimated for a time period is known as “loss and loss adjustment expense development.” Development is unfavorable when losses close for more than the levels at which they were reserved or when subsequent estimates indicate a basis for reserve increases on open claims. Loss and loss adjustment expense development, whether due to an increase in estimated losses, or a decrease in estimated losses, is reflected currently in earnings through an adjustment to incurred losses and loss adjustment expenses for the period in which the development is recognized. If the loss and loss adjustment expense development is due to an increase in estimated losses and loss adjustment expenses, the previously estimated losses and loss adjustment expenses are considered “deficient,” if the loss and loss adjustment expense development is due to a decrease in

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estimated losses and loss adjustment expenses, the previously estimated losses and loss adjustment expenses are considered “redundant.” When there is no loss and loss adjustment expense development, the previously estimated losses and loss adjustment expenses are considered “adequate.”

At June 30, 2009, our net reserves as of December 31, 2008 were indicated as deficient, resulting in the recognition of unfavorable development on prior accident years of approximately $1.9 million for the six months ended June 30, 2009. For the six months ended June 30, 2009, we recorded unfavorable development of approximately $1.6 million on our workers’ compensation business, primarily attributable to the 2007 accident year and, more specifically, two individual losses incurred in 2007 for which case reserves were increased by a total of approximately $900,000 during the six months ended June 30, 2009 in connection with our reassessment of the life care plans on these claims. Additionally, we recorded unfavorable development of approximately $280,000 on our legacy asbestos and environmental exposures and commercial general liability exposures from prior accident years. At December 31, 2008, our net reserves as of December 31, 2007 were indicated as deficient, resulting in the recognition of unfavorable development on prior accident years of approximately $1.3 million for the year ended December 31, 2008. At December 31, 2008, our net reserves as of December 31, 2006, 2005 and 2004 were indicated as redundant, resulting in favorable development on prior accident years of approximately $3.6 million, $697,000 and $429,000, respectively.

The following table shows the development of our net reserves for losses and loss adjustment expenses and cumulative net paid losses and loss adjustment expenses for our insurance segment from 2004 (the year we commenced writing workers’ compensation business) through 2008. The table shows the changes in our reserves for losses and loss adjustment expenses in subsequent years from the prior estimates based on experience as of the end of each succeeding year on a GAAP basis. The principal difference between our GAAP basis and statutory basis loss reserves is that our statutory basis loss reserves are determined net of reinsurance recoverables on unpaid losses and loss adjustment expenses. The bottom portion of the table reconciles net reserves shown in the upper portion of the table to gross reserves shown on our balance sheet, together with development thereon.

	2004			2005			2006			2007			2008
	In thousands
Net reserves for losses and loss adjustment expenses at end of year	$	11,800		$	17,385		$	24,850		$	26,564		$	37,058
Reserves re-estimated:
One year later		12,383			19,896			21,390			27,858
Two years later		13,506			16,887			21,255
Three years later		10,973			16,688
Four years later		11,371
Net cumulative redundancy (deficiency):
Amount	$	429		$	697		$	3,595		$	(1,294	)
Percentage		3.6	%		4.0	%		14.5	%		(4.9	)%

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	2004			2005			2006			2007			2008
	In thousands
Cumulative net paid losses and loss adjustment expenses at:
End of current year	$	203		$	3,996		$	3,290		$	4,668		$	6,279
One year later		1,966			10,159			12,124			13,329
Two years later		3,308			13,312			14,740
Three years later		4,048			13,073
Four years later		4,953
Reserves at end of year:
Net reserves for losses and loss adjustment expenses	$	11,800		$	17,385		$	24,850		$	26,564		$	37,058
Reinsurance recoverables on unpaid losses and loss adjustment expenses		8,085			22,093			41,103			43,317			37,492
Reserves for losses and loss adjustment expenses	$	19,885		$	39,478		$	65,953		$	69,881		$	74,550
Reserves re-estimated at December 31, 2008:
Net reserves for losses and loss adjustment expenses	$	11,371		$	16,688		$	21,255		$	27,858
Reinsurance recoverables on unpaid losses and loss adjustment expenses		8,969			16,160			29,310			41,105
Reserves for losses and loss adjustment expenses	$	20,340		$	32,848		$	50,565		$	68,963
Gross cumulative redundancy (deficiency):
Amount	$	(351	)	$	657		$	15,388		$	918
Percentage		(1.8	)%		1.7	%		23.3	%		1.3	%

We have a limited history and therefore future development patterns may differ substantially from this data.

From the inception of our workers’ compensation insurance business in 2004 through December 31, 2008, in our traditional business, we have closed approximately 19,000 reported claims.

A.M. Best Ratings

Many insurance buyers, agents and brokers use the ratings assigned by A.M. Best and other rating agencies to assist them in assessing the financial strength and overall quality of the companies from which they are considering purchasing insurance. In evaluating a company’s financial and operating performance, A.M. Best reviews the company’s profitability, indebtedness and liquidity, as well as our book of business, the adequacy and soundness of our reinsurance, the quality and estimated market value of our assets, the adequacy of our unpaid losses and loss adjustment expenses, the adequacy of our surplus, our capital structure, the experience and competence of our management and our market presence. This rating is intended to provide an independent opinion of an insurer’s ability to meet our obligations to policyholders and is not an evaluation directed at investors.

A.M. Best ratings tend to be more important to our alternative market customers than our traditional business customers. Although we have expanded our business profitability without an A.M. Best rating and we believe that we can continue to do so with the net proceeds form this offering a favorable rating would increase our ability to sell our alternative market products to larger employers. We believe that a favorable rating will open significant new markets for our products and services. Our failure to obtain a favorable rating could adversely affect our plans to expand into new markets.

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We expect to apply to A.M. Best for a rating as soon as practicable. We may not be given a favorable rating or if we are given a favorable rating such rating may be downgraded, which may adversely affect our ability to obtain business and may adversely affect the price we can charge for the insurance policies we write. The ratings of A.M. Best are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time. Other companies in our industry that have been rated and have had their ratings downgraded have experienced negative effects. A.M. Best ratings are directed toward the concerns of policyholders and insurance agencies and are not intended for the protection of investors or as a recommendation to buy, hold or sell securities. Although we are not currently rated by A.M. Best, if we obtain an A.M. Best rating after the offering, our competitive position relative to other companies will be determined in part by our A.M. Best rating.

Competition

The market for workers’ compensation insurance products and risk management services is highly competitive. Competition in our business is based on many factors, including pricing (with respect to insurance products, either through premiums charged or policyholder dividends), services provided, underwriting practices, financial ratings assigned by independent rating agencies, capitalization levels, quality of care management services, speed of claims payments, reputation, perceived financial strength, effective loss prevention, ability to reduce claims expenses and general experience. In some cases, our competitors offer lower priced products and services than we do. If our competitors offer more competitive prices, payment plans, services or commissions to independent agencies, we could lose market share or have to reduce our prices in order to maintain market share, which would adversely affect our profitability. Our competitors are insurance companies, self-insurance funds, state insurance pools and workers’ compensation insurance service providers, many of which are significantly larger and possess considerably greater financial, marketing, management and other resources than we do. Consequently, they can offer a broader range of products, provide their services nationwide and capitalize on lower expenses to offer more competitive pricing.

We believe our principal competitors in the workers’ compensation nurse case management and cost containment services market are CorVel Corporation, GENEX Services, Inc. and various other smaller managed care providers. In the wholesale brokerage market, we believe PRS competes with numerous national wholesale brokers.

Our main competitors for our insurance business are usually those companies that offer a full range of services in workers’ compensation underwriting, loss prevention and claims. In the alternative market, we believe our principal competitors are American International Group, Inc., Liberty Mutual Insurance Company and Hartford Insurance Company, as well as smaller regional carriers. Many of our competitors are substantially larger and have substantially greater market share and capital resources than we have.

State insurance regulations require maintenance of minimum levels of surplus and of ratios of net premiums written to surplus. Accordingly, competitors with more surplus than we possess have the potential to expand in our markets more quickly and to a greater extent than we can. Additionally, greater financial resources permit a carrier to gain market share through more competitive pricing, even if that pricing results in reduced underwriting margins or an underwriting loss. Many of our competitors are multi-line carriers that can price the workers’ compensation insurance that they offer at a loss in order to obtain other lines of business at a profit. If we are unable to compete effectively, our business, financial condition and results of operations could be materially adversely affected. We believe that our alternative market and traditional workers’ compensation insurance products and services are competitively priced. In Florida, Indiana and New Jersey, premium rates are fixed by the state’s insurance regulators and are not a competitive factor. Insurers in those states compete principally on policyholder dividends, the availability of premium payment plans and service and selection of risks to underwrite.

We also believe that our level of service, loss prevention programs, and ability to reduce claims through our claims management strategy are strong competitive factors that have enabled us to retain existing policyholders and attract new policyholders. Also, over the long run, our services provide employers the opportunity to reduce their experience modification factors and therefore their long-term workers’

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compensation costs. We believe our ability to offer alternative market solutions to our policyholders and other parties also provides us with a competitive advantage. Our alternative market solutions, particularly our segregated portfolio captive plans, permit policyholders to lower their workers’ compensation insurance costs if they have favorable loss experience by participating in the underwriting risk on the policy.

Investments

The first priority of our investment strategy is capital preservation, with a secondary focus on achieving an appropriate risk adjusted return. We seek to manage our investment portfolio such that the security maturities provide adequate liquidity relative to our expected claims payout pattern. We expect to maintain sufficient liquidity from funds generated from operations to meet our anticipated insurance obligations and operating and capital expenditure needs, with excess funds invested in accordance with our investment guidelines. Our fixed maturity investment portfolio is managed by General Re — New England Asset Management, Inc., a registered investment advisory firm that is wholly-owned by General Re Corporation, a subsidiary of Berkshire Hathaway, Inc. General Re — New England Asset Management, Inc. operates under written investment guidelines approved by Guarantee Insurance’s board of directors. We pay General Re — New England Asset Management, Inc. an investment management fee based on the market value of assets under management.

At December 31, 2008, we allocated our portfolio into four categories: debt securities available for sale, short-term investments, real estate held for the production of income and cash and cash equivalents. Cash and cash equivalents include cash on deposit, commercial paper, short-term municipal securities, pooled short-term money market funds and certificates of deposit. Our debt securities available for sale include obligations of the U.S. Treasury or U.S. agencies, obligations of states and their subdivisions, long-term certificates, U.S. dollar-denominated obligations of U.S. corporations, mortgage-backed securities, collateralized mortgage obligations, mortgages guaranteed by the Federal National Mortgage Association and the Government National Mortgage Association, and asset-backed securities.

At December 31, 2006, we did not anticipate that our debt securities would be available to be sold in response to changes in interest rates or changes in the availability of and yields on alternative investments and, accordingly, these securities were classified as held to maturity. In accordance with Statement of Financial Accounting Standards No. 115 (As Amended) — Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), our debt securities at December 31, 2006 were stated at amortized cost.

In 2007, we purchased state and political subdivision debt securities with the intent that such securities would be available to be sold in response to changes in interest rates or changes in the availability of and yields on alternative investments. Accordingly, we classified these state and political subdivision debt securities as available for sale. In accordance with SFAS 115, these state and political subdivision debt securities were stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income net of deferred income taxes.

At December 31, 2007, the increased volatility in the debt securities market substantially increased the likelihood that we would, on a routine basis, desire to sell debt securities and redeploy the proceeds into alternative asset classes or into alternative securities with better yields or lower exposure to decreases in fair value. We anticipated that all of our debt securities would be available to be sold in response to changes in interest rates or changes in the availability of and yields on alternative investments. Accordingly, we transferred all of our debt securities that were not already classified as available for sale from held to maturity to available for sale. In accordance with SFAS 115, all of our debt securities at December 31, 2008 and 2007 were stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income net of deferred income taxes. In connection with the transfer of debt securities from held to maturity to available for sale, we recognized a net unrealized gain of approximately $215,000, which is included in other comprehensive income for the year ended December 31, 2007.

Our short-term investments, which are comprised of certain debt securities with initial maturities of one year or less, are stated at cost, which approximates fair value. Our real estate held for the production of income, which consists of one residential property, is stated at amortized cost.

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We employ diversification techniques and seek to balance investment credit risk and related underwriting risks to reduce our total potential exposure to any one business sector or security. Our investments, including cash and cash equivalents, had a carrying value of approximately $55.1 million as of June 30 2009, and are summarized by type of investment below.

	Fair		Percentage of
	Value		Portfolio
	In thousands
Debt securities available for sale:
U.S. government securities	$	4,114		7.5	%
U.S. government agencies		309		0.6
Asset-backed and mortgage-backed securities		13,144		23.8
State and political subdivisions		17,741		32.2
Corporate securities		11,772		21.4
Total fixed maturity securities		47,080		85.5
Short-term investments		3,560		6.5
Real estate held for the production of income		248		0.5
Cash and cash equivalents		4,179		7.5
Total investments, including cash and cash equivalents	$	55,067		100.0	%

We regularly evaluate our investment portfolio to identify other-than-temporary impairments in the fair values of the securities held in our investment portfolio. Of the 25 debt securities available for sale in an unrealized loss position as of June 30, 2009, 4 securities had fair values between 80% and 85% of amortized cost, 2 securities had fair values between 85% and 95% of amortized cost and the remaining 19 securities had fair values of at least 95% of amortized cost. We do not intend to sell, nor are we more likely than not to be required to sell, these debt securities. In addition, we expect to fully recover the amortized cost of these securities when they mature or are called. All debt securities available for sale in an unrealized loss position as of June 30, 2009 were considered investment grade, which we define as having a Standard & Poors credit rating of BBB or above. A write-down for other-than-temporary impairments would be recognized as a realized investment loss. For the six months ended June 30, 2009, we did not recognize any other-than-temporary impairments. For 2008, we recognized an other-than-temporary impairment charge of approximately $875,000 related to investments in certain equity securities purchased in 2005. Additionally, during 2008, we recognized an other-than-temporary-impairment charge of approximately $350,000 on our approximately $400,000 investment in certain Lehman Brothers Holdings, Inc. bonds. On September 15, 2008, Lehman Brothers Holdings Inc. filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court. For 2007, we did not recognize any other-than-temporary impairments. We do not believe that our investment portfolio contains any material exposure to subprime mortgage securities.

The following table shows the distribution of our fixed maturity securities available for sale as of June 30, 2009 as rated by S&P. Actual ratings do not differ from ratings exclusive of guarantees by third parties as of June 30, 2009.

S&P Credit Rating
AAA	49.3	%
AA	27.5
A	20.7
BBB	2.4
Below BBB	0.1
Total	100.0	%

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Approximately 46% of the fair value of our state and political subdivision debt securities are guaranteed by third parties, as follows. We have no direct investments in these financial guarantee companies.

			Percentage of
			Total State
			and Political
			Subdivision
Guarantor	Fair Value		Securities
	(In thousands)
Ambac Assurance Corporation	$	1,643		9.3	%
Financial Guaranty Insurance Company		3,297		18.5
Financial Security Assurance, Inc		1,638		9.2
MBIA, Inc		1,502		8.5
Total	$	8,080		45.5	%

We seek to manage our investment portfolio such that the security maturities provide adequate liquidity relative to our expected claims payout pattern. A summary of the carrying value of our fixed maturity securities available for sale as of June 30, 2009, by contractual maturity, is as follows:

			Percentage of
	Fair Value		Portfolio
	(In thousands)
Due in one year or less	$	4,351		9.2	%
Due after one year through five years		20,457		43.5
Due after five years		9,128		19.4
		33,936		72.1
Asset-backed and mortgage-backed securities		13,144		27.9
Total	$	47,080		100.0	%

Technology

Information Technology Environment

Our information technology department provides us with information technology infrastructure, software applications and support.

All of our applications are hosted on our owned or leased equipment that is kept in a secured, climate-controlled environment. Our information technology equipment can generally be accessed remotely over the Internet and should require only periodic hands-on administration. All production data is backed up on a nightly basis and periodically rotated offsite.

All of our offices operate on at least a 100 Megabit Ethernet network, using standard equipment from Cisco Systems.

Our offices are connected through a private network. In 2007, we upgraded our network from older Frame Relay technology to the new Multi Protocol Label Switching technology. We believe we can easily expand the network as we add new office locations with no downtime to our existing offices. Those outside of our network are able to access our private network through a secured Internet portal using Citrix Systems technology.

Workers’ Compensation Information System

Our technology platform includes the license and software platform designed by StoneRiver, Inc. for workers’ compensation companies. This software platform provides us with improved capabilities to handle and process insurance policy rating, issuance and billing, provides rates, quotes and policy issuance, and electronically feeds policy data into a billing and collections module to manage the receivables on each policy account. The software platform automatically transfers policy data to claims systems that utilize workflow

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rules to automate procedures and enforce proper claims adjudication in compliance with jurisdictional requirements.

The software platform also includes two online services: a web-based underwriting and quoting system that we believe will allow our agents to rate their own applications and a secure web site for customers to access policy, billing and claims information. Both services produce extensive management reports and allow for ad hoc reporting based on the security level assigned to the client or agent.

We predominately operate in a paperless environment. Substantially all information is imaged and placed on our network so that all authorized employees have access to the imaged data. Our system is integrated with NCCI, which facilitates the majority of our compliance requirements with respect to electronic proof of coverage, workers’ compensation policy tape reporting specifications and workers’ compensation statistical reporting specifications. Our arrangement with this system vendor helps us to comply with claims reporting requirements.

Business Continuity/Disaster Recovery

We are under contract with a vendor to provide us with a parallel-processing recovery site for most of our computer systems located in Norcross, Georgia. Our off-site tape storage is located in Miami, Florida. Backup files are stored on storage devices with 1-day rotations and are sent to a secure location for offsite storage, mitigating our exposure to lost data.

Employees

As of September 30, 2009, we had over 185 employees. We have entered into employment agreements with Steven M. Mariano and certain other executive officers. None of our employees is subject to any collective bargaining agreement. We believe that our employee relations are good.

Properties

Our principal executive offices are located in approximately 23,000 square feet of leased office space in three locations in Fort Lauderdale, Florida. We also lease branch offices consisting of approximately 7,000 square feet in Chesterfield, Missouri, 5,450 square feet in Lake Mary, Florida, 6,000 square feet in Sarasota, Florida and 3,000 square feet in West Conshohocken, Pennsylvania. We do not own any real property other than for investment purposes. We consider our leased facilities to be adequate for our current operations. Our insurance services business and insurance business are generally integrated throughout our offices.

Legal Proceedings

The following is a description of certain litigation matters in which we are either a plaintiff, a defendant or both:

Actions Involving Progressive Employer Services, et al.

Guarantee Insurance issued certain workers’ compensation insurance policies to Progressive Employer Services III, LLC and related entities (“PES”) during the 2006, 2007 and 2008 period. On October 24, 2008, Guarantee Insurance filed a complaint in the Circuit Court of the 17th Judicial Circuit, in and for Broward County, Florida, against PES and Elite Insurance Services, Inc.. On August 28, 2009, the court granted Guarantee Insurance’s motion to file a Second Amended Complaint against those same entities and against Steven Herrig (collectively “Progressive”). At the time the complaint was filed, Mr. Herrig was our second largest stockholder, beneficially owning approximately 15% of our common stock and a primary officer of each of the Progressive entities. The second amended complaint seeks the recovery of more than $3.3 million in allegedly unpaid premium and unreimbursed deductibles, along with statutory claims for $6.2 million related to PES’s alleged underreporting of payroll and underpayment of premium. Guarantee Insurance further alleges that PES failed to allow statutorily required audits, and if Guarantee Insurance prevails on those claims, it may be entitled to more than $80 million for unpaid premium and associated penalties. Guarantee Insurance

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has further claims for PES’s failure to provide loss control services. Progressive asserted a seven-count counterclaim, seeking a declaratory judgment relating to its alleged rights under a Collateral Agreement, an accounting and damages related to alleged collateral overages, damages for various alleged fee payments and commissions, an offset for alleged refunds due Progressive, and damages for alleged reporting failures to the NCCI.

In March 2009, Guarantee Insurance exercised a call option on all of our common stock owned by Westwind Holding Company, or Westwind, and beneficially owned by Mr. Herrig, to offset deficits in the segregated portfolio cell created to reinsure the policy issued to PES as we believe is permitted in an agreement between the parties. On May 11, 2009, Westwind filed a complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida related to the exercise of the call option claiming breach of contract and conversion, seeking damages of $2.2 million and other damages as determined by the court. These action remains largely in the discovery phase, although WestWind’s August 2009 motions to dismiss and for partial summary judgment are pending.

On February 11, 2009, Guarantee Insurance filed a complaint in the Circuit Court of the 17th Judicial Circuit, in and for Broward County, Florida for declaratory judgment against SUNZ Insurance Company, amended by stipulation of the parties on May 5, 2009 to include PES, Westwind, Elite Insurance Agency and Mr. Herrig as additional defendants. The declaratory judgment actions seek reimbursement of claims paid by Guarantee Insurance under the insurance policy issued to PES. Guarantee Insurance cancelled PES’s master policy on November 13, 2008, due to PES’s failure to pay premium. However, on October 20, 2008, without notifying or otherwise informing Guarantee Insurance, PES obtained duplicate insurance coverage under an identical master workers’ compensation insurance policy from SUNZ Insurance Company. We believe that SUNZ is owned by Westwind. This resulted in PES having duplicate coverage under two identical insurance policies for the period of October 20, 2008 through November 13, 2008. Pursuant to Florida law, where there is duplicate coverage, the policy with the earlier effective date is automatically cancelled and the second policy becomes the only effective policy. On May 27, 2009, SUNZ and PES filed a counterclaim alleging that Guarantee Insurance breached its insurance policies with PES in connection with certain workers’ compensation claims. The counterclaim seeks declaratory relief as to Guarantee Insurance’s obligations under these insurance policies, and also seeks unspecified damages for expenses incurred in covering the disputed claims. This case is currently in the discovery phase.

If we prevail in any or all of these actions, it is uncertain whether Progressive will have sufficient assets to satisfy any judgment.

Matrix Employee Leasing, Inc. v. Guarantee Insurance

On September 18, 2009, Matrix Employee Leasing, or Matrix, filed suit in the Circuit Court of the 4th Judicial Circuit in and for Duval County Florida, against Guarantee Insurance for breach of contract and declaratory relief. Matrix was a policyholder of Guarantee Insurance under a large deductible policy until Matrix moved to another carrier on October 1, 2009. Matrix’s complaint alleges bad faith notice of cancellation of its policy and that Guarantee Insurance paid excessive nurse case management and bill review fees to PRS and that PRS and Guarantee Insurance’s relationship presented a conflict of interest. Matrix seeks’ recovery of approximately $700,000. On October 20, 2009, we filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted.

Guarantee Insurance v. CRL Management, LLC, et al.

On November 9, 2005, Guarantee Insurance filed suit in the Circuit Court of the 17th Judicial Circuit, in and for Broward County, Florida, against CRL Management, LLC and its principal, C.R. Langston III, alleging that CRL Management, Guarantee Insurance’s former investment manager, and Langston caused a loss in Guarantee Insurance’s investment account. Our claim is based on the allegation that Langston was not licensed as an investment advisor under Florida or federal law. CRL Management and Langston filed a counterclaim against Guarantee Insurance and Steven M. Mariano, our Chairman, President and Chief Executive Officer, seeking payment of a promissory note in the amount of $118,500 purportedly executed by Mr. Mariano, plus

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interest, and payment of lost investment management fees and other charges due to CRL Management under an investment management agreement. In our response to the counterclaims we denied all allegations. This case is still in discovery, and no trial date has been set. If we prevail in this litigation, it is uncertain whether CRL Management or Langston will have sufficient assets to satisfy any judgment.

American Insurance Managers, et al. v. Guarantee Insurance et al.

American Insurance Managers, Inc., or AIM, filed suit on May 4, 2007 in the Second Judicial Circuit of South Carolina against Guarantee Insurance, Steven M. Mariano and others alleging fraud, breach of contract and misappropriation of trade secret claims. These claims arise out of a producer agreement and related confidentially agreement which Guarantee Insurance entered into in March 2004. The producer agreement gave AIM the exclusive right to market and sell Guarantee Insurance’s products to professional employer organizations, or PEOs. AIM alleges that we breached this agreement in late 2004 and that we have used and continue to use their proprietary ideas and methods in offering insurance products to PEOs. AIM is seeking damages for lost commissions in the amount of $8 million and is also seeking exemplary damages of up to two-times actual damages as provided under South Carolina law. We removed this case to federal court in South Carolina and have denied all of AIM’s allegations. In July 2007 the parties agreed to stay the litigation and submit to binding arbitration. The arbitration is currently scheduled for December 7, 2009.

While it is difficult to ascertain the ultimate outcome of these matters at this time, we believe, based upon facts known to date, that our positions are meritorious and that the claims and counterclaims against us have no merit. We are vigorously disputing liability and vigorously asserting our positions in the pending litigation and arbitration.

We are party to numerous other claims and lawsuits that arise in the normal course of our business, most of which involve claims under policies that we underwrite as an insurer. We believe that the resolution of these claims and lawsuits will not have a material adverse effect on our business, financial condition or results of operations.

Regulation

We are subject to regulation by government agencies in the states in which we do business. The nature and extent of such regulation varies by jurisdiction but typically involve the following: standards of solvency, including risk-based capital requirements, restrictions on the nature, quality and concentration of investments, restrictions on the types of terms that Guarantee Insurance can include in its insurance policies, mandates that may affect wage replacement and medical care benefits paid, restrictions on the way rates are developed and premiums are determined, limitations on the manner in which general agencies may be appointed, required methods of accounting, establishment of reserves for unearned premiums, losses and other purposes, limitations on our ability to transact business with affiliates, requirements pertaining to mergers, acquisitions and divestitures involving insurance companies, licensing requirements and approvals that affect insurance companies’ ability to do business, compliance with financial and medical privacy laws, potential assessments for the satisfaction of claims under insurance policies issued by impaired, insolvent or failed insurance companies; and limitations on the amount of dividends that insurance subsidiaries may pay to the parent holding company.

In addition, state regulatory examiners perform periodic examinations of insurance companies. Insurance regulations are generally intended for the protection of policyholders, not insurance companies or their stockholders.

Changes in individual state regulation of workers’ compensation may create a greater or lesser demand for some or all of our products and services or require us to develop new or modified products or services in order to meet the needs of the marketplace and to compete effectively in the marketplace.

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Premium Rate Restrictions and Administered Pricing States

Among other matters, state laws regulate not only the amounts and types of workers’ compensation benefits that must be paid to injured workers, but in some instances, the premium rates that may be charged to insure employers for those liabilities.

The regulatory agencies in Florida, Indiana and New Jersey set the premium rates we may charge for our insurance products. The Florida OIR approves manual premium rates for each of the employment classification codes prepared and filed by NCCI, the authorized state rating organization. In accordance with Florida’s consent-to-rate program, Guarantee Insurance is authorized by law to deviate from these approved rates for up to 10% of the policies we write in Florida. The Florida Department of Financial Services Division of Workers’ Compensation regulates levels of benefit payments to insured employees. Similar agencies set standard rates for workers’ compensation insurance in the other administered pricing states.

Holding Company Regulation

Nearly all states have enacted legislation that regulates insurance holding company systems. Each insurance company in a holding company system is required to register with the insurance supervisory agency of its state of domicile and furnish information concerning the operations of companies within the holding company system that may materially affect the operations, management or financial condition of the insurers within the system. Under these laws, the respective state insurance departments may examine Guarantee Insurance at any time, require disclosure of material transactions with its affiliates and require prior notice of or approval for certain transactions. Under these laws, all material transactions among companies within the holding company system, including sales, loans, reinsurance agreements and service agreements, generally must be fair and reasonable and, if material or of a specified category, require prior notice and approval or non-disapproval by the chief insurance regulator of the state of domicile of the insurance company.

Change of Control and Stock Ownership Restrictions

The insurance holding company laws of nearly all states require advance approval by the respective state insurance departments of any change of control of an insurer domiciled in that state. In the state of Florida, where Guarantee Insurance is domiciled, advance regulatory approval is required for an acquisition of 5% or more of the voting securities of a domestic insurance company or any entity that controls a domestic insurance company. However, a party may acquire less than 10% of such voting securities without prior approval if the party files a disclaimer of affiliation and control. In addition, insurance laws in some states contain provisions that require pre-notification to the insurance commissioners of a change of control of a non-domestic insurance company licensed in those states.

Any future transactions that would constitute a change of control of Guarantee Insurance, including a change of control of Patriot Risk Management would generally require the party acquiring control to obtain the prior approval of the Florida OIR and may require pre-notification in the states where pre-notification provisions have been adopted. Obtaining these approvals may result in the material delay of, or deter, any such transaction. Additionally, these laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Patriot or its subsidiaries, including through transactions, and in particular unsolicited transactions, that some or all of the stockholders of Patriot might consider to be desirable.

State Insurance Regulation

Insurance companies are subject to regulation and supervision by the department of insurance in the state in which they are domiciled and, to a lesser extent, other states in which they conduct business. As a Florida domestic insurer, Guarantee Insurance is primarily subject to regulation and supervision by the Florida OIR. The Florida OIR and other state insurance departments have broad regulatory, supervisory and administrative powers, including among other things, the power to grant and revoke licenses to transact business, impose fines or other penalties, license agencies, set the standards of solvency to be met and maintained, regulate trade and claim practices, determine the nature of, and limitations on, investments and dividends, approve

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policy forms and rates in some states, periodically examine financial statements, determine the form and content of required financial statements, and periodically examine market conduct and trade practices.

Guarantee Insurance contracts with Perr & Knight, Inc., for the performance of specific insurer functions, such as regulatory filings of new rates, and, when applicable, changes in insurance policy forms. Perr & Knight, Inc. also provides competitor analysis for Guarantee Insurance through market rate comparisons and general actuarial analysis on the impact of regulatory changes on Guarantee Insurance. Perr & Knight, Inc. also provides Guarantee Insurance with regulatory monitoring services, providing daily updates on regulatory pronouncements by states where Guarantee Insurance is licensed, and assisting with the implementation of changes required by these pronouncements.

Detailed annual and quarterly financial statements and other reports are required to be filed with the department of insurance in all states in which Guarantee Insurance is licensed to transact business. The financial statements of Guarantee Insurance are subject to periodic examination by the department of insurance in each state in which it is licensed to do business.

In addition, many states have laws and regulations that limit an insurer’s ability to withdraw from a particular market. For example, states may limit an insurer’s ability to cancel or not renew policies. Furthermore, certain states prohibit an insurer from withdrawing from one or more lines of business in the state, except pursuant to a plan that is approved by the state insurance department. The state insurance department may disapprove a plan that may lead to market disruption. Laws and regulations that limit cancellation and non-renewal and that subject program withdrawals to prior approval requirements may restrict our ability to exit unprofitable markets.

Stock insurance companies are subject to Florida statutes related to excess profits for workers’ compensation insurance companies. Excess profits are calculated based upon a complex statutory formula, which is applied over rolling three-year periods. Companies are required to file annual excess profits forms, and they are required to return so-called “excess profits” to policyholders in the form of a cash refund or credit toward the future purchase of insurance. To date, we have not been required to return any excess profits, and we have not made any provision for the return of excess profits.

Insurance producers are subject to regulation and supervision by the department of insurance in each state in which they are licensed. Patriot Risk Services, Inc. is currently licensed as an insurance agent or producer in 19 jurisdictions. Patriot Insurance Management Company is currently licensed as an insurance agent or producer in 34 jurisdictions. Patriot Underwriters, Inc. is licensed as an insurance producer in 39 jurisdictions. Patriot General Agency, Inc. is licensed as an insurance producer in 39 jurisdictions. We plan to utilize Patriot Underwriters, Inc. and Patriot General Agency, Inc. to provide general agency and general underwriting services to third parties and cease providing general agency services through Patriot Risk Services, Inc. and Patriot Insurance Management Company. In each jurisdiction, these subsidiaries are subject to regulations relating to licensing, sales and marketing practices, premium collection and safekeeping, and other market conduct practices.

State Insurance Department Examinations

Guarantee Insurance is subject to periodic examinations by state insurance departments in the states in which it is licensed. In February 2008, the Florida OIR completed its financial examination of Guarantee Insurance as of and for the year ended December 31, 2006. In its examination report, the Florida OIR made a number of findings relating to Guarantee Insurance’s failure to comply with corrective comments made in earlier examination reports by the Florida OIR as of the year ended December 31, 2004 and by the South Carolina Department of Insurance as of the year ended December 31, 2005. The Florida OIR also made a number of proposed adjustments to the statutory financial statements of Guarantee Insurance for the year ended December 31, 2006, attributable to, among other things, corrections of a series of accounting errors and an upward adjustment in Guarantee Insurance’s reserves for unpaid losses and loss adjustment expenses. These proposed adjustments, which resulted in a $119,000 net decrease in Guarantee Insurance’s reported policyholders surplus, did not cause Guarantee Insurance to be in violation of a consent order issued by the Florida OIR in 2006 in connection with the redomestication of Guarantee Insurance from South Carolina to Florida that

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requires Guarantee Insurance to maintain a statutory policyholders surplus of the greater of $9.0 million or 10% of total liabilities excluding taxes, expenses and other obligations due or accrued, and Guarantee Insurance was not required to file an amended 2006 annual statement with the Florida OIR reflecting these adjustments.

In connection with the Florida OIR examination report for the year ended December 31, 2006, the Florida OIR issued a consent order requiring Guarantee Insurance to pay a penalty of $50,000, pay $25,000 to cover administrative costs and undergo an examination prior to June 1, 2008 to verify that it has addressed all of the matters raised in the examination report. In addition, the consent order requires Guarantee Insurance to hold annual stockholder meetings, maintain complete and accurate minutes of all stockholder and board of director meetings, implement additional controls and review procedures for its reinsurance accounting, perform accurate and timely reconciliations for certain accounts, establish additional procedures in accordance with Florida OIR information technology specialist recommendations, correctly report all annual statement amounts, continue to maintain adequate loss and loss adjustment reserves and continue to maintain a minimum statutory policyholders surplus of the greater of $9.0 million or 10% of total liabilities excluding taxes, expenses and other obligations due or accrued. The consent order required Guarantee Insurance to provide documentation of compliance with these requirements. In March 2008, the Florida OIR engaged a third party to conduct a target financial condition examination of Guarantee Insurance, the scope of which was to review our compliance with the findings in the Florida OIR exam report and related consent order for the year ended December 31, 2006. The target financial condition examination was performed as of August 20, 2008, and the report was issued on August 26, 2008. Except for certain exceptions which management believes to be immaterial and subsequently mitigated or otherwise remedied, the target financial condition examination found that Guarantee Insurance was in compliance with all findings in the Florida OIR exam report and related consent order for the year ended December 31, 2006.

In May 2009 in connection with a Florida OIR targeted examination, we advised the Florida OIR that all intercompany receivables would be settled within 30 days. As of September 30, 2009, Guarantee Insurance had approximately $2.1 million in intercompany receivables that had been outstanding for more than 30 days, and approximately $1.0 million that had been outstanding for more than 90 days. Because some of the intercompany receivables have been outstanding for more than 30 days, the Florida OIR may object to these transactions or take other regulatory action against us. In addition, under statutory accounting rules, Guarantee Insurance is required to record the amount of any intercompany receivables that have been outstanding for more than 90 days as a nonadmitted asset. Therefore, to the extent that any intercompany receivables have been outstanding for more than 90 days, Guarantee Insurance will be required to nonadmit the amount of such receivables, which will result in a corresponding decrease in the surplus of Guarantee Insurance. If the decrease in Guarantee Insurance’s surplus were to cause Guarantee Insurance to be out of compliance with certain ratios or minimum surplus levels as required by the Florida OIR, we would be required to reduce our insurance writings or add capital to Guarantee Insurance, or face possible regulatory action.

Guaranty Fund Assessments

In most of the states where Guarantee Insurance is licensed to transact business, there is a requirement that property and casualty insurers doing business within each such state participate in a guaranty association, which is organized to pay contractual benefits owed pursuant to insurance policies issued by impaired, insolvent or failed insurers. These associations levy assessments, up to prescribed limits, on all member insurers in a particular state on the basis of the proportionate share of the written premium in the state by member insurers in the lines of business in which the impaired, insolvent or failed insurer is engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets.

Property and casualty insurance company insolvencies or failures may result in additional guaranty association assessments against Guarantee Insurance in the future. At this time, we are unable to determine the impact, if any, that such assessments may have on our business, financial condition or results of operations. We are not aware of any liabilities for guaranty fund assessments with respect to insurers that are currently subject to insolvency proceedings.

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Residual Market Programs

Many of the states in which we conduct business or intend to conduct business require that all licensed insurers participate in a program to provide workers’ compensation insurance to those employers who have not or cannot procure coverage from a carrier on a negotiated basis. Our level of required participation in such programs is generally determined by calculating the volume of our voluntary business in that state as a percentage of all voluntary business in that state by all insurers. The resulting factor is the proportion of premium we must accept as a percentage of all of premiums for all policies written in that state’s residual market program.

Companies generally can fulfill their residual market obligations by either issuing insurance policies to employers assigned to them, or participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating companies. Currently, Guarantee Insurance participates in a reinsurance pooling arrangement with NCCI. For the year ended December 31, 2008, Guarantee Insurance had assumed premiums written from the NCCI pool of approximately $1.0 million.

Second Injury Funds

A number of states operate trust funds that reimburse insurers and employers for claims paid to injured employees for aggravation of prior conditions or injuries. The state-managed trust funds are funded through assessments against insurers and self-insurers providing workers’ compensation coverage in the specific state. The aggregate amount of cash paid by Guarantee Insurance for assessments by state-managed second injury trust funds for the years ended December 31, 2008, 2007 and 2006 were approximately $579,000, $708,000 and $354,000, respectively. Guarantee Insurance has not received any recoveries from state-managed trust funds.

Dividend Limitations

At the time we acquired Guarantee Insurance, it had a large statutory unassigned deficit. See Note 13 to our Consolidated Financial Statements. As of December 31, 2008, Guarantee Insurance’s statutory unassigned deficit was $94.3 million. Under Florida law, insurance companies may only pay dividends out of available and accumulated surplus funds derived from realized net operating profits on their business and net realized capital gains, except under limited circumstances with the prior approval of the Florida OIR. Moreover, Florida law has several different tests that limit the payment of dividends, without the prior approval of the Florida OIR, to an amount generally equal to 10% of the surplus or gain from operations, with additional restrictions. However, pursuant to a consent order issued by the Florida OIR on December 29, 2006 in connection with the redomestication of Guarantee Insurance from South Carolina to Florida, Guarantee Insurance is prohibited from paying dividends, without approval of the Florida OIR, until December 29, 2009. Therefore, it is unlikely that Guarantee Insurance will be able to pay dividends for the foreseeable future without prior approval of the Florida OIR.

Privacy Regulations

In 1999, Congress enacted the Gramm-Leach-Bliley Act, which, among other things, protects consumers from the unauthorized dissemination of certain personal information. Subsequently, a majority of states have implemented additional regulations to address privacy issues. These laws and regulations apply to all financial institutions, including insurance and finance companies, and require us to maintain appropriate policies and procedures for managing and protecting certain personal information of our policyholders and to fully disclose our privacy practices to our policyholders. We may also be subject to future privacy laws and regulations, which could impose additional costs and impact our business, financial condition and results of operations.

In 2000, the National Association of Insurance Commissioners, or the NAIC, adopted the Privacy of Consumer Financial and Health Information Model Regulation, which assisted states in promulgating regulations to comply with the Gramm-Leach-Bliley Act. In 2002, to further facilitate the implementation of the Gramm-Leach- Bliley Act, the NAIC adopted the Standards for Safeguarding Customer Information Model Regulation. Several states have now adopted similar provisions regarding the safeguarding of policyholder

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information. We have established policies and procedures to comply with the Gramm-Leach-Bliley Act and other similar privacy laws and regulations.

Federal and State Legislative and Regulatory Changes

From time to time, various regulatory and legislative changes have been proposed in the insurance industry. Among the proposals that have in the past been or are at present being considered are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers and proposals in various state legislatures (some of which proposals have been enacted) to conform portions of their insurance laws and regulations to various model acts adopted by the NAIC. We are unable to predict whether any of these laws and regulations will be adopted, the form in which any such laws and regulations would be adopted or the effect, if any, these developments would have on our business, financial condition and results of operations.

On November 26, 2002, in response to the tightening of supply in certain insurance and reinsurance markets resulting from, among other things, the September 11, 2001 terrorist attacks, the Terrorism Risk Insurance Act of 2002, or TRIA, was enacted. TRIA is designed to ensure the availability of commercial insurance coverage for losses resulting from acts of terrorism in the United States. This law established a federal assistance program to help the property and casualty insurance industry cover claims related to future terrorism-related losses and requires such companies to offer coverage for certain acts of terrorism. The assistance provided to insurers under TRIA is subject to certain deductibles and other limitations and restrictions. The Terrorism Risk Insurance Extension Act of 2005 extended the federal assistance program through December 31, 2007 and also established a per-event threshold that must be met before the federal program becomes applicable and increased insurers’ deductibles. The Terrorism Risk Insurance Program Reauthorization Act of 2007 extended the federal assistance program through December 31, 2014 and removed the restriction that formerly limited the program to the coverage of acts of terrorism committed on behalf of foreign persons or interests.

The National Association of Insurance Commissioners, or NAIC

The NAIC is a group formed by state insurance commissioners to discuss issues and formulate policy with respect to regulation, reporting and accounting of insurance companies. Although the NAIC has no legislative authority and insurance companies are at all times subject to the laws of their respective domiciliary states and, to a lesser extent, other states in which they conduct business, the NAIC is influential in determining the form in which such laws are enacted. Model insurance laws, regulations and guidelines, referred to herein generically as “Model Laws,” have been promulgated by the NAIC as a minimum standard by which state regulatory systems and regulations are measured.

Adoption of state laws that provide for substantially similar regulations to those described in the Model Laws is a requirement for accreditation by the NAIC. The NAIC provides authoritative guidance to insurance regulators on current statutory accounting issues by promulgating and updating a codified set of statutory accounting principles in its Accounting Practices and Procedures manual. The Florida OIR has adopted these codified statutory accounting principles.

The key financial ratios of NAIC’s Insurance Regulatory Information System, or IRIS, which ratios were developed to assist insurance departments in overseeing the financial condition of insurance companies, are reviewed by experienced financial examiners of the NAIC and state insurance departments to select those companies that merit highest priority in the allocation of the regulators’ resources. IRIS identifies 13 financial ratios and specifies “usual values” for each ratio. Departure from the usual values on four or more of the ratios can lead to inquiries from individual state insurance commissioners as to certain aspects of an insurer’s business. A ratio that falls outside the usual range is not considered a failing result. Rather, unusual values are regarded as part of an early warning monitoring system. Financially sound companies may have several ratios outside the usual ranges because of specific transactions that have the effect of producing unusual results.

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As of December 31, 2008 and for the year then ended, Guarantee Insurance had three IRIS ratios outside the usual range, as set forth in the following table:

		Actual
Ratio	Usual Range	Results			Reasons for Unusual Results
Change in Net Premiums Written	Less than 33%, greater than -33%		58.0	%	Our gross premiums written increased by 37% in 2008 compared to 2007. In addition, the portion of our gross premiums written subject to quota share reinsurance was lower in 2008 compared to 2007 due to (i) an increase in traditional business, which generally has a higher retention than alternative market business and (ii) the commutation of certain alternative market segregated portfolio captive cell treaties in 2008. We believe that the premium growth in 2008 was prudent and did not reflect any material pricing inadequacy or any deterioration in underwriting discipline.
Surplus Aid to Policyholder’s Surplus	Less than 15%		57.0	%	Under statutory accounting principles, direct policy acquisition costs are recognized as an expense at the inception of the policy year rather than deferred over the life of the underlying insurance contracts. Likewise, ceding commissions are recognized as an offset to expenses at the inception of the policy year. The ratio of surplus aid to policyholders’ surplus measures the degree to which statutory surplus benefits from the recognition of ceding commissions in advance of the emergence of underlying ceded earned premium. Because of the nature of our alternative market business, whereby segregated portfolio captives generally assume between 50% and 90% of the risk, our results typically generate a surplus aid unusual value relative to the industry as a whole. In addition, this ratio was higher in 2008 in connection with a quota share reinsurance agreement pursuant to which we ceded 37.83% of our gross unearned premium reserves as of December 31, 2008.
Estimated Current Reserve Deficiency to Policyholders’ Surplus	Less than 25%		73.0	%	The estimated current reserve deficiency to policyholders’ surplus ratio compares the ratio of (i) current year-end reserves for losses and loss adjustment expenses to current year net premiums earned to (ii) the prior two-year average ratio of year end reserves, developed to current year end, to prior two year average net premiums earned. We believe that this ratio fell outside the usual range in connection with favorable accident year 2008 loss experience, together with additional net premiums earned in 2008 attributable to audit adjustments on prior year policy years.

Statutory Accounting Principles

Statutory accounting principles, or SAP, are a basis of accounting developed to assist insurance regulators in monitoring and regulating the solvency of insurance companies. SAP is primarily concerned with measuring

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an insurer’s surplus to policyholders. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with applicable insurance laws and regulations in each insurer’s domiciliary state.

Generally accepted accounting principles, or GAAP, are concerned with a company’s solvency, but are also concerned with other financial measurements, principally income and cash flows. Accordingly, GAAP gives more consideration to appropriate matching of revenue and expenses and accounting for management’s stewardship of assets than does SAP. As a direct result, different assets and liabilities and different amounts of assets and liabilities will be reflected in financial statements prepared in accordance with GAAP as opposed to SAP.

Statutory accounting principles established by the NAIC and adopted by the Florida OIR determine, among other things, the amount of statutory surplus and statutory net income of Guarantee Insurance.

Risk-Based Capital Regulations and Requirements

Insurance operations are subject to various leverage tests, which are evaluated by regulators and rating agencies. Florida law prohibits workers’ compensation insurance companies from exceeding a gross premiums written-to-surplus ratio of 8.0 to 1 and a net premiums written-to-surplus ratio of 3.2 to 1. Guarantee Insurance’s gross premiums written-to-surplus ratio and net premiums written-to-surplus ratios were 6.4 to 1 and 2.5 to 1, respectively.

Under Florida law, domestic property and casualty insurers must report their risk-based capital based on a formula developed and adopted by the NAIC that attempts to measure statutory capital and surplus needs based on the risks in the insurer’s mix of products and investment portfolio. Risk-based capital is a method of measuring the amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile. Risk-based capital standards are used by regulators to determine appropriate regulatory actions for insurers that show signs of weak or deteriorating conditions. Under the formula, a company determines its “risk-based capital” by taking into account certain risks related to the insurer’s assets (including risks related to its investment portfolio and ceded reinsurance) and the insurer’s liabilities (including underwriting risks related to the nature and experience of its insurance business).

The Risk-Based Capital Model Act provides for four different levels of regulatory attention depending on the ratio of an insurance company’s total adjusted capital to its risk-based capital.

The “Company Action Level” is triggered if a company’s total adjusted capital is less than 200% but greater than or equal to 150% of its risk-based capital. At the “Company Action Level,” a company must submit a comprehensive plan to the regulatory authority that discusses proposed corrective actions to improve its capital position. A company whose total adjusted capital is between 250% and 200% of its risk-based capital is subject to a trend test. A trend test calculates the greater of any decrease in the margin (i.e., the amount in dollars by which an insurance company’s adjusted capital exceeds its risk-based capital) between the current year and the prior year and between the current year and the average of the past three years, and assumes that the decrease could occur again in the coming year.

The “Regulatory Action Level” is triggered if an insurance company’s total adjusted capital is less than 150% but greater than or equal to 100% of its risk-based capital. At the “Regulatory Action Level,” the regulatory authority will perform a special examination of the insurance company and issue an order specifying corrective actions that must be followed.

The “Authorized Control Level” is triggered if an insurance company’s total adjusted capital is less than 100% but greater than or equal to 70% of its risk-based capital, at which level the regulatory authority may take any action it deems necessary, including placing the insurance company under regulatory control.

The “Mandatory Control Level” is triggered if an insurance company’s total adjusted capital is less than 70% of its risk-based capital, at which level regulatory authority is mandated to place the insurance company under its control.

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At December 31, 2008, Guarantee Insurance’s risk-based capital level exceeded the minimum level that would trigger regulatory attention. Guarantee Insurance is subject to a consent order issued by the Florida OIR in 2006 that requires Guarantee Insurance to maintain a minimum statutory policyholders surplus of the greater of $9.0 million or 10% of total liabilities excluding taxes, expenses and other obligations due or accrued. At December 31, 2008, Guarantee Insurance’s statutory surplus was approximately $18.3 million. At December 31, 2008, 10% of total liabilities excluding taxes, expenses and other obligations due or accrued were approximately $10.2 million.

PUI and PRS Licensing

Patriot Underwriters, Inc., Patriot General Agency, Inc. and certain subsidiaries of PRS Group, Inc. are authorized to act as insurance producers under firm licenses or licenses held by their officers in 46 jurisdictions. In each state where these subsidiaries transact insurance services business, they are generally subject to regulation relating to licensing, sales and marketing practices, premium collection and safekeeping, and other market conduct practices. Their business depends on the validity of, and continued good standing under, the licenses and approvals pursuant to which they operate, as well as compliance with pertinent regulations. We devote significant effort toward maintaining licenses for these subsidiaries and managing their operations and practices to help ensure compliance with a diverse and complex regulatory structure. In some instances, these subsidiaries follow practices based on interpretations of laws and regulations generally followed by the industry, which may prove to be different from the interpretations of regulatory authorities.

Third-party administration services which we provide through PUI and PRS are subject to licensing requirements and regulation under the laws of each of the jurisdictions in which they operate.

In order to expand our services, certain of the PUI and PRS entities will need to obtain additional licenses to allow us to provide insurance services. Licensing laws and regulations vary from state to state. In all states, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally such authorities are vested with relatively broad and general discretion as to the granting, renewing and revoking of licenses and approvals. Licenses may be denied or revoked for various reasons, including the violation of regulations and conviction of crimes. Possible sanctions which may be imposed by regulatory authorities include the suspension of individual employees, limitations on engaging in a particular business for specified periods of time, revocation of licenses, censures, redress to clients and fines.

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MANAGEMENT

Directors, Executive Officers and Key Employees

The table below provides information about our directors, executive officers and key employees. Our directors are divided into three classes with the number of directors in each class as nearly equal as possible. Each director serves for a three-year term and until their successors are elected and qualified. Executive officers serve at the request of our board of directors.

Name	Age		Position
Executive Officer and Directors
Steven M. Mariano(1)		45	Chairman of the Board, President and Chief Executive Officer
Michael W. Grandstaff		49	Senior Vice President and Chief Financial Officer
Charles K. Schuver		53	Senior Vice President and Chief Underwriting Officer, Guarantee Insurance
Timothy J. Ermatinger		60	Chief Executive Officer, PRS
Richard G. Turner		58	Senior Vice President and Executive Vice President of Alternative Markets
Theodore G. Bryant		39	Senior Vice President, Counsel and Secretary
Timothy J. Tompkins(1)		48	Director
Richard F. Allen(3)		76	Director
Ronald P. Formento Sr.(2)		66	Director
John R. Del Pizzo(3)		62	Director
C. Timothy Morris(2)		59	Director
Key Employees
Dean D. Watters		52	Vice President — Business Development
Maria C. Allen		56	Vice President — Client Services/Corporate Claims, Guarantee Insurance
Gary Roche		45	Vice President — Operations
Robert Zamary		43	Vice President — Claims Management, PRS
Josephine L. Graves		43	President, Patriot Risk Services, Inc.
John J. Rearer		51	Vice President — Chief Underwriting Officer, PUI
Michael J. Sluka		57	Vice President and Chief Accounting Officer

(1)	Term expires in 2009.
(2)	Term expires in 2010.
(3)	Term expires in 2011.

We expect to make certain changes to the composition of our board of directors upon or prior to the completion of this offering. See “— Board Composition.” Set forth below is certain background information relating to our current directors, executive officers and key employees.

Steven M. Mariano — Chairman of the Board, President and Chief Executive Officer of Patriot Risk Management. Mr. Mariano, our founder, is an entrepreneur and businessman with 20 years of experience in the insurance industry. Mr. Mariano founded Strategic Outsourcing Inc., a professional staffing company, which was sold to Union Planters Bank (Regions Bank, NYSE) in 2000. Mr. Mariano formed Patriot Risk Management during 2003 to acquire Guarantee Insurance. Shortly thereafter he formed PRS to provide fee-based care management, captive consulting, bill review, network development and other claims related services to Guarantee Insurance and other clients. Mr. Mariano has served as Chairman of the Board and Chief

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Executive Officer of Guarantee Insurance since 2003. He is responsible for the overall direction and management of our operations and financial and strategic planning.

Michael W. Grandstaff, CPA — Senior Vice President and Chief Financial Officer of Patriot Risk Management. Mr. Grandstaff is the principal financial officer for Patriot. He joined Patriot as a financial consultant in December 2007 and became Senior Vice President and Chief Financial Officer in February 2008. From October 2006 until he joined us, Mr. Grandstaff was President and Chief Executive Officer of Precedent Insurance Company, a wholly-owned subsidiary of American Community Mutual Insurance Company. From June 2002 until November 2006, Mr. Grandstaff served as Senior Vice President, Chief Financial Officer and Treasurer of American Community Mutual Insurance Company, a mutual health insurance company. From February 2001 until June 2002, Mr. Grandstaff served as Treasurer and Vice President of Finance of Meadowbrook Insurance Group, Inc.

Charles K. Schuver — Senior Vice President and Chief Underwriting Officer of Guarantee Insurance. Mr. Schuver directs Guarantee Insurance’s underwriting activities. He joined us in June 2008. Prior to joining Patriot, Mr. Schuver was Senior Vice President, Corporate Underwriting Executive for Arch Insurance Group, a specialty insurer based in New York with over $2.5 billion in gross written premiums in 2007. Mr. Schuver served in that role from May 2004 until May 2008. He was Vice President, Strategic Development Executive for Royal & Sun Alliance Insurance Group PLC, from 1998 until 2004.

Timothy J. Ermatinger, CPA — Chief Executive Officer of PRS Group, Inc. Mr. Ermatinger joined Patriot in June 2006 where he served as Senior Vice President of Strategic Planning. In October 2006 he became Patriot’s Chief Operating Officer. Mr. Ermatinger joined PRS Group, Inc. as its Chief Executive Officer in September, 2007. Mr. Ermatinger was a Principal in the Merger & Acquisitions department of Rachlin, Cohen & Holtz LLP, a Miami public accounting firm, from December 2005 until June 2006. He served as Senior Vice President of Client Services and Chief Financial Officer of Broadspire Services, Inc., a national third-party administrator in Plantation, Florida from July 2003 to December 2005. Mr. Ermatinger served as Chief Financial Officer of Kemper National Services, a provider of insurance services from September 2000 to July 2003.

Richard G. Turner — Senior Vice President and Executive Vice President of Alternative Markets. Mr. Turner’s primary responsibility is to direct our alternative markets business development. Mr. Turner joined Patriot in September 2008. Before joining Patriot, he was Senior Vice President in charge of captive and alternative market risk divisions at Lexington Insurance Company, a subsidiary of American International Group, from November 2007 until August 2008. From 2003 until 2007, Mr. Turner was Managing Director in charge of sales and distribution for the alternative market risk subsidiary of Liberty Mutual Group, Inc. For eighteen years prior to that, Mr. Turner was President of Commonwealth Risk Services, a company Mr. Turner founded in 1984 that was a pioneer in providing services to the alternative risk market.

Theodore G. Bryant — Senior Vice President, Counsel and Secretary of Patriot Risk Management. Mr. Bryant serves as the senior legal officer and corporate secretary for Patriot and its subsidiaries. He also has principal oversight for regulatory and compliance matters on behalf of Patriot and its subsidiaries. Prior to joining Patriot, as Senior Vice President — Director Business Development in December 2006, Mr. Bryant practiced law in Seattle, Washington with the law firm of Cozen O’Connor LLP, which he joined in 2000. From 2004 through 2006, Mr. Bryant was a member of the firm’s commercial and insurance litigation departments.

Timothy J. Tompkins — Director. Mr. Tompkins is General Counsel of The Hagerty Group in Traverse City, Michigan. The Hagerty Group is a leading insurance agency for collector cars and boats in the United States. Mr. Tompkins joined the Hagerty Group, as its General Counsel in June 2005. Prior to joining the Hagerty Group, Mr. Tompkins was a senior member of the international insurance practice group at Cozen O’Conner LLP in Seattle, Washington from June 1999 until June 2004. From June 2004 until June 2005, Mr. Tompkins was of counsel at Cozen O’Conner. Mr. Tompkins joined our board of directors in 2007.

Richard F. Allen — Director. Mr. Allen is Office Managing Partner of the London office of Cozen O’Connor. He has served in that position since 2002. Mr. Allen joined Cozen O’Conner as a partner in 1999. He is a member of the Federation of Insurance Counsel and a fellow of the American College of Trial Lawyers. Mr. Allen joined the our board of directors in 2007.

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Ronald P. Formento Sr. — Director. Mr. Formento serves as the President and Chairman of Transport Driver, Inc., a driver leasing company primarily servicing private manufacturing companies. He has served in that position since 1976. Mr. Formento also served as Chairman of the Board of Optimum Staffing, a provider of staffing services from 1992 until January 2005, and serves as Chairman of the Board of Mount Mansfield Insurance Group, a captive insurance company sponsored by American International Group that is engaged in reinsuring workers’ compensation insurance for truck drivers. Mr. Formento joined our board of directors in 2008.

John R. Del Pizzo, CPA — Director. Since 1997, Mr. Del Pizzo has served as President, Secretary and Treasurer of Del Pizzo & Associates, P.C., an accounting and business advisory firm. Mr. Del Pizzo joined our board of directors in 2003.

C. Timothy Morris — Director. Mr. Morris is currently Managing Director of National Capital Advisors, Inc., an insurance consulting firm located in Charleston, South Carolina. He has served in that position since 2002. From 1997 to 2002, Mr. Morris was Senior Vice President and Chief Executive Officer, National Accounts, for Travelers Property and Casualty. Mr. Morris joined our board of directors in 2008.

Dean D. Watters — Vice President — Business Development. Mr. Watters directs our business development activities. He joined us in May 2008. Prior to joining our team, Mr. Watters was Division Vice President, Insurance Services for the Added Value Services Division of Automatic Data Processing, Inc., a provider of technology-based outsourcing solutions to employers, vehicle retailers and manufacturers. He served in that role from 2000 until 2007.

Maria C. Allen — Vice President — Client Services/Corporate Claims. Ms. Allen directs our claims handling operation. Ms. Allen joined us in July 2003.

Gary Roche — Vice President — Operations.  Mr. Roche joined Guarantee Insurance Company in April of 2009. Prior to joining us he was Senior Vice President of Operations for the Legion group of companies, a U.S. domiciled insurance company that is a subsidiary of Mutual Risk Management. LTD, from 1999 to 2009.

Robert Zamary — Vice President — Claims Management, PRS. Mr. Zamary joined Patriot Risk Services in May 2009 as the Vice President of Claims Management. He served as Executive Vice President and Chief Operating Officer and Senior Vice President at Avizent, a provider of claims management services, from 2000 through 2009.

Josephine L. Graves — President of Patriot Risk Services, Inc. She joined us in October 2006. From May 2006 until joining Patriot Risk Services, she was Risk Manager for Interim Healthcare, Inc., a home health agency company based in Sunrise, Florida. From September 2004 until May 2006, Ms. Graves served as Workers’ Compensation Manager for Aequicap Claims Services, a provider of insurance claims services, located in Fort Lauderdale, Florida. From March 1993 until September 2004, she was Director of Tenet DirectComp of South Florida, a third party administrator.

John J. Rearer — Vice President — Chief Underwriting Officer of PUI. Mr. Rearer leads the underwriting efforts at PRS. He joined us in September 2007. From 1994 until September 2007, Mr. Rearer was Vice President of Preferred Employers Group, a managing general agent based in Miami, Florida that wrote workers’ compensation insurance to franchised restaurant chains.

Michael J. Sluka, CPA — Vice President and Chief Accounting Officer of Patriot. Mr. Sluka is our principal accounting officer. Mr. Sluka joined Patriot in April 2008. From December 1999 until he joined us, Mr. Sluka served as the Chief Financial Officer, Senior Vice President and Treasurer of TRG Holding Corporation and TIG Insurance Company, subsidiaries of Fairfax Financial Holdings Limited (NYSE), a financial services company engaged in property and casualty insurance, reinsurance and investment management.

Board Composition

We are managed under the direction of our board of directors. Our board currently consists of 6 directors. We expect to make certain changes to our board composition upon or prior to the completion of this offering.

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We expect that 3 of our current directors will resign and that we will elect 4 new independent directors, each of whom will have prior experience serving on the board of directors of a public company. Accordingly, upon completion of this offering, we expect our board to consist of 7 directors, 6 of whom will not be current or former employees of our company and will not have any other relations with us that would result in their being considered other than independent under applicable U.S. federal securities laws and the current listing requirements of the New York Stock Exchange. There are no family relationships among any of our current directors or executive officers.

Following the completion of this offering, copies of our Corporate Governance Guidelines and Code of Business Conduct and Ethics for all of our directors, officers and employees will be available on our website (www.prmigroup.com) and upon written request by our stockholders at no cost.

Number of Directors; Removal; Vacancies

Our amended and restated certificate of incorporation (our “certificate of incorporation”) and our amended and restated bylaws (our “bylaws”) provide that the number of directors shall be fixed from time to time by our board of directors, provided that the board shall consist of at least three and no more than thirteen members. Our board of directors will be divided into three classes with the number of directors in each class as nearly equal as possible. Each director will serve a three-year term. The classification and term of office for each of our current directors is noted above in the table listing our directors and executive officers under “— Directors, Executive Officers and Key Employees.” Pursuant to our bylaws, each director will serve until such director’s successor is elected and qualified or until such director’s earlier death, resignation, disqualification or removal. Our certificate of incorporation and bylaws also provide that any director may be removed for cause, at any meeting of stockholders called for that purpose, by the affirmative vote of the holders of at least two-thirds of the shares of our stock entitled to vote for the election of directors.

Our bylaws further provide that vacancies and newly created directorships in our board may be filled only by an affirmative vote of the majority of the directors then in office, although less than a quorum, or by a sole remaining director.

Board Committees

Our board has an audit committee, a compensation committee and, a nominating and corporate governance committee. Each committee consists of three directors. Upon completion of this offering, all of the members of our audit committee, compensation committee and nominating and corporate governance committee will be “independent” as defined by the rules of the New York Stock Exchange, and, in the case of the audit committee, by the rules of the New York Stock Exchange and the SEC.

Audit Committee.  Upon completion of this offering, we expect that the audit committee will be comprised of three directors. The audit committee will oversee our accounting and financial reporting processes and the audits of our financial statements. The functions and responsibilities of the audit committee will include:

•  establishing, monitoring and assessing our policies and procedures with respect to business practices, including the adequacy of our internal controls over accounting and financial reporting;

•  retaining our independent auditors and conducting an annual review of the independence of our independent auditors;

•  pre-approving any non-audit services to be performed by our independent auditors;

•  reviewing the annual audited financial statements and quarterly financial information with management and the independent auditors;

•  reviewing with the independent auditors the scope and the planning of the annual audit;

•  reviewing the findings and recommendations of the independent auditors and management’s response to the recommendations of the independent auditors;

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•  overseeing compliance with applicable legal and regulatory requirements, including ethical business standards;

•  approve related party transactions;

•  preparing the audit committee report to be included in our annual proxy statement;

•  establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters;

•  establishing procedures for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and

•  reviewing the adequacy of the audit committee charter on an annual basis.

Our independent auditors will report directly to the audit committee. Each member of the audit committee will have the ability to read and understand fundamental financial statements. Upon completion of this offering, We expect that at least one member of the audit committee will meet the requirements of an “audit committee financial expert” as defined by the rules of the SEC.

We will provide for appropriate funding, as determined by the audit committee, for payment of compensation to our independent auditors, any independent counsel or other advisors engaged by the audit committee and for administrative expenses of the audit committee that are necessary or appropriate in carrying out its duties.

Compensation Committee.  Upon completion of this offering, we expect that the compensation committee will be comprised of three directors. The compensation committee will establish, administer and review our policies, programs and procedures for compensating our executive officers and directors. The functions and responsibilities of the compensation committee include:

•  evaluating the performance of and determining the compensation for our executive officers, including our chief executive officer;

•  administering and making recommendations to our board with respect to our equity incentive plans;

•  overseeing regulatory compliance with respect to compensation matters;

•  reviewing and approving employment or severance arrangements with senior management;

•  reviewing our director compensation policies and making recommendations to our board;

•  taking the required actions with respect to the compensation discussion and analysis to be included in our annual proxy statement;

•  preparing the compensation committee report to be included in our annual proxy statement; and

•  reviewing the adequacy of the compensation committee charter.

Nominating and Corporate Governance Committee.  Upon completion of this offering, we expect that the nominating and corporate governance committee will be comprised of three directors. The functions and responsibilities of the nominating and corporate governance committee will include:

•  developing and recommending corporate governance principles and procedures applicable to our board and employees;

•  recommending committee composition and assignments;

•  identifying individuals qualified to become directors;

•  recommending director nominees;

•  assist in succession planning;

•  recommending whether incumbent directors should be nominated for re-election to our board; and

•  reviewing the adequacy of the nominating and corporate governance committee charter.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee will be, or will have been, employed by us. None of our executive officers currently serves, or in the past three years has served, as a member of the board of directors, compensation committee or other board committee performing equivalent functions of another entity that has one or more executive officers serving on our board or compensation committee. See “— Board Composition.”

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This Compensation Discussion and Analysis describes the key elements of our executive compensation program. Historically, our board of directors has been responsible for the design, implementation and administration of our executive compensation program. Mr. Mariano, our Chief Executive Officer, is the Chairman of our board of directors. Our board of directors frequently relied on the recommendations of Mr. Mariano and the compensation committee of the board in fulfilling these responsibilities.

The primary goal of our compensation program is to reward performance and retain talented executives who will help us achieve our goals. Historically, the principal components of our executive compensation program have been base salary, discretionary annual bonus, stock options and welfare benefits.

This Compensation Discussion and Analysis, as well as the compensation tables and accompanying narratives below, contain forward-looking statements that are based on our current plans and expectations regarding our future compensation programs. Actual compensation programs that we adopt may differ materially from the programs summarized below and we undertake no duty to update these forward-looking statements.

Compensation Objectives

The primary objectives of our compensation programs and policies are:

•  To attract and retain talented and experienced insurance and risk management executives who will help us achieve our financial and strategic goals and objectives;

•  To motivate and reward executives whose knowledge, skills and performance are critical to our success;

•  To encourage executives to manage our business to meet our long-term objectives by aligning an element of compensation to those objectives so as to be consistent with our strategy; and

•  To align the interests of our executive officers and stockholders by motivating executive officers to increase stockholder value and reward executive officers when appropriate.

Our board of directors believes that compensation is unique to each individual and should be determined based on discretionary and subjective factors relevant to the particular named executive officer based on the objectives listed above. It is the intention of the compensation committee of our board of directors to perform an annual review of compensation policies, including the appropriate mix of base salary, bonuses and long-term incentive compensation.

Compensation Process

Each year, our board of directors, at the recommendation of the compensation committee, reviews the compensation of our named executive officers regarding annual base salary increases, annual bonuses and equity compensation. Our Chief Executive Officer recuses himself from discussions concerning his own compensation. Our Chief Executive Officer reviews all other named executive officers’ compensation annually and makes recommendations to our board of directors regarding annual base salaries, annual bonuses and option grants. Our board of directors takes into consideration the recommendations of our Chief Executive Officer and compensation committee in making its determination. When setting our Chief Executive Officer’s compensation, the compensation committee and our board of directors consider the following factors: his personal financial commitment to Patriot, the time spent on company business, his contributions to our growth over the last 12 months and the overall performance of our business. We have no formal or informal policy or target for allocating compensation between long-term and short-term compensation, between cash and non-cash compensation, or among the different forms of non-cash compensation. Our board of directors, upon recommendation from the compensation committee, determines what it believes to be the appropriate level and

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combination of the various compensation components on an individual basis. The board of directors grants all equity awards based on the recommendation of the compensation committee.

Salaries and annual bonuses for our other officers are determined by their respective direct managers with input and final approval by our Chief Executive Officer. While we identify below particular compensation objectives that each element of executive compensation serves, we believe each element of compensation, to a greater or lesser extent, serves each of the objectives of our executive compensation program.

Compensation Components

In 2008, our compensation program for our named executive officers consisted of three primary elements: base salary, a discretionary annual bonus and equity awards. The compensation program for certain executive officers also includes retirement and severance benefits as set forth below.

Base Salary.  Base salary is used to recognize the experience, skills, knowledge and responsibilities of our named executive officers. Our board of directors establishes each individual’s initial base salary through negotiation with the individual and considers the person’s level of experience, accomplishments and areas of responsibilities. We do not attempt to target our named executive officers’ compensation to any particular percentile relative to peer group companies. In determining annual increases to base salaries, our board of directors, upon the recommendation of our Chief Executive Officer and the compensation committee, takes into account overall company performance, premium growth, return on equity, the satisfaction of profitability objectives and the completion of other initiatives established by our board of directors. The annual review is specific to the individual performance of each named executive officer. Any increase in base salary is also based on prevailing market compensation practices, which typically account for, among other factors, increases in the cost of living in the applicable market and economic conditions. In determining prevailing market compensation practices, our board of directors relies on the experience and industry knowledge of its members along with generally available market data. Each of our named executive officers has an employment agreement that provides for a minimum base salary that may be increased annually at the discretion of our board of directors.

Discretionary Annual Bonus.  Each of our named executive officers is eligible to receive a discretionary annual bonus with a maximum payment generally equal to 50% of such executive officer’s base salary, as provided in such named executive officer’s employment agreement. The discretionary annual bonus is intended to compensate executive officers for their efforts in achieving our strategic, operational and financial goals and objectives in addition to rewarding the individual performance of the executive officer. It is possible for discretionary bonuses to exceed the 50% maximum target in exceptional cases. The employment agreements with our named executive officers provide that our board will set criteria on which annual bonuses are based. For 2008, the criteria used by the board for each of the named executive officers was our achievement of a top-line revenue goal of $135 million and the completion of our planned initial public offering. Actual top-line revenue was $118 million, short of the goal by 13%. Our principal initiative in 2008 was the completion of our planned initial public offering. Due to adverse market conditions that intensified in the third quarter of 2008, the initial public offering was not completed. Based on this performance, the compensation committee determined not to award any discretionary bonuses to our named executive officers, except for a $30,000 bonus to Mr. Schuver that was specified in his offer letter.

Equity Awards.  No named executive officer received equity awards for the year ended December 31, 2008.

We intend for equity awards to become an integral part of our overall executive compensation program, because we believe our long-term performance will be enhanced through the use of equity awards that reward our executives for maximizing stockholder value over time. In determining the number of stock options to be granted to our named executive officers, our board of directors, upon recommendation from the compensation committee and our Chief Executive Officer, expects to take into account the individual’s position, scope of responsibility, ability to affect profits, the value of the stock options in relation to other elements of the individual named executive officer’s total compensation, our overall performance, specifically our top-line

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growth and completion of our prior year’s initiatives, and the named executive officer’s contribution to our performance.

Retirement Benefits.  We currently offer a 401(k) plan to all of our employees, including our executive officers. This plan allows employees to defer current earnings and recognize them later, in accordance with statutory regulations, when their marginal income tax rates may be lower. We do not have any benefit pension plans, and there are no alternative plans in place for our named executive officers.

Employment Agreements.  In 2008, we entered into employment agreements with each of our named executive officers. These employment agreements establish key employment terms (including reporting responsibilities, base salary and discretionary bonus and other benefits), provide for severance and change in control benefits and contain non-competition and non-solicitation covenants. The employment agreements modified certain elements of compensation of some of our executive officers. Under his employment agreement, Mr. Mariano’s base salary was set at $550,000, a 38% increase over his 2007 base salary of $400,000. Under his employment agreement, Mr. Bryant’s base salary was set at $250,000, a 39% increase over his 2007 base salary of $180,000. Mr. Ermatinger’s base salary was set at $225,000, a 10% increase over his 2007 base salary of $205,000. In determining the base salaries, the compensation committee considered the salary levels of a peer group consisting of property and casualty insurance companies that recently completed an initial public offering and, in the case of Messrs. Mariano, Bryant and Ermatinger, their increased responsibilities in growing the company and transitioning it to a publicly-held company. The peer group of companies consisted of SeaBright Insurance Holdings, Inc., Specialty Underwriters Alliance, Inc., Tower Group, Inc., AmTrust Financial Services, Inc., AmCOMP, Inc., Amerisafe, Inc., and James River Group, Inc.

The employment agreements provide for stock option grants in the following amounts to be made concurrently with the consummation of this offering, with an exercise price equal to the offering price and vesting in equal amounts over three years: Mr. Mariano, 800,000 shares, Mr. Grandstaff, 100,000 shares, Mr. Schuver, 50,000 shares, Mr. Ermatinger, 30,000 shares, and Mr. Bryant, 70,000 shares. In determining the size of these option awards, the compensation committee considered the peer group data referenced above. See “— Employment Agreements.”

Severance and Change in Control Payments.  The employment agreements provide for certain payments, or termination benefits, to our named executive officers subsequent to, or in connection with, the termination of their employment by us without cause or by the named executive officers for good reason or upon a change in control of our company. Payment and benefit levels were determined based on a variety of factors including the position held by the individual receiving the termination benefits and current trends in the marketplace regarding such benefits. For a description of the potential termination benefits included in the employment agreements, see “— Employment Agreements.”

Other Benefits.  Our named executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, long and short-term disability and life insurance, in each case on the same basis as our other employees. Additionally, certain of our named executive officers receive an automobile allowance and certain other consideration for their performance in their respective roles with us.

Accounting and Tax Implications

The accounting and tax treatment of particular forms of compensation do not materially affect our compensation decisions. However, we evaluate the effect of such accounting and tax treatment on an ongoing basis and will make appropriate modifications to compensation policies where appropriate. For instance, Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallows a tax deduction to public companies for certain compensation in excess of $1.0 million paid in any taxable year to our chief executive officer or any of our three other most highly compensated executive officers. However, certain compensation, including qualified performance-based compensation, is not subject to the deduction limitation if certain requirements are met. In addition, under a transition rule for new public companies, the deduction limits under Section 162(m) do not apply to any compensation paid pursuant to a compensation plan or agreement that existed during the period in which the securities of the corporation were not publicly held, to the extent that the prospectus relating to the initial public offering disclosed information concerning

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these plans or agreements that satisfied all applicable securities laws then in effect. We believe that we can rely on this transition rule until our 2013 annual meeting of stockholders. The board of directors intends to review the potential effect of Section 162(m) of the Code periodically and use its judgment to authorize compensation payments that may be subject to the limit when the board of directors believes such payments are appropriate and in Patriot’s best interests after taking into consideration changing business conditions and the performance of our executive officers.

Summary Compensation Table

The following table sets forth certain summary information regarding the compensation awarded or paid by us to or for the account of our Chief Executive Officer, our Chief Financial Officer and four other named executive officers for the fiscal year ended December 31, 2008. We refer to these five officers as the “named executive officers.”

							Stock		Option		All Other
			Salary		Bonus		Awards		Awards		Compensation			Total
Name and Principal Position	Year		($)		($)		($)		($)		($)			($)
Steven M. Mariano —		2008		492,308		—		—		—		22,926	(1)		515,234
President and Chief Executive Officer
Michael W. Grandstaff —		2008		312,885		—		—		—		73,976	(2)		386,861
Senior Vice President and Chief Financial Officer
Charles K. Schuver —		2008		172,885		30,000		—		—		—			202,885
Senior Vice President and Chief Underwriting Officer of Guarantee Insurance
Timothy J. Ermatinger —		2008		217,308		—		—		—		—			217,308
Chief Executive Officer of PRS
Theodore G. Bryant —		2008		230,000		—		—		—		7,105	(3)		237,105
Senior Vice President, Counsel and Secretary

(1) Represents payment of annual club dues.

(2) Consists of relocation expenses related to Mr. Grandstaff’s move to Florida of $63,976 and a car allowance of $10,000.

(3) Represents a car allowance.

Grants of Plan-Based Awards

No executive officers received grants of plan-based awards in 2008.

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Outstanding Equity Awards at Fiscal Year End

The following table sets forth certain information regarding the outstanding equity awards of the named executive officers at December 31, 2008.

	Option Awards
	Number of		Number of
	Securities		Securities
	Underlying		Underlying
	Unexercised		Unexercised			Option
	Options		Options			Exercise		Option Expiration
Name	(#) Exercisable		(#) Unexercisable			Price ($)		Date
Steven M. Mariano		25,000		—			5.00	February 10, 2015
		10,000		—			8.02	February 22, 2016
		10,000		10,000	(1)		8.02	May 19, 2017
Timothy J. Ermatinger		3,333		1,667	(2)		8.02	June 1, 2016
		6,667		3,333	(3)		8.02	October 11, 2016
Theodore G. Bryant		3,333		1,667	(4)		8.02	December 17, 2016

(1) Shares become exercisable on May 20, 2009.

(2) Shares become exercisable on June 2, 2009.

(3) Shares become exercisable on October 12, 2009.

(4) Shares become exercisable on December 17, 2009.

Option Exercises and Stock Vested

No options were exercised by our named executive officers in 2008, and no unvested restricted stock held by any of its named executive officers vested in 2008.

Potential Payments Upon Termination or Change of Control

In 2008 we entered into employment agreements with our named executive officers that provide for certain potential payments upon termination or change of control. See “— Employment Agreements.”

Director Compensation

The following table sets forth certain information regarding compensation paid to our non-employee directors for 2008.

	Fees Earned		Stock		Option
	or Paid in Cash		Awards		Awards		Total
Name	($)		($)		($)		($)
Richard F. Allen		40,500		—		—		40,500
Ronald P. Formento, Sr.		41,000		—		—		41,000
C. Timothy Morris		37,500		—		—		37,500
John R. Del Pizzo		58,500		—		—		58,500
Timothy J. Tompkins		55,000		—		—		55,000

Pursuant to our director compensation program, we generally use a combination of cash and equity-based compensation to attract and retain non-employee directors and to compensate directors for their service on our board of directors commensurate with their role and involvement. In setting director compensation, we consider the significant amount of time our directors expend in fulfilling their duties as well as their skill level.

Our non-employee directors receive an annual cash retainer of $24,000. The chair of the audit committee receives an additional annual cash retainer of $7,500 and each other member of the audit committee receives an additional annual cash retainer of $3,500. The chairs of the compensation committee and nominating and

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corporate governance committee each receive an additional annual cash retainer of $5,000, and each other member of these committees receive an annual cash retainer of $2,000. Our non-employee directors also receive meeting participation fees. Each non-employee director receives $1,500 per meeting and each committee member receives $1,000 per meeting. We reimburse our directors for reasonable out-of-pocket expenses they incur in connection with their service as directors. Directors who are also our full-time employees do not receive additional compensation for their service as directors.

Employment Agreements

The following information summarizes the employment agreements for each of our executive officers.

Steven M. Mariano

Under Mr. Mariano’s employment agreement, dated May 9, 2008, Mr. Mariano has agreed to serve as Patriot Risk Management’s Chairman, Chief Executive Officer and President. Mr. Mariano’s employment agreement has an initial term ending on December 31, 2011, at which time the employment agreement will automatically renew for successive one-year terms, unless Mr. Mariano or Patriot provides 90 days’ written notice of non-renewal. The agreement requires Patriot Risk Management to nominate Mr. Mariano as a director for stockholder approval at each annual meeting during the term of the agreement in which his term as a director is due to expire. In the event of a change of control event after January 1, 2011, Mr. Mariano’s employment agreement shall be extended until at least the second anniversary of the change of control event. Mr. Mariano is entitled to receive an annual base salary in the amount of $550,000, subject to review at least annually, and he is entitled to receive an annual bonus in an amount determined by Patriot Risk Management’s board of directors, subject to the attainment of goals established by the board. Mr. Mariano’s employment agreement also entitles him to reimbursement of certain expenses including the club fees and expenses associated with The Fisher Island Club and an automobile allowance. Upon the consummation of this offering, Mr. Mariano is eligible to receive a grant of options to purchase 800,000 shares of our common stock at an exercise price equal to the initial public offering price, which options will vest ratably on the anniversary of the grant date over a period of 3 years.

The employment agreement with Mr. Mariano is terminable by Patriot in the event of his death, disability, a material breach of duties and obligations under the agreement or other serious misconduct. If the agreement is terminated based on Mr. Mariano’s disability, he is entitled to his annual base salary, reduced dollar for dollar by the payments received under any long-term disability plan, policy or program, for three years. The agreement is also terminable by Patriot without cause or by Mr. Mariano for good reason (as defined in the agreement); provided however, that in such event, Mr. Mariano is entitled to his salary up to the date of termination and a cash amount equal to three times the sum of his annual salary at the time of termination plus his average annual bonus, and continued health plan coverage for a period of eighteen months (the “Severance Payment”). If the agreement is terminated as a result of Patriot giving notice of non-renewal, such termination is considered a termination without cause and entitles Mr. Mariano to the Severance Payment. The employment agreement also provides that in the event of a change of control of Patriot (as defined in the agreement) and the termination of Mr. Mariano’s employment by Patriot without cause or by him for good reason (as defined in the agreement) within twenty-four months after such change in control, or within six months before such change of control at the request or direction of a participant in a potential acquisition, he is entitled to a Severance Payment. Mr. Mariano’s employment agreement provides for a tax gross-up payment in the event that any amounts or benefits due to him would be subject to excise taxes under Section 4999 of the Internal Revenue Code. The payment would be in an amount such that after payment by Mr. Mariano of all taxes, including any income taxes and excise tax imposed upon the gross-up, Mr. Mariano retains an amount equal to the excise tax imposed. The employment agreement contains noncompetition and nonsolicitation provisions restricting Mr. Mariano from competing with Patriot for a period of one year following termination of his employment.

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Michael W. Grandstaff

Under Mr. Grandstaff’s employment agreement, dated as of February 11, 2008, Mr. Grandstaff has agreed to serve as Patriot Risk Management’s Senior Vice President and Chief Financial Officer. Mr. Grandstaff’s employment agreement has an initial three-year term, at which time the employment agreement will automatically renew for successive one-year terms, unless Mr. Grandstaff or Patriot provides 90 days’ written notice of non-renewal. Mr. Grandstaff is entitled to receive an annual base salary in the amount of $350,000, subject to review at least annually, and he is entitled to receive an annual bonus of up to 50% of his then current salary in an amount determined by the board of directors, subject to the attainment of goals established by the board. Mr. Grandstaff’s employment agreement also entitled him to reimbursement of certain expenses in connection with his hiring, including relocation expenses, up to $60,000 toward the initiation fee for a country club and a gross up for taxes for these expenses. Upon the consummation of this offering, Mr. Grandstaff is eligible to receive a grant of options to purchase 100,000 shares of our common stock at an exercise price equal to the initial public offering price, which options will vest ratably on the anniversary of the grant date over a period of 3 years.

The employment agreement with Mr. Grandstaff is terminable by Patriot in the event of his death, absence over a period of time due to incapacity, a material breach of duties and obligations under the agreement or other serious misconduct. The agreement is also terminable by Patriot without cause; provided however, that in such event, Mr. Grandstaff is entitled to his salary up to the date of termination and a cash amount equal to his annual salary at the time of termination (the “Severance Payment”). If Mr. Grandstaff terminates the agreement for good reason (as defined in the agreement), he will be entitled to receive the Severance Payment. The employment agreement also provides that in the event of a change of control of Patriot (as defined in the agreement) and the termination of Mr. Grandstaff’s employment by Patriot without cause or by him for good reason within twelve months of such change in control, he is entitled to a cash amount equal to two times the Severance Payment. The employment agreement contains noncompetition and nonsolicitation provisions restricting Mr. Grandstaff from competing with Patriot for a period of one year following termination of his employment.

Charles K. Schuver

Under Mr. Schuver’s employment agreement, dated as of September 29, 2008, Mr. Schuver has agreed to serve as Senior Vice President of Patriot and Chief Underwriting Officer of Guarantee Insurance Company. Mr. Schuver’s employment agreement has an initial three-year term, at which time the employment agreement will automatically renew for successive one-year terms, unless Mr. Schuver or Patriot provides 90 days’ written notice of non-renewal. Mr. Schuver is entitled to receive an annual base salary in the amount of $310,000, subject to review at least annually, and he is entitled to receive an annual bonus of up to 50% of his then current salary in an amount determined by the board of directors, subject to the attainment of goals established by the board. Upon the consummation of the offering, Mr. Schuver is eligible to receive a grant of options to purchase 50,000 shares of our common stock at an exercise price equal to the initial offering price, options will vest ratably on the anniversary of the grant date over a period of 3 years.

The employment agreement with Mr. Schuver is terminable by Patriot in the event of his death, absence over a period of time due to incapacity, a material breach of duties and obligations under the agreement or other serious misconduct. The agreement is also terminable by Patriot without cause. However, in such event, Mr. Schuver is entitled to his salary up to the date of termination and a cash amount equal to his annual salary at the time of termination (the “Severance Payment”). If Mr. Schuver terminates the agreement for good reason (as defined in the agreement), he will be entitled to receive the Severance Payment. The employment agreement also provides that in the event of a change of control of Patriot (as defined in the agreement) and the termination of Mr. Schuver’s employment by Patriot without cause or by him for good reason within twelve months of such change in control, he is entitled to a cash amount equal to two times the Severance Payment. The employment agreement contains noncompetition and nonsolicitation provisions restricting Mr. Schuver from competing with Patriot for a period of one year following termination of his employment.

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Timothy J. Ermatinger

Under Mr. Ermatinger’s employment agreement, as amended and restated as of May 9, 2008, Mr. Ermatinger has agreed to serve as the Chief Executive of PRS Group. Mr. Ermatinger’s employment agreement has an initial three-year term, at which time the employment agreement will automatically renew for successive one-year terms, unless Mr. Ermatinger or Patriot provides 90 days’ written notice of non-renewal. Mr. Ermatinger is entitled to receive an annual base salary in the amount of $225,000, subject to review annually, and he is entitled to receive an annual bonus of up to 50% of his then current salary in an amount determined by the board of directors, subject to the attainment of goals established by us. Upon the consummation of this offering, Mr. Ermatinger is eligible to receive a grant of options to purchase 30,000 shares of our common stock at an exercise price equal to the initial public offering price and these options will vest ratably on the anniversary of the grant date over a period of 3 years.

The employment agreement with Mr. Ermatinger is terminable by Patriot in the event of his death, absence over a period of time due to incapacity, a material breach of duties and obligations under the agreement or other serious misconduct. The agreement is also terminable by Patriot without cause; provided however, that in such event, Mr. Ermatinger may be entitled to his salary up to the date of termination and a cash amount equal to his annual salary at the time of termination (the “Severance Payment”). If Mr. Ermatinger terminates the agreement for good reason (as defined in the agreement), such termination is treated as a termination without cause. The amended and restated employment agreement also provides that in the event of a change of control of Patriot (as defined in the agreement) and the termination of Mr. Ermatinger’s employment by Patriot without cause or by him for good reason (as defined in the agreement) within twelve months of such change in control, he is entitled to a cash amount equal to the Severance Payment. The employment agreement contains noncompetition and nonsolicitation provisions restricting Mr. Ermatinger from competing with Patriot for a period of one year following termination of his employment.

Theodore G. Bryant

Under Mr. Bryant’s employment agreement, as amended and restated as of July 10, 2009, Mr. Bryant has agreed to serve as Patriot Risk Management’s Secretary, Senior Vice President and Legal Officer and to serve as General Counsel, Secretary and Senior Vice President of Guarantee Insurance Group, Inc. and its subsidiaries. Mr. Bryant’s employment agreement has an initial term ending on December 31, 2011, at which time the employment agreement will automatically renew for successive one-year terms, unless Mr. Bryant or Patriot provides 90 days’ written notice of non-renewal. Mr. Bryant is entitled to receive an annual base salary in the amount of $250,000, subject to review at least annually, and he is entitled to receive an annual bonus in an amount determined by the board of directors, subject to the attainment of goals established by the board. Additionally, Mr. Bryant is entitled to a $50,000 bonus upon the successful completion of Patriot’s initial public offering. Mr. Bryant’s employment agreement also entitles him to reimbursement of certain expenses including the initiation fee and annual dues payments for a country club, an automobile allowance of $1,000 a month and a gross up for taxes for these expenses. Upon the consummation of this offering. Mr. Bryant is eligible to receive a grant of options to purchase 70,000 shares of our common stock at an exercise price equal to the initial public offering price, which options will vest ratably on the anniversary of the grant date over a period of 3 years.

The employment agreement with Mr. Bryant is terminable by Patriot in the event of his death, disability, a material breach of duties and obligations under the agreement or other serious misconduct. If the agreement is terminated based on Mr. Bryant’s disability, he is entitled to his annual base salary, reduced dollar for dollar by the payments received under any long-term disability plan, policy or program, for three years. The agreement is also terminable by Patriot without cause; provided however, that in such event, Mr. Bryant is entitled to his salary up to the date of termination and a cash amount equal to his annual salary at the time of termination plus his average annual bonus for the prior three years (the “Severance Payment”). If the agreement is terminated as a result of Patriot giving notice of non-renewal, such termination is considered a termination without cause and entitles Mr. Bryant to the Severance Payment. The employment agreement also provides that in the event of a change of control of Patriot (as defined in the agreement) and the termination of Mr. Bryant’s employment by Patriot without cause or by him for good reason within twelve months after

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such change in control, or within six months before such change of control at the request or direction of a participant in a potential acquisition, he is entitled to payment equal to two times the Severance Payment. The employment agreement contains noncompetition and nonsolicitation provisions restricting Mr. Bryant from competing with Patriot for a period of one year following termination of his employment.

Stock Option Plans

2009 Stock Incentive Plan

Prior to completion of this offering, we expect to adopt, and expect our stockholders to approve, the Patriot Risk Management, Inc. 2009 Stock Incentive Plan (the 2009 Plan). The following description of the 2009 Plan is qualified in its entirety by the full text of the 2009 Plan, which will be filed with the SEC as an exhibit to the registration statement of which this prospectus is a part.

Purpose of the Plan.  The purpose of the 2009 Plan is to attract, retain and motivate participating employees and to attract and retain well-qualified individuals to serve as members of the board of directors, consultants and advisors through the use of incentives based upon the value of our common stock. Awards under the 2009 Plan will be determined by the compensation committee of the board of directors, and may be made to our or our subsidiaries’ employees, non-employee directors, consultants and advisors.

Administration of the Plan.  The 2009 Plan will be administered by the compensation committee of the board of directors. Each member of the compensation committee must be a non-employee director, as defined by Rule 16b-3 promulgated by the SEC under the Securities Exchange Act of 1934, as amended. Subject to the provisions of the 2009 Plan, the compensation committee will have authority to select employees, non-employee directors, consultants and advisors to receive awards, to determine the time or times of receipt, to determine the types of awards and the number of shares covered by the awards, to establish the terms, conditions and provisions of such awards, to determine the number and value of qualified performance-based awards and to cancel or suspend awards.

The compensation committee is authorized to interpret the 2009 Plan, to establish, amend and rescind any rules and regulations relating to the 2009 Plan, to determine the terms and provisions of any award agreements and to make all other determinations that may be necessary or advisable for the administration of the 2009 Plan.

Eligibility Under the Plan.  The compensation committee will determine the employees, non-employee directors, consultants and advisors who receive awards under the 2009 Plan.

Duration of Plan.  The 2009 Plan has a term of ten years following its approval by our stockholders.

Types of Awards.  Awards under the 2009 Plan may be in the form of stock options (including incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code and non-statutory stock options), restricted stock, restricted stock units and stock appreciation rights.

Authorized Shares Available for Awards Under the 2009 Plan.  The 2009 Plan authorizes awards of up to [          ] shares of our common stock. In addition, if any award under the 2009 Plan otherwise distributable in shares of common stock expires, terminates or is forfeited or canceled, or settled in cash pursuant to the terms of the 2009 Plan, such shares will again be available for award under the 2009 Plan.

Stock options and stock appreciation rights covering more than [          ] shares of common stock may not be granted to any employee in any calendar year. The number of incentive stock options awarded under the 2009 Plan may not exceed [          ] shares. In no event may “qualified performance-based compensation” within the meaning of section 162(m) of the Internal Revenue Code of 1986, as amended, be awarded to a single participant in any 12-month period covering more than [          ] shares (if the award is denominated in shares), or having a maximum payment with a value greater than $[     ] (if the award is denominated in other than shares).

If there is a change in our outstanding common stock by reason of a stock dividend, split, spinoff, recapitalization, merger, consolidation, combination, extraordinary dividend, exchange of shares or other

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change affecting the outstanding shares of common stock as a class without the receipt of consideration, the aggregate number of shares with respect to which awards may be made under the 2009 Plan, the terms and number of shares outstanding under any award, the exercise or base price of a stock option or a stock appreciation right, and the share limitations set forth above shall be appropriately adjusted by the compensation committee at its sole discretion. Notwithstanding the foregoing, no adjustment shall be made to the aggregate number of shares with respect to which awards can be made under the 2009 Plan on account of any stock split in connection with this offering. The compensation committee shall also make appropriate adjustments as described in the event of any distribution of assets to shareholders other than a normal cash dividend. The committee may also, in its sole discretion, make appropriate adjustment as to the kind of shares or other securities deliverable with respect to outstanding awards under the 2009 Plan.

Stock Options.  The 2009 Plan authorizes the award of both non-qualified stock options and incentive stock options. Only our employees are eligible to receive awards of incentive stock options. Incentive stock options may be awarded under the 2009 Plan with an exercise price not less than 100% of the fair market value of our common stock on the date of the award. The aggregate value (determined at the time of the award) of the common stock with respect to which incentive stock options are exercisable for the first time by any employee during any calendar year may not exceed $100,000. The term of incentive stock options cannot exceed ten years.

Non-qualified options may be awarded under the 2009 Plan with an exercise price of no less than the fair market value of our common stock on the date of the award.

An optionee may pay the exercise price for options in cash, by actual or constructive delivery of stock certificates for previously-owned shares of our stock, and by means of a cashless exercise arrangement with a qualifying broker-dealer. The 2009 Plan permits us to sell or withhold a sufficient number of shares to cover the amount of taxes required to be withheld upon exercise of an option.

The 2009 Plan permits recipients of non-qualified stock options (including non-employee directors) to transfer their vested options by gift to family members (or trusts or partnerships of family members). After transfer of an option, the optionee will remain responsible for taxes payable upon the exercise of the option, and we retain the right to claim a deduction for compensation upon the exercise of the option.

Restricted Stock.  The 2009 Plan authorizes the compensation committee to grant to employees, non-employee directors, consultants and advisors shares of restricted stock. A grantee will become the holder of shares of restricted stock free of all restrictions if he or she completes a required period of employment or service following the award and satisfies any other conditions. The grantee will have the right to vote the shares of restricted stock and, unless the committee determines otherwise, the right to receive dividends on the shares. The grantee may not sell or otherwise dispose of restricted stock until the conditions imposed by the committee have been satisfied.

Restricted Stock Units.  The 2009 Plan authorizes the compensation committee to award to participants the right to receive shares of our stock in the future. These awards may be contingent on completing a required period of employment or service following the award or on our future performance. The committee may provide in the applicable award agreement whether a participant holding a restricted stock unit shall receive dividend equivalents, either currently or on a deferred basis.

Qualified Performance-Based Awards.  The 2009 Plan authorizes the compensation committee to award restricted stock and restricted stock units as qualified performance-based awards. No later than 90 days following the commencement of any fiscal year or other designated period of service, the committee shall (a) designate in writing one or more participants, (b) select the performance criteria applicable to the performance period, (c) establish the performance goals, and amounts of such awards, as applicable, which may be earned for such performance period, and (d) specify the relationship between performance criteria and the performance goals and the amounts of such awards to be earned by each participant for such performance period. Following the completion of each performance period, the committee shall certify in writing whether the applicable performance goals have been achieved. No award or portion thereof that is subject to the satisfaction of any condition shall be earned or vested until the committee certifies in writing that the

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conditions to which the earning or vesting of such award is subject have been achieved. The committee may not increase during a year the amount of a qualified performance-based award that would otherwise be payable upon satisfaction of the conditions but may reduce or eliminate the payments as provided for in the award agreement.

Termination of Service Events.  The committee may specify in each award agreement the impact of termination of service of a participant upon outstanding awards under the 2009 Plan. Unless provided otherwise in the award agreement, the following provisions shall apply. Upon an employee’s termination of service following age 65, death or disability, or upon a director’s termination of service for any reason, all outstanding awards become fully vested. An employee’s non-qualified options and stock appreciation rights remain exercisable following his death or disability for period of one year (or, if earlier, until the expiration of the award). Upon an employee’s termination of service following age 65, or upon a director’s termination of service for any reason, outstanding non-qualified options and stock appreciation rights remain exercisable for one year (or if earlier, until the expiration of the award). Upon termination of an employee’s service for cause (as defined in the 2009 Plan), all outstanding awards are immediately forfeited. Upon termination of an employee’s service for any other reason, all outstanding options and stock appreciation rights remain exercisable for three months (or if earlier, until the expiration of the award).

If an option or stock appreciation right will expire as a result of a participant’s termination of service, and the participant is prohibited at that time from exercising the option or right under federal securities laws, the expiration date of the option or right is automatically extended for a period ending 30 days following the date that it first becomes exercisable (but not beyond the original expiration date of the award).

Change of Control Events.  In the event of a change of control, as defined in the 2009 Plan, all outstanding awards under the 2009 Plan become fully exercisable and vested. The compensation committee may, in connection with a change of control: (i) arrange for the cancellation of outstanding awards in consideration of a payment in cash, property, or both, with an aggregate value equal to each award; (ii) substitute other securities of Patriot Risk Management or another entity in exchange for our shares underlying outstanding awards; (iii) arrange for the assumption of outstanding awards by another entity or the replacement of awards with other awards for securities of another entity; and (iv) after providing notice to participants and an opportunity to exercise outstanding options and rights, provide that all unexercised options and rights will be cancelled upon the date of the change of control or such other date as specified by it.

Suspension or Forfeiture of Awards.  In the event that the committee determines that a participant, while employed, engaged in misconduct, the participant’s right to exercise stock options and stock appreciation rights under the 2009 Plan may be forfeited, and all restricted stock and restricted stock units forfeited. With regard to executive officers, if the committee determines that misconduct results in a restatement of our financial statements, the officer may be required to disgorge to us any profits made upon sale of our shares received under awards.

2005 and 2006 Stock Option Plans

Our board of directors and stockholders have ratified and approved our 2005 Stock Option Plan, or 2005 Plan, and our 2006 Stock Option Plan, or 2006 Plan (and together with our 2005 Plan, the Plans), and all of the awards granted under the Plans.

Shares Authorized for Award under the Plans.  The 2005 Plan authorized the award of up to 350,000 shares of our common stock. There are currently approximately 62,500 shares of our common stock underlying outstanding stock options under the 2005 Plan. The 2006 Plan authorized the award of up to 350,000 shares of our common stock. There are currently approximately 106,000 shares of our common stock underlying outstanding stock options under the 2006 Plan. Our board of directors has determined that no further stock options will be awarded under either of the Plans, and the number of shares previously authorized for grant under the Plans has been reduced to 204,207, which is the number of shares underlying currently outstanding stock options under the Plans. (Upon forfeiture or cancellation of any outstanding stock options under the Plans, none of the shares covered by such options will become available for awards under the Plans.)

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Therefore, no shares remain available for grant under the Plans. Shares delivered under the Plans may be treasury stock or authorized but unissued shares not reserved for any other purpose.

Each of the Plans provides that, if there is a change in Patriot Risk Management’s outstanding common stock by reason of a stock split, recapitalization, merger, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of shares or other similar change, the aggregate number of shares with respect to which awards may be made under the Plans, the terms and number of shares subject to outstanding options, and the exercise price of outstanding options under the Plans shall be equitably adjusted by the compensation committee of our board of directors (the “Compensation Committee”) at its sole discretion. The Compensation Committee may also, in its sole discretion, make appropriate adjustment as to the kind of shares or other securities deliverable with respect to outstanding awards under the Plans.

Description of the Plans.  The Plans provide for the grant of incentive stock options and nonstatutory stock options. Awards under the Plans may be made to employees, including officers and directors who may be employees, and non-employee directors.

The Plans are administered by the Compensation Committee. The Compensation Committee has full authority, subject to the terms of the Plans, to determine the individuals to whom awards are made, the number of shares covered by each award, the time or times at which options are granted and exercisable and the exercise price of options.

The Plans may be amended by our board of directors or the Compensation Committee. However, the Plans may not be amended without the consent of the holders of a majority of the shares of stock then outstanding if such approval is required by Rule 16b-3 under the Securities Exchange Act of 1934, as amended, by the Code, or by any securities exchange, market or other quotation system on which our securities are listed or traded. Amendments to the Plans may be made without the consent of our stockholders or the holders of options outstanding under the Plans to the extent necessary to avoid penalties arising under Section 409A of the Code. The Plans prohibit any re-pricing of stock options granted under the Plans and prohibit the automatic grant of additional options in connection with the exercise of any option granted under the Plans.

Description of Options Granted under the Plans.  The Plans authorize the award of both incentive stock options, for which option holders may receive favorable tax treatment under the Code, and nonstatutory options, for which option holders do not receive favorable tax treatment.

Under the Plans, incentive stock options may be granted only to employees. As of December 31, 2007, no incentive stock options had been granted under the Plans. Under the Plans, non-qualified stock options may be granted to employees and nonemployee directors. The exercise price of each option must be determined by the Compensation Committee, and may be equal to or greater than the fair market value of a share of our common stock on the date of grant of the option. However, the exercise price of an incentive stock option granted to an employee who owns more than 10% of the outstanding shares of our common stock may not be less than 110% of the fair market value of the underlying shares of our common stock on the date of grant.

The optionee may pay the exercise price:

•  in cash;

•  with the approval of the Compensation Committee, by delivering or attesting to the ownership of shares of common stock held for at least six months, having a fair market value on the date of exercise equal to the exercise price of the option; or

•  by such other method as the Compensation Committee shall approve, including payment through a broker in accordance with cashless exercise procedures permitted by Regulation T of the Federal Reserve Board.

Options vest according to the terms and conditions determined by the Compensation Committee and specified in the applicable option agreement. The Compensation Committee will determine the term of each option up to a maximum of ten years from the date of grant. However, the term of an incentive stock option

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granted to an employee who owns more than 10% of the outstanding shares of our common stock may not exceed five years from the date of grant.

The Compensation Committee may cancel outstanding options by notifying the optionee of its election to cash out the options in exchange for a payment in cash, in shares of stock, or in a combination thereof, in an amount equal to the difference between the fair market value of the stock and the exercise price of each cancelled option. However, no payment will be made in respect of any option that is not exercisable when cancelled. Stock options awarded under the Plans may become fully vested and exercisable upon a change in control of Patriot to the extent permitted by our board of directors through unanimous consent of its members.

Withholding.  We retain the right to deduct or withhold, or require the optionee to remit to the us, an amount sufficient to satisfy federal, state and local taxes required by law or regulation to be withheld with respect to any taxable event as a result of the Plans. The Plans permit us to withhold a sufficient number of shares to cover the minimum amount of taxes required to be withheld.

Transfer of Options.  Incentive stock options may not be transferred and may be exercisable only by the holder or his legal representative or heirs. Nonstatutory options may be transferred by gift to family members (or trusts or partnerships of family members).

Securities Authorized for Issuance Under Equity Compensation Plans

The following table shows the shares issuable under our 2005 and 2006 Plans as of December 31, 2008. No shares are issuable under our 2009 Plan.

					Number of Securities
					Remaining for Future
	Number of		Weighted-Average		Issuance Under
	Securities to		Exercise Price of		Equity Compensation
	be Issued Upon		Outstanding		Plans (Excluding
	Exercise of		Options,		Securities
	Outstanding Options,		Warrants and		Reflected in
	Warrants and Rights		Rights		Column (a))
Plan Category	(a)		(b)		(c)
Equity compensation plans approved by security holders		163,500		7.37		186,500
Equity compensation plans not approved by security holders		—		—		—
Total		163,500		7.37		186,500

Limitations of Liability and Indemnification of Directors and Officers

Our certificate of incorporation contains provisions that limit the personal liability of our directors for monetary damages for a breach of fiduciary duty to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:

•  any breach of their duty of loyalty to Patriot Risk Management or our stockholders,

•  acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law,

•  unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or

•  any transaction from which the director derived an improper personal benefit.

Our certificate of incorporation and our bylaws provide that we are required to indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by Delaware law. Our certificate of incorporation and our bylaws also provide that we shall advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permits us to secure

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insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity, regardless of whether Delaware General Corporation Law would otherwise permit indemnification. We have entered into agreements to indemnify our directors and executive officers. These agreements provide for indemnification for related expenses including attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these provisions of our certificate of incorporation, our bylaws and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our certificate of incorporation may discourage stockholders from bringing a lawsuit against our directors for breach of fiduciary duty. These provisions may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

Insofar as the provisions of our certificate of incorporation provide for indemnification of directors or officers for liabilities arising under the Securities Act, we have been informed that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Westwind Holding Company, LLC and Progressive Employer Services

Prior to March 2009, Steven Herrig, through Westwind Holdings, LLC, beneficially owned shares representing approximately 15.8% of our outstanding common stock and 5.7% of the voting power of our outstanding common stock. In 2004, Westwind established a cell within a segregated portfolio captive. Acting on behalf of this cell, the segregated portfolio captive reinsured 90% of the liability of Guarantee Insurance arising from policies written to cover employees of Progressive Employer Services, Inc., an employee leasing company, or PES. PES is controlled by Steven Herrig. As part of the arrangement to establish the cell, Westwind was obligated to contribute additional capital to the segregated portfolio cell in an amount up to 20% of the gross premium written on the reinsured policies. On August 13, 2004, Westwind purchased a fully subordinated surplus note from Guarantee Insurance in the amount of $500,000 with a stated maturity of five years and an interest rate of 3%. No payment of interest or principal could be made on this note unless either (1) the total adjusted capital and surplus of Guarantee Insurance exceeded 400% of the authorized control level risk-based capital (calculated in accordance with the rules promulgated by the NAIC) stated in Guarantee Insurance’s most recent annual statement filed with the appropriate state regulators, or (2) we obtained regulatory approval to make such payments. We entered into a note offset and call agreement which, should Westwind default on its obligation to contribute additional capital to the segregated portfolio cell, allowed us to offset the amount of any capital contribution due from Westwind first against the accrued interest and outstanding principal of the surplus note, and if that amount did not satisfy the obligation, we had the right to repurchase a number of shares of our common stock held by Westwind at a price of $0.001 per share. The note offset and call agreement terminated 90 days after Westwind’s obligation to make additional capital contributions to the segregated portfolio cell terminated.

As of December 31, 2008, 2007 and 2006, our policies with PES accounted for approximately 14%, 15%, and 16% respectively, of our direct premiums written. In October 2008, we filed suit against PES and certain of its affiliates seeking recovery of more than $89 million in underpaid premium, penalties and other damages. In November 2008, we cancelled PES’s master policy due to PES’s failure to pay premium. See “Business — Legal Proceedings — Actions Involving Progressive Employer Services, et al.” On March 31, 2009, we notified Westwind that due to unresolved underfunding of its segregated portfolio cell, we were exercising our right under the note offset and call option agreement to acquire all shares of our common stock held by Westwind. Westwind subsequently filed suit against us for damages from resulting from our exercise of the call option. See “Business — Legal Proceedings — Actions Involving Progressive Employee Services, et al.

Stockholder Loan and Guaranty

We borrowed $1.5 million from Steven M. Mariano, our Chairman, President, Chief Executive Officer and the beneficial owner of a majority of our outstanding shares, pursuant to a promissory note dated June 26, 2008 and amended and restated on June 16, 2009 that bears interest at the rate of prime plus 3% (6.25% at September 30, 2009). The proceeds of the loan, net of loan fees, totaled approximately $1.3 million and were used to provide additional surplus to Guarantee Insurance. The principal balance of the loan is payable on demand by the lender, subject to Patriot Risk Management’s cash flow requirements of the Company. We make monthly interest payments on the loan. As of December 31, 2008, the outstanding principal balance on the loan remained at $1.5 million. As of September 30, 2009, the principal balance and accrued interest associated with this loan were approximately $563,000 and $1,000, respectively.

Concurrently with our signing of this note, Mr. Mariano personally borrowed $1.5 million from Brooke Savings Bank to fund his loan to us. The loan by Brooke Savings Bank to Mr. Mariano contains terms similar to the terms contained in the note between us and Mr. Mariano. Because Mr. Mariano personally obtained this loan from Brooke Savings Bank for the benefit of Patriot, we paid him a loan origination fee of $187,000.

Mr. Mariano entered into a guaranty agreement with Brooke Credit Corporation (Brooke) on March 30, 2006 in connection with the financing provided to us by Brooke. Mr. Mariano also entered into a guaranty agreement with ULLICO, Inc. (ULLICO) on December 31, 2008 in connection with the financing provided to

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us by ULLICO. Under these guaranty agreements, Mr. Mariano guaranteed the payment and performance of Patriot under the Brooke and ULLICO commercial loan agreements. Mr. Mariano has pledged all of the shares of our capital stock beneficially owned by him, and which may be acquired by him in the future, as security for his guarantee of the ULLICO loan. Mr. Mariano is paid a fee equal to 4% of the outstanding balance on the applicable loan each year for providing this service. The fee was set by the independent members of our board of directors on terms that they believed were comparable to those that could be obtained from unaffiliated third parties. For the nine months ended September 30, 2009 and years ended December 31, 2008, 2007 and 2006, we paid Mr. Mariano guaranty fees of approximately $715,000, $601,000, $463,000 and $350,000, respectively.

Residential Lease

On June 10, 2009, Mr. Mariano entered into a twelve-month lease for a house located in Fort Lauderdale, Florida, for use as a personal residence. The lease provided for monthly rent of $18,000. On August 1, 2009, Patriot Risk Management entered into a new lease for the residence for a term of eighteen months. On October 30, 2009, this lease was amended to add Mr. Mariano as the tenant and to remove Patriot Risk Management from any further obligation under the lease. During the period from June 10, 2009 through October 30, 2009, we made payments of rent and related expenses on Mr. Mariano’s behalf of approximately $133,000. The full amount of these payments has been applied against the outstanding balance of our loan from Mr. Mariano described above. In addition, we purchased a vehicle on Mr. Mariano’s behalf for approximately $60,000, the payment for which has also been applied against the outstanding balance of our loan from Mr. Mariano. In November 2009, all of these transactions were approved by the audit committee.

Tarheel Group, Inc.

Tarheel Group, Inc., or Tarheel, was a company organized in November 2000 and was controlled by Steven M. Mariano. Through its wholly-owned subsidiary, Tarheel Insurance Management Company, or TIMCO, Tarheel provided underwriting, insurance management services, bill review and case management services to customers.

In May 2005, our board of directors determined that it would be in the best interests of our stockholders to acquire the Tarheel operations to consolidate the revenue generating aspects of our business under Patriot. The board obtained an independent appraisal of the value of Tarheel, and the independent directors approved the purchase of the producer agreement, the managed care agreement and the expense sharing agreement, or collectively, the Tarheel Contracts. Accordingly, on January 1, 2006, we entered into a purchase agreement with Tarheel pursuant to which we acquired the rights and obligations under the Tarheel Contracts for a total price of $1,355,380, which we paid by issuing 204,801 shares of our common stock valued at $6.62 per share to Tarheel. All but 11,101 of these shares were distributed to Tarheel’s stockholders. On April 25, 2006, the Tarheel stockholders, other than Mr. Mariano, redeemed their Tarheel shares in exchange for Patriot shares held by Tarheel, leaving Mr. Mariano as the sole stockholder of Tarheel. All the independent members of our board of directors approved the purchase of the Tarheel Contracts, because at the time the Tarheel Contracts were acquired, the contracts had no book value and Mr. Mariano controlled Tarheel and Patriot. For accounting purposes, the issuance of the shares to Tarheel was treated as a dividend.

In April 2006, we indemnified Mr. Mariano against liabilities with respect to certain litigation brought against him and various other parties by Barclay Downs in March 2004 in the State of North Carolina. This litigation arose out of a lease for commercial property occupied by Tarheel. In April 2006, Mr. Mariano, Guarantee Insurance, TIMCO and various other parties entered into a settlement agreement and release with respect to this litigation. The settlement agreement called for periodic payments totaling $525,000 beginning on April 3, 2006. The final payment was made on June 2, 2007. A majority of the independent members of our board of directors approved the settlement.

On June 13, 2006, we loaned $750,000 to Tarheel pursuant to a promissory note. The proceeds of the loan were used to fund the commutation of certain liabilities of Foundation Insurance Company, a wholly-owned subsidiary of Tarheel that was declared insolvent on March 24, 2006 and subsequently dissolved. The

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note bore interest at 1% over the prime rate and matures on June 13, 2011. Mr. Mariano personally guaranteed the repayment of the note. All the independent members of our board of directors approved the loan. Tarheel paid Mr. Mariano for his guarantee by transferring 11,101 shares of our common stock, owned by Tarheel, to Mr. Mariano, with a total value of approximately $73,500.

On April 20, 2007, Mr. Mariano contributed all of the outstanding capital stock of Tarheel and its subsidiary, TIMCO, to Patriot. All of the independent members of our board of directors approved the contribution. Prior to the contribution, Tarheel paid a $450,000 dividend to Mr. Mariano. Upon the contribution of Tarheel, the $750,000 note became an inter-company obligation. The contribution was accounted for as a combination of entities under common control using “as-if pooling-of-interests” accounting. Under this method of accounting, the assets and liabilities of Tarheel and its subsidiary were carried forward to Patriot at their historical costs. In addition, all prior period financial statements were restated to include the combined results of operations, financial position and cash flows of Tarheel and its subsidiary.

Following the contribution of Tarheel to Patriot, Mr. Mariano entered into a settlement stipulation and release under which he settled a judgment entered against Mr. Mariano, Foundation and others in the amount of $585,000 arising from Mr. Mariano’s personal guarantee of letters of credit supporting reinsurance obligations of Foundation. The settlement stipulation called for two payments of $75,000 to be made on or before July 27, 2007, and 29 monthly payments of $15,000 to be made beginning on July 12, 2007. The obligation to make these payments has been assumed by us and was approved by all of the independent members of our board of directors.

Prior to June 2008, it was our policy that all material transactions with related parties be reviewed and approved by a majority of our independent directors. In June 2008, we adopted an audit committee charter pursuant to which all transactions with related parties are to be approved by the audit committee.

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PRINCIPAL STOCKHOLDERS

The table below contains information about the beneficial ownership of our common stock, Series B common stock and Series A convertible preferred stock by each of our directors, each of our named executive officers, all of our directors and executive officers as a group, and each beneficial owner of more than five percent of our common stock, Series B common stock and Series A convertible preferred stock.

The number of shares and percentage of shares beneficially owned is based on 346,026 shares of common stock, 800,000 shares of Series B common stock and 1,000 shares of Series A convertible preferred stock outstanding as of October 31, 2009. The number of shares in the table under Beneficial Ownership After the Offering assumes (i) the automatic conversion of each outstanding share of Series B common stock into common stock on a one-for-one basis and (ii) the automatic conversion of each outstanding share of Series A convertible preferred stock into           shares of common stock. The table also lists the applicable percentage of shares beneficially owned based on [          ] shares of common stock outstanding upon completion of this offering, assuming no exercise of the underwriters’ over-allotment option.

Beneficial ownership of our common stock, Series B common stock and Series A convertible preferred stock is determined in accordance with the rules of the SEC, and generally includes voting power or investment power with respect to securities held and also includes options to purchase shares currently exercisable or exercisable within 60 days after October 31, 2009. Except as indicated and subject to applicable community property laws, to our knowledge the persons named in the table below have sole voting and investment power with respect to all shares of common stock, Series B common stock and Series A convertible preferred stock shown as beneficially owned by them.

Unless otherwise indicated, the address for all of our executive officers, directors and 5% stockholders named below is c/o Patriot Risk Management, Inc., 401 East Las Olas Boulevard, Suite 1540, Fort Lauderdale, Florida 33301.

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	Beneficial Ownership Prior to the Offering								Beneficial Ownership After the Offering
			Percentage of			Percentage of					Percentage of
	Number of		Outstanding			Total			Number of		Outstanding		Percentage of
Name of Beneficial Owner	Shares		Shares(1)			Vote(2)			Shares		Shares		Total Vote
Common Stock:
Steven M. Mariano(3)(14)		219,164		19.1	%		6.2	%
John R. Del Pizzo(4)		55,000		4.8	%		1.6	%
Timothy J. Tompkins(5)		25,000		2.2	%		*
Ronald P. Formento Sr.(6)		19,569		1.7	%		*
Michael W. Grandstaff		—		—			—
Charles K. Schuver		—		—			—
Timothy J. Ermatinger(7)		15,000		1.3			*
Richard G. Turner		—		—			—
Theodore G. Bryant(8)		5,000		*			*
Richard F. Allen(9)		—		—			—
C. Timothy Morris(10)		—		—			—
Series B Common Stock:
Steven M. Mariano(11)(14)		800,000		69.8			90.2	%		—		—		—
All directors and executive officers as a group (11 persons)		1,139,233		99.4	%
Series A Convertible Preferred Stock: (12)
Steven M. Mariano(14)		500		50.0	%		—			—		—		—
Key Payroll Solutions(13)		200		20.0			—			—		—		—
Ronald P. Formento Sr.		150		15.0			—			—		—		—
Richard F. Allen		100		10.0			—			—		—		—
C. Timothy Morris		50		5.0			—			—		—		—
				100.0	%

*  Less than 1%.

(1) Ownership of common stock and Series B common stock is shown as the combined ownership of both those classes together. Ownership of Series A convertible preferred stock is shown as a percentage of that class.

(2) Combined voting power of common stock and Series B common stock. Each holder of Series B common stock is entitled to four votes per share, and each holder of common stock is entitled to one vote per share. At the closing of this offering, all shares of Series B common stock will automatically be converted into common stock on a one-for-one basis and no additional Series B common stock will be issuable. Upon completion of this offering and based on an assumed initial public offering price of [     ] per share, which is the mid-point of the price range set forth on the cover page of this prospectus, each share of Series A convertible preferred stock will be converted into [          ] shares of common stock.

(3) Includes 100,000 shares held in the name of the Steven M. Mariano Revocable Trust, an entity controlled by Mr. Mariano. Mr. Mariano has sole dispositive and voting control over the shares held by the Steven M. Mariano Revocable Trust. Also includes 55,000 shares issuable upon exercise of options that are currently exercisable. The number of shares shown after the offering includes [          ] shares of common stock to be issued upon the automatic conversion of 500 shares of Series A convertible preferred stock at the closing of this offering. Excludes [          ] shares issuable upon the exercise of warrants that will become exercisable upon the expiration of the lock-up agreements as described in “Shares Eligible for Future Sale — Lock-Up Agreements.”

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(4) Includes 27,500 shares issuable upon exercise of options that are currently exercisable. Excludes [          ] shares issuable upon the exercise of warrants that will become exercisable upon the expiration of the lock-up agreements as described in “Shares Eligible for Future Sale — Lock-Up Agreements.”

(5) Includes 5,000 shares issuable upon exercise of options that are currently exercisable. Excludes [          ] shares issuable upon the exercise of warrants that will become exercisable upon the expiration of the lock-up agreements as described in “Shares Eligible for Future Sale — Lock-Up Agreements.”

(6) These shares are held in the name of Exmoor, Inc., an entity that is controlled by Mr. Formento. Mr. Formento has sole dispositive and voting control over these shares. The number of shares shown after the offering includes [          ] shares of common stock to be issued upon the automatic conversion of 150 shares of Series A convertible preferred stock at the closing of this offering. Excludes [          ] shares issuable upon the exercise of warrants that will become exercisable upon the expiration of the lock-up agreements as described in “Shares Eligible for Future Sale — Lock-Up Agreements.”

(7) Consists of 15,000 shares issuable upon exercise of options that are currently exercisable.

(8) Consists of 5,000 shares issuable upon exercise of options that are exercisable within 60 days after October 31, 2009.

(9) The number of shares shown after the offering consists of [          ] shares of common stock to be issued upon the automatic conversion of 100 shares of Series A convertible preferred stock at the closing of this offering.

(10) The number of shares shown after the offering consists of [          ] shares of common stock to be issued upon the automatic conversion of 50 shares of Series A convertible preferred stock at the closing of this offering.

(11) Consists of 800,000 shares held in the name of the Steven M. Mariano Revocable Trust, an entity controlled by Mr. Mariano. Mr. Mariano has sole dispositive and voting control over the shares held by the Steven M. Mariano Revocable Trust.

(12) The shares of Series A convertible preferred stock are non-voting.

(13) Key Payroll Solution’s address is 3622 Tamiami Trail, Port Charlotte, Florida 33952.

(14) Mr. Mariano has pledged all of the shares of our capital stock beneficially owned by him, and which may be acquired by him in the future, as security for his guarantee of the ULLICO loan.

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DESCRIPTION OF CAPITAL STOCK

General

The following is a summary of the rights of our common stock and preferred stock and related provisions of our certificate of incorporation and bylaws, as they will be in effect upon the closing of this offering.

Our authorized capital stock consists of 40,000,000 shares of common stock, par value $.001 per share, 4,000,000 shares of Series B common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per share. As of October 30, 2009, there were 15 record holders of our common stock and one record holder of our Series B common stock. Holders of our common stock and Series B common stock have the same rights, except that holders of our common stock are entitled to one vote per share and holders of our Series B common stock are entitled to four votes per share. At the closing of this offering, all of the outstanding shares of Series B common stock will automatically convert into shares of common stock on a one-for-one basis, and thereafter no further shares of Series B common stock may be issued. Upon completion of this offering, [          ] shares of common stock will be issued and outstanding and no shares of Series B common stock or preferred stock will be issued and outstanding.

The following summary of certain rights of holders of our common stock and preferred stock does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of our certificate of incorporation and bylaws, each of which is included as an exhibit to the registration statement of which this prospectus is a part, and by the provisions of applicable law.

Common Stock

Each holder of our common stock is entitled to one vote for each share held by such holder on all matters to be voted upon by our stockholders, and there are no cumulative voting rights. Subject to preferences to which holders of preferred stock may be entitled, holders of our common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by our board of directors out of funds legally available therefor. See “Dividend Policy.” If there is a liquidation, dissolution or winding up of Patriot, holders of our common stock would be entitled to share in our assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock. Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to our common stock. All shares of our common stock to be issued in this offering will be, when issued, fully paid and non-assessable. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate in the future.

Preferred Stock

Our board of directors is authorized, without approval by our stockholders, to issue up to a total of 5,000,000 shares of preferred stock in one or more series. Our board of directors may establish the number of shares to be included in each such series and may fix the designations, preferences, powers and other rights of the shares of a series of preferred stock. Our board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting power or rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of Patriot and might harm the market price of our common stock. We have no current plans to issue any shares of preferred stock.

Warrants

Prior to the completion of this offering, we expect our board of directors will declare a dividend of warrants to purchase a total of [          ] shares of our common stock payable to our stockholders at the effective time of this offering. Each warrant would represent the right to purchase one share of our common stock at the same price as the common stock sold in this offering. The right to purchase common stock under

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the warrants would begin upon the expiration of the lock-up agreements as described in “Shares Eligible for Future Sale — Lock-Up Agreements.” The warrants would expire 10 years after the date of issuance. The warrants also would contain a cashless exercise provision. These warrants would be subject to the restrictions contained in the lock-up agreements.

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

Certain provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquiror outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

Limits on Ability of Stockholders to Act by Written Consent

We have provided in our certificate of incorporation that our stockholders may not act by written consent. This limit on the ability of our stockholders to act by written consent may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a stockholders meeting.

Limits on Ability of Stockholders to Replace Members of the Board of Directors

Our certificate of incorporation and our bylaws provide that the number of directors shall be fixed from time to time by our board of directors. Our board of directors will be divided into three classes with the number of directors in each class being as nearly equal as possible. Each director will serve a three-year term. The classification and term of office for each of our directors upon completion of this offering is noted in the table listing our directors and executive officers under “Management — Directors, Executive Officers and Key Employees.” Pursuant to our bylaws, each director will serve until such director’s successor is elected and qualified or until such director’s earlier death, resignation, disqualification or removal. Our certificate of incorporation and bylaws also provide that any director may be removed for cause, at any meeting of stockholders called for that purpose, by the affirmative vote of the holders of at least two-thirds of the shares of our stock entitled to vote for the election of directors.

Undesignated Preferred Stock

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. The bylaws do not give the board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding business to be conducted at a special or annual meeting of the stockholders. However, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

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Delaware Anti-Takeover Statute

We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder unless: prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder upon completion of the transaction that resulted in the stockholder becoming an interested stockholder; the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock which is not owned by the interested stockholder.

Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting securities.

The provisions of Delaware law, our certificate of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer and Trust Company.

Listing

We are applying to list our common stock on the New York Stock Exchange under the symbol “[          ].”

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have approximately [          ] shares of common stock outstanding. Of these shares, the [          ] shares sold in this offering and any shares issued upon exercise of the underwriters’ over-allotment option will be freely tradable without restriction or further registration under the Securities Act, unless the shares are held by any of our “affiliates” as that term is defined in Rule 144 under the Securities Act, in which case they may only be sold in compliance with the limitations described below. The remaining shares were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act and are eligible for public sale if registered under the Securities Act or sold in accordance with Rule 144 under the Securities Act.

Upon completion of this offering, [          ] shares of common stock will be issuable upon the exercise of options outstanding as of September 15, 2008 and [          ] shares will be issuable upon the exercise of outstanding options that we intend to grant to our directors, executive officers and other employees, at an exercise price equal to the initial public offering price. In addition, [          ] shares of common stock will

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be issuable pursuant to warrants that will become exercisable upon the expiration of the lock-up agreements as described below.

Lock-up Agreements

We and all of our current officers and directors and each of our stockholders, holding, in the aggregate, shares of our common stock have agreed that, without the prior written consent of FBR Capital Markets & Co. (FBR), we and they will not:

•  offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise dispose of or transfer (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition by any person at any time in the future of), directly or indirectly, any share of our common stock, or any security convertible into, exercisable for or exchangeable for any share of our common stock;

•  enter into any swap or any other arrangement or transaction that transfers to another directly or indirectly, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such swap or transaction described above is to be settled by delivery of shares of our common stock or other securities, in cash or otherwise;

•  make any demand for or exercise any right (or, in the case of us, file) or cause to be filed a registration statement under the Securities Act (other than a registration statement on Form S-8), including any amendment thereto, with respect to the registration of any shares of common stock or securities convertible into, exercisable for or exchangeable for any share of our common stock or any of our other securities; or

•  publicly disclose the intention to do any of the foregoing, in each case, for a lock-up period of 180 days after the date of the final prospectus relating to this offering. The lock-up period described in the preceding sentence will be extended if:

•  during the last 17 days of the lock-up period, we issue an earnings release or material news or a material event relating to us occurs; or

•  prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period;

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event, unless such extension is waived in writing by FBR.

Subject to applicable securities laws, our directors, executive officers and stockholders may transfer their shares of our common stock (i) as a bona fide gift or gifts, provided that prior to such transfer the donee or donees agree in writing to be bound by the same restrictions, or (ii) if such transfer occurs by operation of law (e.g., pursuant to the rules of descent and distribution, statutes governing the effects of a merger or a qualified domestic order), provided that prior to such transfer the transferee executes an agreement stating that the transferee is receiving and holding the shares subject to the same restrictions. In addition, our directors, executive officers and stockholders may transfer their shares of our common stock to any trust, partnership, corporation or other entity formed for the direct or indirect benefit of the director, executive officer or stockholder or the immediate family of the director, executive officer or stockholder, provided that prior to such transfer the transferee agrees in writing to be bound by the same restrictions and provided that such transfer does not involve a disposition for value.

The restrictions contained in the lock-up agreements do not apply to grants of options to purchase common stock or issuances of shares of restricted stock or other equity-based awards pursuant to the 2009 Plan.

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Note Offset and Call Option Agreements

Under a note offset and call option agreement entered into in 2004, we have the right under certain circumstances to repurchase a portion of the 24,461 shares held by one of our stockholders at a price determined pursuant to the agreement to offset the obligation that affiliates of these stockholders have to fund capital shortfalls related to cells they established in a segregated portfolio captive in 2004. The note offset and call agreements terminate 90 days after the stockholder’s obligation to make additional capital contributions terminates.

Rule 144 Sales by Affiliates

Affiliates of our company must comply with Rule 144 of the Securities Act when they sell shares of our common stock. Under Rule 144, affiliates who acquire shares of common stock, other than in a public offering registered with the SEC, are required to hold those shares for a period of (i) one year if they desire to sell such shares 90 or fewer days after the issuer becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or (ii) six months if they desire to sell such shares more than 90 days after the issuer becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. Shares acquired in a registered public offering or held for more than the applicable holding period may be sold by an affiliate subject to certain conditions. An affiliate would generally be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

•  one percent of the number of shares of common stock then outstanding (approximately [  ] shares immediately after the offering); and

•  the average weekly trading volume of the common stock on the New York Stock Exchange during the four calendar weeks preceding the filing with the SEC of a notice on Form 144 with respect to the sale.

Sales by affiliates under Rule 144 are also subject to other requirements regarding the manner of sale, notice and the availability of current public information about our company.

Rule 144(b)(1)

Under Rule 144(b)(1) of the Securities Act, a person who is not, and has not been at any time during the three months preceding a sale, one of our affiliates and who has beneficially owned the shares proposed to be sold for at least one year is entitled to sell the shares for such person’s own account without complying with any other requirements of Rule 144.

Of the [          ] shares of common stock outstanding as of the date of this prospectus, [          ] shares of such common stock would be available to be sold pursuant to Rule 144, including [          ] shares of common stock that could be sold pursuant to Rule 144(b)(1), in each case subject to the terms of the lock-up agreements described above.

We intend to file a Form S-8 registration statement following completion of this offering to register shares of common stock issued or issuable under our equity incentive plans. These shares will be available-for-sale in the public market, subject to Rule 144 volume limitations applicable to affiliates.

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UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement between us and the underwriters named below, for whom FBR Capital Markets & Co. (“FBR”) and [           ] are acting as representatives, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions shown on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

	Number of
Underwriter	Shares
FBR Capital Markets & Co.
Total

Under the terms and conditions of the underwriting agreement, the underwriters are committed to purchase all of the shares offered by this prospectus (other than the shares subject to the underwriters’ option to purchase additional shares), if the underwriters buy any of such shares. We have agreed to indemnify the underwriters against certain liabilities, including certain liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of such liabilities.

The underwriters initially propose to offer the common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at such offering price less a concession not to exceed $      per share. The underwriters may allow, and such dealers may re-allow, a discount not to exceed $      per share to certain other dealers. After the public offering of the shares of common stock, the offering price and other selling terms may be changed by the underwriters.

Over-Allotment Option.  We have granted to the underwriters an option to purchase up to [  ] additional shares of our common stock at the same price per share as they are paying for the shares shown in the table above. The underwriters may exercise this option in whole or in part at any time within 30 days after the date of the underwriting agreement. To the extent the underwriters exercise this option, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares proportionate to that underwriter’s initial commitment as indicated in the table at the beginning of this section plus, in the event that any underwriter defaults in its obligation to purchase shares under the underwriting agreement, certain additional shares.

Discounts and Commissions.  The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of our common stock.

	No	Full
Paid by Us	Exercise	Exercise
Per Share	$	$
Total	$	$

In addition to the underwriting discounts and commissions to be paid by us, we have agreed to reimburse FBR for certain of its out-of-pocket expenses incurred in connection with this offering up to $600,000. We have agreed to pay FBR a $150,000 advance against these expenses, which advance is creditable against the underwriting discounts and commissions to be paid by us. We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately [          ].

Listing.  We are applying to have our common stock approved for listing on the New York Stock Exchange, under the symbol “[          ].”

Stabilization.  In accordance with Regulation M under the Exchange Act, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including short sales and purchases to cover positions created by short positions, stabilizing transactions, syndicate covering transactions, penalty bids and passive market making.

•  Short positions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may

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be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares or purchasing shares in the open market.

•  Stabilizing transactions permit bids to purchase the underlying security as long as the stabilizing bids do not exceed a specific maximum price.

•  Syndicate covering transactions involve purchases of our common stock in the open market after the distribution has been completed to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option to purchase additional shares. If the underwriters sell more shares than could be covered by underwriters’ option to purchase additional shares, thereby creating a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

•  Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

•  In passive market marking, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchase shares of our common stock until the time, if any, at which a stabilizing bid is made.

These activities may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result of these activities, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time.

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives of the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

Lock-up Agreements.  We, all of our current officers and directors and each of our stockholders have agreed that, without the prior written consent of FBR, we and they will not:

•  offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise dispose of or transfer (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition by any person at any time in the future of), directly or indirectly, any share of our common stock, or any security convertible into, exercisable for or exchangeable for any share of our common stock;

•  enter into any swap or any other arrangement or transaction that transfers to another person, directly or indirectly, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such swap or transaction described above is to be settled by delivery of shares of our common stock or other securities, in cash or otherwise;

177

•  make any demand for or exercise any right (or, in the case of us, file) or cause to be filed a registration statement under the Securities Act, including any amendment thereto, with respect to the registration of any shares of common stock or securities convertible into, exercisable for or exchangeable for any share of our common stock or any of our other securities; or

•  publicly disclose the intention to do any of the foregoing,

in each case, for a lock-up period of 180 days after the date of the final prospectus relating to this offering. The lock-up period described in the preceding sentence will be extended if:

•  during the last 17 days of the lock-up period, we issue an earnings release or material news or a material event relating to us occurs; or

•  prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period;

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event, unless such extension is waived in writing by FBR.

Subject to applicable securities laws, our directors, executive officers and stockholders may transfer their shares of our common stock (i) as a bona fide gift or gifts, provided that prior to such transfer the donee or donees agree in writing to be bound by the same restrictions, or (ii) if such transfer occurs by operation of law (e.g., pursuant to the rules of descent and distribution, statutes governing the effects of a merger or a qualified domestic order), provided that prior to such transfer the transferee executes an agreement stating that the transferee is receiving and holding the shares subject to the same restrictions. In addition, our directors, executive officers and stockholders may transfer their shares of our common stock to any trust, partnership, corporation or other entity formed for the direct or indirect benefit of the director, executive officer or stockholder or the immediate family of the director, executive officer or stockholder, provided that prior to such transfer the transferee agrees in writing to be bound by the same restrictions and provided that such transfer does not involve a disposition for value.

The restrictions contained in the lock-up agreements do not apply to grants of options to purchase common stock or issuances of shares of restricted stock or other equity-based awards pursuant to our equity incentive and benefit plans described in this prospectus.

FBR does not intend to release any portion of the common stock subject to the foregoing lock-up agreements; however FBR, in its sole discretion, may release any of the common stock from the lock-up agreements prior to expiration of the lock-up period without notice. In considering a request to release shares from a lock-up agreement, FBR will consider a number of factors, including the impact that such a release would have on this offering and the market for our common stock and the equitable considerations underlying the request for releases.

Directed Share Program.  The underwriters have reserved for sale, at the initial offering price, up to 100,000 shares of common stock for sale to our directors, officers and employees and persons having business relationships with us. The number of shares of common stock available to the general public in the offering will be reduced to the extent these persons purchase these reserved shares. We will not pay an underwriting discount on any reserved shares sold to our directors, officers and employees or persons having business relationships with us. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock.

Discretionary Accounts.  The underwriters have informed us that they do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the shares of common stock being offered in this offering.

IPO Pricing.  Prior to the completion of this offering, there has been no public market for our common stock. The initial public offering price has been negotiated between us and the representatives. Among the factors to be considered in these negotiations were: the history of, and prospects for, us and the industry in

178

which we compete; our past and present financial performance; an assessment of our management; the present state of our development; the prospects for our future earnings; the prevailing conditions of the applicable United States securities market at the time of this offering; and market valuations of publicly traded companies that we and the representatives believe to be comparable to us.

Certain Information and Fees.  A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in the offering. The representatives may allocate a number of shares to the underwriters and selling group members, if any, for sale to their online brokerage account holders. Any such allocations for online distributions will be made by the representatives on the same basis as other allocations.

Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s website and any information contained in any other website maintained by any underwriter or selling group member is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter or selling group member and should not be relied upon by investors.

If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

Other Relationships.  FBR has in the past and may in the future provide us and our affiliates with investment banking and financial advisory services for which they have in the past and may in the future receive customary fees. We have granted FBR a right of first refusal under certain circumstances to act as the sole book runner or sole placement agent in connection with any subsequent public or private offering of equity securities by us. This right of first refusal extends until October 20, 2010 unless earlier terminated by either party. We have also granted FBR a right of first refusal to act as financial advisor in connection with any sale of all or substantially all of our capital stock or assets during the same period. The terms of any such engagement of FBR will be determined by agreement between FBR and us on the basis of compensation customarily paid to leading investment banks acting as underwriters, placement agents or financial advisors in similar transactions.

179

LEGAL MATTERS

Locke Lord Bissell & Liddell LLP in Chicago, Illinois, will pass upon the validity of the shares of common stock offered by this prospectus and certain other legal matters for us. Sidley Austin LLP in Chicago, Illinois, will pass upon certain legal matters for the underwriters.

EXPERTS

The consolidated financial statements of Patriot and its subsidiaries at December 31, 2008 and 2007 and for each of the years ended December 31, 2008, 2007 and 2006 included in this prospectus and in the related registration statement have been audited by BDO Seidman, LLP, an independent registered public accounting firm, as indicated in their report with respect thereto, and are included in this prospectus in reliance upon the authority of such firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our common stock to be sold in this offering. This prospectus does not contain all the information contained in the registration statement. For further information with respect to us and the shares to be sold in this offering, we refer you to the registration statement, including the agreements, other documents and schedules filed as exhibits to the registration statement. Statements contained in this prospectus as to the contents of any agreement or other document to which we make reference are not necessarily complete. In each instance, we refer you to the copy of the agreement or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by reference to the agreement or document to which it refers.

After completion of this offering, we will file annual, quarterly and current reports, proxy statements and other information with the SEC. We intend to make these filings available on our website at www.prmigroup.com. In addition, we will provide copies of our filings free of charge to our stockholders upon request. Our SEC filings, including the registration statement of which this prospectus is a part, will also be available to you on the SEC’s Internet site at http://www.sec.gov. You may read and copy all or any portion of the registration statement or any reports, statements or other information we file at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. You can receive copies of these documents upon payment of a duplicating fee by writing to the SEC. We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by an independent registered public accounting firm.

180

INDEX TO FINANCIAL STATEMENTS

	Page
Audited Consolidated Financial Statements as of December 31, 2008 and for the three years in the period ended December 31, 2008 of Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Report of BDO Seidman, LLP, Independent Registered Public Accounting Firm with respect to audited consolidated financial statements as of and for the three years ended December 31, 2008		F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007		F-3
Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008, 2007 and 2006		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006		F-6
Notes to Consolidated Financial Statements		F-7
Interim Consolidated Financial Statements as of June 30, 2009 and for the six month periods ended June 30, 2009 and 2008 of Patriot Risk Management, Inc. Holdings, Inc. and its Wholly-Owned Subsidiaries
Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008		F-34
Consolidated Statements of Income for six months ended June 30, 2009 and 2008		F-35
Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2009 and 2008		F-36
Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008		F-37
Notes to Interim Consolidated Financial Statements		F-38

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Fort Lauderdale, Florida

We have audited the accompanying consolidated balance sheets of Patriot Risk Management, Inc and its Wholly-Owned Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO Seidman, LLP

Grand Rapids, Michigan

April 22, 2009

F-2

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Consolidated Balance Sheets

	December 31,
	2008		2007
	(In thousands)
ASSETS
Investments
Debt securities, available for sale, at fair value	$	54,373	$	55,688
Equity securities, available for sale, at fair value		222		634
Short-term investments		244		238
Real estate held for the production of income		250		256
Total investments		55,089		56,816
Cash and cash equivalents		8,333		4,943
Premiums receivable, net		58,826		36,748
Deferred policy acquisition costs, net of deferred ceding commissions		—		1,477
Prepaid reinsurance premiums		33,731		14,963
Reinsurance recoverable, net
Unpaid losses and loss adjustment expenses		37,492		43,317
Paid losses and loss adjustment expenses		4,642		4,202
Funds held by ceding companies and other amounts due from reinsurers		2,507		2,550
Net deferred tax assets		3,967		3,022
Fixed assets, net		733		1,165
Receivable from related party		500		—
Federal income taxes recoverable		110		391
Intangible assets		1,287		1,287
Other assets, net		4,075		4,356
Total Assets	$	211,292	$	175,237
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Reserves for losses and loss adjustment expenses	$	74,550	$	69,881
Reinsurance payable on paid losses and loss adjustment expenses		756		404
Unearned and advanced premium reserves		44,613		29,160
Deferred ceding commissions, net of deferred policy acquisition costs		83		—
Reinsurance funds withheld and balances payable		47,449		44,073
Notes payable, including $1.5 million of related party notes payable, and accrued interest of $224,000 and $180,000		20,783		15,108
Subordinated debentures, including accrued interest of $175,000 and $139,000		1,809		1,799
Accounts payable and accrued expenses		14,112		9,376
Total liabilities		204,155		169,801
Stockholders’ Equity
Series A convertible preferred stock		1,000		—
Common stock		1		—
Series A common stock		—		1
Series B common stock		1		1
Paid-in capital		5,456		5,363
Retained earnings		72		196
Accumulated other comprehensive income (loss), net of deferred income taxes		607		(125	)
Total stockholders’ equity		7,137		5,436
Total Liabilities and Stockholders’ Equity	$	211,292	$	175,237

See accompanying notes to consolidated financial statements.

F-3

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Consolidated Statements of Income

	2008			2007			2006
	(In thousands, except per share data)
Revenues
Premiums earned	$	49,220		$	24,613		$	21,053
Insurance services income		5,657			7,027			7,175
Net investment income		2,028			1,326			1,321
Net realized losses on investments		(1,037	)		(5	)		(1,346	)
Total revenues		55,868			32,961			28,203
Expenses
Net losses and loss adjustment expenses		28,716			15,182			17,839
Net policy acquisition and underwriting expenses		13,535			6,023			3,834
Other operating expenses		10,930			8,519			9,704
Interest expense		1,437			1,290			1,109
Total expenses		54,618			31,014			32,486
Other Income		1,469			—			796
Loss from Write-off of Deferred Equity Offering Costs		(3,486	)		—			—
Gain on Early Extinguishment of Debt		—			—			6,586
Income (loss) before income tax expense		(767	)		1,947			3,099
Income Tax Expense (Benefit)		(643	)		(432	)		1,489
Net Income (Loss)	$	(124	)	$	2,379		$	1,610
Earnings (Loss) Per Common Share
Basic	$	(.09	)	$	1.77		$	1.16
Diluted		(.09	)		1.76			1.15
Weighted Average Common Shares Outstanding:
Basic		1,361			1,342			1,392
Diluted		1,370			1,351			1,398

See accompanying notes to consolidated financial statements.

F-4

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Consolidated Statements of Stockholders’ Equity

																						Retained			Accumulated
	Series A Convertible								Series A						Series B							Earnings			Other			Total
	Preferred Stock				Common Stock				Common Stock						Common Stock				Paid-in			(Accumulated			Comprehensive			Stockholders’
	Shares		Amount		Shares		Amount		Shares			Amount			Shares		Amount		Capital			(Deficit)			Income (Loss)			Equity
	(In thousands)
Balance, January 1, 2006		—	$	—		—	$	—		384		$	—			800	$	1	$	3,666		$	(3,023	)	$	(328	)	$	316
Redemption of common stock		—		—		—		—		(94	)		—			—		—		(812	)		(170	)		—			(982	)
Cash dividends		—		—		—		—		—			—			—		—		—			(600	)		—			(600	)
Issuance of common stock and paid in capital		—		—		—		—		169			1			—		—		1,355			—			—			1,356
Unrestricted common stock grants		—		—		—		—		62			—			—		—		502			—			—			502
Stock-based compensation expense		—		—		—		—		—			—			—		—		190			—			—			190
Balance before comprehensive income		—		—		—		—		521			1			800		1		4,901			(3,793	)		(328	)		782
Comprehensive income
Net income		—		—		—		—		—			—			—		—		—			1,610			—			1,610
Net unrealized appreciation in available for sale securities, net of deferred taxes of $255,000		—		—		—		—		—			—			—		—		—			—			579			579
Reclassification adjustment for net gains realized in net income during the year, net of tax effect of $143,000		—		—		—		—		—			—			—		—		—			—			(277	)		(277	)
Total comprehensive income		—		—		—		—		—			—			—		—		—			1,610			302			1,912
Balance, December 31, 2006		—		—		—		—		521			1			800		1		4,901			(2,183	)		(26	)		2,694
Redemption of common stock		—		—		—		—		(13	)		—			—		—		(100	)		—			—			(100	)
Unrestricted common stock grants		—		—		—		—		53			—			—		—		425			—			—			425
Stock-based compensation expense		—		—		—		—		—			—			—		—		137			—			—			137
Balance before comprehensive income		—		—		—		—		561			1			800		1		5,363			(2,183	)		(26	)		3,156
Comprehensive income
Net income		—		—		—		—		—			—			—		—		—			2,379			—			2,379
Net unrealized depreciation in available for sale securities, net of deferred taxes of $51,000		—		—		—		—		—			—			—		—		—			—			(99	)		(99	)
Total comprehensive income		—		—		—		—		—			—			—		—		—			2,379			(99	)		2,280
Balance, December 31, 2007		—		—		—		—		561			1			800		1		5,363			196			(125	)		5,436
Conversion of all outstanding shares of Series A common stock into common stock		—		—		561		1		(561	)		(1	)		—		—		—			—			—			—
Issuance of preferred stock		1,000		1,000		—		—		—			—			—		—		—			—			—			1,000
Stock-based compensation expense		—		—		—		—		—			—			—		—		93			—			—			93
Balance before comprehensive income		1,000		1,000		561		1		—			—			800		1		5,456			196			(125	)		6,529
Comprehensive income
Net loss		—		—		—		—		—			—			—		—		—			(124	)		—			(124	)
Net unrealized appreciation in available for sale securities, net of deferred taxes of $374,000		—		—		—		—		—			—			—		—		—			—			732			732
Total comprehensive income		—		—		—		—		—			—			—		—		—			(124	)		732			608
Balance, December 31, 2008		1,000	$	1,000		561	$	1		—		$	—			800	$	1	$	5,456		$	72		$	607		$	7,137

See accompanying notes to consolidated financial statements.

F-5

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Consolidated Statements of Cash Flows

	2008			2007			2006
	(In thousands)
Operating Activities
Net income (loss)	$	(124	)	$	2,379		$	1,610
Adjustments to reconcile net income to net cash from operating activities:
Gain on early extinguishment of debt		—			—			(6,586	)
Forgiveness of debt in connection with commutation of reinsurance		(231	)		—			—
Net realized losses on investments		1,037			5			1,346
Depreciation and amortization		844			1,030			396
Stock compensation expense		93			561			692
Amortization (accretion) of debt securities		263			(63	)		(76	)
Deferred income tax expense (benefit)		(1,318	)		(1,331	)		69
Changes in certain assets and liabilities:
Decrease (increase) in:
Premiums receivable		(22,078	)		(17,298	)		2,493
Deferred policy acquisition costs		1,477			(703	)		636
Prepaid reinsurance premiums		(18,768	)		(7,497	)		(3,064	)
Reinsurance recoverable on:
Unpaid losses and loss adjustment expenses		5,825			(2,214	)		(19,404	)
Paid losses and loss adjustment expenses		(440	)		(3,774	)		828
Funds held by ceding companies and other amounts due from reinsurers		43			(131	)		(36	)
Federal income taxes recoverable		281			—			—
Other assets		42			(193	)		(3,001	)
Increase (decrease) in:
Reserves for losses and loss adjustment expenses		4,669			3,928			26,475
Reinsurance payable on paid loss and loss adjustment expenses		352			(243	)		(627	)
Unearned and advanced premium reserves		15,453			13,517			2,429
Net deferred ceding commissions		83			—			—
Reinsurance funds withheld and balances payable		3,376			17,286			1,592
Federal income taxes payable		—			(1,829	)		178
Accounts payable and accrued expenses		4,736			3,697			(961	)
Net Cash Provided By (Used In) Operating Activities		(4,385	)		7,127			4,989
Investment Activities
Proceeds from sales and maturities of debt securities		19,076			20,817			6,899
Purchases of debt securities		(17,544	)		(45,224	)		(22,168	)
Proceeds from sales of equity securities		—			280			2,457
Purchases of equity securities		—			—			(1,766	)
Net sales (purchases) of short-term investments		(6	)		(238	)		2,142
Purchases of fixed assets		(87	)		(639	)		(1,235	)
Net Cash Provided by (Used In) Investment Activities		1,439			(25,004	)		(13,671	)
Financing Activities
Proceeds from notes payable		6,950			5,665			8,652
Repayment of notes payable		(1,114	)		(586	)		(2,320	)
Proceeds from issuance of common stock		—			—			1,355
Net disbursements for redemption of common stock		—			(100	)		(984	)
Common stock dividends paid		—			—			(600	)
Proceeds from issuance of preferred stock, net of receivable from related party		500			—			—
Net Cash Provided By Financing Activities		6,336			4,979			6,103
Increase (Decrease) in Cash and Cash Equivalents		3,390			(12,898	)		(2,579	)
Cash and Cash Equivalents, beginning of period		4,943			17,841			20,420
Cash and Cash Equivalents, end of period	$	8,333		$	4,943		$	17,841
Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	1,324		$	1,188		$	1,538
Income taxes		1,065			850			400

See accompanying notes to consolidated financial statements.

F-6

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements

1.   Nature of Operations and Significant Accounting Policies

The accompanying consolidated financial statements of Patriot Risk Management, Inc. and its wholly-owned subsidiaries (Company) include the accounts of Patriot Risk Management, Inc., a holding company, and its wholly-owned subsidiaries, which include (i) Guarantee Insurance Group, Inc. and its wholly-owned subsidiary, Guarantee Insurance Company (Guarantee Insurance), a property/casualty insurance company and (ii) PRS Group, Inc. and its wholly-owned subsidiaries, Patriot Risk Services, Inc., Patriot Re International, Inc., Patriot Risk Management of Florida, Inc. and Patriot Insurance Management Company, Inc.

Through PRS Group, Inc. and its subsidiaries, the Company provides a range of insurance services, currently almost entirely to Guarantee Insurance, the segregated portfolio captives organized by Guarantee Insurance’s alternative market customers and its quota share reinsurers. The fees earned by PRS from Guarantee Insurance, attributable to the portion of the insurance risk it retains, are eliminated upon consolidation. The fees earned by PRS associated with the portion of the insurance risk assumed by the segregated portfolio captives and Guarantee Insurance’s quota share reinsurer are reimbursed through a ceding commission. For financial reporting purposes, ceding commissions are treated as a reduction in underwriting expenses. The principal services provided by PRS include nurse case management and cost containment services for workers’ compensation claims. Patriot Risk Services, Inc. is currently licensed as an insurance agent or producer in 19 jurisdictions. Patriot Insurance Management Company is currently licensed as an insurance agent or producer in 34 jurisdictions, and Patriot Re International, Inc. is licensed as a reinsurance intermediary broker in 2 jurisdictions.

At the time that Guarantee Insurance was purchased in 2003, it had not written business since 1987 and held legacy net loss and loss adjustment expense reserves of approximately $3.2 million. Guarantee Insurance, which is domiciled in Florida, is actively licensed in 31 states and the District of Columbia and holds inactive licenses in an additional 9 states. Guarantee Insurance began writing both alternative market and traditional workers’ compensation business in 2004 and wrote workers’ compensation insurance in 22 states and the District of Columbia in 2008, with approximately 46% concentrated in Florida. Through alternative market business, the policyholder, agent or other party generally bears a substantial portion of the underwriting risk through the reinsurance of the risk by a captive reinsurer or through a high deductible or retrospectively rated policy. Through traditional business, the Company bears the underwriting risk, ceding a portion during certain periods to third-party reinsurers.

On April 1, 2007 the Company’s majority stockholder contributed all the outstanding capital stock of The Tarheel Group, Inc., or Tarheel, to PRS Group, Inc. with the result that Tarheel and its subsidiary, Tarheel Insurance Management Company, or TIMCO, became wholly-owned indirect subsidiaries of Patriot Risk Management, Inc. As the companies were under common control, the contribution of Tarheel to PRS Group, Inc. was accounted for similar to a pooling of interests pursuant to the Financial Accounting Standards Board (FASB) Statement of Financial Standards (SFAS) No. 141 — Business Combinations. Consequently, the accompanying consolidated financial statements have been retroactively restated, as if the combining companies had been consolidated for all periods.

On November 26, 2007, the directors of the Company deemed it advisable and in the Company’s best interests to proceed with the steps necessary to effectuate an initial public offering and take such actions necessary to file a Registration Statement on Form S-1 relating to the issuance and sale by the Company of its common stock, including the prospectus contained therein and all required exhibits thereto with the United States Securities and Exchange Commission. An initial public offering has not yet been consummated due to the prevailing conditions of the capital markets. In 2008, the Company wrote off approximately $3.5 million of deferred equity offering costs incurred in connection with its efforts to consummate an initial public offering.

F-7

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Patriot Risk Management, Inc. and its wholly-owned subsidiaries. All significant intercompany balances have been eliminated in consolidation. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). GAAP differs in certain respects from Statutory Accounting Principles (SAP) prescribed or permitted by insurance regulatory authorities.

Use of Estimates

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.

The most significant estimates that are susceptible to significant change in the near-term relate to the determination of reserves for losses and loss adjustment expenses. Although considerable variability is inherent in these estimates, management believes that the current estimates are reasonable in all material respects. The estimates are reviewed regularly and adjusted as necessary. Adjustments related to changes in estimates are reflected in the Company’s results of operations in the period in which those estimates changed.

Significant Accounting Policies

Investments

Debt and equity securities are classified as available for sale and stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income (loss), net of deferred income taxes. Short-term investments are carried at cost, which approximates fair value, and represent investments with initial maturities of one year or less. Real estate held for the production of income is stated at cost net of accumulated depreciation of $22,000 and $16,000 at December 31, 2008 and 2007, respectively.

Dividend and interest income are recognized when earned. Amortization of premiums and accrual of discounts on investments in debt securities are reflected in earnings over the contractual terms of the investments in a manner that produces a constant effective yield. Realized gains and losses on dispositions of securities are determined by the specific-identification method.

The Company’s investments are evaluated for other-than-temporary impairment using both quantitative and qualitative methods that include, but are not limited to (a) an evaluation of the Company’s ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value, (b) the recoverability of principal and interest related to the security, (c) the duration and extent to which the fair value has been less than the amortized cost, (d) the financial condition, near-term and long-term earnings and cash flow prospects of the issuer, including relevant industry conditions and trends, and implications of rating agency actions and (e) the specific reasons that a security is in a significant unrealized loss position, including market conditions that could affect access to liquidity. A decline in the market value of an available-for-sale security below its amortized cost that is deemed to be other than temporary, results in a write-down of the cost basis of that security to fair value and a realized investment loss.

The Company adopted Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 157, “Fair Value Measurements” effective January 1, 2008. The adoption of SFAS No. 157 did not result in any material changes in valuation techniques we previously used to measure fair values but resulted in expanded disclosures about securities measured at fair value, as discussed below.

SFAS No. 157 establishes a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity

F-8

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(Observable Units) and the reporting entity’s own assumptions about market participants’ assumptions (Unobservable Units). The hierarchy level assigned to each security in the Company’s available-for-sale debt and equity securities portfolio is based upon its assessment of the transparency and reliability of the inputs used in the valuation as of the measurement date.

The Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”, effective January 1, 2008. The Company did not elect the fair value option for existing eligible items under SFAS No. 159 and, accordingly, the provisions of SFAS No. 159 had no effect on our consolidated financial condition or results of operations at or for the year ended December 31, 2008.

Cash and Cash Equivalents

The Company classifies highly liquid investments with maturities of three months or less when purchased, including money market funds with no restrictions on redemptions, as cash equivalents.

Premiums Receivable

Premiums receivable are uncollateralized policyholder obligations due under normal policy terms requiring payment within a specified period from the invoice date. Premium receivable balances are reviewed by management for collectability and management provides an allowance for doubtful accounts, as deemed necessary, which reduces premiums receivable. The allowance for doubtful accounts was $800,000 and $700,000 at December 31, 2008 and 2007, respectively.

Deferred Policy Acquisition Costs and Deferred Ceding Commissions

To the extent recoverable from future policy revenues, costs that vary with and are primarily related to the production of new and renewal business have been deferred and amortized over the effective period of the related insurance policies. The Company does not include investment income in its determination of future policy revenues. Commissions received from reinsurers on ceded premiums have been deferred and amortized over the effective period of the related insurance policies.

Fixed Assets

Fixed assets consist primarily of software, personal computers and computer-related equipment. Fixed assets are stated at cost, less accumulated depreciation. Expenditures for acquisitions are capitalized, and depreciation is computed on the straight-line method over the estimated useful lives of the assets, ranging from three to five years.

Intangible Assets

Intangible assets represent the value of the Company’s insurance licenses. The carrying value of intangible assets is reviewed annually for indications of value impairment. There was no impairment at December 31, 2008 or 2007.

Loan Costs

Fees paid in connection with the issuance of the notes payable, which are capitalized and amortized over the term of the notes, total $1.9 million and $1.6 million at December 31, 2008 and 2007, respectively, are included in other assets.

F-9

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Loss and Loss Adjustment Expense Reserves

Loss and loss adjustment expense reserves represent the estimated ultimate cost of all reported and unreported losses incurred through December 31. The reserves for unpaid losses and loss adjustment expenses are estimated using individual case-basis valuations and statistical analyses. Management believes that the reserves for losses and loss adjustment expenses are adequate to cover the ultimate cost of losses and loss adjustment expenses thereon. However, because of the uncertainty from various sources, including changes in reporting patterns, claims settlement patterns, judicial decisions, legislation and economic condition, actual loss experience may not conform to the assumptions used in determining the estimated amounts for such liability at the balance sheet date. Loss and loss adjustment expense reserve estimates are periodically reviewed and adjusted as necessary as experience develops or new information becomes known. As adjustments to these estimates become necessary, such adjustments are reflected in current operations.

Estimating liabilities for unpaid claims and reinsurance recoveries for asbestos and environmental claims is subject to significant uncertainties that are generally not present for other types of claims. The ultimate cost of these claims cannot be reasonably estimated using traditional loss estimating techniques. The Company establishes liabilities for reported asbestos and environmental claims, including cost of litigation, as information permits. This information includes the status of current law and coverage litigation, whether an insurable event has occurred, which policies and policy years might be applicable and which insurers may be liable, if any. In addition, incurred but not reported liabilities have been established by management to cover potential additional exposure on both known and unasserted claims. Given the expansion of coverage and liability by the courts and legislatures in the past and the possibilities of similar interpretation in the future, there is significant uncertainty regarding the extent of the insurers’ liability.

In management’s judgment, information currently available has been adequately considered in estimating the Company’s ultimate cost of insured events. However, future changes in these estimates could have a material adverse effect on the Company’s financial condition.

Reinsurance

Reinsurance premiums, losses, and loss adjustment expenses are accounted for on bases consistent with those used in accounting for the underlying policies issued and the terms of the reinsurance contracts.

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. The Company holds collateral as deemed appropriate to secure amounts recoverable from reinsurers.

Revenue Recognition

Premiums are earned pro rata over the terms of the policies, which are typically annual. The portion of premiums that will be earned in the future are deferred and reported as unearned premiums.

Through PRS Group, Inc., the Company earns insurance services income by providing a range of insurance services almost exclusively to Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and its quota share reinsurers. Insurance services income is earned in the period that the services are provided. Insurance services include nurse case management, cost containment and captive management services. Insurance service income for nurse case management services is based on a monthly charge per claimant. Insurance service income for cost containment services is based on a percent of claim savings. Insurance services income for captive management services is based on a percentage of earned

F-10

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

premium ceded to captive reinsurers in the alternative market. Unconsolidated insurance services segment income includes all insurance services income earned by PRS Group, Inc. However, the insurance services income earned by PRS Group, Inc. from Guarantee Insurance that is attributable to the portion of the insurance risk that Guarantee Insurance retains is eliminated upon consolidation. Therefore, the Company’s consolidated insurance services income consists of the fees earned by PRS Group, Inc. that are attributable to the portion of the insurance risk assumed by the segregated portfolio captives and Guarantee Insurance’s quota share reinsurers, which represent the fees paid by the segregated portfolio captives and Guarantee Insurance’s quota share reinsurers for services performed on their behalf and for which Guarantee Insurance is reimbursed through a ceding commission. For financial reporting purposes, the Company treats ceding commissions as a reduction in underwriting expenses.

State Guaranty Fund and Other Assessments

The Company is subject to state guaranty funds and other assessments. Such assessments are accrued when they are reasonably estimable. Premium-based assessments are accrued at the time the premiums are written and loss-based assessments are accrued at the time the losses are incurred. Other assessments are accrued upon notification of the assessment.

Income Taxes

The Company files a consolidated federal income tax return. The tax liability of the group is apportioned among the members of the group in accordance with the portion of the consolidated taxable income attributable to each member of the group, as if computed on a separate return. To the extent that the losses of any member of the group are utilized to offset taxable income of another member of the group, the Company takes the appropriate corporate action to “purchase” such losses. To the extent that a member of the group generates any tax credits, such tax credits are allocated to the member generating such tax credits. Deferred income taxes are recorded on the differences between the tax bases of assets and liabilities and the amounts at which they are reported in the financial statements. Deferred income taxes are also recorded for operating loss and tax credit carryforwards. Recorded amounts are adjusted to reflect changes in income tax rates and other tax law provisions as they become enacted and represent management’s best estimate of future income tax expenses or benefits that will ultimately be incurred or recovered. The Company maintains a valuation allowance for any portion of deferred tax assets which management believes it is more likely than not that the Company will be unable to utilize to offset future taxes.

Stock-Based Compensation

In accordance with SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (i.e., the requisite service period), which is usually equal to the vesting period.

Earnings Per Common Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of the Company’s outstanding stock options, common shares released from restriction upon the vesting of the Company’s outstanding restricted stock and the impact of common shares issuable upon conversion of preferred stock outstanding.

F-11

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Segment Information

The Company operates two segments: Insurance and Insurance Services. These segments have been established in a manner that is consistent with the way results are regularly evaluated by management in deciding how to allocate resources and in assessing performance.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements but applies whenever other standards require or permit assets or liabilities to be measured by fair value. The Company adopted SFAS No. 157 for its financial assets and financial liabilities effective January 1, 2008. The adoption of SFAS No. 157 did not have a material impact on the Company’s consolidated financial statements.

In February 2008, the FASB approved the issuance of FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-2 defers the effective date of SFAS No. 157 until January 1, 2009 for non-financial assets and non-financial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. The implementation of this FSP is not expected to have a material impact on the Company’s results of operation or financial position.

In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset when the Market for That Asset is Not Active.” This FSP clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. This FSP is effective from October 10, 2008, including prior periods for which financial statements have not been issued. The implementation of this FSP did not have a material impact on the Company’s results of operation or financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates. For items for which the fair value option has been elected, unrealized gains and losses are to be reported in earnings at each subsequent reporting date. The fair value option is irrevocable unless a new election date occurs, may be applied instrument by instrument, with a few exceptions, and applies only to entire instruments and not to portions of instruments. SFAS No. 159 provides an opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting. The Company’s adoption of SFAS No. 159 effective January 1, 2008 did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” SFAS No. 141R is effective for acquisitions during the fiscal years beginning after December 15, 2008 and early adoption is prohibited. This statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Management is reviewing this guidance; however, the effect of the statement’s implementation will depend upon the extent and magnitude of acquisitions, if any, after December 31, 2008.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008 and early adoption is prohibited. This statement establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.

F-12

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Management is reviewing this guidance; however, the effect of the statement’s implementation is not expected to be material to the Company’s results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This statement changes the disclosure requirements for derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how an entity accounts for the derivatives and hedged items, and how derivatives and hedged items affect an entity’s financial position, performance and cash flows. Management is reviewing this guidance; however, the effect of the statement’s implementation is not expected to be material to the Company’s disclosures.

In March 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60.” SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. Earlier application is not permitted except for disclosures about the risk-management activities of the insurance enterprise, which is effective for the first interim period beginning after the issuance of SFAS No. 163. This statement requires an insurance enterprise to recognize a claim liability prior to an insured event when there is evidence that credit deterioration has occurred in an insured financial obligation. This statement also clarifies how FASB Statement No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Finally, this statement requires expanded disclosures about financial guarantee contracts focusing on the insurance enterprise’s risk-management activities in evaluating credit deterioration in its insured financial obligations. The effect of the statement’s implementation is not expected to be material to the Company’s results of operations or financial position. As of December 31, 2008, the Company had no financial guarantee contracts that required expanded disclosures under this statement.

2.   Investments

Debt Securities

The Company considers all of its debt securities as available for sale in response to changes in interest rates or changes in the availability of and yields on alternative investments. In accordance with SFAS No. 115 (As Amended) — Accounting for Certain Investments in Debt and Equity Securities, the Company’s debt securities at December 31, 2008 and 2007 are stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income net of deferred income taxes.

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of debt securities at December 31, 2008 and 2007 are as follows:

2008

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
U.S. government securities	$	3,981	$	247	$	—	$	4,228
U.S. government agencies		300		11		—		311
Asset-backed and mortgage-backed securities		16,128		806		617		16,317
State and political subdivisions		23,058		867		11		23,914
Corporate securities		9,745		72		214		9,603
	$	53,212	$	2,003	$	842	$	54,373

F-13

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

2007

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
U.S. government securities	$	3,997	$	36	$	—	$	4,033
U.S. government agencies		2,742		8		1		2,749
Asset-backed and mortgage-backed securities		15,994		130		11		16,113
State and political subdivisions		22,212		303		—		22,515
Corporate securities		10,225		87		34		10,278
	$	55,170	$	564	$	46	$	55,688

The estimated fair value and gross unrealized losses on debt securities, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2008 and 2007 are as follows:

2008

	Less Than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available for Sale	Value		Losses		Value		Losses		Value		Losses
	(In thousands, except numbers of securities data)
U.S. government securities	$	—	$	—	$	—	$	—	$	—	$	—
U.S. government agencies		—		—		—		—		—		—
Asset-backed and mortgage-backed securities		3,598		518		359		99		3,957		617
State and political subdivisions		745		11		—		—		745		11
Corporate securities		6,882		214		—		—		6,882		214
Total	$	11,224	$	742	$	359	$	99	$	11,583	$	842
Total Number of Securities in an Unrealized Loss Position				42				3				45

2007

	Less Than 12 Months				12 Months or Longer				Total
			Gross				Gross				Unrealized
	Fair		Unrealized		Fair		Unrealized		Fair		Gross
Available for Sale	Value		Losses		Value		Losses		Value		Losses
	(In thousands, except numbers of securities data)
U.S. government securities	$	651	$	1	$	—	$	—	$	651	$	1
U.S. government agencies		—		—		1,059		1		1,059		1
Asset-backed and mortgage-backed securities		882		3		1,454		8		2,336		11
Corporate securities		2,427		30		2,742		3		5,169		33
Total	$	3,960	$	34	$	5,255	$	12	$	9,215	$	46
Total Number of Securities in an Unrealized Loss Position				12				18				30

F-14

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

In reaching the conclusion that the investments in an unrealized loss position are not other than temporarily impaired, the Company considered the fact that there were no specific events which caused concerns, there were no past due interest payments, the Company has the ability and intent to retain the investment for a sufficient amount of time to allow an anticipated recovery in value and the changes in market value were considered normal in relation to overall fluctuations in interest rates. In 2008, the Company recognized an other-than-temporary impairment charge of approximately $350,000 related to investments in certain bonds issued by Lehman Brothers Holdings, Inc., which filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court.

Amortized cost and estimated fair value of the Company’s debt securities available for sale at December 31, 2008, by contractual maturity, are as follows:

	Amortized		Fair
	Cost		Value
	(In thousands)
Due in one year or less	$	1,511	$	1,527
Due after one year through five years		22,442		22,886
Due after five years		13,131		13,643
		37,084		38,056
Asset-backed and mortgage-backed securities		16,128		16,317
	$	53,212	$	54,373

The actual maturities in the foregoing table may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Expected maturities of asset-backed and mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay the obligations and are, therefore, classified separately with no specific contractual maturity dates.

Equity Securities

The cost, gross unrealized gains, gross unrealized losses and fair values of equity securities available for sale as of December 31, 2008 and 2007 are as follows:

2008

			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Common stock	$	466	$	—	$	244	$	222

2007

			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Common stock	$	1,341	$	—	$	707	$	634

In 2008, the Company recognized an other-than-temporary impairment charge of approximately $875,000 related to investments in certain equity securities.

F-15

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The estimated fair value and gross unrealized losses on equity securities available for sale, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2008 and 2007 are as follows:

2008

	Less Than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands, except numbers of securities data)
Stocks — common stocks	$	—	$	—	$	222	$	244	$	222	$	244
Total Number of Securities in an Unrealized Loss Position				—				4				4

2007

	Less Than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands, except numbers of securities data)
Stocks — common stocks	$	407	$	286	$	227	$	421	$	634	$	707
Total Number of Securities in an Unrealized Loss Position				2				6				8

Fair Value Measurements

The Company adopted the SFAS No. 157, “Fair Value Measurements”, effective January 1, 2008. The adoption of SFAS No. 157 did not have any impact on the Company’s consolidated financial condition or results of operations, but resulted in expanded disclosures about securities measured at fair value, as discussed below.

The Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”, effective January 1, 2008. The Company did not elect the fair value option for existing eligible items under SFAS No. 159 and, accordingly, the provisions of SFAS No. 159 had no effect on our consolidated financial condition as of December 31, 2008 or the year then ended.

SFAS No. 157 establishes a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (Observable Units) and the reporting entity’s own assumptions about market participants’ assumptions (Unobservable Units). The hierarchy level assigned to each security in the Company’s available-for-sale debt

F-16

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

and equity securities portfolio is based upon its assessment of the transparency and reliability of the inputs used in the valuation as of the measurement date. The three hierarchy levels are as follows:

	Definition
Level 1	Observable unadjusted quoted prices in active markets for identical securities
Level 2	Observable inputs other than quoted prices in active markets for identical securities, including:
	(i)    quoted prices in active markets for similar securities,
	(ii)    quoted prices for identical or similar securities in markets that are not active,
	(iii)  inputs other than quoted prices that are observable for the security (e.g. interest rates, yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates, and
	(iv)  inputs derived from or corroborated by observable market data by correlation or other means
Level 3	Unobservable inputs, including the reporting entity’s own data, as long as there is no contrary data indicating market participants would use different assumptions

Management determines the fair values of the Company’s debt and equity securities available for sale based on market values obtained from an independent pricing service performed by the Company’s independent investment advisor. If securities are traded in active markets, quoted prices are used to measure fair value (Level 1). All of the Company’s Level 2 securities are priced based on either (i) quoted prices in active markets for similar securities, (ii) quoted prices for identical or similar securities in markets that are not active or (iii) inputs other than quoted prices that are observable for the security. If quoted prices are not available, prices are obtained from our independent investment advisor based on pricing models that consider a variety of observable inputs, including interest rates, volatilities, prepayment speeds, credit risks and default rates for the security.

The fair values of substantially all of the Company’s debt and equity securities were based on Level 1 or Level 2 inputs as of December 31, 2008. The following table presents the Company’s debt and equity securities available for sale, classified by the SFAS No. 157 valuation hierarchy, as of December 31, 2008:

	Fair Value Measurement, Using
	Quoted
	Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Securities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Debt securities	$	3,968	$	50,405	$	—	$	54,373
Equity securities		222		—		—		222
	$	4,190	$	50,405	$	—	$	54,595

F-17

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Net Investment Income

The details of net investment income are as follows:

	2008			2007			2006
	(In thousands)
Debt securities	$	2,377		$	2,088		$	764
Equity securities		8			8			15
Cash, cash equivalents, short-term and other investment income		117			412			1,264
Rent income		4			10			10
Gross investment income		2,506			2,518			2,053
Investment expenses, primarily interest credited to reinsurance funds withheld balances		(478	)		(1,192	)		(732	)
Net investment income	$	2,028		$	1,326		$	1,321

Realized Gains and Losses on Investments and Other-Than-Temporary Impairments

Gross realized gains and losses on the sale of debt securities were approximately $199,000 and $6,000, respectively, for the year ended December 31, 2008. Proceeds from the sale, maturity or repayment of debt securities were approximately $19.1 million. There were no sales of equity securities for the year ended December 31, 2008. The Company recognized a realized loss of approximately $355,000 for the year ended December 31, 2008 in connection with the other-than-temporary impairment of certain bonds issued by Lehman Brothers Holdings, Inc., which filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code in September 2008. In addition, the Company recognized a realized loss of approximately $875,000 for the year ended December 31, 2008 in connection with the other-than-temporary impairment of certain equity securities.

Gross realized gains and losses on the sale of debt securities were approximately $3,000 and $0 for the year ended December 31, 2007. Proceeds from the sale, maturity or repayment of debt securities were approximately $20.8 million. Gross realized gains and losses on the sale of equity securities were approximately $0 and $8,000, respectively, for the year ended December 31, 2007. Proceeds from the sale of equity securities were approximately $280,000. There were no other-than-temporary impairment charges for the year ended December 31, 2007.

The Company had no gross realized gains or losses on the sale of debt securities for the year ended December 31, 2006. Proceeds from the sale, maturity or repayment of debt securities were $6.9 million. Gross realized gains and losses on the sale of equity securities were approximately $587,000 and $194,000, respectively, for the year ended December 31, 2006. Proceeds from the sales of equity securities were approximately $1.8 million. In addition, the Company recognized a realized loss of approximately $1.7 million for the year ended December 31, 2006 in connection with the other-than-temporary impairment of the balance of its investment in Foundation Insurance Company, a limited purpose captive insurance subsidiary of Tarheel that reinsured workers’ compensation program business.

At December 31, 2008, cash and invested assets with a fair value of $5.2 million were on deposit with state departments of insurance to satisfy regulatory requirements.

F-18

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

3.   Deferred Policy Acquisition Costs and Deferred Ceding Commissions

Policy acquisition costs that the Company has capitalized, net of ceding commissions that the Company has deferred, together with the net amounts amortized over the effective period of the related policies, are as follows:

	2008			2007			2006
	(In thousands)
Net deferred policy acquisition costs, January 1	$	1,477		$	774		$	1,410
Amounts capitalized:
Direct and assumed		27,039			19,852			14,582
Ceded		(20,692	)		(18,492	)		(15,253	)
Net amounts capitalized		6,347			1,360			(671	)
Net amounts amortized		(7,907	)		(657	)		35
Net deferred policy acquisition costs (net deferred ceding commissions), December 31	$	(83	)	$	1,477		$	774

4.   Fixed Assets

Fixed assets as of December 31, 2008 and 2007 are summarized as follows:

	2008			2007
	(In thousands)
Software	$	2,061		$	1,857
Furniture, equipment and leasehold improvements		589			706
		2,650			2,563
Accumulated depreciation and amortization		(1,917	)		(1,398	)
Fixed assets, net of accumulated depreciation and amortization	$	733		$	1,165

The Company recorded fixed asset depreciation and amortization expense of $519,000, $884,000 and $364,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

5.   Reinsurance

To reduce the Company’s exposure to losses from events that cause unfavorable underwriting results, the Company reinsures certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers under quota share and excess of loss agreements. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies.

Quota Share Reinsurance

With respect to traditional business, effective July 1, 2007 the Company entered into a quota share agreement pursuant to which it cedes 50.0% of premiums, losses and certain loss adjustment expenses , excluding business written in South Carolina, Georgia, and Indiana. This quota share agreement covers all losses less than $500,000. The quota share agreement was renewed effective July 1, 2008 under substantially similar terms, except that the renewal period for one of the participating quota share reinsurers, to whom the Company ceded 37.5%, expires on January 1, 2009.

F-19

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

In addition, with respect to traditional business, the Company entered into a quota share agreement pursuant to which it ceded approximately $12.9 million of gross unearned premium reserves as of December 31, 2008.

With respect to alternative market business involving a segregated portfolio captive risk sharing mechanism, the Company generally cedes 90% of premiums and losses and loss adjustment expenses to the segregated portfolios captive reinsurer.

Excess of Loss Reinsurance

Pursuant to separate excess of loss reinsurance agreements for the Company’s traditional and alternative market business, Guarantee Insurance cedes 100% of losses up to $4.0 million in excess of $1.0 million per occurrence. Pursuant to excess of loss reinsurance agreements covering both traditional and alternative market business, Guarantee Insurance cedes 100% of losses up to $15 million in excess of $5 million per occurrence.

Effects of Reinsurance

Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. Charges for uncollectible reinsurance are included in other income or expenses in the consolidated statements of income. The Company maintained an allowance for uncollectible reinsurance recoverable balances of $300,000 at December 31, 2008 and 2007. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risks arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.

The effects of reinsurance on premiums written and earned are as follows:

	2008				2007				2006
	Written		Earned		Written		Earned		Written		Earned
	(In thousands)
Direct and assumed premiums	$	117,563	$	100,070	$	85,810	$	73,714	$	62,372	$	60,672
Ceded premiums		71,725		50,850		54,849		49,101		42,986		39,619
Net premiums	$	45,838	$	49,220	$	30,961	$	24,613	$	19,386	$	21,053

The amount of recoveries pertaining to reinsurance contracts that were deducted from losses incurred for the years ended December 31, 2008, 2007 and 2006 was approximately $18.8 million, $17.5 million and $26.1 million, respectively.

Reinsurance Contract Commutations

During the year ended December 31, 2008, the Company commuted six quota share reinsurance contracts with segregated portfolio captives, resulting in an aggregate gain of approximately $1.4 million, which is reflected in the accompanying consolidated statement of income for the year ended December 31, 2008. In connection with such commutations, ceded written and earned premiums and ceded unearned premium reserves, net of ceding commissions, were reduced by approximately $4.8 million, ceded losses and loss adjustment expenses and ceded reserves for losses and loss adjustment expenses were reduced by approximately $5.0 million and reinsurance funds withheld were reduced by approximately $1.2 million.

6.   Premiums Receivable

In October 2008, the Company cancelled its policy with its then largest policyholder, Progressive Employer Services (PES), for non-payment of premium and duplicate coverage. PES is a company controlled

F-20

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

by Steve Herrig, an individual who, as of December 31, 2008, beneficially owned shares of the Company through Westwind Holding Company, LLC, a company controlled and operated by Mr. Herrig. Westwind’s stock ownership represented approximately 15.8% of the Company’s outstanding common stock. Most of PES’ employees are located in Florida, where workers compensation insurance premium rates are established by the state. Premiums receivable from PES totaled approximately $8.3 million, as of December 31, 2008. This amount is comprised of approximately $1.1 million for billed but unpaid premium audits for the 2006 policy year, approximately $2.0 million for a billed but unpaid experience rate modification as determined by the National Council on Compensation Insurance, approximately $300,000 for billed but unpaid premium installments for the 2008 policy year and approximately $4.9 million of estimated but unbilled premium audits for the 2007 and 2008 policy years. The Company has filed a lawsuit against PES to collect these amounts due and owing. The Company has the right to access certain collateral pledged by Westwind to offset against premium and other amounts owed by PES and Westwind to Guarantee, including funds held under reinsurance treaties, which totaled approximately $3.3 million as of December 31, 2008.

7.   Federal Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return. In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting and financial reporting for uncertain tax positions. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition, measurement and presentation of uncertain tax positions taken or expected to be taken in an income tax return. The Company adopted the provisions of FIN 48 effective January 1, 2007. Reserves for uncertain tax positions as of December 31, 2008 and 2007 associated with FIN 48 were approximately $421,000 and $711,000, respectively. The Company had no accrued interest or penalties related to uncertain tax positions as of December 31, 2008 or 2007.

The provision for income taxes consists of the following:

	2008			2007			2006
	(In thousands)
Current income tax expense	$	675		$	899		$	1,419
Deferred income tax expense (benefit):
Tax benefit on temporary differences		(1,318	)		(130	)		(387	)
Increase (decrease) in valuation allowance		—			(1,201	)		457
Deferred income tax expense (benefit)		(1,318	)		(1,331	)		70
Income tax expense (benefit)	$	(643	)	$	(432	)	$	1,489

The Company maintains a valuation allowance for any portion of deferred tax assets which management believes it is more likely than not that the Company will be unable to utilize to offset future taxes. At December 31, 2006 and 2007, the Company provided a full valuation allowance on the deferred tax asset attributable to net operating loss carryforwards generated by Tarheel. On April 1, 2007, when the Company’s majority stockholder contributed all the outstanding capital stock of Tarheel to Patriot Risk Management, Inc., management determined that its operating performance, coupled with its expectations to generate future taxable income, indicated that it was more likely than not that the Company will be able to utilize this asset to offset future taxes and, accordingly, the Company recognized the reversal of this valuation allowance. The utilization of net operating loss carryforwards generated by Tarheel is subject to annual limitations. Management believes that all or a substantial portion of these net operating loss carryforwards will be utilized in 2009. However, because these net operating loss carryforwards originated as a result of a business combination between two entities under common control, management believes that the balance, if any, upon the

F-21

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

consummation of the Company’s planned initial public offering as discussed in Note 1 will be subject to additional limitations and, accordingly, may not be available for utilization.

The Company’s actual income tax rates, expressed as a percent of net income before income tax expense, vary from statutory federal income tax rates due to the following:

	2008						2007						2006
	Amount			Rate			Amount			Rate			Amount			Rate
	(Amounts in thousands)
Income (loss) before income tax expense	$	(767	)				$	1,947					$	3,099
Income tax expense (benefit) at statutory rate	$	(261	)		34.0	%	$	662			34.0	%		1,054			34.0	%
Tax effect of:
Tax exempt investment income		(238	)		31.0			(85	)		(4.3	)		—			—
Other items, net		101			(13.2	)		127			6.5			(22	)		(0.7	)
Change in reserve for uncertain tax positions		(290	)		37.9			711			36.5			—			—
True up related to prior years		45			(5.9	)		65			3.3			—			—
		(643	)		83.8			1,480			76.0			1,032			33.3
Increase (decrease) in valuation allowance		—			—			(1,912	)		(98.2	)		457			14.7
Actual income tax expense (benefit)	$	(643	)		83.8	%	$	(432	)		(22.2	)%	$	1,489			48.0	%

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2008 and 2007 are as follows:

	2008		2007
	(In thousands)
Deferred Tax Assets
Loss reserve adjustments	$	1,847	$	1,174
Unearned premium adjustments		740		965
Net operating loss carryforward		529		1,318
Unrealized capital losses		—		64
Other than temporary impairment on investments		852		431
Stock option compensation		143		111
Bad debt allowance		323		340
Deferred equity offering costs written off		1,185		—
Other		63		125
Total deferred tax assets		5,682		4,528
Deferred Tax Liabilities
Deferred acquisition costs		1,113		1,110
Purchase price adjustment		293		293
Unrealized capital gains		309		—
Other		—		103
Total deferred tax liabilities		1,715		1,506
Net deferred tax assets	$	3,967	$	3,022

F-22

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

At December 31, 2008, the Company had $1.5 million of net operating loss carryforwards, which expire as follows: approximately $100,000 in 2024, $400,000 in 2025 and $1.0 million in 2026.

8.   Losses and Loss Adjustment Expenses

The following table provides a reconciliation of the Company’s aggregate beginning and ending reserves for losses and loss adjustment expenses, net of reinsurance recoverables:

	2008			2007			2006
	(In thousands)
Balances, January 1	$	69,881		$	65,953		$	39,084
Less reinsurance recoverable		(43,317	)		(41,103	)		(21,699	)
Net balances, January 1		26,564			24,850			17,385
Incurred related to
Current years		27,422			18,642			15,328
Prior years		1,294			(3,460	)		2,511
Total incurred		28,716			15,182			17,839
Paid related to
Current years		6,171			4,668			3,290
Prior years		12,051			8,800			7,084
Total paid		18,222			13,468			10,374
Net balances, December 31		37,058			26,564			24,850
Plus reinsurance recoverable		37,492			43,317			41,103
Balances, December 31	$	74,550		$	69,881		$	65,953

There were no significant changes in the key assumptions utilized in the analysis and calculations of the Company’s reserves during the years ended December 31, 2008, 2007 or 2006.

As a result of unfavorable development on prior accident year reserves, incurred losses and loss adjustment expenses increased by approximately $1.3 million for the year ended December 31, 2008, reflecting approximately $600,000 of unfavorable development in 2008 on workers’ compensation reserves for prior accident years and $700,000 of unfavorable development in 2008 on legacy asbestos and environmental exposures and commercial general liability exposures, the latter as discussed more fully below.

As a result of favorable development on prior accident year reserves, incurred losses and loss adjustment expenses decreased by approximately $3.5 million for the year ended December 31, 2007. The $3.5 million of favorable development reflects approximately $2.2 million of favorable development in 2007 on workers’ compensation reserves for prior accident years and $1.3 million of favorable development in 2007 on legacy asbestos and environmental exposures and commercial general liability exposures, the latter as discussed more fully below.

As a result of adverse development on prior accident year reserves, incurred losses and loss adjustment expenses increased by approximately $2.5 million for the year ended December 31, 2006. The $2.5 million of adverse development in 2006 reflects approximately $2.0 million of adverse development in 2006 on workers’ compensation reserves for prior accident years. Of the $2.0 million, approximately $1.3 million was subsequently reduced in 2007 and included in the $3.5 million of total favorable development in 2007 as discussed above. The $2.5 million of adverse development in 2006 also reflects approximately $516,000 of adverse development in 2006 on legacy asbestos and environmental exposures and commercial general liability

F-23

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

exposures, the latter as discussed more fully below. The $516,000, together with an additional amount totaling approximately $1.7 million, was subsequently reduced in 2007 and included in the $3.5 million of total favorable development in 2007 as discussed above.

The Company has exposure to these legacy claims incurred prior to 1984 arising from the sale of general liability insurance and participation in reinsurance pools administered by certain underwriting management organizations. As industry experience in dealing with these exposures has accumulated, various industry-related parties have evaluated newly emerging methods for estimating asbestos-related and environmental pollution liabilities, and these methods have attained growing credibility. In addition, outside actuarial firms and others have developed databases to supplement the information that can be derived from a company’s claim files. The Company estimates the full impact of these legacy claims by establishing full cost basis reserves for all known losses and computing incurred but not reported losses based on previous experience and available industry data. These liabilities are subject to greater than normal variation and uncertainty, and an indeterminable amount of additional liability may develop over time.

The following table provides a reconciliation between the beginning and ending reserves for losses and loss adjustment expenses, net of reinsurance recoverables, for legacy asbestos and environmental exposures which are included in the reconciliation of the Company’s aggregate beginning and ending reserves for losses and loss adjustment expenses above:

	2008			2007			2006
	(In thousands)
Balances, January 1	$	6,789		$	6,999		$	7,302
Less reinsurance recoverable		(3,758	)		(3,402	)		(3,780	)
Net balances, January 1		3,031			3,597			3,522
Incurred related to claims in prior years		285			(169	)		363
Paid related to prior years		(323	)		(397	)		(288	)
Net balances, December 31		2,993			3,031			3,597
Plus reinsurance recoverable		3,785			3,758			3,402
Balances, December 31	$	6,778		$	6,789		$	6,999

The following table provides a reconciliation between the beginning and ending reserves for losses and loss adjustment expenses, net of reinsurance recoverables, for legacy commercial general liability exposures which are included in the reconciliation of the Company’s aggregate beginning and ending reserves for losses and loss adjustment expenses above:

	2008			2007			2006
	(In thousands)
Balances, January 1	$	3,742		$	6,050		$	6,006
Less reinsurance recoverable		(1,996	)		(2,974	)		(2,949	)
Net balances, January 1		1,746			3,076			3,057
Incurred related to claims in prior years		424			(1,154	)		153
Paid related to prior years		(640	)		(176	)		(134	)
Net balances, December 31		1,530			1,746			3,076
Plus reinsurance recoverable		2,076			1,996			2,974
Balances, December 31	$	3,606		$	3,742		$	6,050

F-24

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

9.   Notes Payable

The Company had a note payable to the former owner of Guarantee Insurance, with a principal balance of $8.8 million as of March 30, 2006. On that date, the Company entered into a settlement and termination agreement with the former owner of Guarantee Insurance that allowed for the early extinguishment of the $8.8 million note payable for $2.2 million in cash and release of the indemnification agreement previously entered into by the parties. Accordingly, the Company recognized a gain on the early extinguishment of debt of $6.6 million in 2006.

Effective March 30, 2006, the Company entered into a loan agreement for $8.7 million with an interest rate of prime plus 4.5% (effectively 7.75% at December 31, 2008). The proceeds of the loan, net of loan and guaranty fees, totaled approximately $7.2 million and were used to provide $3.0 million of additional surplus to Guarantee Insurance, pay the $2.2 million early extinguishment of debt noted above, loan $750,000 to Tarheel which was invested in Foundation to enable it to settle certain obligations, redeem common stock for approximately $1.0 million and for general corporate purposes. In September 2007, the Company borrowed an additional $5.7 million from the same lender under the same interest rate terms as the loan taken in 2006. The proceeds of the additional borrowing, net of loan and guaranty fees, totaled approximately $4.9 million and were used to provide $3.0 million of additional surplus to Guarantee Insurance and to pay federal income taxes of approximately $1.9 million on the 2006 gain on early extinguishment of debt. The principal balance and accrued interest associated with this loan at December 31, 2008 were approximately $12.4 million and $43,000, respectively. Principal and interest payments, which are made monthly, were approximately $185,000 at December 31, 2008. Due to the variable rate, the principal and interest payment may change. The loan is secured by a first lien on all of the assets of Patriot Risk Management, Inc., PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Suncoast Capital, Inc. and Patriot Risk Management of Florida, Inc. Additionally, the loan is guaranteed by the Company’s Chairman, President, Chief Executive Officer and the beneficial owner of a majority of the Company’s outstanding shares. The loan has financial covenants requiring that the Company maintain consolidated GAAP stockholders’ equity of at least $5.5 million and that Guarantee Insurance maintain GAAP equity of at least $14.5 million. The Company was in compliance with these covenants at December 31, 2008.

Effective June 26, 2008, the Company entered into a loan agreement for $1.5 million from its Chairman, President, Chief Executive Officer and the beneficial owner of a majority of the Company’s outstanding shares with an interest rate of prime plus 3% (6.25% at December 31, 2008). The proceeds of the loan, net of loan fees, totaled approximately $1.3 million and were used to provide additional surplus to Guarantee Insurance. The principal balance and accrued interest associated with this loan at December 31, 2008 were approximately $1.5 million and $27,000, respectively. Interest payments on the loan, which were payable monthly, were approximately $8,000 at December 31, 2008. Due to the variable rate, the interest payment may change. The principal balance of the loan was originally due on December 26, 2008, but has been extended by amendment to June 27, 2009. Pursuant to the due date extension, the Company began making $25,000 monthly principal payments on the loan beginning in January 2009. The loan is guaranteed by the Company’s Chairman, President, Chief Executive Officer and the beneficial owner of a majority of the Company’s outstanding shares

Effective December 31, 2008, the Company entered into a loan agreement for $5.4 million with an interest rate of prime plus 4.5% (effectively 7.75% at December 31, 2008). The proceeds of the loan, net of loan fees, totaled approximately $5.0 million and were used to provide $2.1 million of additional surplus to Guarantee Insurance and settle an intercompany payable to Guarantee Insurance of $2.9 million. The principal balance and accrued interest associated with this loan at December 31, 2008 were approximately $5.4 million and $0, respectively. Principal and interest payments will be made monthly beginning in January 2009 and are approximately $81,000 at December 31, 2008. Due to the variable rate, the principal and interest payment may change. The loan is secured by a first lien on all of the assets of Patriot Risk Management, Inc., PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Suncoast Capital, Inc. and Patriot Risk

F-25

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Management of Florida, Inc. Additionally, the loan is guaranteed by the Company’s Chairman, President, Chief Executive Officer and the beneficial owner of a majority of the Company’s outstanding shares. The loan has financial covenants requiring that the Company maintain consolidated GAAP stockholders’ equity of at least $5.5 million and that Guarantee Insurance maintain GAAP equity of at least $14.5 million. The Company was in compliance with these covenants at December 31, 2008.

Notes payable and subordinated debentures, including accrued interest, at December 31, 2008 were as follows:

				Interest			Principal
				Rate at			and
Year of		Years	Interest Rate	December 31,			Accrued
Issuance	Description	Due	Terms	2008			Interest
							(In thousands)
2006/7	Notes payable to Brooke Capital Corp.	2009-2016	Prime rate plus 4.5%		7.75	%	$	12,465
2008	Note payable to Steven Mariano	2009	Prime rate plus 3.0%		6.25			1,527
2008	Note payable to Ullico Inc.	2009-2016	Prime rate plus 4.5%		7.75			5,450
2004	Surplus notes payable	2009	3.0%		3.00			1,341
	Total notes payable							20,783
2005	Subordinated debentures	2009	3.0%		3.00			1,809
							$	22,592

As of December 31, 2008, the Company’s obligation for future payments on notes payable, based on the rates in effect at December 31, 2008, are as follows:

					Guaranty
	Principal		Interest		Fees		Total
	(In thousands)
2009	$	3,408	$	1,343	$	715	$	5,466
2010		2,042		1,166		639		3,847
2011		2,206		1,002		557		3,765
2012		2,380		827		469		3,676
2013		2,574		633		373		3,580
Thereafter		6,762		644		468		7,874
	$	19,372	$	5,615	$	3,221	$	28,208

The Company has outstanding surplus notes with aggregate principal and accrued interest of approximately $1.2 million and $154,000, respectively, at December 31, 2008 and approximately $1.3 million and $115,000, respectively, at December 31, 2007. The notes call for the Company to pay, on or before sixty months from the issue date, the principal amount of the notes and interest quarterly at the rate of 3%, compounded annually. Any payments of principal and interest are subject to the written authorization of the Florida Office of Insurance Regulations (Florida OIR). Certain surplus notes and accrued interest thereon, totaling approximately $66,000, were forgiven in 2008 in connection with the commutation of reinsurance. The principal balance of the surplus notes and accrued interest thereon are due in 2009. Repayment is subject to Florida OIR authorization.

10.   Subordinated Debentures

During 2005, the Company issued subordinated debentures totaling $2.0 million. The debentures have a 3-year term and bear interest at the rate of 3% compounded annually. The debentures are subject to renewal on the same terms and conditions at the end of the term. Certain subordinated debentures and accrued interest

F-26

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

thereon, totaling approximately $165,000, were forgiven in 2008 in connection with the commutation of reinsurance. The principal balance and accrued interest on these debentures was approximately $1.6 million and $175,000, respectively, at December 31, 2008 and approximately $1.8 million and $139,000, respectively, at December 31, 2007.

11.   Common and Preferred Stock

The Company’s authorized stock consists of 40,000,000 shares of common stock, par value $0.001 per share, 4,000,000 shares of Series B common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $.001 per share. During 2008, the Company converted its Series A common stock to common stock on a one-for-one basis, with no change in the terms. Common stock shares have the right to one vote per share and Series B common stock shares have the right to four votes per share.

During 2008, the Company designated 1,200 shares of its authorized but unissued preferred stock, par value $.001 per share, as Series A convertible preferred stock and issued 1,000 shares of Series A convertible preferred stock at a stated value of $1,000 per share, resulting in cash proceeds of $1.0 million. The holders of shares of Series A convertible preferred stock are entitled to receive cumulative cash dividends at a rate of 4.5% above the prime rate per share per annum. Shares of Series A convertible preferred stock shall automatically convert into shares of common stock upon the completion of an offering of the Company’s common stock to third-party investors with aggregate proceeds of at least $20 million at a price of no less than $10.22 per share. All terms associated with the Series A convertible preferred stock, including its per share value, dividend rate and conversion parameters, were determined by the Company’s board of directors. Shares of Series A convertible preferred stock do not have any voting powers.

As of December 31, 2008, the Company had 561,289 shares of common stock, 800,000 shares of Series B common stock and 1,000 shares of Series A convertible preferred stock issued and outstanding. As of December 31, 2007, the Company had 561,289 shares of Series A common stock, 800,000 shares of Series B common stock and no shares of preferred stock issued and outstanding.

The Company issues common and preferred stock, grants unrestricted common stock and redeems common stock based on the estimated fair values per share, which have ranged from $8.01 to $10.44. Fair values per share are established by the board of directors based on an evaluation of the Company’s financial condition and results of operations.

12.   Share-Based Compensation Plan

In 2005, the Company approved a share-based compensation plan. The plan authorized a company stock option plan, pursuant to which stock options may be granted to executive management to purchase up to 240,000 shares of common stock and to the board of directors to purchase up to 75,000 shares of common stock. On February 11, 2005, the Company granted stock options to members of the board of directors to purchase 75,000 shares on or before February 11, 2015. These options, which have an exercise price of $8.02 per share, vested ratably over two years from the grant date, and would otherwise fully vest in the event of a change in control. All of these options remain outstanding at December 31, 2008.

On December 30, 2005, the Company granted stock options to members of executive management to purchase 57,500 shares on or before December 30, 2015. These options, which have an exercise price of $8.02 per share, vest ratably over three years from the grant date, and otherwise fully vest in the event of a change in control.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment. SFAS No. 123R requires the compensation cost relating to stock options granted or modified after December 31, 2005 to be recognized in financial statements using the fair value of the equity instruments issued on the grant date of such instruments, and will be recognized as compensation expense over the period during which an individual

F-27

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

is required to provide service in exchange for the award (typically the vesting period). The Company adopted SFAS No. 123R effective January 1, 2007, and the impact of the adoption was not significant to the Company’s financial statements.

The fair value of each stock option grant is established on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2007 and 2006. There were no stock options granted in 2008. The expected volatility is 32% for options granted in 2007 and 2006, based on historical volatility of similar entities that are publicly traded. The estimated term of the options, all of which expire ten years after the grant date, is six years based on expected behavior of the group of option holders. The assumed risk-free interest rate is 4-5% for options granted in 2007 and 2006, based on yields on five to seven year U.S. Treasury Bills, which term approximates the estimated term of the options. The expected forfeiture rate is 18% on options granted in 2007 and 11% on options granted in 2006. There was no expected dividend yield for the options granted in 2007 or 2006.

The following table summarizes stock options granted, exercised and canceled.

				Weighted
				Average
	Number of			Exercise
	Options			Price
	(In thousands)
Options Outstanding, January 1, 2006		148		$	6.18
Options granted		72			8.02
Options exercised		—			—
Options canceled		(55	)		5.00
Options Outstanding, December 31, 2006		165			7.38
Options granted		58			8.02
Options exercised		—			—
Options canceled		(50	)		8.02
Options Outstanding, December 31, 2007		173			7.39
Options granted		—			—
Options exercised		—			—
Options canceled		(10	)		8.02
Options Outstanding, December 31, 2008		163		$	7.37
Options Exercisable, December 31, 2008		125		$	7.17

The total intrinsic value of options exercisable at December 31, 2008 was approximately $106,000.

The weighted-average grant-date fair value of options granted during 2007 and 2006 was $3.27 and $3.26, respectively. No options were granted in 2008. No options were exercised during the year ended December 31, 2008, 2007 or 2006. The range of exercise prices for options outstanding at December 31, 2008 was $5.00 to $8.02.

F-28

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

A summary of the status of the Company’s unvested options is as follows:

				Weighted
				Average
	Number of			Grant Date
	Options			Fair Value
	(In thousands)
Unvested options, January 1, 2006		148		$	2.44
Options granted		72			3.27
Options vested		(38	)		2.62
Options canceled or forfeited		(55	)		1.94
Unvested options, December 31, 2006		127			3.07
Options granted		58			3.27
Options vested		(47	)		2.78
Options canceled or forfeited		(40	)		3.25
Unvested options, December 31, 2007		98			3.26
Options granted		—			—
Options vested		(55	)		3.26
Options canceled or forfeited		(4	)		3.32
Unvested options, December 31, 2008		39		$	3.26

As of December 31, 2008, there was approximately $82,000 of total unrecognized compensation cost related to unvested stock-based compensation awards granted under the plan. That cost is expected to be recognized over a weighted average period of 1.1 years.

The plan also authorizes the board, in its sole discretion, to grant stock awards to members of the board of directors. During 2006, 62,500 shares of stock awards were granted to members of the board of directors with a value of $8.02 per share and a total value of approximately $502,000. During 2007, 53,000 of stock awards were granted to members of the board of directors with a per-share value of $8.02 and a total value of approximately $425,000. There were no stock awards granted in 2008.

13.   Capital, Surplus and Dividend Restrictions

At the time the Company acquired Guarantee Insurance, it had a large statutory accumulated deficit. At December 31, 2008, the statutory accumulated deficit was approximately $94.3 million. Under Florida law, insurance companies may only pay dividends out of available and accumulated surplus funds derived from realized net operating profits on their business and net realized capital gains, except under limited circumstances with the prior approval of the Florida OIR. Moreover, pursuant to a consent order issued by Florida OIR on December 29, 2007 in connection with the redomestication of Guarantee Insurance from South Carolina to Florida, the Company is prohibited from paying dividends, without Florida OIR approval, until December 29, 2009. Therefore, it is unlikely that Guarantee Insurance will be able to pay dividends for the foreseeable future without the prior approval of the Florida OIR. No dividends were paid in 2008, 2007 or 2006.

The Company is required to periodically submit financial statements prepared in accordance with prescribed or permitted statutory accounting practices (SAP) to the Florida OIR. Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC). Permitted SAP encompasses all accounting practices that are not prescribed; such practices may differ from company to company and may not necessarily be permitted in subsequent reporting periods. The Company has no permitted accounting practices. SAP varies from GAAP.

F-29

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Guarantee Insurance Company reported a SAP net income (losses) of approximately $521,000, ($802,000) and $457,000 for the years ended December 31, 2008, 2007 and 2006, respectively. SAP surplus as regards policyholders was $17.8 million and $14.4 million at December 31, 2008 and 2007, respectively. Pursuant to the Florida OIR December 29, 2007 consent order, Guarantee Insurance is required to maintain a minimum capital and surplus of $9.0 million or 10% of its total liabilities excluding taxes, expenses and other obligations due or accrued. At December 31, 2008 and 2007, 10% of Guarantee Insurance’s total liabilities excluding taxes, expenses and other obligations due or accrued were approximately $10.2 million and $8.8 million, respectively.

The Company’s business is regulated at federal, state and local levels. The laws and rules governing the Company’s business are subject to broad interpretations and frequent change. Regulators have significant discretion as to how these laws and rules are administered. Workers’ compensation insurance is subject to significant regulation. Changes to existing laws and the introduction of future laws may change the Company’s concentration of premiums as well as liabilities associated with claims, administrative expenses, taxes, benefit interpretations and other actions.

The Company strives to conduct its operations in accordance with standards, rules and guidelines established by the NAIC. These standards, rules and guidelines are interpreted by the insurance department of each state against the background of state-specific legislation.

Insurance companies are subject to certain Risk-Based Capital (RBC) requirements as specified by the Florida insurance laws. Under RBC requirements, the amount of capital and surplus maintained by a property/casualty insurance company is determined based on the various risk factors related to it. At December 31, 2008 the Company’s adjusted statutory capital and surplus was 236% of authorized control level risk based capital.

The Company is subject to various regulatory examinations, investigations, audits and reviews that are required by statute. Such actions can result in assessment of damages, civil or criminal fines or penalties or other sanctions, including restrictions or changes in the way the Company conducts business. The Company records liabilities to estimate the costs resulting from these matters.

14.   Other Contingencies and Commitments

The Company provided letters of credit for approximately $846,000 as of December 31, 2008 in connection with certain business assumed. The Company pledged assets of approximately $956,000 as collateral for these letters of credit as of December 31, 2008.

The Company entered into employment agreements with four executive officers. The agreements have an initial three-year term, at which time the agreements will automatically renew for successive one year terms, unless the executive officers or the Company provide 90 days written notice of non-renewal. The agreements terminate in the event of death, absence over a period of time due to incapacity, a material breach of duties and obligations under the agreement or other serious misconduct. The agreements may also be terminated upon a change of control of Patriot (as defined in the agreements) or by the Company without cause; provided however, that in such event, the executive officers are entitled to cash severance amounts ranging from one to three years of annual salary as of the date of termination. The Company’s contingent obligation for severance payments pursuant to these provisions totals approximately $2.5 million.

In the normal course of business, the Company may be party to various legal actions. The Company does not believe that these actions will result in any material effect on the Company’s financial position or results of operations. The Company is named as a defendant in various legal actions arising principally from claims made under insurance policies and contracts. Those actions are considered by the Company in estimating the losses and loss adjustment expense reserves. Management believes that the resolution of those actions will not have a material effect on the Company’s financial position or results of operations.

F-30

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

As of December 31, 2008, the Company’s commitment for future rent payments is as follows:

	(In thousands)
2009	$	1,139
2010		875
2011		—
2012		—
2013		—
	$	2,014

Rental expense was $1.0 million, $840,000 and $591,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

15.   Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk

The Company is exposed to credit-related losses in the event that a bond issuer defaults on its obligation. The Company mitigates its exposure to these credit-related losses by maintaining bonds with high credit ratings.

Reinsurance does not discharge the Company’s obligations under its insurance policies. The Company remains liable to its policyholders even if it is unable to make recoveries that it believes it is entitled to receive under reinsurance contracts. As a result, the Company is subject to credit risk with respect to its reinsurers. As of December 31, 2008, the Company had approximately $42.1 million of gross exposures to reinsurers for reinsurance recoverables on paid and unpaid losses and loss adjustment expenses. The Company has reinsurance agreements with both authorized and unauthorized reinsurers. Authorized reinsurers are licensed or otherwise authorized to conduct business in the state of Florida (Guarantee Insurance’s state of domicile). Under statutory accounting principles, Guarantee Insurance receives credit on its statutory financial statements for all paid and unpaid losses ceded to authorized reinsurers. Unauthorized reinsurers are not licensed or otherwise authorized to conduct business in the state of Florida. Under statutory accounting principles, Guarantee Insurance receives credit for paid and unpaid losses ceded to unauthorized reinsurers to the extent these liabilities are secured by funds held, letters of credit or other forms of acceptable collateral. As of December 31, 2008, the Company had approximately $26.1 million of net unsecured reinsurance exposures consisting of $23.5 million from authorized reinsurers and $2.6 million from unauthorized reinsurers. The Company reviews the financial strength of all of its authorized and unauthorized reinsurers, monitors the aging of reinsurance recoverables on paid losses and assesses the adequacy of collateral underlying reinsurance recoverable balances on a regular basis. At December 31, 2008, the Company maintained an allowance for doubtful accounts on reinsurance recoverable balances of $300,000.

16.   Retirement Plan

The Company has a defined contribution plan. Employees are allowed to contribute up to a maximum of 15% of their salary. Discretionary employer matching contributions may be contributed at the option of the Company’s Board of Directors. Contributions are subject to certain limitations. No Company contributions were made to the defined contribution plan during the years ended December 31, 2008, 2007 or 2006.

17.   Segment Reporting

The Company operates two business segments — insurance services and insurance. Intersegment revenue is eliminated upon consolidation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

F-31

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

In the insurance services segment, the Company principally provides nurse case management and cost containment services, currently to Guarantee Insurance, the segregated portfolio captives and its quota share reinsurer. The fees earned in the insurance services segment from Guarantee Insurance, attributable to the portion of the insurance risk it retains, are eliminated upon consolidation.

In the insurance segment, the Company provides workers’ compensation policies to businesses. These products include alternative market workers’ compensation insurance solutions — principally, segregated portfolio cell captive insurance arrangements and high deductible and retrospectively rated plans — and traditional guaranteed cost workers’ compensation plans.

Certain other operating expenses incurred by Patriot Risk Management, Inc. are allocated to the insurance services and insurance segments based on management’s estimate of the applicability of these expenses to the segments’ operating results. It would be impracticable for the Company to determine the allocation of assets between the two segments.

Business segment results are as follows:

	2008			2007			2006
	(In thousands)
Revenues
Insurance services segment — insurance services income	$	12,308		$	11,325		$	10,208
Insurance segment:
Premiums earned		49,220			24,613			21,053
Net investment income		2,028			1,326			1,321
Net realized gains (losses) on investments		(1,037	)		(5	)		393
Insurance segment revenues		50,211			25,934			22,767
Intersegment revenues		(6,651	)		(4,298	)		(3,033	)
Non-allocated items		—			—			(1,739	)
Consolidated revenues	$	55,868		$	32,961		$	28,203
Pre-tax net income (loss)
Insurance services segment	$	4,452		$	4,201		$	3,764
Insurance segment		2,773			431			(1,939	)
Non-allocated items		(7,992	)		(2,685	)		1,274
Consolidated pre-tax net income (loss)	$	(767	)	$	1,947		$	3,099
Net income (loss)
Insurance services segment	$	2,939		$	4,682		$	2,020
Insurance segment		2,278			(520	)		(1,250	)
Non-allocated items		(5,341	)		(1,783	)		840
Consolidated net income (loss)	$	(124	)	$	2,379		$	1,610

F-32

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Items not allocated to segments’ pre-tax net income include the following:

	2008			2007			2006
	(In thousands)
Holding company expenses	$	(3,068	)	$	(1,395	)	$	(3,260	)
Interest expense		(1,438	)		(1,290	)		(1,109	)
Loss from write-off of deferred equity offering costs		(3,486	)		—			—
Gain on early extinguishment of debt		—			—			6,586
Other income — forgiveness of interest due on extinguished debt		—			—			796
Other than temporary impairment of Tarheel investment in Foundation		—			—			(1,739	)
Total unallocated items before income tax expense (benefit)		(7,992	)		(2,685	)		1,274
Income tax expense (benefit) on unallocated items		(2,651	)		(905	)		434
Total unallocated items	$	(5,341	)	$	(1,783	)	$	840

18.   Related Party Transactions

The Company’s Chairman, President and Chief Executive Officer provided a personal guaranty in connection with the notes payable described in Note 9. The Company pays the Chairman, President and Chief Executive Officer a guaranty fee equal to 4% of the outstanding balance on the loan each year for providing this service. The fee was set by the independent members of Patriot Risk Management, Inc.’s board of directors on terms that they believe are comparable to those that could be obtained from unaffiliated third parties. In 2008 and 2007, the Company paid its Chairman, President and Chief Executive Officer approximately $601,000 and $444,000, respectively, in guaranty fees.

19.   Business Combination

On April 1, 2007 the Company’s majority stockholder contributed all of the outstanding capital stock of Tarheel to Patriot Risk Management, Inc. with the result that Tarheel and its subsidiary, TIMCO, became wholly-owned indirect subsidiaries of Patriot Risk Management, Inc. The Company subsequently changed the name of Tarheel to Patriot Risk Management of Florida, Inc. and changed the name of TIMCO to Patriot Insurance Management Company, Inc. As the companies were under common control, the contribution of Tarheel to PRS Group, Inc. was accounted for similar to a pooling of interests pursuant to the Financial Accounting Standards Board Statement of Financial Standards No. 141 — Business Combinations. Consequently, the accompanying consolidated financial statements have been retroactively restated, as if the combining companies had been consolidated for all periods. Foundation, a limited purpose captive insurance subsidiary of Tarheel, reinsured workers’ compensation program business. Foundation was declared insolvent and management control of Foundation was assumed by the South Carolina Department of Insurance in 2004. Accordingly, the retroactively- restated consolidated financial statements do not include the accounts of Foundation. On March 24, 2006, Foundation was placed into receivership and was ultimately dissolved. The revenues and pre-tax net income (loss) attributable to Tarheel that are included in the accompanying consolidated financial statements are as follows:

	2008		2007			2005
	(In thousands)
Revenues	$	—	$	—		$	283
Pre-tax net loss		—		(343	)		(326	)

F-33

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Consolidated Balance Sheets

	June 30,		December 31,
	2009		2008
	(Unaudited)
	(In thousands)
ASSETS
Investments
Debt securities, available for sale, at fair value	$	47,080	$	54,373
Equity securities, available for sale, at fair value		—		222
Short-term investments		3,560		244
Real estate held for the production of income		248		250
Total investments		50,888		55,089
Cash and cash equivalents		4,179		8,333
Premiums receivable, net		76,406		58,826
Deferred policy acquisition costs, net of deferred ceding commissions		1,262		—
Prepaid reinsurance premiums		37,443		33,731
Reinsurance recoverable, net
Unpaid losses and loss adjustment expenses		47,164		37,492
Paid losses and loss adjustment expenses		5,615		4,642
Funds held by ceding companies and other amounts due from reinsurers		2,816		2,507
Net deferred tax assets		3,168		3,967
Fixed assets, net		698		733
Receivable from related party		—		500
Income taxes recoverable		562		110
Intangible assets		1,287		1,287
Other assets, net		6,286		4,075
Total Assets	$	237,774	$	211,292
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Reserves for losses and loss adjustment expenses	$	83,013	$	74,550
Reinsurance payable on paid losses and loss adjustment expenses		1,569		756
Unearned and advanced premium reserves		58,160		44,613
Deferred ceding commissions, net of deferred policy acquisition costs		—		83
Reinsurance funds withheld and balances payable		45,167		47,449
Notes payable, including $1.1 million of related party notes payable, and accrued interest of $227,000 and $224,000		19,410		20,783
Subordinated debentures, including accrued interest of $199,000 and $175,000		1,833		1,809
Accounts payable and accrued expenses		19,676		14,112
Total liabilities		228,828		204,155
Stockholders’ Equity
Series A convertible preferred stock		1,000		1,000
Common stock		1		1
Series B common stock		1		1
Paid-in capital		5,507		5,456
Retained earnings		1,799		72
Accumulated other comprehensive income, net of deferred income taxes		638		607
Total stockholders’ equity		8,946		7,137
Total Liabilities and Stockholders’ Equity	$	237,774	$	211,292

See accompanying notes to consolidated financial statements.

F-34

Patriot Risk Management, Inc. and its Wholly Owned Subsidiaries

Consolidated Statements of Income

	Six Months Ended June 30,
	2009		2008
	Unaudited
	(In thousands)
Revenues
Premiums earned	$	21,770	$	20,104
Insurance services income		3,787		3,008
Investment income, net		920		980
Net realized gains on investments		743		56
Total revenues		27,220		24,148
Expenses
Net losses and loss adjustment expenses		12,105		11,956
Net policy acquisition and underwriting expenses		6,632		5,495
Other operating expenses		4,960		4,233
Interest expense		734		725
Total expenses		24,431		22,409
Other Income		—		219
Income before income tax expense		2,789		1,958
Income Tax Expense		1,023		250
Net income	$	1,766	$	1,708
Earnings Per Common Share
Basic	$	1.70	$	1.25
Diluted		1.69		1.25
Weighted Average Common Shares Outstanding:
Basic		1,037		1,361
Diluted		1,046		1,370

See accompanying notes to consolidated financial statements.

F-35

Patriot Risk Management, Inc. and its Wholly Owned Subsidiaries

Consolidated Statements of Stockholders’ Equity

																							Accumulated
																				Retained			Other
										Series A				Series B						Earnings			Comprehensive			Total
	Series A Convertible Preferred Stock				Common Stock					Common Stock				Common Stock				Paid-in		(Accumulated			Income			Stockholders’
	Shares		Amount		Shares			Amount		Shares		Amount		Shares		Amount		Capital		(Deficit)			(Loss)			Equity
	Unaudited
	(In thousands)
Balance, December 31, 2008		1,000	$	1,000		561			1		—		—		800		1		5,456		72			607			7,137
Share-based compensation expense		—		—		—			—		—		—		—		—		51		—			—			51
Repurchase and retirement of 215,263 shares of common stock at par value		—		—		(215	)		—		—		—		—		—		—		—			—			—
Series A convertible preferred stock dividend		—		—		—			—		—		—		—		—		—		(39	)		—			(39	)
Balance before comprehensive income		1,000		1,000		346			1		—		—		800		1		5,507		33			607			7,149
Comprehensive income
Net income		—		—		—			—		—		—		—		—		—		1,766			—			1,766
Net unrealized appreciation in available for sale securities, net of deferred taxes of $16,000		—		—		—			—		—		—		—		—		—		—			31			31
Total comprehensive income		—		—		—			—		—		—		—		—		—		1,766			31			1,797
Balance, June 30, 2009		1,000	$	1,000		346		$	1		—	$	—		800	$	1	$	5,507	$	1,799		$	638		$	8,946
Unaudited
Balance, December 31, 2007		—	$	—		—		$	—		561	$	1		800	$	1	$	5,363	$	196		$	(125	)	$	5,436
Share-based compensation expense		—		—		—			—		—		—		—		—		146		—			—			146
Balance before comprehensive income		—		—		—			—		561		1		800		1		5,509		196			(125	)		5,582
Comprehensive income
Net income		—		—		—			—		—		—		—		—		—		1,708			—			1,708
Net unrealized depreciation in available for sale securities, net of deferred tax benefit of $239,000		—		—		—			—		—		—		—		—		—		—			(465	)		(465	)
Total comprehensive income		—		—		—			—		—		—		—		—		—		1,708			(465	)		1,243
Balance, June 30, 2008		—	$	—		—		$	—		561	$	1		800	$	1	$	5,509	$	1,904		$	(590	)	$	6,825

See accompanying notes to consolidated financial statements.

F-36

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Consolidated Statements of Cash Flows

	Six Months Ended June 30,
	2009			2008
	Unaudited
	(In thousands)
Operating Activities
Net income	$	1,766		$	1,708
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized gains on investments		(743	)		(56	)
Other income		—			(219	)
Depreciation and amortization		383			358
Share-based compensation expense		51			146
Amortization of debt securities		154			124
Deferred income tax expense (benefit)		779			(148	)
Changes in certain assets and liabilities:
Decrease (increase) in:
Premiums receivable		(17,580	)		(23,846	)
Deferred policy acquisition costs, net of deferred ceding commissions		(1,345	)		79
Prepaid reinsurance premiums		(3,712	)		(16,378	)
Reinsurance recoverable on:
Unpaid losses and loss adjustment expenses		(9,672	)		1,135
Paid losses and loss adjustment expenses		(973	)		2,714
Funds held by ceding companies and other amounts due from reinsurers		(309	)		(520	)
Federal income tax recoverable		(452	)		109
Other assets		(2,345	)		(2,772	)
Increase (decrease) in:
Reserves for losses and loss adjustment expenses		8,463			2,806
Reinsurance payable on paid loss and loss adjustment expenses		813			379
Unearned and advanced premium reserves		13,547			25,464
Reinsurance funds withheld and balances payable		(2,282	)		1,486
Accounts payable and accrued expenses		5,552			4,375
Net cash used in operating activities		(7,906	)		(3,056	)
Investment Activities
Proceeds from sales and maturities of debt securities		15,888			9,938
Proceeds from sales of equity securities		329			—
Purchases of debt securities		(8,061	)		(7,952	)
Net purchases of short-term investments		(3,316	)		(144	)
Purchases of fixed assets		(212	)		(159	)
Net cash provided by investment activities		4,628			1,683
Financing Activities
Proceeds from notes payable		—			1,500
Repayments of notes payable		(1,376	)		(532	)
Change in receivable from related party for Series A convertible preferred stock		500			—
Net cash provided by (used in) financing activities		(876	)		968
Decrease in cash and cash equivalents		(4,154	)		(405	)
Cash and cash equivalents, beginning of period		8,333			4,943
Cash and cash equivalents, end of period	$	4,179		$	4,538

See accompanying notes to consolidated financial statements.

F-37

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements

(1)   Summary of Significant Accounting Policies

Nature of Operations, Basis of Presentation and Management Representation

Patriot Risk Management, Inc. and its wholly owned subsidiaries (the Company) produce, underwrite and administer alternative market and traditional workers’ compensation insurance plans and provides claims services for insurance companies, segregated portfolio cell captives and reinsurers. Through its wholly owned insurance company subsidiary, Guarantee Insurance, the Company generally participates in a portion of the insurance underwriting risk. In its insurance services segment, the Company generates fee income by providing workers’ compensation claims services as well as agency and underwriting services. Workers’ compensation claims services include nurse case management, cost containment services and, beginning in 2009, claims administration and adjudication services. Workers’ compensation agency and underwriting services include general agency services and, beginning in 2009, specialty underwriting, policy administration and captive management services. Claims services and agency and underwriting services are performed for the benefit of Guarantee Insurance, segregated portfolio captives, Guarantee Insurance’s traditional business quota share reinsurers under the Patriot Risk Services brand and for the benefit of other insurance companies under their brand. In its insurance segment, the Company generates underwriting income and investment income by providing alternative market workers’ compensation risk transfer solutions and traditional workers’ compensation insurance coverage.

The accompanying consolidated financial statements of the Company include the accounts of Patriot Risk Management, Inc., a holding company, and its wholly-owned subsidiaries, which include (i) PRS Group, Inc. and its wholly-owned subsidiaries, Patriot Risk Services, Inc., Patriot Re International, Inc., Patriot Risk Management of Florida, Inc. and Patriot Insurance Management Company, Inc., (ii) Patriot Underwriters, Inc. and its wholly-owned subsidiary, Patriot General Agency, Inc. and (iii) Guarantee Insurance Group, Inc. and its wholly- owned subsidiary, Guarantee Insurance Company (Guarantee Insurance), a property/casualty insurance company. Such statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The Company has evaluated subsequent events through October 30, 2009, the date the financial statements were available to be issued.

On November 26, 2007, the directors of the Company deemed it advisable and in the Company’s best interests to proceed with the steps necessary to effectuate an initial public offering and take such actions necessary to file a Registration Statement on Form S-1 relating to the issuance and sale by the Company of its common stock, including the prospectus contained therein and all required exhibits thereto with the United States Securities and Exchange Commission. The initial public offering was not consummated in 2008 due to the prevailing conditions of the capital markets and, accordingly, the Company wrote off approximately $3.5 million of deferred equity offering costs incurred in connection with its efforts to consummate an initial public offering.

On April 23, 2009, Inter-Atlantic Financial, Inc., a special purpose acquisition corporation incorporated in Delaware (“IAN”), entered into a Stock Purchase Agreement (the “Agreement”) with the Company and its shareholders, pursuant to which IAN agreed to acquire all of the Company’s issued and outstanding capital stock. Among other things, the transaction was conditioned on (i) holders of not more than 29.99% of the shares of common stock issued in IAN’s initial public offering electing to exercise their right to convert their shares into cash and (ii) IAN having a minimum of $35 million in cash at closing, net of capped transaction expenses and IAN share and warrant redemptions. These conditions were not satisfied, the transaction was not consummated and IAN’s corporate existence ceased on October 9, 2009.

On October 1, 2009, the directors of the Company deemed it once again advisable and in the Company’s best interests to proceed with the steps necessary to effectuate an initial public offering and take such actions

F-38

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

necessary to file an amended Registration Statement on Form S-1 relating to the issuance and sale by the Company of its common stock, including the prospectus contained therein and all required exhibits thereto with the United States Securities and Exchange Commission.

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 for a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known and such changes could impact the amounts reported and disclosed herein. The results of operations for the six months ended June 30, 2009 are not necessarily indicative of the results expected for the full year. These financial statements and the notes thereto should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2008 and accompanying notes included herein.

Use of Estimates

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.

The most significant estimates that are susceptible to significant change in the near-term relate to the determination of reserves for losses and loss adjustment expenses. Although considerable variability is inherent in these estimates, management believes that the current estimates are reasonable in all material respects. The estimates are reviewed regularly and adjusted as necessary. Adjustments related to changes in estimates are reflected in the Company’s results of operations in the period in which those estimates changed.

Revenue Recognition

Premiums are earned pro rata over the terms of the policies, which are typically annual. The portion of premiums that will be earned in the future are deferred and reported as unearned premiums. The Company estimates earned but unbilled premiums at the end of each period by analyzing historical earned premium adjustments made and applying an adjustment percentage to premiums earned for the period.

Through PRS Group, Inc., the Company earns insurance services income by providing nurse case management and cost containment services to Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and its quota share reinsurers. Through PRS Group, Inc. and Patriot Underwriters, Inc., the Company also earns insurance services income by providing nurse case management, cost containment, claims administration, sales, underwriting, policy administration and, in certain cases, segregated portfolio cell captive management services to ULLICO Casualty Company, which it refers to as its business process outsourcing or BPO customer.

Insurance service income for nurse case management services is based on a monthly charge per claimant. Insurance service income for cost containment services is based on a percent of claim savings. Insurance services income for claims administration is based on a percentage of gross earned premiums produced for the Company’s BPO customer before deducting premium rate credits attributable to large deductible policies. Insurance services income for sales, underwriting and segregated portfolio cell captive setup , policy administration and captive management services is based on a percentage of gross written premiums produced for the Company’s BPO customer, reduced by an allowance for estimated insurance services income that will not be received due to the cancellation of policies prior to expiration and reductions in payrolls. Insurance

F-39

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

services income for policy administration and captive management is based on a percentage of gross earned premium produced for the Company’s BPO customer.

Insurance services segment income includes all insurance services income earned by PRS Group, Inc. and Patriot Underwriters, Inc. However, the insurance services income earned by PRS Group, Inc. from Guarantee Insurance that is attributable to the portion of the insurance risk that Guarantee Insurance retains or assumes from its BPO customer is eliminated upon consolidation. Therefore, the Company’s consolidated insurance services income consists of the fees earned by Patriot Underwriters, Inc. and the portion of fees earned by PRS Group, Inc. that are attributable to the portion of the insurance risk assumed by the segregated portfolio captives and Guarantee Insurance’s quota share reinsurers and retained by its BPO customer.

Dividend and interest income are recognized when earned. Amortization of premiums and accrual of discounts on investments in debt securities are reflected in earnings over the contractual terms of the investments in a manner that produces a constant effective yield. Realized gains and losses on dispositions of securities are determined by the specific-identification method.

Reserves for Losses and Loss Adjustment Expenses

Loss and loss adjustment expense reserves represent the estimated ultimate cost of all reported and unreported losses incurred through the end of the period. The reserves for unpaid losses and loss adjustment expenses are estimated using individual case-basis valuations and statistical analyses. Management believes that the reserves for losses and loss adjustment expenses are adequate to cover the ultimate cost of losses and loss adjustment expenses thereon. However, because of the uncertainty from various sources, including changes in reporting patterns, claims settlement patterns, judicial decisions, legislation and economic condition, actual loss experience may not conform to the assumptions used in determining the estimated amounts for such liability at the balance sheet date. Loss and loss adjustment expense reserve estimates are periodically reviewed and adjusted as necessary as experience develops or new information becomes known. As adjustments to these estimates become necessary, such adjustments are reflected in current operations.

Estimating liabilities for unpaid claims and reinsurance recoveries for asbestos and environmental claims is subject to significant uncertainties that are generally not present for other types of claims. The ultimate cost of these claims cannot be reasonably estimated using traditional loss estimating techniques. The Company establishes liabilities for reported asbestos and environmental claims, including cost of litigation, as information permits. This information includes the status of current law and coverage litigation, whether an insurable event has occurred, which policies and policy years might be applicable and which insurers may be liable, if any. In addition, incurred but not reported liabilities have been established by management to cover potential additional exposure on both known and unasserted claims. Given the expansion of coverage and liability by the courts and legislatures in the past and the possibilities of similar interpretation in the future, there is significant uncertainty regarding the extent of the insurers’ liability.

In management’s judgment, information currently available has been adequately considered in estimating the Company’s ultimate cost of insured events. However, future changes in these estimates could have a material adverse effect on the Company’s financial condition.

Reinsurance

Reinsurance premiums, losses, and loss adjustment expenses are accounted for on bases consistent with those used in accounting for the underlying policies issued and the terms of the reinsurance contracts.

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

F-40

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

credit risk with respect to the individual reinsurer that participates in its ceded programs to minimize its exposure to significant losses from reinsurer insolvencies. The Company holds collateral as deemed appropriate to secure amounts recoverable from reinsurers.

Income Taxes

The Company files a consolidated federal income tax return. The tax liability of the group is apportioned among the members of the group in accordance with the portion of the consolidated taxable income attributable to each member of the group, as if computed on a separate return. To the extent that the losses of any member of the group are utilized to offset taxable income of another member of the group, the Company takes the appropriate corporate action to “purchase” such losses. To the extent that a member of the group generates any tax credits, such tax credits are allocated to the member generating such tax credits. Deferred income taxes are recorded on the differences between the tax bases of assets and liabilities and the amounts at which they are reported in the financial statements. Deferred income taxes are also recorded for operating loss and tax credit carryforwards. Recorded amounts are adjusted to reflect changes in income tax rates and other tax law provisions as they become enacted and represent management’s best estimate of future income tax expenses or benefits that will ultimately be incurred or recovered. The Company maintains a valuation allowance for any portion of deferred tax assets which management believes it is more likely than not that the Company will be unable to utilize to offset future taxes.

Earnings Per Share

Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of the Company’s outstanding stock options, common shares released from restriction upon the vesting of the Company’s outstanding restricted stock and the impact of common shares issuable upon conversion of preferred stock outstanding.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 141R, “Business Combinations.” SFAS No. 141R is effective for acquisitions during the fiscal years beginning after December 15, 2008 and early adoption is prohibited. This statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Management is reviewing this guidance; however, the effect of the statement’s implementation will depend upon the extent and magnitude of future acquisitions, if any.

In February 2008, the FASB approved the issuance of FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-2 defers the effective date of SFAS No. 157 until January 1, 2009 for non-financial assets and non-financial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. The implementation of this FSP did not have a material impact on the Company’s results of operation or financial position.

In March 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60.” SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. Earlier application is not permitted except for disclosures about the risk-management activities of the insurance

F-41

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

enterprise, which is effective for the first interim period beginning after the issuance of SFAS No. 163. This statement requires an insurance enterprise to recognize a claim liability prior to an insured event when there is evidence that credit deterioration has occurred in an insured financial obligation. This statement also clarifies how FASB Statement No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Finally, this statement requires expanded disclosures about financial guarantee contracts focusing on the insurance enterprise’s risk-management activities in evaluating credit deterioration in its insured financial obligations. The effect of the statement’s implementation was not material to the Company’s results of operations or financial position. As of June 30, 2009, the Company had no financial guarantee contracts that required expanded disclosures under this statement.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP FAS 157-4 provides further clarification of the principles established by SFAS No. 157 for determining the fair values of assets and liabilities in inactive markets and those transacted in distressed situations. FSP 157-4 is effective for periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. Retrospective application is not permitted. The adoption of FSP 157-4 did not have a material impact on the Company’s results of operations or financial position.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP, which is limited to debt securities, provides guidance that aims to make other-than-temporary impairments (“OTTI”) of debt securities more operational and improve the presentation of OTTI in the financial statements. FSP FAS 115-2 and FAS 124-2 is effective for periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 during the period ended June 30, 2009, did not have any impact on the Company’s results of operations or financial position.

In April 2009, the FASB issued FSP 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP 107-1 and APB 28-1 amend FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments,” to require an entity to provide disclosures about fair value of financial instruments in interim financial information. FSP 107-1 and APB 28-1 are effective for periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The adoption of FSP 107-1 and APB 28-1 during the period ended June 30, 2009 did not have a material impact on the Company’s disclosures since its financial instruments are currently carried at fair value.

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

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification^tm and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162”. SFAS No. 168 establishes the FASB Accounting Standard Codification^tm (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States (U.S. GAAP). All guidance contained in the Codification carries an equal level of authority. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. On the effective date of SFAS No. 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification

F-42

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

will become nonauthoritative. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of SFAS No. 168 will have no impact on the Company’s results of operations or financial position.

(2)   Investments

The Company classifies its debt securities as available for sale. In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, debt securities at June 30, 2009 and December 31, 2008 were stated at estimated fair value, with net unrealized gains and losses included in accumulated other comprehensive income net of deferred income taxes.

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of debt securities available for sale at June 30, 2009 and December 31, 2008 are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
June 30, 2009	Cost		Gains		Losses		Fair Value
	(In thousands)
	(Unaudited)
U.S. government securities	$	3,973	$	141	$	—	$	4,114
U.S. government agencies		300		9		—		309
Asset-backed and mortgage-backed securities		13,383		208		447		13,144
State and political subdivisions		16,944		802		5		17,741
Corporate securities		11,513		275		16		11,772
	$	46,113	$	1,435	$	468	$	47,080

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
December 31, 2008	Cost		Gains		Losses		Fair Value
			(In thousands)
U.S. government securities	$	3,981	$	247	$	—	$	4,228
U.S. government agencies		300		11		—		311
Asset-backed and mortgage-backed securities		16,128		806		617		16,317
State and political subdivisions		23,058		867		11		23,914
Corporate securities		9,745		72		214		9,603
	$	53,212	$	2,003	$	842	$	54,373

F-43

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The estimated fair value and gross unrealized losses on debt securities available for sale, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position, as of June 30, 2009 and December 31, 2008 are as follows:

	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
June 30, 2009	Value		Losses		Value		Losses		Value		Losses
	(In thousands, except numbers of securities data)
	(Unaudited)
U.S. government securities	$	—	$	—	$	—	$	—	$	—	$	—
U.S. government agencies		—		—		—		—		—		—
Asset-backed and mortgage-backed securities		3,189		22		2,663		425		5,852		447
State and political subdivisions		671		4		—		—		671		4
Corporate securities		247		3		2,146		14		2,393		17
Total	$	4,107	$	29	$	4,809	$	439	$	8,916	$	468
Total number of securities in an unrealized loss position				8				17				25

	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2008	Value		Losses		Value		Losses		Value		Losses
	(In thousands, except numbers of securities data)
U.S. government securities	$	—	$	—	$	—	$	—	$	—	$	—
U.S. government agencies		—		—		—		—		—		—
Asset-backed and mortgage-backed securities		3,598		518		359		99		3,957		617
State and political subdivisions		745		11		—		—		745		11
Corporate securities		6,882		214		—		—		6,882		214
Total	$	11,224	$	742	$	359	$	99	$	11,583	$	842
Total number of securities in an unrealized loss position				42				3				45

Of the 25 debt securities available for sale in an unrealized loss position as of June 30, 2009, 4 securities had fair values between 80% and 85% of amortized cost, 2 securities had fair values between 85% and 95% of amortized cost and the remaining 19 securities had fair values of at least 95% of amortized cost. The Company does not intend to sell, nor is it more likely than not to be required to sell, these debt securities. In addition, the Company expects to fully recover the amortized cost of these securities when they mature or are called. All debt securities available for sale in an unrealized loss position as of June 30, 2009 were considered investment grade, which the Company defines as having a Standard & Poors’ credit rating of BBB or above.

F-44

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The estimated fair value of debt securities available for sale as of June 30, 2009 by contractual maturity were as follows:

	Estimated
	Fair Value
	(In thousands)
	Unaudited
Due in one year or less	$	4,351
Due after one year through five years		20,457
Due after five years		9,128
		33,936
Asset-backed and mortgage-backed securities		13,144
	$	47,080

Short-term investments, which represent certain debt securities with initial maturities of one year or less, are carried at cost, which approximates fair value. Real estate held for the production of income is carried at cost net of accumulated depreciation of $24,000 and $22,000 as of June 30, 2009 and December 31, 2008, respectively.

(3)   Fair Value Measurements

The Company adopted the financial assets and financial liabilities provisions of SFAS No. 157, “Fair Value Measurements”, effective January 1, 2008. The adoption of these provisions did not have any impact on the Company’s consolidated financial condition or results of operations, but resulted in expanded disclosures about securities measured at fair value, as discussed below.

The Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”, effective January 1, 2008. The Company did not elect the fair value option for existing eligible items under SFAS No. 159 and, accordingly, adoption of the provisions of SFAS No. 159 had no effect on our consolidated financial condition or results of operations.

SFAS No. 157 establishes a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (Observable Units) and the reporting entity’s own assumptions about market participants’ assumptions (Unobservable Units). The hierarchy level assigned to each security in the Company’s available-for-sale debt and equity securities portfolio is based upon the Company’s assessment of the transparency and reliability of the inputs used in the valuation as of the measurement date. The three hierarchy levels are as follows:

	Definition
Level 1	Observable unadjusted quoted prices in active markets for identical securities
Level 2	Observable inputs other than quoted prices in active markets for identical securities, including:
	(i) quoted prices in active markets for similar securities,
	(ii) quoted prices for identical or similar securities in markets that are not active,
	(iii) inputs other than quoted prices that are observable for the security (e.g. interest rates, yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, credit risks and default rates, and
	(iv) inputs derived from or corroborated by observable market data by correlation or other means
Level 3	Unobservable inputs, including the reporting entity’s own data, as long as there is no contrary data indicating market participants would use different assumptions

F-45

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The fair values of the Company’s debt securities available for sale as of June 30, 2009 were based on market values obtained from an independent pricing service performed by the Company’s independent investment portfolio manager. Market values are evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well-established independent broker-dealers. The independent pricing service monitors market indicators, industry and economic events and, for broker-quoted only securities, obtains quotes from market makers or broker-dealers that it recognizes to be market participants. The Company’s independent investment portfolio manager maintains a Pricing Committee, which establishes a tolerance percentage change in security prices from the end of the prior month. Securities priced outside the tolerance percentage and securities with valuations resulting in negative yields are reviewed by asset class specialists for the Company’s independent investment portfolio manager to affirm that the valuations are appropriate or, if a change is warranted, to provide the rationale and supporting documentation for the change. Management reviews the appropriateness of the valuations determined by the Company’s independent investment portfolio manager.

The Company’s debt and equity securities available for sale, short-term investments, real estate held for the production of income, premiums receivable, reinsurance recoverable on paid losses, notes payable and subordinated debentures constitute financial instruments. The carrying amounts of all financial instruments approximated their fair values as of June 30, 2009 and December 31, 2008. The Company’s debt securities available for sale, classified by the SFAS No. 157 valuation hierarchy, as of June 30, 2009 and December 31, 2008 were as follows:

	Fair Value Measurement, Using
	Quoted
	Prices
	In Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Securities		Inputs		Inputs
June 30, 2009	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
	(Unaudited)
U.S. government securities	$	3,855	$	258	$	—	$	4,113
U.S. government agencies		—		309		—		309
Asset-backed and mortgage-backed securities		—		13,144		—		13,144
State and political subdivisions		—		17,742		—		17,742
Corporate securities		—		11,772		—		11,772
	$	3,855	$	43,225	$	—	$	47,080

F-46

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

	Fair Value Measurement, Using
	Quoted
	Prices
	In Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Securities		Inputs		Inputs
December 31, 2008	(Level 1)		(Level 2)		(Level 3)		Total
			(In thousands)
U.S. government securities	$	3,968	$	260	$	—	$	4,228
U.S. government agencies		—		311		—		311
Asset-backed and mortgage-backed securities		—		16,317		—		16,317
State and political subdivisions		—		23,914		—		23,914
Corporate securities		—		9,603		—		9,603
Total debt securities	$	3,968	$	50,405	$	—	$	54,373
Equity securities		222		—		—		222
	$	4,190	$	50,405	$	—	$	54,595

For all other financial instruments, carrying value approximated fair value at June 30, 2009 and December 31, 2008.

(4)   Notes Payable and Subordinated Debentures

Effective March 30, 2006, the Company entered into a loan agreement for $8.7 million with an interest rate of prime plus 4.5% (effectively 7.75% at June 30, 2009). In September 2007, the Company borrowed an additional $5.7 million from the same lender under the same interest rate terms as the loan taken in 2006. The principal balance and accrued interest associated with this loan at June 30, 2009 were approximately $11.8 million and $38,000, respectively. Principal and interest payments, which are made monthly, were approximately $185,000 at June 30, 2009.

Effective December 31, 2008, the Company entered into a loan agreement for $5.4 million with an interest rate of prime plus 4.5% (effectively 7.75% at June 30, 2009). The proceeds of the loan, net of loan fees, totaled approximately $5.0 million and were used to provide $2.1 million of additional surplus to Guarantee Insurance and settle an intercompany payable to Guarantee Insurance of $2.9 million. The principal balance and accrued interest associated with this loan at June 30, 2009 were approximately $5.2 million and $16,000, respectively. Principal and interest payments are made monthly and are approximately $81,000 at June 30, 2009.

Due to the variable rate, the principal and interest payment on these loans may change. These loans are secured by a first lien on all of the assets of Patriot Risk Management, Inc., PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Underwriters, Inc. and Patriot Risk Management of Florida, Inc. Additionally, these loans are guaranteed by the Company’s Chairman, President, Chief Executive Officer and the beneficial owner of a majority of the Company’s outstanding shares. The loans have financial covenants requiring that the Company maintain consolidated GAAP stockholders’ equity of at least $5.5 million and that Guarantee Insurance maintain GAAP equity of at least $14.5 million. The Company was in compliance with these covenants at June 30, 2009.

Effective June 26, 2008, the Company entered into a loan agreement for $1.5 million from its Chairman, President, Chief Executive Officer and the beneficial owner of a majority of the Company’s outstanding shares with an interest rate of prime plus 3% (6.25% at June 30, 2009). The proceeds of the loan, net of loan fees, totaled approximately $1.3 million and were used to provide additional surplus to Guarantee Insurance. The principal balance of the loan is payable on demand by the lender, subject to the cash flow requirements of the

F-47

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Company. The Company makes monthly interest payments of approximately $7,000 on the loan. In January 2009, the Company made a $50,000 principal payment on the loan and began making $25,000 monthly principal payments beginning in February 2009. In addition, the Company made a $200,000 principal payment on the loan in May 2009. The principal balance and accrued interest associated with this loan at June 30, 2009 were approximately $1.1 million and $1,000, respectively.

Between July and August 2004, Guarantee Insurance issued five fully subordinated surplus notes totaling $1.3 million. The surplus notes have stated maturities of five years and an interest rate of 3%. No payments of principal or interest may be made on these surplus notes unless either (i) the total adjusted capital and surplus of Guarantee Insurance exceeds 400% of the authorized control level risk-based capital stated in Guarantee Insurance’s most recent annual statement filed with the appropriate state regulators or (ii) the Company obtains regulatory approval to make such payments. The principal balance and accrued interest on these surplus notes at June 30, 2009 were approximately $1.2 million and $172,000, respectively.

During 2005, the Company issued subordinated debentures totaling $2.0 million. The debentures had an original term of three years and bear interest at the rate of 3% compounded annually. The debentures are subject to renewal on the same terms and conditions at the end of the term. Debentures with an aggregate principal balance of approximately $1.6 million were renewed upon the expiration of their original term. The principal balance and accrued interest on these debentures at June 30, 2009 were approximately $1.6 million and $199,000, respectively.

(5)   Business Process Outsourcing

During the second quarter of 2009, the Company entered into an agreement with its BPO customer to gain access to workers’ compensation insurance business in certain additional states, including California and Texas. Under this agreement, the Company earns fee income, which is included in insurance services income in the Company’s consolidated statements of income, for the following services:

•  Producing and underwriting, for which insurance services income is based on a percentage of gross written premiums produced for its BPO customer, reduced by an allowance for estimated insurance services income that will not be received due to the cancellation of policies prior to expiration and reductions in payrolls,

•  Administering the policies and, in certain cases, managing a segregated portfolio cell captive, for which insurance services income is based on a percentage of gross earned premiums produced for its BPO customer,

•  Administering the claims, for which insurance services income is based on a percentage of gross earned premiums produced for its BPO customer before deducting premium rate credits attributable to large deductible policies,

•  Providing nurse case management services, for which insurance services income is based on a monthly charge per claimant, and

•  Providing cost containment services, for which insurance services income is based on a percentage of claims savings

Expenses incurred in connection with this agreement with the Company’s BPO customer are principally comprised of (i) commissions to retail agencies and sales and underwriting costs, which are recognized in the period incurred, (ii) policy administration costs, which are recognized on a pro rata basis over the terms of the policies, which are typically annual, and (iii) claims administration, nurse case management and cost containment costs, which are expensed as incurred. All such expenses are included in other operating expenses in the Company’s consolidated statements of income.

F-48

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Additionally, the Company assumes a portion of the premium and associated losses and loss adjustment expenses on the business it produces for its BPO customer as described in Note 6.

For the six months ended June 30, 2009, gross written premiums produced for the Company’s BPO customer, gross of approximately $2.2 million of premium rate credits attributable to large deductible policies, were approximately $8.9 million. For the six months ended June 30, 2009, gross earned premiums produced for the Company’s BPO customer , gross of approximately $152,000 of premium rate credits attributable to large deductible policies, were approximately $1.0 million.

(6)   Reinsurance

Assumed Reinsurance

During the second quarter of 2009, the Company began providing general agency, underwriting and claims services to its BPO customer . On business produced during the second quarter of 2009, the Company assumed up to 90% of the risk on these policies, as mutually determined by the parties for each policy. For the six months ended June 30, 2009, the Company has assumed approximately $3.9 million of the business produced for its BPO customer. The Company incurs fronting fees in connection with business assumed from its BPO customer, which are recognized on a pro rata basis over the terms of the policies, which are typically annual, and are included in net policy acquisition and underwriting expenses in the Company’s consolidated statements of income. Additionally, the Company assumed certain business in connection with its participation in the National Council on Compensation Insurance, Inc. National Workers’ Compensation Insurance Pool for the six months ended June 30, 2009 and 2008.

Ceded Reinsurance

To reduce the Company’s exposure to losses from events that cause unfavorable underwriting results, the Company reinsures certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers under quota share and excess of loss agreements. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies.

Quota Share Reinsurance

With respect to traditional business, quota share reinsurance agreements in effect for the six months ended June 30, 2009 were comprised of (i) an agreement to cede 25.0% of premiums written in all states and (ii) an agreement to cede 68.0% of premiums written in Florida, New Jersey and Georgia, which comprised approximately 54% of the Company’s total traditional business gross premiums written for the six months ended June 30, 2009. In addition, the Company entered into a quota share agreement pursuant to which it ceded approximately $12.9 million of gross unearned premium reserves as of December 31, 2008, a pro rata portion of which were earned during the six months ended June 30, 2009. The Company had one quota share reinsurance agreement in effect for the six months ended June 30, 2008 to cede 50.0% of premiums written in all states except South Carolina, Georgia and Indiana. Pursuant to its traditional business quota share agreements for both periods, the Company ceded a pro rata portion of losses and certain loss adjustment expenses up to $500,000 per occurrence.

With respect to alternative market business involving a segregated portfolio captive risk sharing arrangement, the Company ceded approximately 71% of premiums and losses and loss adjustment expenses to the segregated portfolios captive reinsurers for the six months ended June 30, 2009, with individual cession rates ranging from 50% to 90%. The Company ceded approximately 86% of premiums and losses and loss adjustment expenses to the segregated portfolio captive reinsurers for the six months ended June 30, 2008.

F-49

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Excess of Loss Reinsurance

Pursuant to separate excess of loss reinsurance agreements for the Company’s traditional and alternative market business, Guarantee Insurance cedes 100% of losses up to $4.0 million in excess of $1.0 million per occurrence. Pursuant to excess of loss reinsurance agreements covering both traditional and alternative market business, Guarantee Insurance cedes 100% of losses up to $15 million in excess of $5 million per occurrence.

Effects of Reinsurance

Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company maintained an allowance for uncollectible reinsurance recoverable balances of $300,000 at June 30, 2009 and December 31, 2008. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risks arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.

The effects of reinsurance on premiums written and earned are as follows:

	Six Months Ended June 30,
	2009						2008
	Written			Earned			Written			Earned
	Unaudited
Direct premiums	$	57,402		$	47,502		$	69,148		$	42,461
Assumed premiums		5,153			1,603			584			578
Direct and assumed premiums		62,555			49,105			69,732			43,039
Ceded premiums		(30,789	)		(27,335	)		(40,438	)		(22,935	)
Net premiums	$	31,766		$	21,770		$	29,294		$	20,104

In addition to reinsurance, the Company also reduces its exposure to losses from events that cause unfavorable underwriting results through the use of large deductible policies, which it defines as policies with a deductible of at least $250,000 per occurrence. Premiums on large deductible policies are substantially reduced, through premium rate credits, due to the fact that the Company has no exposure to losses below the per occurrence deductible. However, through PRS Group, Inc., the Company earns certain insurance services income from Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and its quota share reinsurers, on all managed claims irrespective of deductible. For the six months ended June 30, 2009 and 2008, direct premiums written were net of premium rate credits attributable to large deductible policies of approximately $6.5 million and $6.2 million, respectively. For the six months ended June 30, 2009 and 2008, direct premiums earned were net of premium rate credits attributable to large deductible policies of approximately $2.1 million and $3.3 million, respectively.

(7)   Net Losses and Loss Adjustment Expenses

For the six months ended June 30, 2009, the Company recorded unfavorable development of approximately $1.6 million on its workers’ compensation business, primarily attributable to the 2007 accident year and, more specifically, two individual losses incurred in 2007 for which case reserves were increased by a total of approximately $900,000 during the six months ended June 30, 2009 in connection with the Company’s reassessment of the life care plans on these claims. Additionally, for the six months ended June 30, 2009, the Company recorded unfavorable development of approximately $280,000 on its legacy asbestos and environmental exposures and commercial general liability exposures from prior accident years. For the six months ended June 30, 2008, the Company recorded unfavorable development of approximately $175,000 on its

F-50

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

workers’ compensation business and approximately $700,000 on its legacy asbestos and environmental exposures and commercial general liability exposures from prior accident years.

(8)   Share-Based Compensation Plan

In 2005, the Company approved a share-based compensation plan (Plan). The Plan authorized a company stock option plan, pursuant to which stock options may be granted to executive management to purchase up to 240,000 shares of Series A common stock and to the board of directors to purchase up to 75,000 shares of Series A common stock.

The following is a summary of the Company’s stock option activity and related information for the six months ended June 30, 2009:

			Weighted
			Average
	Number of		Exercise
	Options		Price
	(In thousands)
	Unaudited
Options outstanding, December 31, 2008		163	$	7.37
Options outstanding, June 30, 2009		163	$	7.37
Options exercisable, June 30, 2009		146	$	7.30

In connection with its share-based compensation plan, the Company recognized compensation expense of $51,000 and $146,000 for the six months ended June 30, 2009 and 2008, respectively, pursuant to SFAS No. 123(R).

(9)   Income Taxes

The Company’s actual income tax rates, expressed as a percent of net income before income tax expense, vary from statutory federal income tax rates due to the following:

	Six Months Ended June 30,
	2009						2008
	Amount			Rate			Amount			Rate
	Unaudited
Income before income tax expense	$	2,789					$	1,958
Income tax at statutory rate	$	948			34.0	)%	$	666			34.0	%
Tax effect of:
Tax exempt investment income		(110	)		(3.9	)		(169	)		(8.6	)
Change in reserve for uncertain tax positions		—						(290	)		(14.8	)
Other items, net		185			6.6	)		43			2.2
Actual income tax rate	$	1,023			36.7	)%	$	250			12.8	%

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting and financial reporting for uncertain tax positions. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition, measurement and presentation of uncertain tax positions taken or expected to be taken in an income tax return. The Company adopted the provisions of FIN 48 effective January 1, 2007. Reserves for uncertain tax positions as of both June 30, 2009 and December 31, 2008 associated with FIN 48 were approximately $421,000. Accrued interest and penalties related to uncertain tax positions as of June 30, 2009 and December 31, 2008 were not material.

F-51

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(10)   Capital, Surplus and Dividend Restrictions

At the time the Company acquired Guarantee Insurance, it had a large statutory accumulated deficit. At June 30, 2009, Guarantee Insurance’s statutory accumulated deficit was approximately $95.2 million. Under Florida law, insurance companies may only pay dividends out of available and accumulated surplus funds derived from realized net operating profits on their business and net realized capital gains, except under limited circumstances with the prior approval of the Florida OIR. Moreover, pursuant to a consent order issued by Florida OIR on December 29, 2007 in connection with the redomestication of Guarantee Insurance from South Carolina to Florida, the Company is prohibited from paying dividends, without Florida OIR approval, until December 29, 2009. Therefore, it is unlikely that Guarantee Insurance will be able to pay dividends for the foreseeable future without the prior approval of the Florida OIR. No dividends were paid for the six months ended June 30, 2009 and 2008.

Guarantee Insurance is required to periodically submit financial statements prepared in accordance with prescribed or permitted statutory accounting practices (SAP) to the Florida OIR. Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC). Permitted SAP encompasses all accounting practices that are not prescribed; such practices may differ from company to company and may not necessarily be permitted in subsequent reporting periods. Guarantee Insurance has no permitted accounting practices. SAP varies from GAAP. Guarantee Insurance’s SAP surplus as regards policyholders was $16.9 million at June 30, 2009. Pursuant to the Florida OIR December 29, 2007 consent order, Guarantee Insurance is required to maintain a minimum capital and surplus of $9.0 million or 10% of its total liabilities excluding taxes, expenses and other obligations due or accrued. At June 30, 2009, 10% of Guarantee Insurance’s total liabilities excluding taxes, expenses and other obligations due or accrued were approximately $11.0 million.

Insurance companies are subject to certain Risk-Based Capital (RBC) requirements as specified by the Florida insurance laws. Under RBC requirements, the amount of capital and surplus maintained by a property and casualty insurance company is determined based on the various risk factors related to it. At December 31, 2008 the Company’s adjusted statutory capital and surplus exceeded authorized control level risk based capital.

(11)   Segment Reporting

The Company operates two business segments — insurance services and insurance. Intersegment revenue is eliminated upon consolidation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

In the insurance services segment, the Company principally provides nurse case management and cost containment services, currently to Guarantee Insurance, the segregated portfolio captives and its quota share reinsurer. The fees earned in the insurance services segment from Guarantee Insurance, attributable to the portion of the insurance risk it retains, are eliminated upon consolidation. Beginning in the second quarter of 2009, the Company also began providing general agency, underwriting and claims services to other insurance companies.

In the insurance segment, the Company provides workers’ compensation policies to businesses. These products include alternative market workers’ compensation insurance solutions — principally, segregated portfolio cell captive insurance arrangements and high deductible and retrospectively rated plans — and traditional guaranteed cost workers’ compensation plans.

Certain other operating expenses incurred by Patriot Risk Management, Inc. are allocated to the insurance services and insurance segments based on management’s estimate of the applicability of these expenses to the

F-52

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

segments’ operating results. It would be impracticable for the Company to determine the allocation of assets between the two segments. Business segment results are as follows:

	Six Months Ended June 30,
	2009			2008
	Unaudited
Revenues
Insurance services segment — insurance services income	$	7,198		$	5,833
Insurance segment:
Premiums earned		21,770			20,104
Net investment income		920			980
Net realized gains on investments		743			56
Insurance segment revenues		23,433			21,140
Intersegment revenues		(3,411	)		(2,825	)
Consolidated revenues	$	27,220		$	24,148
Pre-tax net income (loss)
Insurance services segment	$	3,023		$	2,078
Insurance segment		1,286			1,083
Non-allocated items		(1,520	)		(1,203	)
Consolidated pre-tax net income	$	2,789		$	1,958
Net income (loss)
Insurance services segment	$	1,990		$	1,368
Insurance segment		801			1,134
Non-allocated items		(1,025	)		(794	)
Consolidated net income	$	1,766		$	1,708

Items not allocated to segments’ pre-tax net income include the following:

	Six Months Ended June 30,
	2009			2008
	Unaudited
Holding company expenses	$	(785	)	$	(478	)
Interest expense		(735	)		(725	)
Total unallocated items before income tax benefit		(1,520	)		(1,203	)
Income tax benefit on unallocated items		(495	)		(409	)
Total unallocated items	$	(1,025	)	$	(794	)

(12)   Commitments and Contingencies

In October 2008, the Company cancelled its policy with its then largest policyholder, Progressive Employer Services (PES), for non-payment of premium and duplicate coverage. For the nine months ended September 30, 2008 and the year ended December 31, 2007, approximately 16% and 15% of Patriot’s direct premiums written, respectively, were attributable to PES. PES is a company controlled by Steve Herrig, an individual who, as of December 31, 2008, beneficially owned shares of the Company through Westwind

F-53

Patriot Risk Management, Inc. and Its Wholly Owned Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Holding Company, LLC (Westwind), a company controlled and operated by Mr. Herrig. Westwind’s stock ownership represented approximately 15.8% of the Company’s outstanding common stock. Most of PES’ employees are located in Florida, where workers compensation insurance premium rates are established by the state. Premiums owing from PES totaled approximately $8.3 million as of June 30, 2009. The Company has filed a lawsuit against PES to collect these amounts due and owing.

Pursuant to the offset provisions of its reinsurance agreement with Westwind, the Company has the right to access certain collateral pledged by Westwind to offset premium and other amounts owed by PES and Westwind to Guarantee, including funds held under certain reinsurance treaties. These amounts totaled approximately $3.3 million as of June 30, 2009. Additionally, pursuant to a Note Offset and Call Option Agreement with Westwind, the Company had the right to collateral in the form of the Company’s common shares owned by Westwind in the event it fails to adequately fund its segregated portfolio cell captive. On March 31, 2009, the Company determined that this segregated portfolio cell captive was underfunded and, accordingly, exercised its right to call the Company’s common stock held by Westwind.

On November 8, 2008, PES asserted a series of counter-claims against the Company alleging that it owes PES a dividend from its segregated portfolio cell captive, that it did not properly provide reports to PES, various breach of contract claims and allegations that the Company paid too much money to contain claim costs or otherwise resolve claims. On May 11, 2009, Westwind filed a lawsuit against the Company under causes of action of conversion and breach of contract to unwind or otherwise recover the stock obtained by the Company when it exercised its rights under the Note Offset and Call Option Agreement.

The Company has not accrued any allowance for uncollectible premiums owing from PES, nor has it accrued any liabilities related to the counter claims or lawsuit against it. The outcome of these matters cannot be determined with any reasonable certainty, and the Company intends to vigorously pursue collection of premiums owing from PES and defend itself against the counter claims and lawsuit.

In connection with business assumed by the Company from its BPO customer as discussed in Note 6, the Company will provide collateral, in the form of cash, letters of credit or other forms of acceptable collateral, as required by the reinsurance agreement. No collateral was required as of June 30, 2009.

In the normal course of business, the Company may be party to various legal actions, which the Company believes will not result in any material effect on the Company’s financial position or results of operations. The Company is named as a defendant in various legal actions arising principally from claims made under insurance policies and contracts. Those actions are considered by the Company in estimating the losses and loss adjustment expense reserves. Management believes that the resolution of those actions will not have a material effect on the Company’s financial position or results of operations.

F-54

Until          , 2010 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to unsold allotments or subscriptions.

You may rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell, or soliciting an offer to buy, these securities in any circumstances in which such offer or solicitation is unlawful. The information appearing in this prospectus is accurate only as of the date of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date, and neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that the information contained in this prospectus is correct as of any time after its date.

[          ] Shares

Common Stock

PROSPECTUS

FBR Capital Markets

     , 2009.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.   Other Expenses of Issuance and Distribution.

The table below sets forth the costs and expenses payable by Patriot in connection with the issuance and distribution of the securities being registered (other than underwriting discounts and commissions). All amounts are estimated except the SEC registration fee. All costs and expenses are payable by Patriot.

SEC Registration Fee	$	7,457.18
FINRA Filing Fees		12,000.00
New York Stock Exchange Listing Fee		12,500.00
Legal Fees and Expenses		*
Accounting Fees and Expenses		*
Transfer Agent and Registrar Fees		*
Printing and Engraving Expenses		*
Blue Sky Fees and Expenses		*
Miscellaneous Expenses		*
Total		*

* To be supplied by amendment.

Item 14.   Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to officers, directors and other corporate agents in terms sufficiently broad to permit such indemnification under certain circumstances and subject to certain limitations.

The registrant’s certificate of incorporation and bylaws provide that the registrant shall indemnify its directors and officers, and may indemnify its employees and agents, to the fullest extent permitted by Delaware law, including in circumstances in which indemnification is otherwise discretionary under Delaware law.

In addition, the registrant has entered into separate indemnification agreements with its directors and executive officers which require the registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status as directors or officers. The registrant also maintains director and officer liability insurance.

These indemnification provisions may be sufficiently broad to permit indemnification of the registrant’s officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the registrant and its officers and directors for certain liabilities, including certain liabilities under the Securities Act.

Item 15.   Recent Sales of Unregistered Securities.

The following sets forth information regarding securities sold by the registrant during the past three years:

1. Since February 2005, the registrant has issued to directors, officers, employees and consultants options to purchase [     ] of shares of common stock with per share exercise prices ranging from $[     ] to $[     ], and has issued [     ] shares of common stock in stock grants to directors with an aggregate value of $[     ].

II-1

2. In December 2008, the registrant issued 1,000 shares of Series A convertible preferred stock to five investors for total cash consideration of $1 million.

The issuance of securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or, in the case of the options referenced in Paragraph 1 above, Rule 701 under the Securities Act. The recipients of securities in each transaction exempt under Section 4(2) of the Securities Act represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and other instruments issued in each such transaction. The sales of these securities were made without general solicitation or advertising and without the involvement of any underwriter.

Item 16.   Exhibits and Financial Statement Schedules.

(a) Exhibits.

Exhibit
No.			Description of Exhibit
	1	.1	Form of Underwriting Agreement*
	3	.1	Amended and Restated Certificate of Incorporation of the Registrant**
	3	.2	Amended and Restated Bylaws of the Registrant**
	3	.3	Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock
	4	.3	Form of Guarantee Insurance Company’s Surplus Notes**
	4	.4	Form of Registrant’s Subordinated Debentures**
	4	.5	Form of Registrant’s Warrant to Purchase Common Stock**
	5	.1	Opinion of Locke Lord Bissell & Liddell LLP*
	10	.1	Employment Agreement between the Registrant and Steven M. Mariano**
	10	.2	Offer Letter to Theodore G. Bryant dated November 17, 2006**
	10	.3	Second Amended and Restated Employment Agreement dated as of July 10, 2009 between the Registrant and Theodore G. Bryant
	10	.4	Offer Letter to Timothy J. Ermatinger dated August 1, 2007**
	10	.5	Employment Agreement between the Registrant and Timothy J. Ermatinger**
	10	.6	Employment Agreement, dated as of February 11, 2008, between the Registrant and Michael W. Grandstaff**
	10	.7	2005 Stock Option Plan**
	10	.8	Form of Option Award Agreement for 2005 Stock Option Plan**
	10	.9	2006 Stock Option Plan**
	10	.10	Form of Option Award Agreement for 2006 Stock Option Plan**
	10	.11	2009 Stock Incentive Plan*
	10	.12	Form of Option Award Agreement for 2009 Stock Incentive Plan*
	10	.13	Commercial Loan Agreement, Addendum to Commercial Loan Agreement and Consent in relation to Addendum to Commercial Loan Agreement dated March 30, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.**
	10	.14	Commercial Promissory Note and Addendum A to Promissory Note dated March 30, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.**
	10	.15	Commercial Security Agreement and Addendum A to Commercial Security Agreement dated March 30, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.**
	10	.16	Extension of Security Agreement dated March 30, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.**

II-2

Exhibit
No.			Description of Exhibit
	10	.17	Stock Pledge Agreement dated March 30, 2006 between Brooke Credit Corporation and Brandywine Insurance Holdings, Inc.**
	10	.18	Irrevocable Proxy undated by Brandywine Insurance Holdings, Inc. appointing Brooke Credit Corporation**
	10	.19	Irrevocable Proxy undated by Registrant appointing Brooke Credit Corporation**
	10	.20	Guaranty and Addendum A to Guaranty dated March 30, 2006 between Brooke Credit Corporation and Steven M. Mariano**
	10	.21	Amendment to Commercial Loan Agreement (Including Joinder of Additional Borrowers) dated September 27, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc., Patriot Risk Services, SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.22	Commercial Promissory Note dated September 27, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc., Patriot Risk Services, SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.23	Form of Commercial Security Agreement dated September 27, 2006 between Brooke Credit Corporation and SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.24	Form of Extension of Security Agreement dated September 27, 2006 between Brooke Credit Corporation and SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.25	Second Amendment to Commercial Loan Agreement dated November 16, 2006, among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc., Patriot Risk Services, SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.26	Third Amendment to Commercial Loan Agreement dated February 19, 2008, among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc., Patriot Risk Services, SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.27	Fourth Amendment to Commercial Loan Agreement dated October 1, 2008, among Aleritas Capital Corporation, the Registrant, Guarantee Insurance Group, Patriot Risk Services, SunCoast Capital, Inc., PRS Group, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.28	Workers’ Compensation Excess of Loss Reinsurance Agreement GIC-001/2007 between Guarantee Insurance Company and National Indemnity Insurance Company**
	10	.29	Workers’ Compensation Excess of Loss Reinsurance Agreement GIC-002/2007 between Guarantee Insurance Company and Midwest Employers Casualty Company**
	10	.30	Workers’ Compensation Excess of Loss Reinsurance Agreement GIC-003/2007 between Guarantee Insurance Company, as Cedent, and Max Re, Ltd., Aspen Insurance UK Limited and Various Underwriters at Lloyds, as Reinsurers**
	10	.31	Workers’ Compensation Excess of Loss Reinsurance Agreement between Guarantee Insurance Company, as Cedent, and Aspen Insurance UK Limited and Various Underwriters at Lloyds, as Reinsurers**
	10	.32	Quota Share Reinsurance Agreement GIC-005/2007 between Guarantee Insurance Company and National Indemnity Insurance Company**
	10	.40	Third Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and Max Bermuda, Ltd., Tokio Millennium Reinsurance Limited, Aspen Insurance UK Limited and Various Underwriters at Lloyd’s London as Reinsurers**
	10	.41	Purchase and Sale Agreement dated January 1, 2006 between The Tarheel Group, Inc., Tarheel Insurance Management Company and the Registrant**
	10	.42	Promissory Note dated June 13, 2006 between The Tarheel Group, Inc. and the Registrant**
	10	.43	Personal Guaranty of Promissory Note dated June 13, 2006 between the Registrant and Steven M. Mariano**

II-3

Exhibit
No.			Description of Exhibit
	10	.44	Contribution Agreement dated April 20, 2007 between Steven M. Mariano and the Registrant**
	10	.45	Form of Director and Officer Indemnification Agreement**
	10	.46	Settlement Stipulation and Release dated June 28, 2007 among Foundation Insurance Company, Steven M. Mariano, New Pacific International, Inc. and Peterson, Goldman & Villani, Inc.**
	10	.47	Stock Pledge Agreement between Brooke Credit Corporation and the Registrant**
	10	.48	Promissory Note dated June 26, 2008, as amended and restated on June 16, 2009 between the Registrant and Steven M. Mariano
	10	.49	Workers’ Compensation Quota Share Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and National Indemnity Company and Swiss Reinsurance America Corporation as Reinsurers**
	10	.50	Traditional Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and Midwest Employers Casualty Company as Reinsurer**
	10	.51	Alternative Market Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and National Indemnity Company as Reinsurer**
	10	.52	Second Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and Max Bermuda, Ltd., Aspen Insurance UK Limited and Various Underwriters at Lloyd’s London as Reinsurers**
	10	.53	Employment Agreement, dated September 29, 2008, between the Registrant and Richard G. Turner**
	10	.54	Employment Agreement, dated September 29, 2008, between the Registrant and Charles K. Schuver**
	10	.55	First Amendment to Employment Agreement, dated September 26, 2008, between the Registrant and Steven M. Mariano**
	10	.57	Amendment No. 1 to the 2005 Stock Option Plan**
	10	.58	Amendment No. 2 to the 2005 Stock Option Plan**
	10	.59	Amendment No. 1 to the 2006 Stock Option Plan**
	10	.60	Amendment No. 2 to the 2006 Stock Option Plan**
	10	.61	Workers’ Compensation Quota Share Reinsurance Contract, effective December 31, 2008, between Guarantee Insurance Company and Harco National Insurance Company*
	10	.62	Traditional Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company as cedant and Maiden Re, Max Re, Ullico Casualty and various underwriters at Lloyd’s London as reinsurers*
	10	.63	Alternative Market Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company as cedant and National Fire & Liability and Ullico Casualty as reinsurers*
	10	.64	Second Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company and Aspen Insurance UK Limited, Hannover Re, and certain other reinsurers*
	10	.65	Workers’ Compensation Catastrophe Excess of Loss Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company as cedant and Max Re Bermuda, Tokio Millennium Re, Aspen Re UK, Hannover Re and various underwriters at Lloyd’s London as reinsurers*
	10	.66	Traditional Workers’ Compensation Quota Share Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company and Swiss Re*
	10	.67	Traditional Workers Compensation Quota Share Reinsurance Contract for Florida, Georgia and New Jersey, between Guarantee Insurance Company as cedant and ULLICO Casualty Company as reinsurer

II-4

Exhibit
No.			Description of Exhibit
	10	.68	Commercial Loan Agreement dated December 31, 2008 among the Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., SunCoast Capital, Inc. and Ullico Inc.
	10	.69	Commercial Security Agreement dated December 31, 2008 among the Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., SunCoast Capital, Inc. and Ullico Inc.
	10	.70	Stock Pledge Agreement dated December 31, 2008 among Steven M. Mariano, Steven M. Mariano Revocable Trust, the Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc. and Ullico Inc.
	10	.71	Irrevocable Proxy dated December 31, 2008 among Steven M. Mariano, Steven M. Mariano Revocable Trust and Ullico Inc.
	10	.72	Guaranty dated December 31, 2008 between Steven M. Mariano and Ullico Inc.
	10	.73	Intercreditor Agreement dated December 31, 2008 among the Existing Lenders identified therein, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., SunCoast Capital, Inc., Registrant and Ullico, Inc.
	10	.74	Promissory Note from Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc. and SunCoast Capital, Inc. to Ullico, Inc., dated December 31, 2008
	10	.75	Side Letter Agreement dated December 31, 2008 among Steven M. Mariano, the Registrant and Ullico Inc.*
	10	.76	Post-Closing Letter Agreement dated December 31, 2008 among the Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc. and Ullico Inc.*
	21	.1	Subsidiaries of the Registrant
	23	.1	Consent of Locke Lord Bissell & Liddell LLP (included as part of its opinion filed as Exhibit 5.1 hereto)*
	23	.2	Consent of BDO Seidman, LLP
	24	.1	Power of Attorney**

* To be filed by amendment

** Previously filed

(b) Financial Statement Schedules.

Index to Financial Statement Schedules	Schedule
Report of BDO Seidman, LLP		—
Summary of Investments — Other Than Investments in Related Parties		I
Condensed Financial Information of Registrant Parent Company Only		II
Supplemental Insurance Information		III
Property and Liability Reinsurance		IV
Valuation and Qualifying Accounts		V
Supplemental Information Concerning Property and Casualty Insurance Operations		VI

Item 17.   Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing

II-5

provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 6 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fort Lauderdale, State of Florida, on November 9, 2009.

Patriot Risk Management, Inc.

By:  /s/  Steven M. Mariano

Steven M. Mariano

President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 6 to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/  STEVEN M. MARIANO Steven M. Mariano	Principal Executive Officer and Director	November 9, 2009
/s/  MICHAEL W. GRANDSTAFF Michael W. Grandstaff	Principal Financial Officer	November 9, 2009
/s/  MICHAEL J. SLUKA Michael J. Sluka	Principal Accounting Officer	November 9, 2009
* Richard F. Allen	Director	November 9, 2009
* John R. Del Pizzo	Director	November 9, 2009
* Timothy J. Tompkins	Director	November 9, 2009
* Ronald P. Formento Sr.	Director	November 9, 2009
* C. Timothy Morris	Director	November 9, 2009
* /s/  Steven M. Mariano Steven M. Mariano * Attorney in Fact		November 9, 2009

II-7

Report of Independent Registered Public Accounting Firm

Patriot Risk Management, Inc.

Fort Lauderdale, Florida

The audits referred to in our report to Patriot Risk Management, Inc., dated April 22, 2009, which is contained in the Prospectus constituting part of this Registration Statement also included the audit of the financial statement schedules listed under Item 16(b) for each of the three years in the period ended December 31, 2008. These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/  BDO Seidman, LLP

Grand Rapids, Michigan

April 22, 2009

S-1

PATRIOT RISK MANAGEMENT, INC.

SCHEDULE I

SUMMARY OF INVESTMENTS — OTHER THAN INVESTMENTS IN RELATED PARTIES
As of December 31, 2008

					Amount
					Shown on
	Amortized				Balance
	Cost		Value		Sheet
	In thousands
Debt securities available for sale:
U.S. government securities	$	3,981	$	4,228	$	4,228
U.S. government agencies		300		311		311
Asset-backed and mortgage-backed securities		16,128		16,317		16,317
State and political subdivisions		23,058		23,914		23,914
Corporate securities		9,745		9,603		9,603
Total debt securities available for sale		53,212		54,373		54,373
Equity securities available for sale		466		222		222
Short-term investments		244		244		244
Real estate held for the production of income		250		250		250
Total investments	$	54,172	$	55,089	$	55,089

S-2

PATRIOT RISK MANAGEMENT, INC.

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY

BALANCE SHEETS

	December 31,
	2008		2007
	In thousands
ASSETS
Cash and cash equivalents	$	453	$	10
Investments in subsidiaries		24,106		18,137
Receivable from subsidiaries		550		—
Other assets		5,183		3,336
Total Assets	$	30,292	$	21,483
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Notes payable and accrued interest	$	19,442	$	13,601
Subordinated debentures and accrued interest		1,809		1,938
Other liabilities		1,904		508
Total liabilities		23,155		16,047
Stockholders’ Equity
Series A convertible preferred stock		1,000		—
Common stock		1		1
Series B common stock		1		1
Paid-in capital		5,456		5,363
Retained earnings		72		196
Accumulated other comprehensive income (loss), net of deferred income taxes		607		(125	)
Total stockholders’ equity		7,137		5,436
Total liabilities and stockholders’ equity	$	30,292	$	21,483

S-3

PATRIOT RISK MANAGEMENT, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY

STATEMENTS OF INCOME

	2008			2007			2006
	In thousands
Revenue	$	170		$	69		$	57
Expenses:
Other operating expenses		2,779			1,394			1,187
Interest expense		1,378			1,262			878
Total expenses		4,157			2,656			2,065
Loss from write-off of deferred equity offering costs		( 3,486	)		—			—
Loss before income taxes and subsidiary equity earnings		(7,473	)		(2,587	)		(2,008	)
Income tax benefit		(2,842	)		(805	)		(1,157	)
Loss before subsidiary equity earnings		(4,631	)		(1,782	)		(851	)
Subsidiary equity earnings		4,507			4,161			2,461
Net income	$	(124	)	$	2,379		$	1,610

S-4

PATRIOT RISK MANAGEMENT, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY

STATEMENTS OF COMPREHENSIVE INCOME

	2008			2007			2006
	In thousands
Net income (loss)	$	(124	)	$	2,379		$	1,610
Other comprehensive income (loss), net of tax:
Net unrealized appreciation (depreciation) in available for sale securities, net of deferred taxes of $374,000, ($51,000) and $255,000		732			(99	)		579
Reclassification adjustment for net gains (losses) realized in net income during the year, net of tax effect of $0, $0 and ($143,000)		—			—			(277	)
Other comprehensive income (loss)		732			(99	)		302
Comprehensive income	$	608		$	2,280		$	1,912

S-5

PATRIOT RISK MANAGEMENT, INC.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY

STATEMENTS OF CASH FLOWS

	2008			2007			2006
	In thousands
Net cash used in operating activities	$	(5,135	)	$	(2,055	)	$	(3,013	)
Investing Activities:
Investments in subsidiaries		(3,082	)		(3,000	)		(3,000	)
Other		(43	)		(113	)		(392	)
Net cash used in investing activities		(3,125	)		(3,113	)		(3,392	)
Financing Activities:
Proceeds from notes payable		6,950			5,665			8,652
Net proceeds from issuance of common stock		—			—			1,355
Net disbursements for redemption of common stock		—			(100	)		(984	)
Repayment of debt		(1,113	)		(677	)		(2,320	)
Proceeds from issuance of preferred stock, net of receivable from related party		500			—			—
Dividends received from subsidiaries		2,366			—			—
Dividends paid		—			—			(600	)
Net cash used in financing activities		8,703			4,888			6,103
Increase (decrease) in cash and cash equivalents		443			(280	)		(302	)
Cash and cash equivalents, beginning of period		10			290			592
Cash and cash equivalents, end of period	$	453		$	10		$	290

S-6

PATRIOT RISK MANAGEMENT, INC.

SCHEDULE III

SUPPLEMENTAL INSURANCE INFORMATION

As of and for the Year Ended December 31, 2008

	Deferred
	Ceding		Future
	Commissions,		Policy
	Net of		Benefits,				Other
	Deferred		Losses,				Policy
	Policy		Claims				Claims and
	Acquisition		and Loss		Unearned		Benefits		Premium
	Costs		Expenses		Premium		Payable		Revenue
	In thousands
Insurance	$	83	$	74,550	$	44,613	$	—	$	49,220
Insurance services		—		—		—		—		—
Unallocated		—		—		—		—		—
	$	83	$	74,550	$	44,613	$	—	$	49,220

			Benefits,
			Claims,		Amortization of
	Net		Losses and		Deferred Policy			Other
	Investment		Settlement		Acquisition			Operating		Premiums
	Income		Expenses		Costs			Expenses(1)		Written
Insurance	$	2,028	$	28,716	$	(7,907	)	$	21,442	$	45,838
Insurance services		—		—		—			10,930		—
Unallocated		—		—		—			—		—
	$	2,028	$	28,716	$	(7,907	)	$	32,372	$	45,838

(1) Other operating expenses are identified by segment based on the direct identification method.

S-7

PATRIOT RISK MANAGEMENT, INC.

SUPPLEMENTAL INSURANCE INFORMATION

As of and for the Year Ended December 31, 2007

	Deferred		Future
	Policy		Policy
	Acquisition		Benefits,				Other
	Costs, Net of		Losses,				Policy
	Deferred		Claims				Claims and
	Ceding		and Loss		Unearned		Benefits		Premium
	Commissions		Expenses		Premium		Payable		Revenue
	In thousands
Insurance	$	1,477	$	69,881	$	29,160	$	—	$	24,613
Insurance services		—		—		—		—		—
Unallocated		—		—		—		—		—
	$	1,477	$	69,881	$	29,160	$	—	$	24,613

					Amortization
			Benefits,		of
			Claims,		Deferred
	Net		Losses and		Policy			Other
	Investment		Settlement		Acquisition			Operating		Premiums
	Income		Expenses		Costs			Expenses		Written
Insurance	$	1,326	$	15,182	$	(657	)	$	6,680	$	30,961
Insurance services		—		—		—			8,519		—
Unallocated		—		—		—			—		—
	$	1,326	$	15,182	$	(657	)	$	15,199	$	30,961

(1) Other operating expenses are identified by segment based on the direct identification method.

S-8

PATRIOT RISK MANAGEMENT, INC.

SUPPLEMENTAL INSURANCE INFORMATION

As of and for the Year Ended December 31, 2006

	Deferred		Future
	Policy		Policy
	Acquisition		Benefits,				Other
	Costs, Net of		Losses,				Policy
	Deferred		Claims				Claims and
	Ceding		and Loss		Unearned		Benefits		Premium
	Commissions		Expenses		Premium		Payable		Revenue
	In thousands
Insurance	$	774	$	65,953	$	15,643	$	—	$	21,053
Insurance services		—		—		—		—		—
Unallocated		—		—		—		—		—
	$	774	$	65,953	$	15,643	$	—	$	21,053

			Benefits,
			Claims,		Amortization of
	Net		Losses and		Deferred Policy		Other
	Investment		Settlement		Acquisition		Operating		Premiums
	Income		Expenses		Costs		Expenses		Written
Insurance	$	1,321	$	17,839	$	35	$	3,799	$	19,386
Insurance services		—		—		—		9,704		—
Unallocated		—		—		—		—		—
	$	1,321	$	17,839	$	35	$	13,503	$	19,386

(1) Other operating expenses are identified by segment based on the direct identification method.

S-9

PATRIOT RISK MANAGEMENT, INC.

SCHEDULE IV

PROPERTY AND LIABILITY REINSURANCE

For the Years Ended December 31,

					Assumed				Percentage of
			Ceded to		From				Amount
	Gross		Other		Other		Net		Assumed to
	Amount		Companies		Companies		Amount		Net
	In thousands
2008	$	99,039	$	50,850	$	1,031	$	49,220		2.1	%
2007		72,645		49,101		1,069		24,613		4.3	%
2006		58,659		39,619		2,013		21,053		9.6	%

S-10

PATRIOT RISK MANAGEMENT, INC.

SCHEDULE V

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31,

			Additions		Additions		Deductions
	Balance,		Charged to		Charged to		from		Balance,
	Beginning of		Costs and		Other		Allowance		End of
	Period		Expense		Accounts		Account		Period
	In thousands
Allowance for doubtful accounts
2008	$	1,000	$	100	$	—	$	—	$	1,100
2007		1,000		—		—		—		1,000
2006		—		1,000		—		—		1,000

S-11

PATRIOT RISK MANAGEMENT, INC.

SCHEDULE VI

SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY

INSURANCE OPERATIONS

As of and For the Years Ended December 31, 2008, 2007 and 2006

	Deferred
	Policy
	Acquisition			Reserves
	Costs, Net of			for Losses
	Deferred			and Loss				Net		Net
	Ceding			Adjustment		Unearned		Premiums		Investment
	Commissions			Expenses(1)(2)		Premiums(2)		Earned		Income
	In thousands
(a) Property and casualty subsidiary
2008	$	(83	)	$	74,550	$	44,613	$	49,220	$	2,028
2007		1,477			69,881		29,160		24,613		1,326
2006		774			65,953		15,643		21,053		1,321

	Loss and
	Loss		Loss and
	Adjustment		Loss			Amortization of			Paid Losses
	Expenses-		Adjustment			Deferred Policy			and Loss		Net
	Current		Expenses-			Acquisition			Adjustment		Premiums
	Year		Prior Years			Expenses			Expenses		Written
2008	$	27,422	$	1,294		$	(7,907	)	$	18,222	$	45,838
2007		18,642		(3,460	)		(657	)		13,468		30,961
2006		15,328		2,511			35			10,374		19,386

(1) The Company does not apply discounting factors to reserves for losses and loss adjustment expenses.

(2) Reserves for losses and loss adjustment expenses are shown gross of reinsurance recoverables on unpaid losses and loss adjustment expenses of $37.5 million, $43.3 million and $41.1 million as of December 31, 2008, 2007 and 2006, respectively. Unearned premiums are shown gross of ceded unearned premiums of $33.7 million, $15.0 million and $8.3 million as of December 31, 2008, 2007 and 2006, respectively.

S-12

Exhibit List

Exhibit
No.			Description of Exhibit
	1	.1	Form of Underwriting Agreement*
	3	.1	Amended and Restated Certificate of Incorporation of the Registrant**
	3	.2	Amended and Restated Bylaws of the Registrant**
	3	.3	Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock
	4	.3	Form of Guarantee Insurance Company’s Surplus Notes**
	4	.4	Form of Registrant’s Subordinated Debentures**
	4	.5	Form of Registrant’s Warrant to Purchase Common Stock**
	5	.1	Opinion of Locke Lord Bissell & Liddell LLP*
	10	.1	Employment Agreement between the Registrant and Steven M. Mariano**
	10	.2	Offer Letter to Theodore G. Bryant dated November 17, 2006**
	10	.3	Second Amended and Restated Employment Agreement dated as of July 10, 2009 between the Registrant and Theodore G. Bryant
	10	.4	Offer Letter to Timothy J. Ermatinger dated August 1, 2007**
	10	.5	Employment Agreement between the Registrant and Timothy J. Ermatinger**
	10	.6	Employment Agreement, dated as of February 11, 2008, between the Registrant and Michael W. Grandstaff**
	10	.7	2005 Stock Option Plan**
	10	.8	Form of Option Award Agreement for 2005 Stock Option Plan**
	10	.9	2006 Stock Option Plan**
	10	.10	Form of Option Award Agreement for 2006 Stock Option Plan**
	10	.11	2009 Stock Incentive Plan*
	10	.12	Form of Option Award Agreement for 2009 Stock Incentive Plan*
	10	.13	Commercial Loan Agreement, Addendum to Commercial Loan Agreement and Consent in relation to Addendum to Commercial Loan Agreement dated March 30, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.**
	10	.14	Commercial Promissory Note and Addendum A to Promissory Note dated March 30, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.**
	10	.15	Commercial Security Agreement and Addendum A to Commercial Security Agreement dated March 30, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.**
	10	.16	Extension of Security Agreement dated March 30, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.**
	10	.17	Stock Pledge Agreement dated March 30, 2006 between Brooke Credit Corporation and Brandywine Insurance Holdings, Inc.**
	10	.18	Irrevocable Proxy undated by Brandywine Insurance Holdings, Inc. appointing Brooke Credit Corporation**
	10	.19	Irrevocable Proxy undated by Registrant appointing Brooke Credit Corporation**
	10	.20	Guaranty and Addendum A to Guaranty dated March 30, 2006 between Brooke Credit Corporation and Steven M. Mariano**
	10	.21	Amendment to Commercial Loan Agreement (Including Joinder of Additional Borrowers) dated September 27, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc., Patriot Risk Services, SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.22	Commercial Promissory Note dated September 27, 2006 among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc., Patriot Risk Services, SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.23	Form of Commercial Security Agreement dated September 27, 2006 between Brooke Credit Corporation and SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**

Exhibit
No.			Description of Exhibit
	10	.24	Form of Extension of Security Agreement dated September 27, 2006 between Brooke Credit Corporation and SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.25	Second Amendment to Commercial Loan Agreement dated November 16, 2006, among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc., Patriot Risk Services, SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.26	Third Amendment to Commercial Loan Agreement dated February 19, 2008, among Brooke Credit Corporation, the Registrant, Brandywine Insurance Holdings, Inc., Patriot Risk Services, SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.27	Fourth Amendment to Commercial Loan Agreement dated October 1, 2008, among Aleritas Capital Corporation, the Registrant, Guarantee Insurance Group, Patriot Risk Services, SunCoast Capital, Inc., PRS Group, Inc. and Patriot Risk Management of Florida, Inc.**
	10	.28	Workers’ Compensation Excess of Loss Reinsurance Agreement GIC-001/2007 between Guarantee Insurance Company and National Indemnity Insurance Company**
	10	.29	Workers’ Compensation Excess of Loss Reinsurance Agreement GIC-002/2007 between Guarantee Insurance Company and Midwest Employers Casualty Company**
	10	.30	Workers’ Compensation Excess of Loss Reinsurance Agreement GIC-003/2007 between Guarantee Insurance Company, as Cedent, and Max Re, Ltd., Aspen Insurance UK Limited and Various Underwriters at Lloyds, as Reinsurers**
	10	.31	Workers’ Compensation Excess of Loss Reinsurance Agreement between Guarantee Insurance Company, as Cedent, and Aspen Insurance UK Limited and Various Underwriters at Lloyds, as Reinsurers**
	10	.32	Quota Share Reinsurance Agreement GIC-005/2007 between Guarantee Insurance Company and National Indemnity Insurance Company**
	10	.40	Third Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and Max Bermuda, Ltd., Tokio Millennium Reinsurance Limited, Aspen Insurance UK Limited and Various Underwriters at Lloyd’s London as Reinsurers**
	10	.41	Purchase and Sale Agreement dated January 1, 2006 between The Tarheel Group, Inc., Tarheel Insurance Management Company and the Registrant**
	10	.42	Promissory Note dated June 13, 2006 between The Tarheel Group, Inc. and the Registrant**
	10	.43	Personal Guaranty of Promissory Note dated June 13, 2006 between the Registrant and Steven M. Mariano**
	10	.44	Contribution Agreement dated April 20, 2007 between Steven M. Mariano and the Registrant**
	10	.45	Form of Director and Officer Indemnification Agreement**
	10	.46	Settlement Stipulation and Release dated June 28, 2007 among Foundation Insurance Company, Steven M. Mariano, New Pacific International, Inc. and Peterson, Goldman & Villani, Inc.**
	10	.47	Stock Pledge Agreement between Brooke Credit Corporation and the Registrant**
	10	.48	Promissory Note dated June 26, 2008, as amended and restated on June 16, 2009 between the Registrant and Steven M. Mariano
	10	.49	Workers’ Compensation Quota Share Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and National Indemnity Company and Swiss Reinsurance America Corporation as Reinsurers**
	10	.50	Traditional Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and Midwest Employers Casualty Company as Reinsurer**
	10	.51	Alternative Market Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and National Indemnity Company as Reinsurer**
	10	.52	Second Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2008, between Guarantee Insurance Company as Cedent and Max Bermuda, Ltd., Aspen Insurance UK Limited and Various Underwriters at Lloyd’s London as Reinsurers**
	10	.53	Employment Agreement, dated September 29, 2008, between the Registrant and Richard G. Turner**

Exhibit
No.			Description of Exhibit
	10	.54	Employment Agreement, dated September 29, 2008, between the Registrant and Charles K. Schuver**
	10	.55	First Amendment to Employment Agreement, dated September 26, 2008, between the Registrant and Steven M. Mariano**
	10	.57	Amendment No. 1 to the 2005 Stock Option Plan**
	10	.58	Amendment No. 2 to the 2005 Stock Option Plan**
	10	.59	Amendment No. 1 to the 2006 Stock Option Plan**
	10	.60	Amendment No. 2 to the 2006 Stock Option Plan**
	10	.61	Workers’ Compensation Quota Share Reinsurance Contract, effective December 31, 2008, between Guarantee Insurance Company and Harco National Insurance Company*
	10	.62	Traditional Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company as cedant and Maiden Re, Max Re, Ullico Casualty and various underwriters at Lloyd’s London as reinsurers*
	10	.63	Alternative Market Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company as cedant and National Fire & Liability and Ullico Casualty as reinsurers*
	10	.64	Second Workers’ Compensation Excess of Loss Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company and Aspen Insurance UK Limited, Hannover Re, and certain other reinsurers*
	10	.65	Workers’ Compensation Catastrophe Excess of Loss Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company as cedant and Max Re Bermuda, Tokio Millennium Re, Aspen Re UK, Hannover Re and various underwriters at Lloyd’s London as reinsurers*
	10	.66	Traditional Workers’ Compensation Quota Share Reinsurance Contract, effective July 1, 2009, between Guarantee Insurance Company and Swiss Re*
	10	.67	Traditional Workers Compensation Quota Share Reinsurance Contract for Florida, Georgia and New Jersey, between Guarantee Insurance Company as cedant and ULLICO Casualty Company as reinsurer
	10	.68	Commercial Loan Agreement dated December 31, 2008 among the Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., SunCoast Capital, Inc. and Ullico Inc.
	10	.69	Commercial Security Agreement dated December 31, 2008 among the Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., SunCoast Capital, Inc. and Ullico Inc.
	10	.70	Stock Pledge Agreement dated December 31, 2008 among Steven M. Mariano, Steven M. Mariano Revocable Trust, the Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc. and Ullico Inc.
	10	.71	Irrevocable Proxy dated December 31, 2008 among Steven M. Mariano, Steven M. Mariano Revocable Trust and Ullico Inc.
	10	.72	Guaranty dated December 31, 2008 between Steven M. Mariano and Ullico Inc.
	10	.73	Intercreditor Agreement dated December 31, 2008 among the Existing Lenders identified therein, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., SunCoast Capital, Inc., Registrant and Ullico Inc.
	10	.74	Promissory Note from Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc. and SunCoast Capital, Inc. to Ullico, Inc., dated December 31, 2008
	10	.75	Side Letter Agreement dated December 31, 2008 among Steven M. Mariano, the Registrant and Ullico Inc.*
	10	.76	Post-Closing Letter Agreement dated December 31, 2008 among the Registrant, PRS Group, Inc., Guarantee Insurance Group, Inc., Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc. and Ullico Inc.*
	21	.1	Subsidiaries of the Registrant
	23	.1	Consent of Locke Lord Bissell & Liddell LLP (included as part of its opinion filed as Exhibit 5.1 hereto)*

Exhibit
No.			Description of Exhibit
	23	.2	Consent of BDO Seidman, LLP
	24	.1	Power of Attorney**

* To be filed by amendment

** Previously filed

EX-3.3

EXHIBIT 3.3

PATRIOT RISK MANAGEMENT, INC.

CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware

     Patriot Risk Management, Inc., a corporation organized and existing under the laws of Delaware (the “Corporation”), does hereby certify:

     That pursuant to authority vested in it by the provisions of the Certificate of Incorporation, as amended and restated, of the Corporation, the Board of Directors of said Corporation did adopt the following resolution authorizing the creation and issuance of a series of Preferred Stock designated as Series A Convertible Preferred Stock on December 30, 2008:

     RESOLVED, that the Corporation hereby designates 1,200 shares of its authorized but unissued Preferred Stock, par value $.001 per share, as Series A Convertible Preferred Stock, which shall have the following designations, preferences, rights, qualifications, limitations and restrictions in addition to those set forth in the Certificate of Incorporation, as amended, of the Corporation:

     1. Designation; Number of Shares; Stated Value.

     One Thousand (1,200) shares of Preferred Stock shall be designated Series A Convertible Preferred Stock (hereinafter sometimes referred to as the “Series A Preferred Stock” or as this “Series”). Shares of this Series shall have a stated value of $1,000 per share (the “Stated Value”).

     2. Dividends.

         (a) The holders of shares of Series A Preferred Stock shall be entitled to receive cumulative cash dividends, and if as declared by the Board of Directors out of funds legally available therefor, at a rate of 4.5% above the prime rate as published in the Wall Street Journal per share per annum, calculated based on the Stated Value, on each outstanding share and no more, before any dividend or distribution in cash or other property on any class or series of stock of the Corporation ranking junior to the Series A Preferred Stock as to dividends or on liquidation, dissolution or winding-up shall be declared or paid or set apart for payment. For each share of Series A Preferred Stock Outstanding, the dividend shall be computed on the basis of a 360 day year.

         (b) Dividends on the Series A Preferred Stock shall be cumulative and accrue from and after the date of original issuance thereof, whether or not declared by the Board of Directors. Accruals of dividends shall not bear interest.

         (c) No dividend may be declared on any other class or series of stock ranking on a parity with the Series A Preferred Stock as to dividends in respect of any dividend period unless there shall also be or have been declared on the Series A Preferred Stock like dividends for all quarterly periods coinciding with or ending before such quarterly period, ratably in proportion to the respective annual dividend rates fixed therefor.

     3. Redemption.

         (a) The Corporation, at its sole option, may redeem shares of this Series, in whole or in part, at any time or from time to time, at a redemption price per share equal to the Stated Value plus accrued but unpaid dividends thereon (whether or not declared) to the date of redemption.

         (b) In the case of a redemption of a part only of the shares of this Series at the time outstanding, the shares of this Series to be so redeemed shall be selected by lot, pro rata (as nearly as may be), or in such other equitable manner as the Board of Directors may determine.

     4. Conversion.

         (a) Each share of Series A Preferred Stock shall automatically convert into shares of the Corporation’s Common Stock upon the closing of an offering of the Corporation’s Common Stock to third-party investors with aggregate proceeds of at least $20 million at a price per share no less than $10.22 per share, as adjusted for any stock split, combination, consolidation, stock distributions, stock dividends or the like with respect to such shares (the “Qualified Offering”). The number of shares of Common Stock to be issued to each holder of Series A Preferred Stock shall be determined by dividing the sum of the Stated Value plus any accrued but unpaid dividends (whether or not declared) on the date of conversion by the price per share of Common Stock sold in the Qualified Offering.

         (b) No fractional shares of stock shall be issued upon the conversion of any share or shares of this Series. If more than one such share of this Series shall be surrendered for conversion at the same time by the same holder, the number of full shares which shall be issuable upon the conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If any fractional interest in a share of Common Stock would, except for the provisions of this subparagraph (b), be deliverable upon the conversion of any share or shares, the Corporation shall in lieu of delivering the fractional share therefor, adjust such fractional interest by payment to the holder of such surrendered share or shares of an amount in cash equal (computed to the nearest cent) to the value of such fractional interest based on the price paid in the Qualified Offering.

         (c) The Corporation covenants that it will at all times reserve and keep available, solely for the purpose of issue upon conversion of the shares of this Series, such number of shares of Common Stock as shall be issuable upon the conversion of all such outstanding shares. For the purpose of this subparagraph (c), the full number of

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shares of Common Stock issuable upon the conversion of all outstanding shares of this Series shall be computed as if at the time of computation of such number of shares of Common Stock all outstanding shares of this Series were held by a single holder.

         (d) The Corporation covenants that all shares of Common Stock which shall be issued upon conversion of the shares shall upon issue be fully paid and non-assessable and not subject to any preemptive rights.

         (e) The issuance of certificates for shares of Common Stock upon conversion shall be made without charge for any stamp or other similar tax in respect of such issuance. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid.

     5. Voting.

     The shares of this Series shall not have any voting powers either general or special, except as set forth in this Certificate of Designations, Preferences and Rights, in the Corporation’s Certificate of Incorporation, or as otherwise provided by law.

     6. Liquidation Rights.

     Upon the dissolution, liquidation or winding-up of the Corporation, whether voluntary or involuntary, the holders of the shares of this Series shall be entitled to receive, before any payment or distribution of the assets of the Corporation or proceeds thereof (whether capital or surplus) shall be made to or set apart for the holders of the Common Stock or any other class or series of stock ranking junior to the shares of this Series upon liquidation, the amount of the Stated Value per share, plus a sum equal to all dividends on such shares accrued and unpaid thereon to the date of final distribution, but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding-up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of shares of the Series A Preferred Stock and any other class or series of Preferred Stock ranking on a parity with the Series A Preferred Stock as to payments upon liquidation, dissolution or winding-up shall be insufficient to pay in full the preferential amount aforesaid, then such assets or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts payable thereon were paid in full. For the purposes of this paragraph 6, the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property or assets of the Corporation to, or a consolidation or merger of the Corporation with, one or more other corporations (whether or not the Corporation is the corporation surviving such consolidation or merger) shall not be deemed to be a liquidation, dissolution or winding-up, voluntary or involuntary.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, Patriot Risk Management, Inc. has caused this certificate to be made under the seal of the Corporation and signed by its Chairman, President and Chief Executive Officer, this 31st day of December, 2008.

PATRIOT RISK MANAGEMENT, INC.
By
Name:	Steven M. Mariano
Title:	Chairman, President & Chief Executive Officer

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EX-10.3

Exhibit 10.3

SECOND AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

     This Amended and Restated Executive Employment Agreement (“Agreement”) is entered into as of July 10, 2009 (the “Effective Date”), by and between Patriot Risk Management, Inc. (the “Company”), a corporation organized under the laws of Delaware, with its principal administrative office at 401 East Las Olas Boulevard, Suite 1540, Fort Lauderdale, Florida 33301, and Theodore G. Bryant (“Executive”).

     WHEREAS, the Company and Executive previously entered into an Executive Employment Agreement on May 9, 2008 and an Amended and Restated Executive Employment Agreement on September 8, 2008; and

     WHEREAS, both parties deem it advisable to amend and restate the Agreement as follows.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1. Position and Responsibilities. The Company hereby employs Executive and Executive accepts employment in the following positions in the following companies:

A.	Secretary, Senior Vice-President, and Legal Officer of Patriot Risk Management, Inc.; and
B.	General Counsel, Secretary, and Senior Vice-President of Guarantee Insurance Group and its subsidiaries.
Executive shall have such duties, responsibilities and authority as is commensurate with the positions set forth above and, in all instances shall report to the Chief Executive Officer and the Board of Directors of the Company (the “Board”).
Executive shall also perform such other duties as may from time to time be assigned to Executive by the Chairman of the Board or by the Board itself. Executive also agrees to serve, if elected, as an officer and director of any direct or indirect subsidiary of the Company (individually, a “Subsidiary” or collectively, the “Subsidiaries”).

2. Term. The period of Executive’s employment under this Agreement shall commence as of the Effective Date and shall continue until December 31, 2011 (the “Initial Term”). The Initial term shall be automatically extended for an additional 12-month period commencing at the end of the Initial Term, and successively thereafter for additional 12-month periods (each such period an “Additional Term”), unless either party gives written notice to the other party that such party does not desire to extend the term of this Agreement. Written notice to not continue with another Additional Term must be given at least ninety (90) days prior to the end of the Initial Term or the applicable Additional Term (the Initial Term and any Additional Terms, if applicable, collectively, the “Employment Term”). In the event a Change in Control (as defined below) occurs on or after January 1, 2010, the Employment Term shall be extended and continue in effect until at least the second anniversary of such Change in Control. The date of expiration of the Employment Term shall be referred to herein as the “Termination Date.” Upon the

Termination Date, Executive shall be deemed to resign from the offices and positions of (i) Secretary, Senior Vice-President, and Legal Officer of Patriot Risk Management, Inc.; (ii) General Counsel, Secretary, and Senior Vice-President of Guarantee Insurance Group and its subsidiaries; and (iii) any other office or position with the Company or any Subsidiary. Executive also shall be deemed to resign from the board of directors of the Company or any Subsidiary to which he has been appointed or nominated by or on behalf of the Company and any fiduciary positions with respect to the employee benefit plans of the Company or any Subsidiary.

3. Extent of Services. During the Employment Term, Executive shall devote his entire attention and energy to the business and affairs of the Company and Subsidiaries on a full-time basis and shall not be engaged in any other business activity, regardless of whether such business activity is pursued for gain, profit or other pecuniary advantage, that interferes with the business of the Company, but this shall not be construed as preventing Executive from investing his assets in such form or manner as will not require any services on the part of Executive in the operation of the affairs of the companies in which such investments are made and will not otherwise conflict with the provisions of this Agreement. Executive may devote reasonable time to activities such as supervision of personal investments and activities involving professional, charitable, educational, religious, and similar types of activities, speaking engagements and membership on other boards of directors, provided such activities do not interfere materially with the business of the Company. The time involved in such activities will not be treated as vacation time. Executive will be entitled to keep any amounts paid to him in connection with such activities (e.g., director fees and honoraria). Full-time, as used above, shall mean a 40-hour work week, or such longer work week as the Board shall from time to time adopt. Executive agrees to comply in all material respects with all codes of conduct, personnel policies and procedures applicable to senior executives of the Company including, without limitation, policies regarding sexual harassment, conflicts of interest and insider trading.

4. Compensation.

(a) Salary. During the Employment Term, the Company shall pay Executive an annual salary of not less than $250,000 (“Annual Salary”), payable in accordance with the Company’s regular payroll procedures. The Company shall review possible increases in Executive’s salary on an annual basis with such review occurring not later than March 31^st of such year with any such increases subject to the determination of the Board or the Compensation Committee of the Board. Annual Salary shall not be decreased without Executive’s prior written consent, and the term “Annual Salary” for purposes of this Agreement shall refer to base salary annualized, as most recently increased.

(b) Bonus. During the Employment Term, Executive shall be eligible to receive an annual bonus in an amount determined by the Compensation Committee or the Board, pursuant to a bonus plan that may then be in effect or otherwise, subject to the attainment of such goals as the Compensation or Committee the Board shall establish and communicate to Executive within the first ninety (90) days of such fiscal year. It is the intent of the Company that any annual bonus shall be paid no

2

later than 2 ¹/2 months following the end of the calendar year (or, if later, the Company’s tax year) in which or within which the applicable fiscal year ends and as subject to approval by the Board of Directors. Within thirty (30) days following the successful completion of the Company’s initial public offering as planned, Executive shall receive a one-time cash bonus of $50,000, which shall be separate, distinct from, and in addition to any annual bonus set forth and described in this section.

(c)	Business Expenses. During the Employment Term, Executive shall be entitled to prompt reimbursement for all reasonable expenses incurred by him in furtherance of the business of the Company in connection with Executive’s performance of his duties hereunder, in accordance with the policies and procedures established for executive officers of the Company, and provided Executive properly accounts for such expenses.
(d)	Club Expenses. During the Employment Term, the Company shall pay the initiation fee for Executive to become a full member of Weston Hills Country Club (full membership to include golf, tennis, fitness, and social facilities) subject to approval by the Compensation Committee of the Board whose approval shall not be withheld unreasonably or delayed. The Company shall also provide Executive with a gross-up payment so that such initiation fee payment (and any gross-up payment) does not result in Executive incurring any net expenses for taxes associated with such payment. The Company shall pay all annual or other periodic fees and dues for Executive to remain a member of such club. If Executive resigns from employment without Good Reason (as defined below), within one year of the Effective Date, any amount paid by the Company for the initiation fee referenced above shall be reimbursed by the Executive to the Company.
(e)	Vacation. During the Employment Term, Executive will be provided four weeks of vacation per calendar year, prorated based on date of hire, with additional weeks in accordance with the anniversary dates pursuant to the Company’s vacation policy.
(f)	Automobile Allowance. During the Employment Term, the Company shall pay or provide Executive an automobile allowance of $1,000 per month, the amount of which shall be a gross-up payment such that payment of the allowance does not result in Executive incurring any net expense for taxes associated with such allowance.
(g)	Long Term Incentive and Equity Compensation. During the Employment Term, Executive shall be entitled to participate in, and receive awards under, any long-term incentive plan (whether payable in cash, equity or otherwise) maintained by the Company in which other senior executives of the Company participate, in the discretion of the Compensation Committee of the Board. In addition, Executive shall receive equity in the following amounts upon the following events. All option grants and stock awards shall be upon such terms as may be set forth in the stock option plan and accompanying stock option

3

agreement pursuant to which such options will be granted, and such terms to include a three (3) year vesting period, ten (10) year duration, and a 90 day period to exercise vested options upon termination of Executive’s employment with the Company for reasons other than Cause (as defined below). In connection with the Company’s initial public offering, and subject to Board approval, Executive shall receive a grant of 70,000 stock options concurrent with the initial public offering, with an exercise price equal to the initial public offering price set by the Company and its underwriters.

(h)

Other Benefits. During the Employment Term, Executive shall be entitled to participate in all benefit plans offered by the Company including, without limitation, medical, dental, short-term and long-term disability, life, pension, profit sharing and nonqualified deferred compensation arrangements, as the Board may determine in its discretion on the same basis as other executives of the Company, subject in all cases to the respective terms of such plans. The Company reserves the right to modify, suspend or discontinue any and all of the plans, practices, policies and programs at any time without recourse by the Executive, so long as the Company takes such action generally with respect to all other similarly situated executive officers.

5. Termination.

(a) Death. This Agreement and Executive’s employment hereunder shall terminate immediately upon Executive’s death.

(b)

Disability. To the extent permitted by law, if Executive is (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three months under the Company’s disability or health plan, or (iii) determined to be totally disabled by the Social Security Administration, then upon at least 60 days’ prior written notice to Executive, if such is consistent with applicable law, Executive shall be considered disabled for purposes of this Agreement and the Company may terminate this Agreement and Executive’s employment hereunder, unless, within that notice period, Executive shall have resumed performance of the essential functions of his positions, with or without reasonable accommodation.

(c)

Termination by the Company.

(i) Termination for Cause. The Company may terminate this Agreement and Executive’s employment hereunder at any time for Cause. As used herein, “Cause” shall mean:

4

(A)	a material breach by Executive of Executive’s duties and obligations hereunder, including but not limited to gross negligence in the performance of his duties and responsibilities, or the willful failure to follow the Board’s directions, in each case, which has caused or is likely to cause material injury to the reputation or business of the Company; provided, however, that Cause shall not exist unless the Company has provided Executive with written notice setting forth the existence of the non-performance, failure or breach and Executive shall not have cured same within thirty (30) days after receiving such notice;
(B)	willful misconduct by Executive that, in the reasonable determination of the Board, has caused or is likely to cause material injury to the reputation or business of the Company;
(C)	any criminal act of fraud, material misappropriation or other material dishonesty by Executive; or
(D)	Executive’s conviction of a felony, but specifically excluding any conviction based on vicarious liability (with “vicarious liability” meaning liability based on acts of the Company for which the Executive is charged solely as a result of his service with the Company and in which he was not directly involved and did not have prior knowledge of such actions or intended actions).

Executive shall be considered to have been discharged for Cause if the Company determines within 30 days after his resignation or discharge that discharge for Cause was warranted. In the event of termination for Cause, the Company shall be obligated to pay Executive only Executive’s salary up to the date of termination and any earned but unpaid bonus with respect to any calendar year ended prior to the date of termination. For purposes of this Agreement, no act or failure to act on the Executive’s part shall be considered “willful” unless it is done, or omitted to be done, by him in bad faith or without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company or a Subsidiary shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of the Company or a Subsidiary.

(ii) Termination Without Cause. Notwithstanding anything contained herein to the contrary, the Company also may terminate this Agreement and Executive’s employment hereunder for reason other than death, Disability or Cause upon no less than 60 days’ prior written notice to Executive. The Company shall be deemed to have terminated this Agreement without Cause in the event that this Agreement is terminated

5

as a result of the Company’s giving notice of non-renewal prior to the end of the Initial Term or any Additional term as provided in Section 2 above.

(d) Termination by Executive Without Good Reason. Executive may terminate this Agreement and his employment hereunder for any reason whatsoever, upon no less than 60 days’ prior written notice to the Company.

(e) Termination by Executive For Good Reason. If Executive resigns for Good Reason, then Executive’s termination shall be treated as a termination by the Company without Cause pursuant to Section 5(c)(ii) hereof. As used herein, a resignation for “Good Reason” shall mean a resignation by Executive within ninety (90) days following the initial existence of one or more of the following conditions arising without Executive’s consent:

(i)	A material reduction in Executive’s Annual Salary;
(ii)	A material diminution in Executive’s authority, duties, or responsibilities;
(iii)	A relocation of Executive’s principal place of employment by more than fifty (50) miles from its location at the Effective Date of this Agreement; or
(iv)	Any other action or inaction that constitutes a material breach by the Company of this Agreement;

Provided, however, that Good Reason shall not exist unless Executive has provided the Company with a written notice setting forth the reason(s) for the existence of Good Reason within ninety (90) days of the initial existence of the condition(s), and the Company has not cured the reason(s) for the existence of Good Reason within thirty (30) days after receiving such notice.

(f) Payments Upon Termination.

(i) Termination of Employment for any Reason: The following payments will be made upon Executive’s termination of employment for any reason:

(A)	Earned but unpaid Annual Salary through the date of termination.
(B)	Bonus and all other forms of incentive compensation earned but unpaid at the time of termination for which the performance measurement period has ended and the performance goals attained (if applicable).
(C)	Accrued but unpaid vacation.
(D)	Amounts payable under any of the Company’s employee benefit plans in accordance with the terms of those plans.
(E)	Unreimbursed expenses incurred by Executive on the Company’s behalf.

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(ii) Termination by Company without Cause or by Executive for Good Reason. In the event that the Company terminates this Agreement without Cause or the Executive terminates this Agreement for Good Reason, Executive shall be entitled to receive (x) a lump sum severance payment equal to Executive’s Annual Salary at the time of termination (or, if greater, Annual Salary prior to the occurrence of Good Reason) plus Executives Average Annual Bonus, and (y) continuation of Company-provided group health plan coverage, at the same level and cost applicable to Executive immediately prior to employment termination, until the second anniversary of the employment termination (the “Severance Benefits”).

(A)	If the Company is obligated by law (including the WARN Act or any similar state or foreign law) to pay Executive severance pay, a termination indemnity, notice pay, or the like, then the amount of such legally required pay shall reduce the Severance Benefits hereunder.
(B)	Notwithstanding anything herein to the contrary, the payment of any Severance Benefits hereunder to Executive shall be subject to the execution by Executive (and failure to revoke) of a general release of the Company and its affiliates of any and all claims under this Agreement or related to or arising out of Executive’s employment hereunder, in the form attached hereto as Exhibit A.
(C)	For purposes of this Agreement, “Average Annual Bonus” means the average bonus for the three (3) fiscal years preceding the termination of employment.

(iii)	Termination Due to Disability. In the event that Executive employment terminates due to his Disability, the Company shall continue paying Executive’s Base Salary until the third anniversary of such termination; provided that, the payments made by the Company under this paragraph shall be reduced, dollar-for-dollar, by the payment made to Executive under any long-term disability plan, policy or program provided or contributed to by the Company.
(iv)	Nonduplication of Benefits. If Executive receives the Severance Benefits under this Section 5, he shall not be entitled to also receive the Change in Control Compensation under Section 6 hereof.
(v)	General Release. Notwithstanding anything herein to the contrary, the payment of any Severance Benefits under this Section 5 shall be subject to the execution by Executive (and failure to revoke) of a general release of the Company and its affiliates of any and all claims under this Agreement or related to or arising out of Executive’s employment hereunder in the form attached hereto as Exhibit A.

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6. Change in Control.

(a) Change in Control Severance Compensation. If within twelve months following a Change in Control (as defined below) Executive’s employment with the Company is terminated by the Company without Cause or Executive resigns for Good Reason, then Executive shall be entitled to receive from the Company a payment equal to 200% of the amount of the Severance Payment specified in Section 5(f)(ii) of this Agreement (or, if greater, Annual Salary prior to the occurrence of Good Reason) plus Executives Average Annual Bonus, and (y) continuation of Company-provided group health plan coverage, at the same level and cost applicable to Executive immediately prior to employment termination, for twenty-four (24) months following the employment termination (the “Change in Control Compensation”). Subject to Section 10 hereof, the cash portion of the Change in Control Compensation shall be payable in a single lump sum payment within ten (10) days following the date of termination. The Executive shall be entitled to the Change in Control Compensation if, within six (6) months prior to the Change in Control, at the request or direction of a participant in a potential acquisition, the Company terminates the Executive’s employment without Cause or causes a condition constituting Good Reason.

(b) Change in Control. For purposes of this Agreement, “Change in Control” shall mean the occurrence of any of the following events:

(i)	The date any one person, or more than one “person” acting as a group, acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person(s)) ownership of common stock possessing 50% or more of the total voting power of the common stock of the Company;
(ii)	Individuals who at any time during the term of this Agreement constitute the board of directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election or nomination for election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (ii) considered as though such person were a member of the Incumbent Board;
(iii)	Any consolidation or merger to which the Company is a party, if following such consolidation or merger, stockholders of the Company immediately prior to such consolidation or merger shall not beneficially own securities representing at least 51% of the combined voting power of the outstanding voting securities of the surviving or continuing corporation; or

8

(iv) Any sale, lease, exchange or other transfer (in one transaction or in a series of related transactions) of all, or substantially all, of the assets of the Company, other than to an entity (or entities) of which the Company or the stockholders of the Company immediately prior to such transaction beneficially own securities representing at least 51% of the combined voting power of the outstanding voting securities.

(c)

Nonduplication of Benefits. If Executive receives any Change in Control Compensation under this Section 6, he shall not be entitled to receive any Severance Benefits under Section 5(c)(ii) or 5(e) hereof.

(d)

General Release. Notwithstanding anything herein to the contrary, the payment of any Change in Control Compensation hereunder to Executive shall be subject to the execution by Executive (and failure to revoke) of a general release and hold harmless of the Company and its affiliates of any and all claims under this Agreement or related to or arising out of Executive’s employment hereunder, in the form attached hereto as Exhibit A.

7. Tax and Other Restrictions. Notwithstanding anything herein to the contrary:

(a) Excess Parachute Payments. In the event that payment of any amount under this Agreement, including, but not limited to, any Severance Payment under Section 5(c)(ii) or 5(e) or Change in Control Compensation under Section 6, would cause Executive to be the recipient of an excess parachute payment within the meaning of Code Section 280G(b), the amount of the payments to be made to Executive pursuant to this Agreement shall be reduced to an amount equal to 299% of Executive’s “base amount” within the meaning of Code Section 280G. The manner in which such reduction occurs, including the items of payment and amounts thereof to be reduced, shall be determined by the Company.

(b) Payments in Excess of $1 Million. If any payment hereunder, including but not limited to, a Severance Payment under Section 5(c)(ii) or 5(e) or Change in Control Compensation under Section 6, would not be deductible by the Company for federal income tax purposes by reason of Code Section 162(m), or any similar or successor statute (excluding Code Section 280G), such payment shall be deferred and the amount thereof shall be paid to Executive at the earliest time that such payment shall be deductible by the Company.

8. Covenants of the Executive and the Company.

(a) Nonsolicitation. During the Employment Term and for a period of one year thereafter, Executive shall not, directly or indirectly, (i) employ, solicit for employment or otherwise contract for the services of any individual who is or was an employee of the Company or any of its Subsidiaries during the Employment Term; (ii) otherwise induce or attempt to induce any employee of the Company or its Subsidiaries to leave the employ of the Company or such Subsidiary, or in any way knowingly interfere with the relationship between the Company or any such Subsidiary and any employee respectively thereof, provided, however, that this

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	clause (ii) shall not prohibit the activities described in the preceding clause (i) following termination of the Employment Term with respect to any individual who was not an employee of the Company or its Subsidiaries during the Employment Term; or (iii) induce or attempt to induce any customer, supplier, broker, agent, licensee or other business relation of the Company or any Subsidiary of the Company to cease doing business with the Company or such Subsidiary, or interfere in any way with the relationship between any such customer, supplier, broker, agent, licensee or business relation and the Company or any subsidiary thereof.
(b)	Nondisclosure. For the Employment Term and thereafter, (i) Executive shall not divulge, transmit or otherwise disclose (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company’s Chief Executive Officer and Chief Legal Officer of any such order), directly or indirectly, other than in the regular and proper course of business of the Company and its Subsidiaries, any confidential knowledge or information with respect to the operations or finances of the Company or any of its Subsidiaries or with respect to confidential or secret processes, methods, services, techniques, reinsurance arrangements, customers or plans with respect to the Company or its Subsidiaries and (ii) Executive will not use, directly or indirectly, any confidential information for the benefit of anyone other than the Company and its Subsidiaries; provided, however, that Executive has no obligation, express or implied, to refrain from using or disclosing to others any knowledge or information which is or hereafter shall become available to the general public other than through disclosure by Executive, or as requested by regulatory bodies or as required by judicial courts. All new processes, techniques, know-how, methods, inventions, plans, products, patents and devices developed, made or invented by Executive, alone or with others, while an employee of the Company which are related to the business of the Company and its Subsidiaries shall be and become the sole property of the Company, unless released in writing by the Board, and Executive hereby assigns any and all rights therein or thereto to the Company.
(c)	Nondisparagement. During the Employment Term and thereafter, Executive shall not take any action to disparage or criticize the Company or its Subsidiaries or their respective employees, directors, owners or customers or to engage in any other action that injures or hinders the business relationships of the Company or its Subsidiaries. During the Employment Term and thereafter, the Company shall not take any action to disparage or criticize Executive to any third parties. Nothing contained in this Section 8(c) shall preclude either Executive or the Company from (i) making truthful statements or disclosures that are required by applicable law, regulation or legal process or (ii) enforcing their respective rights under this Agreement.
(d)	Noncompetition. In consideration of the payment to Executive of the Severance payments pursuant to Section 5(c)(ii) or 5(e) or Change in Control Compensation pursuant to Section 6, Executive hereby agrees that, from and after the

10

	Termination Date, and for twelve (12) months thereafter, Executive shall not participate as a partner, joint venturer, proprietor, shareholder, employee or consultant, or have any other direct or indirect financial interest (other than a less than 10% interest in a corporation whose shares are regularly traded on a national securities exchange or in the over-the-counter market), including, without limitation, the interest of a creditor in any form, in, or in connection with, any business competing directly or indirectly with the business of the Company and its Subsidiaries in any geographic area where the Company and its Subsidiaries are actively engaged in conducting business as of the Termination Date. The purpose of this restrictive covenant is to protect the Company’s trade secrets and other confidential information, including, without limitation, its business plans, processes and customer information.
(e)	Return of Company Property. All files, records, correspondence, memoranda, notes or other documents (including, without limitation, those in computer-readable form) or property relating or belonging to the Company or its Subsidiaries or affiliates, whether prepared by Executive or otherwise coming into Executive’s possession in the course of the performance of his services under this Agreement, shall be the exclusive property of the Company and shall be delivered to the Company, and not retained by Executive (including without limitations, any copies thereof), promptly upon request by the Company and, in any event, within 60 days following the Termination Date.
(f)	Scope. The Company and Executive further acknowledge that the time, scope, geographic area and other provisions of this Section 8 have been specifically negotiated by sophisticated commercial parties and agree that all such provisions are reasonable under the circumstances of the activities contemplated by this Agreement. In the event that the agreements in this Section 8 shall be determined by any court of competent jurisdiction to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, they shall be interpreted to extend only over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respect as to which they may be enforceable, all as determined by such court in such action.
(g)	Enforcement. Both parties recognize that the services to be rendered under this Agreement by Executive are special, unique and of extraordinary character and that in the event of the breach by Executive or the Company of any of the terms and conditions of this Section 8 to be performed by each party, then the Company or the Executive shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach hereof, or to enforce the specific performance hereof by Executive or the Company or to enjoin Executive or the Company from performing acts prohibited above during the period herein covered, but nothing herein contained shall be construed to prevent such other remedy in the courts as the Company or the Executive may elect to invoke.

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(h) Other. If Executive competes with the Company or otherwise violates any of the restrictions contained in this Section 8, the Company shall have no obligation to pay the Severance Payment or Change of Control Compensation or any remaining installment thereof to Executive.

9. Indemnification and Insurance. The Company shall provide Executive (including Executive’s heirs, executors and administrators), at the Company’s expense, with coverage under a standard directors’ and officers’ (D&O) liability insurance policy, and shall indemnify Executive (and Executive’s heirs, executors and administrators) to the fullest extent permitted under Delaware law against all expenses and liabilities reasonably incurred by Executive in connection with or arising out of any action, suit or proceeding in which Executive may be involved by reason of Executive’s having been a director or officer of the Company (whether or not Executive continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements. The Company shall cover the Executive under D&O liability insurance both during and, while potential liability exists, after the term of this Agreement in the same amount and to the same extent as the Company covers its other officers and directors. In the event the referenced D&O liability policy is a “wasting” policy in that defense and litigation costs reduce the amount of insurance available for indemnification purposes, the Company agrees to provide Executive with full and complete indemnification beyond the coverage limit offered by the D&O policy.

10. Application of Code Section 409A.

(a) General. To the extent applicable, it is intended that this Agreement comply with the provisions of Code Section 409A, so as to prevent inclusion in gross income of any amounts payable or benefits provided hereunder in a taxable year that is prior to the taxable year or years in which such amounts or benefits would otherwise actually be distributed, provided or otherwise made available to Executive. This Agreement shall be construed, administered, and governed in a manner consistent with this intent and the following provisions of this Section shall control over any contrary provisions of this Agreement.

(b) Restrictions on Specified Employees. In the event Executive is a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) and delayed payment of any amount or commencement of any benefit under this Agreement is required to avoid a prohibited distribution under Code Section 409A(a)(2), then amounts payable in connection with Executive’s termination of employment will be delayed and paid, with interest at the short term applicable federal rate as in effect as of the termination date, in a single lump sum six months thereafter (or if earlier, the date of Executive’s death); provided, however, that payments to which Executive is entitled under Sections 5 and 6 of this Agreement need not be delayed under this Section 10(b) to the extent those payments would comply with the requirements of Treas. Reg. §1.409A-1(a)(b)(9), which generally requires that such payments not exceed two times the lesser of (1) Executive’s annualized compensation based on his annual rate of pay in the year before the date of termination or (2) the Code Section 401(a)(17) limit applicable to qualified plans

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	during the year of Executive’s date of termination, or would otherwise be payable without delay without violating Section 409A.
(c)	Separation from Service. Payments and benefits hereunder upon Executive’s termination or severance of employment with the Company that constitute deferred compensation under Code Section 409A payable shall be paid or provided only at the time of a termination of Executive’s employment which constitutes a “separation from service” within the meaning of Code Section 409A (subject to a possible six-month delay pursuant to the subsection (b) above).
(d)	Separate Payments. For purposes of Code Section 409A, each payment under this Agreement shall be treated as a right to a separate payment for purposes of Code Section 409A.
(e)	Reimbursements. All reimbursements and in kind benefits provided under this Agreement, including, but not limited to, payments under Sections 6, 7 and 9, shall be made or provided in accordance with the requirements of Code Section 409A, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during Executive’s lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement, or in kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in kind benefits to be provided, in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (iv) the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.
(f)	References to Code Section 409A. References in this Agreement to Code Section 409A include both that section of the Code itself and any guidance promulgated thereunder.

11. Miscellaneous.

(a) Modification. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.

(b) Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.

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(c)	Notices. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and if sent by registered or certified mail to Executive or the Company at the address set forth below or to such other address as they shall notify each other in writing:
	If to the Company:

Patriot Risk Management, Inc.
401 East Las Olas Boulevard, Suite 1540
Fort Lauderdale, Florida 33301

If to Executive:

To Theodore G. Bryant, at the last mailing address on file with the Company.

(d)	Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and permitted assigns and Executive and personal representatives, heirs, legatees and beneficiaries. This Agreement may be assigned by the Company with the consent of Executive to a fiscally responsible entity that assumes the obligations set forth herein, but shall not be assignable by Executive.
(e)	Applicable Law. This Agreement shall be construed in accordance with the laws of the State of Florida in every respect, including, without limitation, validity, interpretation and performance. Any dispute between the parties hereto, arising under or relating to this Agreement or Executive’s employment with the Company, other than for an action by the Company for specific performance, injunction or other equitable remedy to enforce Section 8 hereof shall be settled by an arbitration administered by a single arbitrator in Fort Lauderdale, Florida. The arbitrator shall be selected upon mutual agreement of Executive and Company. In the event the parties cannot agree on a single mediator, each party select one arbitrator and these two arbitrators will select the third arbitrator who will act as the final arbitrator in the arbitration proceedings. Discovery, motion practice, and other administrative matters attendant to the litigation shall be conducted pursuant to the then prevailing discovery and motion rules in the US District Court for the Southern District of Florida and as interpreted by the relevant case law. The prevailing party in any such arbitration may be awarded attorneys’ fees and expenses and judgment upon the award rendered may be entered in any court having jurisdiction thereof.
(f)	Headings. Section headings and numbers herein are included for convenience of reference only and this Agreement is not to be construed with reference thereto. If there be any conflict between such numbers and headings and the text hereof, the text shall control.
(g)	Severability. If for any reason any portion of this Agreement shall be held invalid or unenforceable, it is agreed that the same shall not affect the validity or enforceability of the remainder hereof. The portion of the Agreement which is

14

	not invalid or unenforceable shall be considered enforceable and binding on the parties and the invalid or unenforceable provision(s), clause(s) or sentence(s) shall be deemed excised, modified or restricted to the extent necessary to render the same valid and enforceable and this Agreement shall be construed as if such invalid or unenforceable provision(s), clause(s), or sentences(s) were omitted. The provisions of this Section 11(g), as well as Sections 8 and 9 hereof, shall survive the termination of this Agreement.
(h)	Entire Agreement. This Agreement contains the entire agreement of the parties with respect to its subject matter and supersedes all previous agreements between the parties. No officer, employee, or representative of the Company has any authority to make any representation or promise in connection with this Agreement or the subject matter thereof that is not contained therein, and Executive represents and warrants he has not executed this Agreement in reliance upon any such representation or promise. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.
(i)	Waiver of Breach. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach by the breaching party.
(j)	No Mitigation. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment.
(k)	Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and Executive has signed this Agreement all on the day and year first above written.

PATRIOT RISK MANAGEMENT, INC. a Delaware corporation	EXECUTIVE
By: /s/ Steven M. Mariano
Title: CEO	/s/ Theodore G. BryantTheodore G. Bryant

15

Exhibit A to Executive Employment Agreement

RELEASE AGREEMENT

     THIS RELEASE AGREEMENT is made and entered into this ___day of                     , ___by and between Patriot Risk Management, Inc. and its subsidiaries (collectively the “Company”) and                                                              (hereinafter “Executive”).

     Executive’s employment with Company terminated on ____________, ____________; and Executive has voluntarily agreed to the terms of this RELEASE AGREEMENT in exchange for severance benefits under the Employment Agreement (“Employment Agreement”) to which Executive otherwise would not be entitled.

     NOW THEREFORE, in consideration for severance benefits provided under the Employment Agreement, Executive on behalf of himself and his spouse, heirs, executors, administrators, children, and assigns does hereby fully release and discharge Company, its officers, directors, employees, agents, subsidiaries and divisions, benefit plans and their administrators, fiduciaries and insurers, successors, and assigns from any and all claims or demands for wages, back pay, front pay, attorney’s fees and other sums of money, insurance, benefits, contracts, controversies, agreements, promises, damages, costs, actions or causes of action and liabilities of any kind or character whatsoever, whether known or unknown, from the beginning of time to the date of these presents, relating to his employment or termination of employment from Company, including but not limited to any claims, actions or causes of action arising under the statutory, common law or other rules, orders or regulations of the United States or any State or political subdivision thereof including the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act.

     The Company represents that it is not presently aware of any cause of action that it or any of the other Company have against Executive as of the date hereof. The Company acknowledges that this Release granted by Executive will be null and void in the event the Company subsequently brings a cause of action against Executive.

     Executive acknowledges that Executive’s obligations under Section 9 of the Employment Agreement shall continue to apply to Executive.

     This Release Agreement supersedes any and all other agreements between Executive and Company except agreements relating to proprietary or confidential information belonging to Company and indemnification by the Company. This release does not affect Executive’s right to any benefits to which Executive may be entitled under any employee benefit plan, program or arrangement sponsored or provided by Company, including but not limited to the Employment Agreement and the plans, programs and arrangements referred to therein.

     Executive and Company acknowledge that it is their mutual intent that the Age Discrimination in Employment Act waiver contained herein fully comply with the Older Workers Benefit Protection Act. Accordingly, Executive acknowledges and agrees that:

     (a) The Severance benefits exceed the nature and scope of that to which he would otherwise have been legally entitled to receive.

     (b) Execution of this Agreement and the Age Discrimination in Employment Act waiver herein is his knowing and voluntary act;

     (c) He has been advised by Company to consult with his personal attorney regarding the terms of this Agreement, including the aforementioned waiver;

     (d) He has had at least twenty-one (21) calendar days within which to consider this Agreement;

     (e) He has the right to revoke this Agreement in full within seven (7) calendar days of execution and that none of the terms and provisions of this Agreement shall become effective or be enforceable until such revocation period has expired;

     (f) He has read and fully understands the terms of this Agreement; and

     (g) Nothing contained in this Agreement purports to release any of Executive’s rights or claims under the Age Discrimination in Employment Act that may arise after the date of execution.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the date indicated above.

PATRIOT RISK MANAGEMENT, INC. a Delaware corporation	EXECUTIVE
By:
Name: Steven M. Mariano	Theodore G. Bryant
Title: C.E.O. and Chairman of the Board

EX-10.48

Exhibit 10.48

$1,500,000 Date: June 16, 2009

AMENDED AND RESTATED PROMISSORY NOTE

     FOR VALUE RECEIVED, Patriot Risk Management Inc. (the “Borrower”) promises to pay to Steven M. Mariano (the “Lender”) at 401 E. Las Olas Blvd., Suite 1540, Ft. Lauderdale, FL 33301, or at such other place as the Lender may direct, the sum of one million five hundred thousand dollars ($1,500,000) (the “Principal Amount”), in United States currency, together with interest at the time and in the amounts provided herein.

     This amendment revises the Note, such Note shall remain the promissory note of Borrower, issued pursuant to agreement between the Borrower and the Lender. The Note shall be non-negotiable.

     Upon agreement by both Lender and Borrower, the note, a true and correct of which is attached, shall be amended as follows:

2. Repayment Date. This Note shall be payable on demand by the Lender subject to the cash flow requirements of the Borrower.

     All other provisions of the Note, as attached as Exhibit A, shall remain unamended and as set forth in the Note.

     DATED this 16^th day of June, 2009

BORROWER PATRIOT RISK MANAGEMENT, INC.
By:	/s/ Theodore G. Bryant
	Theodore G. Bryant
	Secretary

LENDER
By:	/s/ Steven M. Mariano
	Steven M. Mariano

Exhibit A

$l,500,000 Date: June 26, 2008

PROMISSORY NOTE

     FOR VALUE RECEIVED, Patriot Risk Management, Inc. (the “Borrower”) promises to pay to Steven M. Mariano (the “Lender”) at 401 E. Las Olas Blvd., Suite 1540, Ft. Lauderdale, FL. 33301, or at such other place as the Lender may direct, the sum of one million five hundred thousand dollars ($1,500,000) (the “Principal Amount”), in United States currency, together with interest at the time and in the amounts provided herein.

     This Note is the promissory note of Borrower, issued pursuant to agreement between the Borrower and the Lender. This Note shall be non-negotiable.

1.	Interest. The unpaid portion of the Principal Amount shall bear interest (“Interest”) computed from the date hereof, at eight percent (8%) which varies daily to three percent (3%) above the New York Prime Rate as published in the Wall Street Journal.
2.	Repayment Date. The Principal Amount of this Note, together with Interest accrued thereon, shall be due and payable six (6) months after the date set forth above, that is to say no later than 5:00 p.m. on January 2, 2009. Interest shall be payable monthly and the Principal Amount shall be repaid in its entirety on January 2, 2009.
3.	Guarantee Fee. Borrower shall pay Lender $60,000 as a loan origination and personal guarantee fee as a result of Lender obtaining these funds, and personally guaranteeing full repayment, from an underlying loan instrument between Lender and Aleritas Capital Corporation. This represents four percent (4%) of the principal amount and comports with previous personal guarantee fee paid by Borrower to Lender for similar personal guarantees provided on previous financial transactions between Borrower and Lender. This Guarantee Fee has been approved by Borrower’s Board of Directors.
4.	Prepayment. This Note may be prepaid, at the option of the Borrower, in whole or in part, at any time or from time to time, without premium or penalty. Any such payment shall be applied first to payment of Interest accrued and unpaid, and then to payment of the Principal Amount outstanding and unpaid.
5.	Events of Default. The occurrence of any of the following shall, at the option of the Lender, constitute an Event of Default:

A.	Voluntary Liquidation, Rehabilitation, Receivership, Bankruptcy, Etc. If the Borrower makes an assignment for the benefit of creditors; or if any action is brought by or against the Borrower seeking its liquidation, rehabilitation or receivership under applicable bankruptcy laws; or its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of the Borrower’s property; or the Borrower commences a voluntary case under the Federal Bankruptcy Code; or if any reorganization or arrangement proceeding is instituted by the Borrower for the settlement, readjustment, composition or extension of any of its debts upon any terms; or if any action or petition is otherwise brought by or against the Borrower seeking similar relief or alleging that it is insolvent or unable to pay its debts as they mature;
B.	Involuntary Liquidation, Rehabilitation, Receivership, Bankruptcy. Etc. If any action is brought against the Borrower seeking its liquidation, rehabilitation or receivership under applicable bankruptcy laws; or seeking the dissolution of the Borrower or liquidation of the Borrower’s assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property; and such action is consented to or acquiesced in by the Borrower, or is not dismissed, vacated or stayed within ninety (90) days of the date upon which it was instituted; or if any proceeding under the Federal Bankruptcy Code is instituted against the Borrower and (i) an Order for relief is entered in such proceeding, or (ii) such, proceeding is consented to or acquiesced in by the Borrower or is not dismissed, vacated or stayed within ninety (90) days of the date upon which it was instituted; or if any reorganization or arrangement proceeding is instituted against the Borrower for the settlement, readjustment, composition or extension of any of its debts upon any terms, and such proceeding is consented to or acquiesced in by the Borrower or is not dismissed, vacated or stayed within ninety (90) days of the date upon which it was instituted; or if any action or petition is otherwise brought against the Borrower seeking similar relief or alleging that it is insolvent, unable to pay its debts as they mature, or generally not paying its debts as they become due, and such action or petition is consented to or acquiesced in by the Borrower or is not dismissed, vacated or stayed within ninety (90) days of the date upon which it was brought; or
C.	Failure to Make Punctual Payment. Failure of the Borrower to punctually make payment of any amount payable hereunder to the Lender, whether of the Principal Amount or Interest thereon, within ten (10) days of the date the same becomes due and payable, whether at maturity or by acceleration.

6. Acceleration and Other Remedies. Upon the occurrence of an Event of Default, as defined above:

A.	Any of the obligations hereunder may, at the option of the Lender and without presentment, demand, notice or protest of any kind (all of which are hereby expressly waived), be declared due and payable, whereupon such obligations shall become due and payable;
B.	The Lender may, at its option, and without notice or demand of any kind, exercise from time to time any and all rights and remedies available to it under applicable law or in equity; or
C.	The Borrower shall pay all costs and expenses (including reasonable attorneys’ fees) incurred by the Lender in enforcing its rights hereunder after maturity or acceleration hereof. In the event any claim under this Note is referred to an attorney for collection, or collected by or through an attorney at law, the Borrower will be liable tothe Lender for all expenses incurred in seeking to collect the obligations or monies or to enforce its rights hereunder, including, without limitation, reasonable attorneys’ fees.
D.	Notwithstanding the above, Borrower shall have ninety (90) days within which to cure any Event of Default under this promissory note. This period within which to cure shall begin to run on the date Lender sends written notification to Borrower of an Event of Default.

7.	Waiver. The Borrower hereby waives presentment, demand, protest, notice of dishonor and notice of default.
8.	Governing Law. The Borrower agrees that this Note shall be governed and construed in accordance with the laws of the State of Florida.
9.	Headings. The headings contained herein are solely for the convenience of the parties and shall be given no effect in the interpretation and construction of this Note.

     DATED this 26^th day of June, 2008

BORROWER PATRIOT RISK MANAGEMENT, INC.
By:	/s/ Theodore G. Bryant
	Theodore G. Bryant
	Secretary

EX-10.67

EXHIBIT 10.67

FLORIDA, GEORGIA & NEW JERSEY

PRIMARY TRADITIONAL MARKET

WORKERS’ COMPENSATION QUOTA SHARE REINSURANCE CONTRACT

issued to

GUARANTEE INSURANCE COMPANY

Fort Lauderdale, Florida

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FLORIDA, GEORGIA & NEW JERSEY
PRIMARY TRADITIONAL MARKET
WORKERS’ COMPENSATION QUOTA SHARE REINSURANCE CONTRACT

TABLE OF CONTENTS

Article	Page
Preamble		4
1              Business Covered		4
2              Retention and Limit		5
3              Term		5
4              Special Termination		6
5              Territory		7
6              Exclusions		7
7              Special Acceptance		10
8              Premium		10
9              Other Reinsurance		11
10            Reports and Remittances		11
11            Ceding Commission		12
12            Definitions		12
13            Extra Contractual Obligations/Excess of Policy Limits		14
14            Net Retained Liability		15
15            Original Conditions		15
16            Salvage and Subrogation		15
17            No Third Party Rights		16
18            Loss Settlements		16
19            Commutation		16
20            Sunset		18
21            Late Payments		18
22            Offset		19
23            Currency		20
24            Unauthorized Reinsurance		20
25            Taxes		22
26            Access to Records		23
27            Confidentiality		23
28            Indemnification and Errors and Omissions		24
29            Insolvency		25
30            Arbitration		26
31            Service of Suit		28
32            Agency		29
33            Governing Law		29
34            Entire Agreement		30
35            Non-Waiver		30
36            Change in Administrative Practices		30

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FLORIDA, GEORGIA & NEW JERSEY
PRIMARY TRADITIONAL MARKET
WORKERS’ COMPENSATION QUOTA SHARE REINSURANCE CONTRACT

TABLE OF CONTENTS

Articles
(Cont’d)	Page
37               Intermediary		30
38               Mode of Execution		30
Company Signing Block		31

Attachments

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WORKERS’ COMPENSATION QUOTA SHARE REINSURANCE CONTRACT
(the “Contract”)

issued to

GUARANTEE INSURANCE COMPANY
Fort Lauderdale, Florida
(the “Company”)

by

ULLICO CASUALTY COMPANY
Washington, D.C.
(the “Reinsurer”)

PREAMBLE

A. In the event any affiliated companies are to be reinsured hereunder, whenever the word “Company” is used in this Contract, such term shall be held to include any or all of the affiliated companies which are or may hereafter be under common control, provided that notice be given to the Reinsurer of any such newly affiliated companies which may hereafter come under common control as soon as practicable with full particulars as to how such affiliation is likely to affect this Contract. In the event of either party maintaining that such affiliation calls for alteration in existing terms, and an agreement for alteration not being arrived at, then the business of such newly affiliated company is covered at existing terms only for a period of 45 days after notice by either party that it does not wish to cover such business.

B. The retention of the Company and the liability of the Reinsurer and all other benefits accruing to the Company as provided in this Contract or any amendments hereto, shall apply to the affiliated companies comprising the Company as a group and not separately to each of the affiliated companies.

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Company in respect of the liability that may accrue to the Company as a result of loss or losses under Policies classified by the Company as Traditional Workers’ Compensation and/or Employers Liability (including losses arising from the United States Longshore and Harbor Workers’ Compensation Act, Jones Act, Federal Employers Liability Act, and any other Federal Act), for risks and exposures principally domiciled in

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Florida, Georgia and New Jersey, first written or renewed during the term of this Contract by or on behalf of the Company, subject to the terms and conditions herein contained.

ARTICLE 2

RETENTION AND LIMIT

A. The Company shall cede, and the Reinsurer shall accept as reinsurance, a 68.00% share of all business reinsured hereunder. The Reinsurer shall pay to the Company the Reinsurer’s quota share of losses under the Policies, Loss Adjustment Expense, Extra Contractual Obligations and Loss in Excess of Policy Limits covered under this Contract, subject to a maximum limit of $680,000 (being 68.0% of $1,000,000), inclusive of original deductibles, each and every Loss Occurrence.

B. The Company shall retain (net and un-reinsured elsewhere) no less than a 5.0% share of the business reinsured hereunder, unless the express written consent of the Reinsurer is obtained to retain a lesser amount.

C. The Reinsurer’s Absolute Aggregate Limit, for all Losses, Loss Adjustment Expenses, Extra Contractual Obligations and Loss in Excess of Policy Limits covered under this Contract shall be that amount which represents 90.0% of the Gross Earned Premium Income.

ARTICLE 3

TERM

A. This Contract shall take effect at 12:01 a.m., Local Standard Time at the place of the loss, January 1, 2009, applying to Loss Occurrences commencing at or after that time and date, on policies written or renewed by the Company with an effective time and date at or after that time and date, and shall remain in effect until 12:01 a.m., Local Standard Time at the place of the loss, January 1, 2010. There is no coverage for Loss Occurrences or policies written after January 1, 2010.

B. This Contract may be terminated at any time at the mutual agreement of both the Company and the Reinsurer. The Company shall provide the Reinsurer with the opportunity to renew this Contract, at terms no less favorable to the Reinsurer then are contained herein, for a period of no less than two (2) years beyond the time at which any loans or investments made by the Reinsurer, and/or the Reinsurer’s parent organization, to the Company or its parent organization, have been repaid in full.

C. The Reinsurer shall have no liability for Loss Occurrences commencing at or after expiration or termination of this Contract or for Loss Occurrences commencing before the inception of this Contract.

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D. However, upon mutual agreement between the Company and the Reinsurer, the Reinsurer shall remain liable hereunder in respect of Policies in force prior to expiration or termination, until the termination, natural expiration or renewal of such Policies, whichever occurs first, but in no event to exceed 12 months plus odd time.

E. In the event this Contract expires or terminates on a run-off basis, the Reinsurer’s liability hereunder shall continue if the Company is required by statute or regulation to continue coverage, until the earliest date on which the Company may cancel the Policy, but not to exceed 12 months plus odd time. All terms and conditions of this Contract shall continue in force during such run-off period.

ARTICLE 4

SPECIAL TERMINATION

A. The Company may terminate the Reinsurer’s percentage share in this Contract at any time by giving written notice to the Reinsurer in the event of any of the following circumstances:

1.	The Reinsurer ceases underwriting operations.
2.	A state insurance department or other legal authority orders the Reinsurer to cease writing business, or the Reinsurer is placed under regulatory supervision.
3.	The Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations.
4.	The Reinsurer’s policyholders’ surplus (or the equivalent under the Reinsurer’s accounting system) as reported in such financial statements of the Reinsurer as designated by the Company falls below fifty million dollars ($50,000,000). This paragraph shall not apply should the Reinsurer have an A.M. Best’s rating of “A+” or better.
5.	The Reinsurer has merged with or has become acquired or controlled by any company, corporation, or individual(s) not controlling the Reinsurer’s operations at the inception of this Contract.
6.	The Subscribing Reinsurer has retroceded its entire liability under this Contract without the Company’s prior written consent. Reinsurer has been assigned an A.M. Best’s rating of less than “B+”.

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B. Termination shall be effected on a run-off or cut-off basis as set forth in the Term Article, at the sole discretion of the Company. The reinsurance premium due the Reinsurer hereunder shall be pro rated based on the period of the Reinsurer’s participation hereon, and the Reinsurer shall immediately return any excess reinsurance premium received. In the event that the Company decides to terminate this Contract on a cut-off basis, then as of the cut-off date determined by the Company:

1.	The Reinsurer’s portion of the reinsurance premium shall be the Earned Premium through the cut-off date and the Company’s portion of the reinsurance premium shall be the Unearned Premium as of this same cut-off date; and
2.	The Reinsurer shall be responsible for all claims with an occurrence date equal to or earlier than the cut-off date and the Company shall be responsible for all claims with an occurrence date after this same cut-off date.

ARTICLE 5

TERRITORY

The territorial limits of this Contract shall be identical with those of the Company’s Policies written and issued for risks and exposures principally domiciled in the States of Florida, Georgia and New Jersey.

ARTICLE 6

EXCLUSIONS

This Contract shall not apply to and specifically excludes:

1.	Assumed reinsurance, except 100% of business ceded by fronting insurance companies.
2.	Liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any Insolvency Fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, that provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, that has been declared by any competent authority to be insolvent, or that is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.
3.	Loss or liability accruing to the Company directly or indirectly from any insurance written by or through any pool, association, or syndicate, including pools,

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	associations, or syndicates in which membership by the Company is required under any statutes or regulations.
4.	Loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority. Nevertheless, this Exclusion shall not apply to loss or damage occasioned by riots, strikes, civil commotion, vandalism, malicious damage, and Acts of Terrorism.
5.	All loss or liability of the Company excluded by the “Nuclear Risk Exclusion” attached hereto.
6.	Manufacturing, packaging, handling, shipping or storage of explosives, explosive substances intended for use as an explosive, ammunitions, fuses, arms, or fireworks; however, this exclusion shall not apply to the incidental packaging, handling or storage of same in connection with the sale or transportation by owner operators of such substances.
7.	Loss arising from Professional Sports Teams. For the purpose of this Exclusion, “Professional Sports Team” shall mean an organization of greater than 15 people (including athletes, coaches, and staff) that exists for the purpose of competing in regularly scheduled sporting events and whose members are receiving compensation from the organization at the time of the Occurrence.
8.	Loss sustained by Commercial Airline Personnel on board the aircraft and arising while the aircraft is In Flight. The following definitions shall apply to this Exclusion:

a.	“Commercial Airline” shall mean an organization in the business of transporting passengers and/or goods by aircraft;
b.	“Personnel” shall mean employees of the Commercial Airline acting within the scope of their employment; and
c.	“In Flight” shall mean from the time the door(s) close for departure to the time the door(s) open for arrival.

9.	Liability arising out of, or resulting as a consequence of, insureds principally involved in the manufacture, distribution, installation, testing, remediation, removal, storage, disposal, sale, use of or exposure to asbestos.
10.	Railroads, except scenic railways, and access lines and industrial aid owner operations when written as an incidental part of an insured’s overall operations.
11.	Chemical or petrochemical manufacturing.
12.	Underground mining.

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13.	Loss arising from the intentional wrecking or demolition of buildings or structures in excess of three stories.
14.	Losses arising from the United States Longshore and Harbor Workers’ Compensation Act, Jones Act, Federal Employers Liability Act, Maritime Employers Liability Act, and any other federal act if the payroll for such business is greater than 10% of the total payroll for the original insured’s total operations including such business.
15.	Actual or alleged loss, liability, damage, injury, defense cost, cost or expense directly or indirectly caused by, contributed to by, resulting from, arising out of or in connection with any “acts of terrorism” as defined in the Terrorism Risk Insurance Program Reauthorization Act of 2007 (the “Act”), including acts of war, invasion, acts of foreign enemies, hostilities or warlike operation (whether war be declared or not), civil war, rebellion, revolution, insurrection, or civil commotion assuming the proportions of or amounting to an uprising, military or usurped power, regardless of any other cause or event contributing concurrently or in any sequence to the loss and regardless of the location of the loss, liability, damage, injury, defense, cost or expense.
	Also excluding actual or alleged loss, liability, damage, injury, defense cost or expense directly or indirectly caused by, contributed to by, resulting from, arising out of or in connection with any action taken in controlling, preventing, suppressing, retaliating against, or responding to an act of terrorism as defined in the Act, regardless of the location of the loss, liability, damage, injury, defense, cost or expense.
	Notwithstanding the above and subject otherwise to the terms, conditions and limitations of this Contract, this Contract will pay actual loss or damage caused by an act of terrorism which does not meet the definition of “act of terrorism” as defined in the Act, but in no event will this Contract provide coverage for loss, damage, cost or expense directly or indirectly caused by, contributed to by, resulting from, arising out of or in connection with biological, chemical or nuclear explosion, pollution, contamination and/or fire following therefrom.
	In the event any portion of this exclusion is found to be invalid or unenforceable, the remainder shall remain in full force and effect.
16.	Financial Guarantee and Insolvency.
17.	Risks with known occupational disease exposures per NCCI D&E codes.
18.	Construction of bridges, tunnels or dams.
19.	Firefighters and police officers.

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20.	Trucks hauling explosives or ammunition (local or long distance hauling) — all employees.
21.	Manufacturing, packing, handling, shipping or storage of natural or artificial fuel gases, butane, propane, gasoline, or liquefied petroleum gas; however, this exclusion shall not apply to the incidental packing, handling or storage of same in connection with the sale of such substances.
22.	Gas or oil burner installation NOC.
23.	Gasoline Service Stations tank installations.
24.	Blasting of rock.
25.	Sewer construction — all operations.
26.	Gas main, steam main, or water main construction or connection construction.
27.	Boat manufacturing — F classes.
28.	Banks and trust company employees of contracting agencies in bank service: guards, patrols, messengers or armored car crews.
29.	Detective agencies.
30.	Patrol agencies only in regard to armed guard services.
31.	Alternative Market business including PEO’s and Policyholder controlled captives.
32.	Risks principally domiciled in any State other than Florida, Georgia or New Jersey.

ARTICLE 7

SPECIAL ACCEPTANCE

Business that is not within the scope of this Contract may be submitted to the Reinsurer for special acceptance hereunder, and such business, if accepted by the Reinsurer shall be covered hereunder, subject to the terms and conditions of this Contract, except as modified by the special acceptance.

ARTICLE 8

PREMIUM

The Company shall cede and pay to the Reinsurer its proportionate share of the Gross Earned Premium Income of the Company.

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ARTICLE 9

OTHER REINSURANCE

The Company is permitted to have excess of loss treaty reinsurance, recoveries under which shall inure to the benefit of this Contract.

ARTICLE 10

REPORTS AND REMITTANCES

A. Within 30 days after the end of each month, the Company shall provide the following information to the Reinsurer with reports being provided at the insurance Policy level:

1.	ceded Gross Earned Premium Income for the month;
2.	the ceding commission as provided for in this Contract;
3.	ceded paid loss and Loss Adjustment Expense during the month;
4.	ceded subrogation or other recoveries during the month;
5.	ceded outstanding losses and Loss Adjustment Expense.

	The Company shall remit the positive balance of (1) less (2) less (3), plus (4), 45 days after the end of each month. Negative balances shall be remitted by the Reinsurer as promptly as possible after receipt of the Company’s report but in no event later than 15 days after receipt of the Company’s report.
B.	Should the amount recoverable under this Contract equal $250,000 (being 36.76% of $680,000, which is the Reinsurer’s maximum limit of each and every Loss Occurrence) or more as respects any one loss, the Company may give the Reinsurer notice of payment made or its intention to make payment on a certain date. If the Company has paid the loss, payment shall be made by the Reinsurer within three (3) working days of the Reinsurer’s receipt of notice of payment. If the Company intends to pay the loss by a certain date and has submitted a proof of loss or similar document, payment shall be due from the Reinsurer 24 hours prior to that date, provided the Reinsurer has a period of five working days after receipt of said notice to dispatch the payment. Cash loss amounts specifically remitted by the Reinsurer as set forth herein shall be credited to the next monthly account.
C.	The Company shall also provide the Reinsurer with such other information as may be required by the Reinsurer, at the insurance Policy level, for completion of its NAIC annual statements or as may be required to assure and confirm compliance with the terms of this Contract, including but not limited to Policy effective and expiration date, insured Policyholder State, class codes, experience modification factors and the like.

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ARTICLE 11

CEDING COMMISSION

The Reinsurer shall allow the Company a 23.50% commission on all premiums ceded to the Reinsurer. The Company shall allow the Reinsurer return commission on return premiums at the same rate.

ARTICLE 12

DEFINITIONS

A. “Loss Occurrence” means each and every disaster, casualty, accident, or loss or series of disasters, casualties, accidents or losses arising out of one event. As respects a Loss Occurrence involving Occupational Disease or Other Disease or Cumulative Trauma, the following shall apply:

1.	Per Event Coverage. As respects losses arising from Occupational Disease or Other Disease, regardless of the specific kind or class, suffered by employees of one or more employers, all such losses sustained by the Company from one event shall, together with losses not classified as Occupational Disease or Other Disease, be deemed to be a single “Loss Occurrence.”
2.	Per Employee Coverage. As respects losses arising from Occupational Disease or Other Disease or Cumulative Trauma suffered by a single employee, and not covered under subparagraph (1) above, the date that the Loss Occurrence commences shall be determined as follows:

a.	If the case is compensable under the Workers’ Compensation Law, the date of the beginning of the disability for which compensation is payable.
b.	If the case is not compensable under the Workers’ Compensation Law, the date that disability due to said disease actually began.
c.	If the claim is made after employment has ceased, the date of cessation of such employment.

3. Per Employer Coverage. As respects losses arising from Occupational Disease or Other Disease or Cumulative Trauma of the same specific kind or class, suffered by multiple employees of the same employer, and not covered under subparagraphs (1) or (2) above, all such losses sustained by the Company within a Policy year shall be aggregated and considered as constituting one “Loss Occurrence” hereunder and the inception date of the Policy year in which losses occur shall be deemed to be the date of the Loss Occurrence.

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B. “Gross Earned Premium Income” means gross earned manual premium adjusted for experience and schedule credit/debit modifications, State/NCCI safety credit and other allowable credits, premium discount, deductible credits, expense constants, Policy fees, cancellations and audits.

C. “Loss Adjustment Expense” means costs and expenses incurred by the Company in connection with the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim or loss, or alleged loss, including but not limited to:

1.	court costs;
2.	costs of supersedeas and appeal bonds;
3.	monitoring counsel expenses;
4.	legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions;
5.	post-judgment interest;
6.	pre-judgment interest, unless included as part of an award or judgment;
7.	a pro rata share of salaries and expenses of Company field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other Company employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract; and
8.	subrogation, salvage and recovery expenses.

	“Loss Adjustment Expense” does not include salaries and expenses of the Company’s employees, except as provided in subparagraph (7) above, and office and other overhead expenses.
D.	“Policy(ies)” means any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.
E.	“Occupational Disease,” “Other Disease” and “Cumulative Trauma” shall be defined by the applicable state or federal statutes, regulations, or case law having jurisdiction over such losses.

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ARTICLE 13

EXTRA CONTRACTUAL OBLIGATIONS/EXCESS OF POLICY LIMITS

A. This Contract shall cover 90% of any Extra Contractual Obligations, as provided in the Retention and Limit Article. “Extra Contractual Obligations” shall be defined as those liabilities not covered under any other provision of this Contract and that arise from the handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

B. This Contract shall cover 90% of any Loss in Excess of Policy Limits, as provided in the Retention and Limit Article. “Loss in Excess of Policy Limits” shall be defined as Loss in excess of the Policy limit, having been incurred because of, but not limited to, failure by the Company to settle within the Policy limit or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

C. An Extra Contractual Obligation and/or Loss in Excess of Policy Limits shall be deemed to have occurred on the same date as the loss covered under the Company’s Policy, and shall constitute part of the original loss.

D. For the purposes of the Loss in Excess of Policy Limits coverage hereunder, the word “Loss” means any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy.

E. Loss Adjustment Expense in respect of Extra Contractual Obligations and/or Loss in Excess of Policy Limits shall be covered hereunder in the same manner as other Loss Adjustment Expense.

F. However, this Article shall not apply where the loss has been incurred due to fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

G. Recoveries from any form of insurance or reinsurance, that protects the Company against claims which are the subject matter of this Article, shall inure to the benefit of the Reinsurer, to the extent collected, and shall be deducted from the total amount of Extra Contractual Obligations and Loss in Excess of Policy Limits for purposes of determining the loss hereunder. The Company shall in good faith attempt to collect any recoveries due under this paragraph.

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H. In no event shall coverage be provided to the extent not permitted under law.

ARTICLE 14

NET RETAINED LIABILITY

A. This Contract applies only to that portion of any Policy that the Company retains net for its own account (prior to deduction of any reinsurance that inures solely to the benefit of the Company).

B. The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts that may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

ARTICLE 15

ORIGINAL CONDITIONS

All reinsurance under this Contract shall be subject to the same rates, terms, conditions, waivers and interpretations, and to the same modifications and alterations as the respective Policies of the Company. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

ARTICLE 16

SALVAGE AND SUBROGATION

A. Salvages and all recoveries (including amounts due from all reinsurances that inure to the benefit of this Contract, whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder.

B. All salvages, recoveries or payments recovered or received subsequent to loss settlement hereunder shall be applied as if recovered or received prior to the aforesaid settlement, and all necessary adjustments shall be made by the parties hereto.

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ARTICLE 17

NO THIRD PARTY RIGHTS

This Contract is solely between the Company and the Reinsurer, and in no instance shall any insured, claimant or other third party have any rights under this Contract except as may be expressly provided otherwise herein.

ARTICLE 18

LOSS SETTLEMENTS

A. Other than as described in Article 28 for certain individual claims, the Company shall adjust, settle or compromise all claims and losses. The Reinsurer shall have the right, but not the obligation, to assist the Company (at the Reinsurer’s own cost) in the settlement, adjustment or compromise of any claim or loss, including the right to participate in the defense of any claim, suit or proceeding involving this Contract or the Policies reinsured by this Contract.

B. As respects losses subject to this Contract, all loss settlements made by the Company, whether under strict Policy terms or by way of compromise other than Ex-Gratia Settlements which are covered hereunder only as provided in paragraph C below, and any Extra Contractual Obligations and/or Loss in Excess of Policy Limits, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay or allow, as the case may be, its share of each such settlement as provided in accordance with the Reports and Remittances Article.

“Ex-Gratia Settlements,” as used in this Contract, will mean all settlements of losses not covered under the express terms of the Policies, which are primarily motivated by a customer business relationship. “Ex-Gratia Settlements” will not include settlements of losses which arise from court decisions or other judicial acts or orders.

C. Any Ex-Gratia Settlement made by the Company on a loss subject to this Contract shall be binding on the Reinsurer, provided the Company has submitted the settlement to the Reinsurer and received the Reinsurer’s agreement to the settlement. If the Ex-Gratia Settlement is accepted by the Reinsurer, it shall be subject to the terms of this Contract.

ARTICLE 19

COMMUTATION

A. Except as defined and described in Paragraph E of this Article, this Article will only take effect should the parties hereto mutually agree to commute one or any number of the

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Workers’ Compensation losses under this Contract. There will be no obligation on the part of either party to so commute.

B. Should the Company become liable for any loss hereunder, and be required to make periodic payments to or otherwise set up on its books reserves for such loss, at any time after seven years following the date of such loss and upon mutual agreement of the Company and the Reinsurer, said loss (including Loss Adjustment Expenses) may be commuted. If the value of said loss, including amounts falling to the share of the Reinsurer, cannot be agreed upon by the parties to this Contract, said value may be determined by employing one of the following:

1. A present value calculation based on the following criteria:

a.	In respect of all unindexed benefits, the present value calculation shall be determined based upon an annual discount equal to the five-year U.S. Treasury note rate at the time of commutation.
b.	In respect of all future medical costs, the present value calculation shall be based upon the Company’s evaluation of long term medical care and rehabilitation requirements, using an annual discount equal to the five-year U.S. Treasury note rate at the time of commutation, and an annual escalation equal to the Medical Care Consumer Price Index (CPI-MC) at the time of commutation.
c.	Where applicable, impaired life expectancy, survivors’ life expectancy, as well as remarriage probability shall be reflected in the calculation by employing tables required by statute.

2. The Company may determine the present value by purchasing (or obtaining a quotation for) an annuity from any A. M. Best’s Class VIII IIA+II rated or better annuity writer, with an AAA rating by Standard & Poor’s.

C.	The Reinsurer’s proportion of the amount determined will be considered its total liability for such loss and the lump sum payment thereof shall constitute a complete release of both parties from liability hereunder for the commuted losses.
D.	This Article shall survive the expiration or termination of this Contract.

E. In addition to the ability to commute any one or any group of individual claims, the parties to this Contract may also, upon mutual agreement and understanding, commute this entire Contract. Such commutation shall include specific rights, duties and consideration that are mutually agreeable to both the Company and the Reinsurer. Such whole Contract commutation shall be considered and negotiated in good faith by both parties in the event that the Company consummates an Initial Public Offering during the term of this Contract. In the event of such whole Contract commutation, both parties will use their best efforts to complete such commutation within ninety (90) days from the initial notice by one of the parties as to the intent to commute the Contract.

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ARTICLE 20

SUNSET

Notwithstanding the provisions of paragraph C of the Indemnification and Errors and Omissions Article of this Contract, coverage hereunder shall apply only to Loss Occurrences notified by Company to the Reinsurer, with full particulars, within 84 months from the effective date of this Contract. Notice of an event shall include:

1.	The approximate time and location of the Loss Occurrence.
2.	The date of loss as established under this Contract.
3.	The names of any original insureds that have been identified by the Company, at the time of notice, as being involved in the Loss Occurrence.
4.	The current indemnity, medical and expense reserves delineated by the original insured.
5.	The total payments made by the Company, delineated by original insured.

ARTICLE 21

LATE PAYMENTS

A. In the event any payment due either party is not received by the payment due date, the party to whom payment is due may, by notifying the other party in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

1.	The number of full days that have expired since the overdue date or the last monthly calculation, whichever the lesser; times
2.	1/365th of the sum of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made, plus 1%; times
3.	The amount past due, including accrued interest.

Interest shall accumulate until payment of the original amount due plus interest penalties has been received by the party to whom payment is due.

B. The due date shall, for purposes of this Article, be determined as follows:

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1.

Payments from the Reinsurer to the Company shall be due on the date on which the demand for payment (including delivery of bordereaux or quarterly or monthly reports) is received by the Reinsurer, and shall be overdue 30 days thereafter.

2.

Payments from the Company to the Reinsurer shall be due on the dates specified within this Contract. Payments shall be overdue 30 days thereafter except for the first installment of premium, if applicable, which shall be overdue 60 days from inception or 30 days from final line-signing, whichever the later. Reinstatement premium, if applicable, shall have as a due date the date when the Company receives payment for the claim giving rise to such reinstatement premium, and payment shall be overdue 30 days thereafter. In the event a due date is not specifically stated for a given payment, the overdue date shall be 30 days following the date of billing.

C. If the information contained in the Company’s demand for payment is insufficient or not in accordance with the conditions of this Contract, then within 30 days the Reinsurer shall request from the Company all additional information necessary to validate its claim and the payment due date as defined in paragraph B shall be deemed to be the date upon which the Reinsurer received the requested additional information. This paragraph is only for the purpose of establishing when a payment is overdue, and shall not alter the provisions of the Loss Settlements Article, the Reports and Remittances Article, or other pertinent contractual stipulations.

D. Should the Reinsurer dispute a claim presented by the Company and the timeframes set out in paragraph B be exceeded, interest as stipulated in paragraph A shall be payable for the entire overdue period, but only for the amount of the final settlement with the Reinsurer.

E. In the event arbitration is necessary to settle a dispute, the panel shall have the authority to make a determination awarding interest to the prevailing party. Interest, if any, awarded by the panel shall supersede the interest amounts outlined herein.

F. Any interest owed pursuant to this Article may be waived by the party to which it is owed. Waiver of such interest, however, shall not affect the waiving party’s rights to other interest amounts due as a result of this Article.

ARTICLE 22

OFFSET

The Company and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums, claims and losses, loss expenses or salvages due from one party to the other under this Contract; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with applicable statutes and regulations.

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ARTICLE 23

CURRENCY

A. Where the word “Dollars” and/or the sign “$” appear in this Contract, they shall mean United States Dollars.

B. For purposes of this Contract, where the Company receives premiums or pays losses in currencies other than United States Dollars, such premiums or losses shall be converted into United States Dollars at the actual rates of exchange at the time of receipt or payment by the Company.

ARTICLE 24

UNAUTHORIZED REINSURANCE

A. This Article applies only to a Reinsurer who does not qualify for full credit with any insurance regulatory authority having jurisdiction over the Company’s reserves.

B. The Company agrees, in respect of its Policies or bonds falling within the scope of this Contract, that when it files with its insurance regulatory authority, or sets up on its books liabilities as required by law, it shall forward to the Reinsurer a statement showing the proportion of such liabilities applicable to the Reinsurer. The “Reinsurer’s Obligations” shall be the Reinsurer’s proportionate share of:

1.	unearned premium (if applicable);
2.	known outstanding losses that have been reported to the Reinsurer and Loss Adjustment Expense relating thereto;
3.	losses and Loss Adjustment Expense paid by the Company but not recovered from the Reinsurer;
4.	losses incurred but not reported (“IBNR”) and Loss Adjustment Expense relating thereto. The Company shall set such IBNR in reasonable manner, consistent with standards and practices as promulgated by the Casualty Actuarial Society as of the date such IBNR is set.

C. The Reinsurer’s Obligations shall be funded by funds withheld, cash advances, Trust Agreement or a Letter of Credit (LOC). The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves.

D. When funding by an LOC, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional LOC issued by a bank and containing provisions acceptable to the insurance regulatory authorities having jurisdiction

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over the Company’s reserves in an amount equal to the Reinsurer’s Obligations. Such LOC shall be issued for a period of not less than one year, and shall be automatically extended for one year from its date of expiration or any future expiration date unless 30 days (or such other time period as may be required by insurance regulatory authorities), prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the LOC extended for any additional period.

E. The Reinsurer and the Company agree that any funding provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company, for the following purposes, unless otherwise provided for in a separate Trust Agreement:

1.	to reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and that has not been otherwise paid;
2.	to make refund of any sum that is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract (or in excess of 102% of the Reinsurer’s Obligations, if funding is provided by a Trust Agreement);
3.	to fund an account with the Company for the Reinsurer’s Obligations. Such cash deposit shall be held in an interest bearing account separate from the Company’s other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer. Any taxes payable on accrued interest shall be paid out of the assets in the account that are in excess of the Reinsurer’s Obligations (or in excess of 102% of the Reinsurer’s Obligations, if funding is provided by a Trust Agreement). If the assets are inadequate to pay taxes, any taxes due shall be paid by the Reinsurer;
4.	to pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

F. If the amount drawn by the Company is in excess of the actual amount required for E(1) or E(3), or in the case of E(4), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn. All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer.

G. The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

H. At annual intervals, or more frequently at the request of the Reinsurer or at the discretion of the Company, but never more frequently than quarterly, the Company shall prepare a

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specific statement of the Reinsurer’s Obligations for the sole purpose of amending the LOC or other method of funding, in the following manner:

1.

If the statement shows that the Reinsurer’s Obligations exceed the balance of the LOC as of the statement date, the Reinsurer shall, within 30 days after receipt of the statement, secure delivery to the Company of an amendment to the LOC increasing the amount of credit by the amount of such difference. Should another method of funding be used, the Reinsurer shall, within the time period outlined above, increase such funding by the amount of such difference.

2.

If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of the LOC (or that 102% of the Reinsurer’s Obligations are less than the trust account balance if funding is provided by a Trust Agreement), as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the LOC reducing the amount of credit available by the amount of such excess credit. Should another method of funding be used, the Company shall, within the time period outlined above, decrease such funding by the amount of such excess.

I. At the inception of this Contract, the Company understands, agrees and stipulates that the Reinsurer is an Authorized Reinsurer, and as of that date, is not subject to any collateralization requirements or obligations. The Reinsurer understands and agrees that should the Reinsurer become an Unauthorized Reinsurer (i.e. does not qualify for credit with the insurance regulatory authority having jurisdiction over the Company’s reserves) at any time during the Term of this Contract, the Reinsurer shall be subject to the collateralization requirements and obligations described in Paragraphs A-H of this Article.

ARTICLE 25

TAXES

A. In consideration of the terms under which this Contract is issued, the Company undertakes not to claim any deduction of the premium hereon when making Canadian tax returns or when making tax returns, other than Income or Profits Tax returns, to any state or territory of the United States of America or to the District of Columbia.

B.	1.	The Reinsurer has agreed to allow, for the purpose of paying the Federal Excise Tax, the applicable percentage of the premium payable hereon (as imposed under the Internal Revenue Code) to the extent such premium is subject to Federal Excise Tax.
	2.	In the event of any return of premium becoming due hereunder, the Reinsurer shall deduct the applicable percentage of the premium from the amount of the return, and the Company or its agent should take steps to recover the Tax from the U.S. Government.

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     ARTICLE 26

ACCESS TO RECORDS

The Reinsurer or its duly authorized representatives shall have the right to visit the offices of the Company to inspect, examine, audit, copy, and verify any of the Policy, accounting or claim files or other relevant records (“Records”) relating to business reinsured under this Contract during regular business hours after giving five working days’ prior notice. This right shall be exercisable during the term of this Contract or after the expiration of this Contract. Notwithstanding the above, the Reinsurer shall not have any right of access to the Records of the Company if it is not current in all undisputed payments due the Company.

ARTICLE 27

CONFIDENTIALITY

A. The Reinsurer hereby acknowledges that the documents, information and data provided to it by the Company, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (“Confidential Information”) are proprietary and confidential to the Company. Confidential Information shall not include documents, information or data that the Reinsurer can show:

1.	are publicly known or have become publicly known through no unauthorized act of the Reinsurer;
2.	have been rightfully received from a third person without obligation of confidentiality; or
3.	were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

B. Absent the written consent of the Company, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except:

1.	when required by retrocessionaires subject to the business ceded to this Contract;
2.	when required by regulators performing an audit of the Reinsurer’s records and/or financial condition; or
3.	when required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

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4.	when required by attorneys or arbitrators in connection with an actual or potential dispute hereunder; or
5.	when required by the Reinsurer’s internal reinsurance operations.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract or for the Reinsurer’s internal reinsurance operations.

C. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Company with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Company in maintaining the confidentiality provided for in this Article.

D. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 28

INDEMNIFICATION AND ERRORS AND OMISSIONS

A. The Reinsurer is reinsuring, to the amount herein provided, the obligations of the Company under any original insurance or reinsurance. Except as noted in Paragraph D of this Article, the Company shall be the sole judge as to:

1.	what shall constitute a claim or loss covered under any original insurance or reinsurance written by the Company;
2.	the Company’s liability thereunder;
3.	the amount or amounts that it shall be proper for the Company to pay thereunder.

B. The Reinsurer shall be bound by the judgment of the Company as to the obligation(s) and liability(ies) of the Company under any original insurance or reinsurance.

C. Except for the conditions as provided for in the Sunset Article, any inadvertent error, omission or delay in complying with the terms and conditions of this Contract shall not be held to relieve either party hereto from any liability that would attach to it hereunder if such error, omission or delay had not been made, provided such error, omission or delay is rectified immediately upon discovery.

D. For claims or losses of a particular size or nature, as listed below, the Company shall look to the Reinsurer for approval (to the extent such approval is not prohibited by applicable State law or regulation) and assistance in the (a) determination of what shall constitute a claim or loss covered under the original insurance or reinsurance written by the Company,

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(b) Company’s liability thereunder and/or (c) amount or amounts that should be deemed proper for the Company to pay:

i)	Any claim or loss for which the ultimate cost (including losses, Loss Adjustment Expenses, Extra Contractual Obligations and Loss in Excess of Policy Limits), assuming the absence of all reinsurances that may be applicable, is at any time estimated to be in excess of five hundred thousand dollars ($500,000);
ii)	Any claim, suit, notice or loss involving or alleging any of the following:

1.	Death
2.	2nd- or 3rd degree burns over more than 25% of the body
3.	Amputation
4.	Spinal Cord injuries (including Paraplegia or Quadriplegia)
5.	Permanent Impairment
6.	2nd or later Surgeries
7.	Post-Traumatic Stress
8.	Any mode of public or private transportation
9.	Bath Faith

The Reinsurer’s approval and/or assistance in the determination of coverage, liability or payment amounts shall not be unduly withheld, nor shall such approval or assistance be provided in a manner or timeframe so as to adversely affect the economic outcome of any claim or loss. In addition, the Reinsurer’s approval and assistance shall be requested with respect to external or third party activity and shall not restrict the Company’s internal accounting or reserving activities.

ARTICLE 29

INSOLVENCY

A. If more than one reinsured company is referenced within the definition of “Company” in the Preamble to this Contract, this Article will apply severally to each such company. Further, this Article and the laws of the domiciliary state will apply in the event of the insolvency of any company covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company covered hereunder, that domiciliary state’s laws will prevail.

B. In the event of the insolvency of the Company, this reinsurance (or the portion of any risk or obligation assumed by the Reinsurer, if required by applicable law) shall be payable directly to the Company, or to its liquidator, receiver, conservator or statutory successor, either: (1) on the basis of the liability of the Company, or (2) on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable statute, without diminution because of the insolvency of the Company or because the liquidator,

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receiver, conservator or statutory successor of the Company has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the Company indicating the Policy or bond reinsured, which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit that may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

C. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this reinsurance Contract as though such expense had been incurred by the Company.

D. As to all reinsurance made, ceded, renewed or otherwise becoming effective under this Contract, the reinsurance shall be payable as set forth above by the Reinsurer to the Company or to its liquidator, receiver, conservator or statutory successor, (except as provided by Section 4118(a)(1)(A) of the New York Insurance Law, provided the conditions of 1114(c) of such law have been met, if New York law applies) or except (1) where the Contract specifically provides another payee in the event of the insolvency of the Company, or (2) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such Policy obligations of the Company as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Company to such payees. Then, and in that event only, the Company, with the prior approval of the certificate of assumption on New York risks by the Superintendent of Insurance of the State of New York, or with the prior approval of such other regulatory authority as may be applicable, is entirely released from its obligation and the Reinsurer shall pay any loss directly to payees under such Policy.

ARTICLE 30

ARBITRATION

A. Any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration will be in writing and sent certified registered mail, return receipt requested.

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B. If the amount in dispute is less than $100,000, unless the arbitration notice includes a demand for rescission of this Contract, the dispute shall be resolved by a sole arbitrator and the following procedures shall apply:

a. The sole arbitrator shall be chosen by mutual agreement of the parties within 15 business days after the demand for arbitration. If the parties have not chosen an arbitrator within the 15 business days after the receipt of the arbitration notice, the arbitrator shall be chosen in accordance with the Neutral Arbitrator Selection Procedure modified for a single arbitrator, established by the AIDA Reinsurance and Insurance Arbitration Society — U.S. (ARIAS) and in force on the date the arbitration is demanded. The nominated arbitrator must be available to read any written submissions and hear testimony within 60 calendar days of being chosen.

b. Within 10 business days after the arbitrator has been appointed, the parties shall be notified of deadlines for the submission of briefs and documentary evidence, as determined by the arbitrator. There shall be no discovery or hearing unless the parties agree to engage in limited discovery and/or a hearing. Also, the arbitrator can determine, without the consent of the parties, that a limited hearing is necessary.

c. The arbitrator shall render a decision no later than 10 business days from the later of the date on which the briefs are submitted or the close of the hearing, if any. The decision of the arbitrator shall be in writing and shall be final and binding.

C. If the amount in dispute is equal to or greater than $100,000, or if the arbitration notice includes a demand for rescission of this Contract, the following procedures shall apply:

1. One arbitrator shall be chosen by each party and the two arbitrators shall, before instituting the hearing, choose an impartial third arbitrator who shall preside at the hearing. If either party fails to appoint its arbitrator within 30 days after being requested to do so by the other party, the latter, after 10 days’ notice by certified or registered mail of its intention to do so, may appoint the second arbitrator.

2. If the two arbitrators are unable to agree upon the third arbitrator within 30 days of their appointment, the third arbitrator shall be selected by the American Arbitration Association.

3. Within 45 days after notice of appointment of all arbitrators, the panel shall meet and determine timely periods for briefs, discovery procedures and schedules for hearings. Unless the panel agrees otherwise, arbitration shall take place in Fort Lauderdale, Florida, but the venue may be changed when deemed by the panel to be in the best interest of the arbitration proceeding.

4. The panel shall make its decision within 60 days following the termination of the hearings. The decision of any two arbitrators when rendered in writing shall be final and binding.

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5. Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the cost of the third arbitrator.

D. All arbitrators shall be disinterested active or former executives of insurance or reinsurance companies or Underwriters at Lloyd’s, London, with expertise or experience in the area being arbitrated. If a member of the panel dies, becomes disabled or is otherwise unwilling or unable to serve, a substitute shall be selected in the same manner as the departing member was chosen and the arbitration shall continue.

E. The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Notwithstanding anything to the contrary in this Contract, the arbitrators may at their discretion, consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Contract. The panel is empowered to grant interim relief, as it may deem appropriate.

F. The arbitrator(s) shall interpret this Contract as an honorable engagement rather than as merely a legal obligation considering the custom and practice of the applicable insurance and reinsurance business.

G. Judgment upon the award may be entered in any court having jurisdiction thereof.

H. Except as provided in subparagraph C(5) above, the costs of the arbitration shall be allocated by the panel. The panel may, at its discretion, award such further costs and expenses as it considers appropriate, including but not limited to attorneys’ fees, to the extent permitted by law.

I. Punitive damages shall not be assessed against either party.

ARTICLE 31

SERVICE OF SUIT

A. This Article applies only to those Reinsurers not domiciled in the United States of America, and/or not authorized in any state, territory and/or district of the United States of America where authorization is required by insurance regulatory authorities.

B. This Article shall not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

C. In the event of the failure of the Reinsurer to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or

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should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is selected, whether such court is the one originally chosen by the Company and accepted by Reinsurer or is determined by removal, transfer, or otherwise, as provided for above, shall comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against the Reinsurer upon this Contract, shall abide by the final decision of such court or of any appellate court in the event of an appeal.

D. Service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another party specifically designated in the applicable Interests and Liabilities Agreement attached hereto. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit.

E. Further, pursuant to any statute of any state, territory or district of the United States that makes provision therefor, the Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance, or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract, and hereby designates the above-named as the person to whom the said officer is authorized to mail such process or a true copy thereof.

ARTICLE 32

AGENCY

For purposes of sending and receiving notices and payments required by this Contract, Guarantee Insurance Company shall be deemed the agent of all other reinsured Companies referenced in this Contract. In no event, however, shall any reinsured Company be deemed the agent of another with respect to the terms of the Insolvency Article.

ARTICLE 33

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation by the laws of the State of Florida, exclusive of conflict of law rules. However, with respect to credit for reinsurance, the rules of all applicable states shall apply.

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ARTICLE 34

ENTIRE AGREEMENT

This Contract sets forth all of the duties and obligations between the Company and the Reinsurer and supersedes any and all prior or contemporaneous written agreements with respect to matters referred to in this Contract. The Contract may not be modified or changed except by an amendment to this Contract in writing signed by both parties.

ARTICLE 35

NON-WAIVER

The failure of the Company or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedy contained herein nor stop either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedy in the future.

ARTICLE 36

CHANGE IN ADMINISTRATIVE PRACTICES

The Company shall use its best efforts to maintain and be in compliance with the underwriting policies and guidelines and risk acceptance practices in effect as of the inception of this Contract, and shall not make any changes to such guidelines, practices or policies without the express written prior approval of the Reinsurer.

ARTICLE 37

INTERMEDIARY

This contract was negotiated directly between the Company and the Reinsurer in good faith, on equal footing and at arm’s length, and did not involve or include the services of a Reinsurance Intermediary.

ARTICLE 38

MODE OF EXECUTION

A. This Contract may be executed by:

1. an original written ink signature of paper documents;

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2. an exchange of facsimile copies showing the original written ink signature of paper documents;

3. electronic signature technology employing computer software and a digital signature or digitizer pen pad to capture a person’s handwritten signature in such a manner that the signature is unique to the person signing, is under the sole control of the person signing, is capable of verification to authenticate the signature and is linked to the document signed in such a manner that if the data is changed, such signature is invalidated.

B. The use of any one or a combination of these methods of execution shall constitute a legally binding and valid signing of this Contract. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

IN WITNESS WHEREOF, the Company has caused this Contract to be executed by its duly authorized representative(s) this 26^th day of March, in the year of                     .

Signed in Washington, D.C.

ATTEST:	GUARANTEE INSURANCE COMPANY
	By:	/s/ Theodore G. Bryant
	Title:	Secretary and General Counsel
	Reference:

IN WITNESS WHEREOF, the Reinsurer has caused this Contract to be executed by its duly authorized representative(s) this 26 day of March, in the year of 2009.

Signed in Washington, DC

ATTEST:	ULLICO CASUALTY COMPANY
	By:	/s/ David Aronowitz
	Title:	President
	Reference:

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FLORIDA, GEORGIA & NEW JERSEY

PRIMARY TRADITIONAL MARKET

WORKERS’ COMPENSATION QUOTA SHARE REINSURANCE CONTRACT

NUCLEAR RISK EXCLUSION

     This Agreement does not apply to Loss Occurrences arising from, whether directly or indirectly, whether proximate or remote:

a) Any Nuclear Facility, Nuclear Hazard or Nuclear Reactor;

b) Any Nuclear Material, Radioactive Material, Nuclear Reaction, Nuclear Radiation or radioactive contamination, all whether controlled or uncontrolled; or

c) Any Nuclear Material, Radioactive Material, Nuclear Reaction, Nuclear Radiation or radioactive contamination, all whether controlled or uncontrolled, caused directly or indirectly by, contributed to or aggravated by an Event;

d)	Any Spent Fuel or Waste;
e)	Any Fissionable Substance; or
f)	Any nuclear device or bomb.

As used in this Exclusion:

“Fissionable Substance” means;

any prescribe substance that is, or from which can be obtained, a substance capable of releasing atomic energy by nuclear fission.

“Nuclear Facility” means;

any Nuclear Reactor,

any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of plutonium, thorium and uranium or any one or more of them;

any equipment or device designed or used for (i) separating the isotopes of plutonium, thorium and uranium or any one or more of them, (ii) processing or utilizing spent fuel, or (iii) handling, processing or packaging Waste;

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any equipment or device used for the processing, fabricating or alloying of Special Nuclear Material if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235;

any equipment or device used for the processing, fabricating or alloying of plutonium, thorium or uranium enriched in the isotope uranium 233 or in the isotope uranium 235, or any one or more of them if at any time the total amount of such material in the custody of the Insured at the premised where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235;

any structure, basin, excavation, premises or place prepared or used for the storage or disposal of Waste or Radioactive Material, and includes the site on which any of the foregoing is located, all operations conducts on such site and all premises used for such operations;

“Nuclear Hazard” means: the radioactive, toxic, explosive or other hazardous properties of Radioactive Material or Nuclear Material.

“Nuclear Material” means Source Material, Special Nuclear Material or Byproduct Material.

“Nuclear Reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material.

“Radioactive Material” means uranium, thorium, plutonium, neptunium, their respective derivatives and compounds, radioactive isotopes of other elements and any other substances that the Atomic Energy Control Board may, by regulation designate as being prescribed substances capable of releasing atomic energy, or as being requisite for the production, use or application of atomic energy.

“Source Material,” “Special Nuclear Material”, and “Byproduct Material” have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof.

“Spent Fuel” means any fuel element or fuel component, solid or liquid, which has been sued or exposed to radiation in the Nuclear Reactor.

“Waste” means any waste material (i) containing Byproduct Material and (ii) resulting from the operation by any person or organization of any Nuclear Facility.

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EX-10.68

Exhibit 10.68

BORROWER NAME AND ADDRESS	LENDER NAME AND ADDRESS	LOAN DESCRIPTION
Patriot Risk Management, Inc.	Ullico Inc.	Amount $5,450,000
PRS Group, Inc.	1625 Eye Street, NW
Guarantee Insurance Group, Inc.	Washington, DC 20006
Patriot Risk Services, Inc.
Patriot Risk Management of Florida, Inc.
SunCoast Capital, Inc.
401 East Las Olas Blvd., Suite 1540
Ft. Lauderdale, FL 33301
		Date: 12-31-2008

o Refer to the attached Signature Addendum, incorporated herein, for additional Borrowers and their signatures.

COMMERCIAL LOAN AGREEMENT

LOAN STRUCTURE. This Commercial Loan Agreement (Agreement) contemplates þ a single advance term Loan o a multiple advance draw Loan o a revolving multiple advance draw Loan. The principal balance will not exceed $5,450,000.00. Borrower will pay down a revolving draw Loan’s outstanding Principal in $                     (Pay Down Balance)                      (Time Period).

This Loan is for o agricultural þ business purposes.

o Borrower may not voluntarily prepay the Loan in full at any time. þ Borrower may prepay the Loan under the following terms and conditions (Any partial prepayment will not excuse any later scheduled payments until the Loan is paid in full) at any time subject to the payment of the prepayment premium hereinafter described.

þ LATE CHARGES. If a payment is made more than 5 days after it is due, Borrower will pay a late charge of 5.000% of the payment amount.

FEES. Borrower agrees to pay the following fees in connection with this Loan at closing or as otherwise requested by Lender:

Lender Expenses: up to $75,000 (which shall be payable to Lender upon demand)

Fees of Freeman & Co Securities LLC and certain other expenses: $450,000

REQUESTS FOR ADVANCES. Borrower authorizes Lender to honor a request for an advance from Borrower or any person authorized by Borrower. The requests for an advance must be in writing, by telephone, or any other manner agreed upon by Borrower and Lender, and must specify the requested amount and date and be accompanied with any agreements, document, and instruments that Lender requires for the Loan. Lender will make same day advances, on any day that Lender is open for business, when the request is received before                      (Advance Cut-Off Time). Lender will disburse the advance into Borrower’s demand deposit account (if any), account number                      or in any other agreed upon manner. All advances will be made

in United States dollars.

o  These requests must be made by at least                      (Number Required To Draw) persons, acting together, of those persons authorized to act on Borrower’s behalf.

o  Advances will be made in the amount of at least $                     (Minimum Amount Of Advance).

o  Advances will be made no more frequently than                      (Minimum Frequency Of Advance).

o  Discretionary Advances. Lender will make all loan advances at Lender’s sole discretion.

o  Obligatory Advances. Lender will make all Loan advances subject to this Agreement’s terms and conditions.

FINANCIAL INFORMATION. Borrower will prepare and maintain Borrower’s financial records using consistently applied generally accepted accounting principles then in effect. Borrower will provide Lender with financial information in a form acceptable to Lender and under the following terms.

	A.	Frequency. Annually, Borrower will provide to Lender Borrower’s financial statements, tax returns, annual internal audit reports or those prepared by independent accountants within 120 days after the close of each fiscal year. Any annual financial statements that Borrower provides will be þ audited statements, o reviewed statements, o compiled statements.
		þ Borrower will provide Lender with interim financial reports on a Quarterly (Monthly, Quarterly) basis, and within 45 days after the close of this business period. Interim financial statements will be o audited þ reviewed o compiled statements.
	B.	Requested Information. Borrower will provide Lender with any other Information about Borrower’s operations, financial affairs and conditions within 15 days after Lender’s request.
o	C.	Leverage Ratio. Borrower will maintain at all times a ratio of total liabilities to tangible net worth, determined under consistently applied generally accepted accounting principles, of                      (Total Liabilities to Tangible Net Worth Ratio) or less.
o	D.	Minimum Tangible Net Worth. Borrower will maintain at all times a total tangible net worth, determined under consistently applied generally accepted accounting principles, of $                     (Minimum Tangible Net Worth) or more. Tangible net worth is the amount by which total assets exceed total liabilities. For determining tangible net worth, total assets will exclude all intangible assets, including without limitation goodwill, patents, trademarks, trade names, copyrights, and franchises, and will also exclude any accounts receivable that do not provide for a repayment schedule.

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o	E.	Minimum Current Ratio. Borrower will maintain at all times a ratio of current assets to current liabilities, determined under consistently applied generally accepted accounting principles of                      (Minimum Current Ratio) or more.
o	F.	Minimum Working-Capital. Borrower will maintain at all times a working capital, determined under consistently applied generally accepted accounting principles by subtracting current liabilities from current assets, of $                     (Minimum Working Capital) or more. For this determination, current assets exclude                      (Excluded Current Assets). Likewise, current liabilities include (1) all obligations payable on demand or within one year after the date on which the determination is made, and (2) final maturities and sinking fund payments required to be made within one year after the date on which the determination is made, but exclude all liabilities or obligations that Borrower may renew or extend to a date more than one year from the date of this determination.

ATTACHMENTS. The following documents are incorporated by reference into this Agreement: o Asset Based Financing Agreement addendum dated                      o Commercial Security Agreement addendum dated                      þ Other Addendum hereto dated as of the date hereof.

ADDITIONAL TERMS:

o   ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE, REGARDLESS OF THE LEGAL THEORY UPON WHICH IT IS BASED THAT IS IN ANY WAY RELATED TO THE CREDIT AGREEMENT. TO PROTECT YOU (BORROWER) AND US (LENDER) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT. BY SIGNING THIS AGREEMENT, THE PARTIES AFFIRM THAT NO UNDERWRITTEN ORAL AGREEMENT EXISTS BETWEEN THEM.

SIGNATURES. By signing under seal, I agree to all the term and condition set forth in this

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Agreement and the Addendum and attachments thereto. Borrower also acknowledges receipt of a copy of this Agreement and the Addendum and attachments thereto.

BORROWER: PATRIOT RISK MANAGEMENT, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PRS GROUP, INC., a Delaware corporation
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
GUARANTEE INSURANCE GROUP, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PATRIOT RISK SERVICES, INC,. a Delaware corporation
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
PATRIOT RISK MANAGEMENT OF FLORIDA, INC, a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	Chairman

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SUNCOAST CAPITAL, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
LENDER: ULLICO INC., a Maryland corporation
By:
	Name:
	Title:

[Signature Page to Commercial Loan Agreement (Continued)]

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SUNCOAST CAPITAL, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer LENDER:
ULLICO INC., a Maryland corporation
By:	/s/ James M. Paul
	Name:	James M. Paul
	Title:	Senior V.P., Chief Operating Officer

[Signature Page to Commercial Loan Agreement (Continued)]

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COMMERCIAL LOAN AGREEMENT (CONTINUED)

DEFINITIONS. In this Agreement, the following terms have the following meanings:

Accounting Terms. Accounting terms that are not specifically defined will have their customary meanings under consistently applied generally accepted accounting principles.

Loan. Loan refers in all advances made under the terms of this Agreement.

Loan Documents. Loan Documents include this Agreement and all documents prepared pursuant to the terms of this Agreement including all present and future promissory notes (Notes), security instruments, guaranties, and supporting documentation as modified, amended or supplemented.

Property. Property is any collateral, real, personal or intangible, that secures Borrower’s performance of the obligations of this Agreement.

ADVANCES. To the extent permitted by law, Borrower will indemnify Lender and hold Lender harmless for reliance on any request for advance that Lender reasonably believes to be genuine. Lender’s records are conclusive evidence as to the number and amount of advances and the Loan’s unpaid principal and interest. If any advance results in an overadvance (when the total amount of the Loan exceeds the principal balance) Borrower will pay the overadvance, as requested by Lender. Regarding Borrower’s demand deposit account(s) with Lender, Lender may, at its option, consider presentation for payment of a check or other charge exceeding available funds as a request for an advance under this Agreement. Any such payment by Lender will constitute an advance on the Loan.

CONDITIONS. Borrower will satisfy all of the following conditions before Lender makes any advances under this Agreement. If this Agreement provides for discretionary advances, satisfaction of these conditions does not commit Lender to making advances.

No Default. There has not been a default under the Loan Documents nor would a default result from making the advance.

Information. Borrower has provided all required documents, information, certifications and warranties, all properly executed on forms acceptable to Lender.

Inspections. Borrower has accommodated, to Lender’s satisfaction, all inspections.

Conditions and Covenants. Borrower has performed and complied with all conditions required for an advance and all covenants in the Loan Documents.

Warranties and Representations. The warranties and representations contained in this Agreement are true and correct at the time of making the advance.

Financial Statements. Borrower’s most recently delivered financial statements and reports are current, complete, true and accurate in all material respects and fairly represent Borrower’s financial condition.

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Bankruptcy Proceedings. No proceeding under the United Suites Bankruptcy Code has been commenced by or against Borrower or any of Borrower’s affiliates.

WARRANTIES AND REPRESENTATIONS. Borrower makes these warranties and representations which will continue as long as this Agreement is in effect.

Power. Borrower is duly organized, validly existing and in good standing in all jurisdictions in which Borrower operates. Borrower has the power and authority to enter into this transaction and to carry on its business or activity as it is now being conducted. All persons who are required by applicable law and the governing documents of Borrower have executed and delivered to Lender this Agreement and other Loan Documents.

Authority. The execution, delivery and performance of this Agreement and the obligation evidenced by the Loan Documents are within Borrower’s duly authorized powers, has received all necessary governmental approval, will not violate any provision of law or order of court or governmental agency, and will not violate any agreement to which Borrower is a party or to which Borrower or Borrower’s property is subject.

Name and Place of Business. Other than previously disclosed in writing to Lender, Borrower has not changed its name or principal place of business within the last ten years and has not used any other trade or fictitious name. Without Lender’s prior written consent. Borrower will not use any other name and will preserve Borrower’s existing name, trade names and franchises.

No Other Liens. Borrower owns or leases all property that is required for its business and except as disclosed, the property is free and clear of all liens, security interests, encumbrances and other adverse interests.

Compliance With Laws. Borrower is not violating any laws, regulations, rules, orders, judgments or decrees applicable to Borrower or its property, except as disclosed to Lender.

Financial Statements. Borrower represents and warrants that all financial statements that Borrower provides to Lender fairly represent Borrower’s financial condition for the stated periods, are current, complete, true and accurate in all material respects, include all direct or contingent liabilities, and that there has been no material adverse change in Borrower’s financial condition, operations or business since the date the financial information was prepared.

COVENANTS. Until the Loan and all related debts, liabilities and obligations under the Loan Documents are paid and discharged, Borrower will comply with the following terms, unless Lender waives compliance in writing.

Inspection and Disclosure. Borrower will allow Leader or its agents to enter any of Borrower’s premises during mutually agreed upon times, to do the following: (1) inspect, audit, review and obtain copies from Borrower’s books, records, orders, receipts, and other business related data; (2) discuss Borrower’s finances and business with anyone who claims to be Borrower’s creditor; (3) inspect Borrower’s Property, audit for the use and disposition of the Property’s proceeds, or do whatever Lender decides is necessary to preserve and protect the Property and Lender’s interest in the Property. As long as this Agreement is in effect, Borrower will direct all of Borrower’s accountants and auditors to permit Lender to examine and make copies of

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Borrower’s records in their possession, and to disclose to Lender any other information that they know about Borrower’s financial condition and business operations. Lender may provide Lender’s regulator with required information about Borrower’s financial condition, operation and business or that of Borrower’s parent, subsidiaries or affiliates.

Business Requirements. Borrower will preserve and maintain its present existence and good standing in jurisdictions where Borrower is organized and operates. Borrower will continue its business or activities as presently conducted, by obtaining licenses, permits and bonds where needed. Borrower will obtain Lender’s prior written consent before ceasing business or engaging in any line of business that is materially different from its present business.

Compliance with Laws. Borrower will not violate any laws, regulations, rules, orders, judgments or decrees applicable to Borrower or Borrower’s property, except for those which Borrower challenges in good faith through proper proceedings after providing adequate reserves to fully pay the claim and its appeal should Borrower lose. On request, Borrower will provide Lender with written evidence that Borrower has fully and timely paid taxes, assessments and other governmental charges levied or imposed on Borrower and its income, profits and property. Borrower will adequately provide for the payment of taxes, assessments and other charges that may have accrued but are not yet due and payable.

New Organizations. Borrower will obtain Lender’s written consent before organizing, merging into, or consolidating with an entity; acquiring all or substantially all of the assets of another; or materially changing legal structure, management, ownership or financial condition.

Other Liabilities. Borrower will not incur, assume or permit any debt evidenced by notes, bonds or similar obligations except debt in existence on the date of this Agreement and fully disclosed to Lender; debt subordinated in payment to Lender on terms acceptable to Lender; accounts payable incurred in the ordinary course of business and paid under customary trade terms or contested in good faith with reserves satisfactory to Lender; or as otherwise agreed to by Lender.

Notice. Borrower will promptly notify Lender of any material change in financial condition, a default under the Loan Documents, or a default under any agreement with a third party which materially and adversely affects Borrower’s property, operations or financial condition.

Dispose of No Assets. Without Lender’s prior written consent, Borrower will not sell, lease, assign, or otherwise distribute all or substantially all of its assets.

Insurance. Borrower will obtain and maintain insurance with insurers in amounts and coverages that are acceptable to Lender and customary with industry practice. This may include without limitation credit insurance, insurance policies for public liability, fire, hazard and extended risk, workers compensation, and, at Lender’s request, business interruption and/or rent loss insurance. Borrower may obtain insurance from anyone Borrower wants that is acceptable to Lender. Borrower’s choice of insurance provider will not affect the credit decision or Interest rate. At Lender’s request, Borrower will deliver to Lender certified copies of all of these insurance policies, binders or certificates. Borrower will obtain and maintain a mortgagee or loss payee endorsement for Lender when these endorsements are available. Borrower will require all

8

insurance policies to provide at least 10 days prior written notice to Lender of cancellation or modification, Borrower consents to Lender using or disclosing information relative to any contract of insurance required for the Loan for the purpose of replacing this insurance. Borrower also authorizes its insurer and Lender to exchange all relevant information related to any contract of insurance executed as required by any Loan Documents.

Property Maintenance. Borrower will keep property that is necessary or useful in its business in good working condition by making all needed repairs, replacements and improvements and by making payments due on the property.

DEFAULT. If the Loan is payable on demand, Lender may demand payment at any time whether or not any of the following events have occurred. Borrower will be in default if any one or more of the following occur: (1) Borrower fails to make a payment in full when due. (2) Borrower makes an assignment for the benefit of creditors or becomes insolvent, either because Borrower’s liabilities exceed its assets or Borrower is unable to pay debts as they become due; or Borrower petitions for protection under any bankruptcy, insolvency or debtor relief laws, or is the subject of such a petition or action and fails to have the petition or action dismissed within a reasonable period of time. (3) Borrower fails to perform any condition or to keep any promise or covenant on this Agreement or any debt or agreement Borrower has with Lender. (4) A default occurs under the terms of any instrument evidencing or pertaining to this Agreement. (5) If Borrower is a producer of crops, Borrower fails to plant, cultivate and harvest crops in due season. (6) Any loan proceeds are used for a purpose that will contribute to excessive erosion of highly credible land or to the conversion of wetlands to produce an agricultural commodity, as further explained by federal law. (7) Anything else happens that either significantly impairs the value of the Property or, unless controlled by the New Jersey Banking Law, causes Lender to reasonably believe that Lender will have difficulty collecting the Loan.

REMEDIES. After Borrower defaults, and after Lender gives any legally required notice and opportunity to cure, Lender may at its option use any and all remedies Lender has under state or federal law or in any of the Loan Documents, including, but not limited to, terminating any commitment or obligation to make additional advances or making all or any part of the amount owing immediately due. Lender may set-off any amount due and payable under the terms of the Loan against Borrower’s right to receive money from Lender, unless prohibited by applicable law. Except as otherwise required by law, by choosing any one or more of these remedies Lender does not give up Lender’s right to use any other remedy. Lender does not waive a default if Lender chooses not to use a remedy; and may later use any remedies if the default continues or occurs again.

COLLECTION EXPENSES AND ATTORNEYS’ FEES. To the extent permitted by law, Borrower agrees to pay all expenses of collection, enforcement and protection of Lender’s rights and remedies under this Agreement and any of the other Loan Documents (including, without limitation, any fees and expenses incurred in connection with or otherwise related to the Intercreditor Agreement with the Existing Lenders). Expenses include, but are not limited to, reasonable attorneys’ fees including attorney fees as permuted by the United States Bankruptcy Code, court costs and other legal expenses. These expenses will bear interest from the date of payment until paid in full at the contract interest rate then in effect for the Loan.

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GENERAL PROVISIONS. This Agreement is governed by the laws of the State of Delaware (without regard to conflict of law principles) and to the extent required, by the laws of the jurisdiction where the Property is located.

Joint And Individual Liability And Successors. Each Borrower, individually, has the duty of fully performing the obligations on the Loan. Lender can sue all or any of the Borrowers upon breach of performance. The duties and benefits of this Loan will bind and benefit the successors and assigns of Borrower and Lender.

Amendment, Integration And Severability. The Loan Documents may not be amended or modified by oral agreement. Borrower agrees that any party signing this Agreement as Borrower is authorized to modify the terms of the Loan Documents, Borrower agrees that Lender may inform any party who guarantees this Loan of any Loan accommodations, renewals, extensions, modification, substitutions, or future advances. The Loan Documents are the complete and final expression of the understanding between Borrower and Lender. If any provision of the Loan Documents is unenforceable, then the unenforceable provision will be severed and the remaining provisions will be enforceable.

Waivers And Consent. Borrower, to the extent permitted by law, consents to certain actions Lender may take, and generally waives defenses that may be available based on these actions or based on the status of a party to the Loan. Lender may renew or extend payments on the Loan. Leader may release any borrower, endorser, guarantor, surety, or any other co-signer. Lender may release, substitute, or impair any Property securing the Loan. Lender’s course of dealing, or Lender’s forbearance from, or delay in, the exercise of any of Lender’s rights, remedies, privileges, or right to insist upon Borrower’s strict performance of any provisions contained in the Loan Documents, will not be construed as a waiver by Lender, unless the waiver is in writing and signed by Lender. Lender may participate or syndicate the Loan and share any information that Lender decides is necessary about Borrower and the Loan with the other participants.

Interpretation. Whenever used, the singular includes the plural and the plural includes the singular. The section headings are for convenience only and are not to be used to interpret or define the terms of this Agreement. Unless otherwise indicated, the terms of this Agreement shall be construed in accordance with the Uniform Commercial Code.

Notice. Unless otherwise required by law, any notice will be given by delivering it or mailing it by first class mail to the appropriate party’s address listed in this Agreement, or to any other address designated in writing. Notice to one party will be deemed to be notice to all parties. Time is of the essence.

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ADDENDUM TO COMMERCIAL LOAN AGREEMENT

     This Addendum to Commercial Loan Agreement (this “Addendum”) is made to and a part of the Commercial Loan Agreement, dated December 31, 2008 (the “Agreement”), by and among Patriot Risk Management, Inc. (formerly known as SunCoast Holdings, Inc.), a Delaware corporation (“PRM”), PRS Group, Inc. (formerly known as Patriot Risk Management, Inc.), a Delaware corporation (“PRS Group”), Guarantee Insurance Group, Inc. (formerly known as Brandywine Insurance Holdings, Inc.), a Delaware corporation (“GIGI”), Patriot Risk Services, Inc., a Delaware corporation (“Patriot RS”), Patriot Risk Management of Florida, Inc., a Delaware corporation (“PRMF”), and SunCoast Capital, Inc., a Delaware corporation (“SunCoast”) (PRM, PRS Group, GIGI, Patriot RS, PRMF and SunCoast collectively and jointly and severally referred to and obligated as “Borrower”), and Ullico Inc., a Maryland corporation (“Lender”).

     All capitalized terms not otherwise defined in this Addendum shall have the meaning ascribed thereto as set forth in the above-referenced Agreement to which this Addendum is an integral part thereof, and all references in this Agreement and all other Loan Documents to the “Agreement” (as hereinabove defined) shall refer to the Agreement as amended by this Addendum.

     For good and valuable consideration, the receipt and sufficiency of which are acknowledged, it is agreed as follows:

     1. LOAN PROCEEDS. Borrower warrants, represents and agrees that the proceeds of the Loan shall be used solely for the following specific purposes and for no other purpose: (i) to enable Borrower to provide capital in the amount of at least $4,925,000 to Guarantee Insurance Company, a Florida Insurance Company (“GIC”); (ii) $450,000 for the payment of services to Freeman & Co. Securities LLC, (iii) for costs and expenses incurred in connection with this transaction, and (iv) the remainder, if any, shall be disbursed to Borrower for general business purposes.

     2. NOTICE OF SALE OF COLLATERAL. Borrower shall not sell, transfer or otherwise convey any of the Collateral (as hereinafter defined) other than in the ordinary course of business without Lender’s prior written consent, which shall not be unreasonably withheld, delayed or conditioned. In the event that Borrower desires to sell all or any portion of the Collateral, Borrower shall provide to Lender ten (10) business days advance written notice of said sale with a copy of the proposed sale contract and a written request for Lender’s approval of such transaction. Nothing set forth in this paragraph shall be construed to restrict Borrower’s ability to sell tangible personal property so long as such tangible personal property is replaced within a reasonable period of time by similar tangible personal property of comparable value, or the sale of such tangible personal property does not have a material adverse effect on the Borrower’s business operations or if said sale is in the ordinary course of business.

     3. AGREEMENTS WITH INSURANCE ENTITIES. Borrower represents, warrants and agrees that so long as the Loan is outstanding, Borrower, or any affiliate of Borrower, will not terminate (or intentionally give/provide cause for any insurance entity to terminate) its Managing Agreements (as defined hereinafter) with any Insurance Entity (as

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defined hereinafter) through which Borrower has received ten percent (10%) or more of its gross revenues during the immediately preceding twelve (12) month trailing period (hereinafter, “Material Agency Agreement”) if such termination would have a material adverse effect on Borrower’s business. Borrower hereby represents and warrants to Lender that, as of the date of this Agreement: (i) Borrower is in compliance in all material respects with all Material Agency Agreements with such Insurance Entities; (ii) Borrower is not in default under any Material Agency Agreement with any Insurance Entity; and (iii) there are no known defaults or unmatured events of default or events which with the passage of time will become defaults under any Material Agency Agreement with any of such Insurance Entities. Borrower further represents and warrants to Lender that Borrower: (i) shall maintain compliance in all material respects with said Material Agency Agreements; (ii) shall not cause or allow any default or event of default thereunder; (iii) shall not, without Lender’s prior written consent (which consent shall not be unreasonably withheld), terminate any of the Material Agency Agreements until all liabilities of Borrower to Lender are paid in full; and (iv) shall not permit any condition to exist or engage in, or permit to exist or occur, any condition or event or transaction in connection with said Material Agency Agreements which might constitute grounds for any such Insurance Entity to terminate any Material Agency Agreement. If a Material Agency Agreement is terminated for reasons beyond Borrower’s control, Borrower shall notify Lender of such termination within ten (10) days of Borrower’s receipt of such notice.

     4. FINANCIAL STATEMENTS; REVENUE INFORMATION; ETC.

          (a) Notwithstanding the terms set forth in the paragraph titled FINANCIAL INFORMATION set forth on page one of this Agreement, from the date of this Agreement and thereafter until all liabilities of Borrower to Lender are paid in full, within one hundred twenty (120) days of the fiscal year end of Borrower and GIC (or within 15 business days after the date such filing is required to be filed with the regulator), Borrower shall provide to Lender audited financial statements for Borrower and GIC (including balance sheet, income statement, cash flow statement, and changes in stockholder’s equity and such other information as Lender may from time to time require in its sole and absolute discretion) for such fiscal year. In addition, Borrower shall provide to Lender copies of Borrower’s and GIC’s tax returns within fifteen (15) days of Borrower’s and GIC’s filing same and, notwithstanding the terms set forth in the paragraph titled FINANCIAL INFORMATION set forth on page one of this Agreement, shall provide to Lender financial statements for Borrower and GIC (including balance sheet, income statement, cash flow statement and changes in stockholder’s equity and such other information as Lender may from time to time require in its sole and absolute discretion) within forty-five (45) days of each fiscal quarter of such entities (or if a Borrower or GIC is required to file a similar quarterly report with a regulator, within 15 business days after the date such filing is required to be filed with the regulator). With respect to Borrower and GIC, Lender may require additional or more frequent reporting and financial statements, all as Lender may from time to time reasonably, and all of such financial statements and reporting shall be in such form and detail as Lender may reasonably require.

          (b) From the date of this Agreement and thereafter until all liabilities of Borrower to Lender are paid in full, each calendar quarter, Borrower agrees to furnish to Lender a copy of Borrower’s and GIC’s commission and other reports with respect to insurance policies produced by or through Borrower or GIC and all commissions paid and to be paid by Insurance

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Entities to Borrower or GIC with a certificate signed by an officer of Borrower or GIC, as applicable, dated the date of such report, verifying, warranting and attesting to Lender the accuracy and veracity of such report. In addition to such reports, each calendar quarter Lender may ask for production reports, third party company commission statements, and other commission reports or similar information, records or data indicating Borrower’s and GIC’s current or past commission volume or revenues, and all of such information, reports and statements shall be provided by Borrower to Lender within twenty-one (21) business days of Lender’s request.

          (c) From the date of this Agreement and thereafter until all liabilities of Borrower to Lender are paid in full, upon Lender’s written request, Borrower shall promptly deliver to Lender all of the information, reports and documentation as the same pertain to Borrower and GIC, all as set forth on Exhibit I attached hereto and hereby made a part hereof by reference.

     5. LOAN PAYMENTS. Borrower hereby agrees with Lender that all payments for, with respect to, or upon the indebtedness of Borrower to Lender shall be made by wire transfer (to an account designated in writing by Lender to Borrower) each month, all at the sole cost of Borrower.

     6. CONSENT TO LOAN PARTICIPATIONS; ETC. Borrower agrees and consents to Lender’s sale or transfer, whether now or later, of the Loan, including, without limitation: Lender’s sale or transfer of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender; Lender’s sale or transfer, whether now or later, of Borrower’s Loan to an issuer of notes or other securities in whole or in part collateralized by Borrower’s Loan; or Lender’s issuance of notes or other securities which are in whole or in part collateralized by Borrower’s Loan. Lender may provide, without any limitation whatsoever, to any one or more purchasers, potential purchasers or issuers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan. Borrower additionally waives any and all notices of sale of participation interests, all notices of any repurchase of such participation interests and all notices of issuance of notes or securities which are in whole or in part collateralized by Borrower’s Loan. Borrower also agrees that the issuers of notes or securities and/or purchasers of any participation interests may or will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against any issuer of notes or securities, or against any purchaser of such a participation interest and unconditionally agrees that such issuer or purchaser may enforce Borrower’s obligations under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the issuer of such notes or securities or purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

     7. COLLATERAL. As used in this Agreement, the term “Collateral” means all of Borrower’s respective right, title and interest in, to and under all property and assets granted as collateral security for the Loan, whether real, intangible or tangible personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the

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form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. Collateral shall also include, but not be limited to all of Borrower’s respective right, title and interest in, to and under the following, whether now owned or at any time hereafter acquired:

          (a) All of Borrower’s personal property (except for the property of GIC), whether tangible or intangible, and all of Borrower’s interest in property and fixtures (except for the property of GIC), now owned or existing or hereafter acquired and wherever located, including without limitation, the following: (i) all furniture, inventory, machinery, vehicles, equipment, goods and supplies; (ii) all accounts (except for the property of GIC); (iii) all instruments, documents (including, without limitation, the customer files), policies and certificates of insurance, securities, negotiable instruments, money, chattel paper, investment property, deposits, warehouse receipts and things in action; (iv) all general intangibles and rights to payment or proceeds of any kind, including without limitation, rights to insurance premiums, dividends, distributions, proceeds and letter of credit proceeds; (v) all documents and contract rights and interests of any kind, including without limitation, the rights and interests set forth in any agency/producer agreement and insurance policy, and the rights and interests set forth in all Material Agency Agreements and in all Managing Agreements with any Insurance Entity; (vi) all intellectual property rights and similar assets, including without limitation trademark rights, service mark rights, rights to licenses and rights to names, customer lists, trade secrets, goodwill, trade names, permits and franchises, payment intangibles, computer programs, etc.; (vii) the book of business;

          (b) All of PRM’s right, title and interest in PRS Group and GIGI whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to PRM in its capacity as the sole stockholder of GIGI and PRS Group;

          (c) All of GIGI’s right, title and interest in GIC whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to GIGI in its capacity as the sole stockholder of GIC. Lender acknowledges that regulatory approval from the Florida Office of Insurance Regulations (“OIR”) would be required in the unlikely event of collateral repossession, voting of shares or units, assertion of ownership of collateral, and/or transfer of ownership of collateral. Although Lender is requiring a pledge of all of the stock of GIC, in the event of collateral liquidation Lender is only entitled to liquidation proceeds necessary to repay Borrower’s principal and interest outstanding to Lender and Lender costs associated with collateral liquidation;

          (d) All telephone numbers, rights to the lease of office space, post office boxes or other mailing addresses, rights to trademarks and use of trade names, rights to software licenses, and rents received by Borrower for the lease of office space;

          (e) All deposit accounts, escrow accounts, disbursement accounts, accounts receivable, commission receivables, economic interest of Borrower, all chattel paper, contract

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rights, instruments, documents, general intangibles, inventory and goods in process of Borrower, whether now in existence or owned or hereafter coming into existence or acquired, wherever located, and all returned goods, and repossessions and replacements thereof;

          (f) All commissions, policy fees, service fees, underwriting fees, claims fees, administrative and processing fees, fronting fees, risk management and loss/cost control fees, investment income, management fees (including without limitation, case and captive management fees), premium finance revenues, reinsurance brokerage commissions and all other revenue (collectively, “Revenue”) payable to Borrower and any assignment thereof;

          (g) All “MGA Operations” being defined hereunder as Borrower’s policy administration agreements, related service fees, and any agency, producer, broker, and managing general agency agreements or similar such contracts (collectively, “Managing Agreements”) with any insurance company, reinsurance company, managing general agency, broker or other insurance supplier (collectively, “Insurance Entities”), the policies Borrower has written or placed pursuant to such agreements, the right to commissions and policy fees (new, renewal, additional or other) for any of the foregoing, and Borrower’s customer list and policy information for said customers, and with respect to all of the foregoing, whether now owned by Borrower or at any time hereafter acquired;

          (h) Any property, tangible or intangible, in which Borrower grants Lender a security interest in any other Loan Document;

          (i) All “Premium Finance Operations” being defined hereunder as Borrower’s or their affiliates’ existing or future premium finance business, all tangible and intangible property associated therewith, and all Revenue (less amounts due Insurance Entities) derived directly or indirectly therefrom; and

          (j) All additions, attachments, parts, repairs, accessories, accessions, replacements and substitutions to or for any of the foregoing and any proceeds and products of the above-described property.

     Borrower hereby grants Lender a lien on and first priority security interest in the Collateral to secure the payment and performance of the Loan and all of Borrower’s other obligations, liabilities and indebtedness to Lender, whether now incurred or at any time hereafter arising.

     8. DEFAULT. The paragraph titled “DEFAULT” on page 2 of this Agreement is amended and restated in its entirety to read as follows:

     DEFAULT. Borrower will be in default if one or more of the following occur (each an “Event of Default”):

          (a) (i) Borrower fails to make any payment due in accordance with the terms of any Promissory Note which evidences the Loan within ten (10) calendar days after the due date thereof; (ii) Borrower fails to fulfill or perform any material term, covenant, condition or obligation set forth in this Agreement or any other “Loan Document” (which term, for all purposes of this Agreement, shall include all documents and instruments (including, without

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limitation, promissory notes, loan agreements, security agreements, guaranties and stock pledge agreements) which pertains to this Agreement or evidence and/or secure any obligations of Borrower or any of the Guarantors to Lender) within thirty (30) days after notice from Lender of such failure; provided, however, no Event of Default shall be deemed to have occurred under this sub-paragraph 8(a)(ii) if any such failure is reasonably capable of being cured, Borrower diligently pursues a cure of same, Lender’s position is not materially adversely affected during Borrower’s pursuit to cure, and same is in fact cured within 90 days after notice from Lender; or, (iii) if any material representation or warranty set forth in this Agreement or any other Loan Document is not as represented or warranted by Borrower;

          (b) If prior to payment in full of all obligations pursuant to the Loan Documents, (i) Borrower and GIC do not at all times maintain an employment agreement with Steven M. Mariano in a form reasonably acceptable to Lender which includes non-solicitation and non-competition language; (ii) Borrower and GIC fail to provide a copy of same to Lender upon Lender’s request; or (iii) the cash and non-cash compensation, including bonuses and other benefits, set forth in such employment agreements are materially increased without Lender’s prior written consent, which consent shall not be unreasonably withheld;

          (c) (i) Borrower or GIC makes an assignment for the benefit of creditors or becomes insolvent, either because Borrower’s and/or GIC’s liabilities exceed its assets or Borrower or GIC is unable to pay debts as they become due; Borrower or GIC petitions for protection under any bankruptcy, insolvency, or debtor relief laws, or is the subject of such a petition or action and fails to have the petition or action dismissed within a reasonable period of time;

          (d) If without Lender’s prior written consent, which shall not be unreasonably withheld, delayed or conditioned, prior to payment in full of all obligations pursuant to the Loan Documents, (i) Steven M. Mariano ceases to directly or indirectly hold an unencumbered 51% or more of the ownership and/or profit interest in PRM or 51% or more of the voting control of PRM; or, (ii) PRM’s direct or indirect ownership and/or profit interest in PRS Group, GIGI, Patriot RS, PRMF, GIC and SunCoast is transferred, diluted or further encumbered in any manner, including but not limited to, the issuance of new shares, certificates or interests, assignment or gift of shares or interests, the substitution of shares or interests, or the hypothecation or pledge of shares or interests;

          (e) If (i) GIC’s certificate of authority is suspended or revoked by the Florida Department of Insurance, (ii) GIC is subject to or comes under any regulatory supervision, control or rehabilitation; (iii) GIC’s risk based capital ratio as calculated pursuant to guidelines established by the National Association of Insurance Commissioners (“NAIC”) falls to 200 or below, (iv) or GIC’s certificate of authority is suspended or revoked by any other regulatory body having authority over GIC; provided, however, that GIC shall have 120 days within which to cure;

          (f) If anything happens that either materially impairs the value of the Collateral or causes Lender to reasonably believe that Lender will have difficulty collecting the Loan; provided however, no Event of Default shall be deemed to have occurred under this paragraph 8(f) if any such impairment or difficulty is reasonably capable of being cured or

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resolved. Borrower diligently pursues a cure or resolution of same, Lender’s position is not materially adversely affected during Borrower’s pursuit to cure or resolve, and same is in fact cured or resolved within 90 days after notice from Lender;

          (g) If without Lender’s prior written consent (which consent will not be unreasonably withheld, delayed or conditioned), prior to payment in full of all obligations pursuant to the Loan Documents, GIC amends or deviates in any material respect from the underwriting guidelines attached hereto as Exhibit II within thirty (30) days after notice from the Lender of such amendment or deviation; provided, however, no Event of Default shall be deemed to have occurred under this paragraph 8(g) if any such amendment or deviation is reasonably capable of being cured and same is in fact cured within 45 days after notice from Lender;

          (h) If without Lender’s prior written consent (which shall not be unreasonably withheld, delayed or conditioned), prior to payment in full of all obligations pursuant to the Loan Documents, Borrower and GIC enter into any contract, including employment contracts, consulting contracts, policy servicing and processing contracts, underwriting contracts or claims processing contracts, which would involve payment of expenses on an annual basis in excess of ten percent (10%) of the combined annual revenues of Borrower and GIC, and, without Lender’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, Borrower and GIC amend any such contracts in any material manner;

          (i) If Borrower does not perform any of its obligations or duties associated with its business when due, and such non-performance by Borrower relates to a material contract or is material to Borrower’s business and persists for thirty (30) days following Lender’s notice to Borrower of such failure; provided however, no Event of Default shall be deemed to have occurred under this paragraph 8(i) if Borrower legitimately disputes the extent, amount or existence of the obligation or duty and Lender’s position is not materially adversely affected by such dispute; and/or,

          (j) If Steven M. Mariano dies, is legally incapacitated, resigns or is removed as an executive officer of Borrower, and Mr. Mariano is not replaced within 180 days of such resignation or removal by individuals deemed capable and competent by a majority of the independent members of the board of directors.

     A default by Borrower in performing under the terms of any other “Loan Document” or the occurrence of any default, Default or Event of Default under any other Loan Document, in each case after any applicable notice, grace and/or cure periods, shall constitute a default and Event of Default under the terms of this Agreement and all other Loan Documents, and the occurrence of an Event of Default under this Agreement shall constitute a default, Default and Event of Default under all other Loan Documents.

     9. REMEDIES UPON AND EFFECT OF DEFAULT. Upon the occurrence of any Event of Default and expiration of any applicable cure period, in addition to any remedy or right Lender has under any Loan Document, the Uniform Commercial Code, at law or in equity, Lender, at its discretion, may also enforce the following (and the following shall be applicable and in effect):

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          (a) For a period of five (5) years after Borrower’s default and failure to cure, Borrower, Steven M. Mariano and any entity directly or indirectly owned or controlled by Steven M. Mariano (hereinafter collectively, “Borrower’s Affiliates”), shall not directly or indirectly solicit, write, process, or service insurance policies for any of Borrower’s or GIC’s customers and shall not directly or indirectly attempt to divert any of Borrower’s or GIC’s customers from continuing to do business with Borrower’s successor to the assets or operations of Borrower. Borrower and Borrower’s Affiliates agree that this prohibition is reasonable and necessary and that the credit extended to Borrower is ample consideration for this restriction. Borrower and Borrower’s Affiliates understand that Borrower and Borrower’s Affiliates are not prohibited from working for any other company or in any particular line of work, but that this covenant not to solicit or divert only restricts the Borrower and Borrower’s Affiliates from conducting business similar to Borrower’s or contacting in person, by telephone, by mail, or by any other means, those customers or potential customers that Borrower and/or Borrower’s Affiliates worked with while employed by Borrower or GIC or operating the business of the Borrower comprising part of the Collateral. For the purposes of this Agreement, “customer” shall mean retail customers as well as any other Insurance Entities who produce or process policies through Borrower or GIC or who obtain services through Borrower or GIC.

          (b) Borrower shall enforce, for the continued benefit of Lender, all non-solicitation agreements or non-compete agreements currently in force between Borrower and Steve M. Mariano.

     10. PROTECTION OF COLLATERAL. If Lender confirms that the income from operations of Borrower or GIC has materially declined (from conditions, circumstances or events other than adverse claims activity) when compared with the income from operations of Borrower or GIC from prior quarters or years and/or Lender confirms that GIC’s ratios mandated by the NAIC, Florida Department of Insurance or other regulatory body have materially declined when compared with the ratios from prior quarters or years and Lender reasonably believes that such decline indicates a material negative trend, Lender may require Borrower to enter into an agreement with a consultant approved by Lender pursuant to which management of Borrower and GIC agree to work with consultant to conduct specified corrective activities each month and/or enter into an agreement pursuant to which a consultant approved by Lender works with management of Borrower and GIC to analyze Borrower’s or GIC’s operations. Furthermore, in the event Steven M. Mariano dies, becomes disabled, abandons the business operations of Borrower or GIC or other materially adverse extenuating circumstance pertaining to Borrower or GIC occurs, Lender may require Borrower to retain a consultant approved by Lender to assist management in the operation of Borrower’s or GIC’s business until qualified replacement management can be retained or, subject to any necessary regulatory approvals, Borrower’s or GIC’s business can be sold to another person. Borrower acknowledges that if any such agreement is required, neither Lender nor Lender’s approved consultant guarantees the efficacy of such arrangement in preserving or increasing the value of Borrower’s or GIC’s assets. Furthermore, any rights exercised by Lender pursuant to this paragraph shall not be construed as a waiver by Lender of any other rights or remedies it may have pursuant to this Agreement or any other Loan Document or under applicable law or in equity. The cost of such consultant shall be paid by Borrower from Borrower’s revenues; provided, however, if Borrower’s revenues are insufficient to pay for such consultant, the cost shall initially be paid by Lender and reimbursed by Borrower upon demand.

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     11. PREPAYMENT PREMIUM. Any promissory note(s) executed by Borrower which evidence the Loan shall provide for a prepayment premium equal to the Prepayment Percentage (as defined herein) of the principal loan balance Borrower prepays. The “Prepayment Percentage” shall be 10% during the first twelve (12) months following Loan origination, 8% during the second twelve (12) months following Loan origination (that is, months 13 through 24), and 6% during the third twelve (12) months following Loan origination (that is, months 25 through 36). This prepayment premium shall not apply after the thirty-sixth month following Loan origination.

     12. JOINT AND SEVERAL OBLIGATIONS. All obligations and liabilities of Borrower under this Agreement and any other Loan Document to which PRM, PRS Group, GIGI, Patriot RS, PRMF and/or SunCoast are a party shall be the joint and several obligations of each entity which constitutes Borrower.

     13. FUTURE ADVANCES. Borrower and Lender acknowledge that the Loan is a single advance loan, and that neither Lender nor Borrower contemplates future advances under the Loan Documents.

     14. LEGAL INTEREST LIMITATIONS. It is the intent of Borrower and Lender to conform strictly to all applicable state and federal usury laws. All agreements between Borrower and Lender, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of the maturity of the Loan or otherwise, shall the amount contracted for, charged or received by Lender for the use, forbearance, or detention of the money to be loaned under this Agreement or any other Loan Document or otherwise, or for the payment or performance of any covenant or obligation contained herein or in any other document evidencing, securing or pertaining to the indebtedness evidenced hereby which may be legally deemed to be for the use, forbearance or detention of money, exceed the maximum amount which Lender is legally entitled to contract for, charge or collect under applicable state or federal law. If from any circumstance whatsoever fulfillment of any provision hereof or of such other documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then the obligation to be fulfilled shall be automatically reduced to the limit of such validity, and if from any such circumstance Lender shall ever receive as interest or otherwise an amount in excess of the maximum that can be legally collected, then such amount which would be excessive interest shall be applied to the reduction of the principal indebtedness of the Loan and any other amounts due with respect to the Loan evidenced by the Loan Documents, but not to the payment of interest; and if such amount which would be excessive interest exceeds the unpaid balance of principal of the Loan and all other non-interest indebtedness described above, then such additional amount shall be refunded to Borrower. All sums paid or agreed to be paid by Borrower for the use, forbearance or detention of the indebtedness of Borrower to Lender shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the amount of interest on account of such indebtedness does not exceed the maximum permitted by applicable law throughout the term thereof. The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between Borrower and Lender.

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     15. GOVERNING LAW AND VENUE. Notwithstanding any other provision of this Agreement or any other Loan Document, this Agreement and all Loan Documents shall be construed and governed by the laws of the State of Delaware except to the extent that the perfection of the interests in any of the Collateral is governed by the laws of a jurisdiction other than the State of Delaware or except to the extent that the laws of a jurisdiction other than the State of Delaware are required to govern any enforcement or foreclosure action with respect to any of the Collateral. At Lender’s option, jurisdiction and venue for any dispute arising under or in relation to this Agreement will lie only in any applicable state court in Delaware or a U.S. District Court having jurisdiction in Delaware. In the event that a lawsuit or administrative proceeding is brought with respect to this Agreement or any other Loan Document, the prevailing party shall be entitled to be reimbursed for, and/or have judgment entered with respect to, all of its costs and expenses, including reasonable attorneys’ fees and legal expenses.

     16. INTERPRETATION. Provisions in the Loan Documents are intended to be cumulative. To the extent that any of the provisions of this Agreement conflict with any other provisions of this Agreement or those of any other Loan Document, the provision which provides Lender the most protection and grants Lender the greatest rights shall control. Likewise, if the provisions of any Loan Document conflict with those of any other Loan Document, the provision which provides Lender the most protection and grants Lender the greatest rights shall control.

     17. AMENDMENTS. This Agreement may not be modified, revised, altered, added to or extended in any manner, or superseded other than by an instrument in writing signed by all the parties hereto. No waiver of any provision hereof shall be effective unless agreed to in writing by all parties hereto. Any modification or waiver shall only be effective for the specific instance and for the specific purpose for which given. Borrower agrees and acknowledges that Lender may also be required to obtain the approval of other persons before entering into an amendment or granting a waiver.

     18. FAILURE TO ENFORCE NOT A WAIVER. The failure by Lender to enforce any provision of this Agreement shall not be in any way construed as a waiver of any such provision nor prevent Lender thereafter from enforcing each and every other provision of this Agreement.

     19. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and shall be binding upon any party executing the same and all of which together shall constitute one and the same instrument which shall represent the agreement of the parties hereto. This Agreement shall become effective when all parties hereto have executed a counterpart hereof.

     20. INVALIDITY OR UNENFORCEABILITY. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall, at the option of Lender (i) be construed in all respects as if such invalid or unenforceable provisions were omitted; or (ii) not be stricken, but be reformed to the extent required to be enforceable under and comply with applicable law and as reformed shall be fully enforceable.

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     21. BINDING EFFECT; CONSTRUCTION OF PROVISIONS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, administrators, personal and legal representatives, successors and assigns; provided, however, Borrower may not assign its rights, duties or obligations under this Agreement (whether voluntarily, involuntarily or by operation of law) without the prior written consent of Lender, which consent may be granted or withheld in the sole and absolute discretion of Lender. As used in this Agreement, words of masculine, feminine or neuter gender shall mean and include the correlative words of the other genders, and words importing the singular number shall mean and include the plural number, and vice versa. As used in this Agreement, the terms “person,” “Person” or “party” shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, entity or government (whether Federal, state, county, city, municipal or otherwise, including, without limitation, an instrumentality, division, agency, body or department thereof). No inference in favor of, or against, any party shall be drawn from the fact that such party has drafted all or any portion of this Agreement or any other Loan Document.

     22. SURVIVAL. This Agreement shall create and constitute the continuing obligation of the parties hereto in accordance with its terms, and shall remain in full force and effect until the Loan is paid in full. The provisions of paragraph 9(a) hereof shall be continuing and shall survive any termination of this Agreement.

     23. INTEGRATION. This Agreement (including all exhibits and addenda hereto) together with the other Loan Documents contains the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersede and take precedence over any and all prior agreements, arrangements or understandings between the parties relating to the subject matter hereof. No oral understandings, oral statements, oral promises or oral inducements exist. No representations, warranties, covenants or conditions, express or implied, whether by statute or otherwise, other than as set forth herein, have been made by the parties hereto. By signing below, Borrower and Lender affirm that no oral agreement between them exists.

     24. WAIVER OF JURY TRIAL. Borrower hereby expressly waives any right to a trial by jury in any action or proceeding to enforce or defend any rights under this Agreement or any other Loan Document, instrument or document delivered or which may in the future be delivered in connection herewith.

     25. WAIVER OF MARSHALING OF ASSETS. Borrower waives all rights to require any marshaling of Borrower’s assets.

     26. COMMERCIAL LOAN. Borrower and Lender agree that the credit extended hereunder represents a commercial loan and is not a consumer loan subject to the UCCC.

     27. NOTICES. Notices which may be required to be sent by Lender or Borrower in accordance with this Agreement or any other Loan Document shall be sent to the address set forth below or such other address as may be designated by such party provided notice of such change in address has been given to the other party. Notices shall be deemed effective if in writing, and shall be delivered by hand or mailed by United States Mail, postage prepaid, mailed by certified mail, with return receipt requested, or sent by express courier with date of receipt

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confirmed. The effective date of notice shall be the day of delivery by hand; if mailed by regular mail, four business days following the mailing thereof; and, if by certified mail or express courier, the date of receipt thereof:

Lender’s Address:	Borrower’s Addresses:
Ullico Inc.	Patriot Risk Management, Inc.
1625 Eye Street, NW	PRS Group, Inc.
Washington, DC 20006	Guarantee Insurance Group, Inc.
Attention: General Counsel	Patriot Risk Services, Inc.
	Patriot Risk Management of Florida, Inc.
	SunCoast Capital, Inc.
	401 East Las Olas Blvd.
	Ft. Lauderdale, FL 33301
	Attention: Steven M. Mariano

     28. TIMELINESS. Timeliness and punctuality are essential elements of this Agreement.

     29. ANTI-TERRORISM, ETC. Borrower represents and warrants to Lender that neither the Borrower, nor any owner, member, affiliate, partner, director, officer or manager of Borrower, nor any affiliate, parent, child or spouse of any individual Borrower (collectively for this paragraph, “Borrower”) supports terrorism, provides money or financial services to terrorists, or is engaged in terrorism, is on the current U.S. government list of organizations that support terrorism, or has engaged in or been convicted of fraud, corruption, bribery, money laundering, narcotics trafficking or other crimes, and all are eligible under applicable U.S. immigration laws to be in the United States and perform the obligations set forth in this Agreement. Borrower further warrants and represents that Borrower is not identified by a government or legal authority as a person with whom Lender is prohibited from transacting business and that it will notify Lender in writing immediately of the occurrence of any event that renders the foregoing representation and warranties incorrect.

     30. ADDITIONAL LOAN SPECIFIC COVENANTS. So long as the Loan is outstanding and unpaid, Borrower agrees with Lender as follows:

          (a) Prior to payment in full of all obligations under the Loan Documents, PRM shall maintain, on a consolidated basis with all of its direct and indirect subsidiaries, stockholder’s equity exceeding $5,500,000 in the aggregate on a GAAP basis;

          (b) Without Lender’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, from the date hereof until the date upon which all payment obligations are satisfied under the Loan Documents, GIC shall maintain policyholders’ surplus in excess of $14,500,000 as computed and measured on a GAAP basis;

          (c) Prior to payment in full of all obligations under the Loan Documents, without Lender’s prior written consent, which consent shall not be unreasonably withheld,

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delayed or conditioned, Steven M. Mariano shall not (i) directly or indirectly hold an ownership interest greater than twenty-five percent (25%) in, or (ii) be employed by or have any contracts or agreements with, any other insurance-related business with the exception of Borrower, the entities through which Mr. Mariano holds an ownership interest in PRM, GIC and The Tarheel Group, Inc., a Delaware corporation and its direct and indirect subsidiaries (“Tarheel”). Without Lender’s prior written consent, which shall not be unreasonably withheld, delayed or conditioned, Mr. Mariano shall not devote more than 10% of his time in the aggregate to the Tarheel business, or the business of InServe Corporation, prior to payment in full of all obligations under the Loan Documents;

          (d) Without Lender’s prior written consent, which consent may be granted or withheld in the sole and absolute discretion of Lender, prior to payment in full of all obligations pursuant to the Loan Documents, Borrower shall not pay dividends on its outstanding capital stock;

          (e) Prior to payment in full of all obligations pursuant to the Loan Documents, Borrower shall (i) provide Lender or Lender’s authorized designee with notices of all meetings of shareholders and boards of directors of Borrower and GIC so that such notices are given to Lender concurrently with the giving of such notices to such shareholders or directors; (ii) allow, and cause to be allowed, Lender or at least two (2) Lender’s authorized designees to attend such meetings and (iii) promptly provide to Lender or its authorized designee, upon demand, all minutes and other records of such meetings as Lender may request;

          (f) Without Lender’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, except in the ordinary course of business; Borrower shall not directly or indirectly make any loans or advances (in cash or through payments in kind) to any person, including Borrower’s Affiliates and persons affiliated with Borrower. For the purposes of this paragraph, any loans or advances shall be deemed not in the ordinary course of business unless such loans or advances are related to the financing of premiums payable to GIC by persons unaffiliated with Borrower and/or trade receivables of persons unaffiliated with Borrower;

          (g) Within fifteen (15) business days, Borrower shall notify Lender in writing of any material changes in Borrower’s and GIC’s business operations, which includes, but is not limited to the following: (i) GIG or Borrower having received any notification regarding concern or action from the Florida Department of Insurance or any other regulator on the subject of financial condition or solvency, (ii) GIC or Borrower having received any notification regarding concern or action from the NAIC or having experienced any material changes in its reinsurance contracts or coverage amounts or any change in its regulatory status, (iii) Borrower or GIC having incurred or experienced any material adverse financial circumstance, condition or results, (iv) if Borrower or GIC shall have any of their respective licenses or permits suspended, terminated or revoked by any governmental or regulatory authority, or (v) if the sums payable under any material insurance company contracts, servicing contracts or other contract are modified or terminated in any material respect;

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          (h) Prior to payment in full of all obligations pursuant to the Loan Documents, Borrower will not change its state of organization or name without the prior written consent of Lender, which consent will not be unreasonably withheld, delayed or conditioned;

          (i) Prior to the payment in full of all obligations pursuant to the Loan Documents, all of the reinsurance contracts of GIC shall provide for commercially reasonable terms and conditions;

          (j) Prior to the payment in full of all obligations pursuant to the Loan Documents Borrower shall, and shall cause GIC to: (i) maintain errors and omissions coverage reasonably acceptable to Lender, but with limits no lower than One Million Dollars ($1,000,000) per claim One Million Dollars ($1,000,000) aggregate; and (ii) and maintain such other coverage as is commercially reasonable. At Lender’s request, Borrower shall provide evidence of such insurance; and/or

          (k) Without Lender’s prior written consent, which shall not be unreasonably withheld, the Tarheel Group, Inc., Tarheel Insurance Management Company and/or Foundation Insurance Company (each a “Run off Company”) shall not materially change their operations, which Borrower represents to Lender as being inactive or in run off. Furthermore, without Lender’s prior written consent, which shall not be unreasonably withheld, delayed or conditioned, no business written or conducted by or through Borrower or GIC shall be commenced, transferred or diverted to any Run off Company.

          (l) SPECIFIC AMENDMENTS TO COMMERCIAL LOAN AGREEMENT.

LATE CHARGES. The paragraph title “LATE CHARGES” on page 1 of the Agreement is amended and restated in its entirety to read as follows:

               “LATE CHARGES. If a payment is made more than five (5) days after it is due, Borrower will pay a late charge of 5% of the amount due and not paid.”

COVENANTS. Sub-paragraph 3 under the paragraph titled “COVENANTS”, on page 2 of the Agreement, is amended and restated in its entirety to read as follows:

               “(3) inspect Borrower’s Property, audit for the use and disposition of the Property’s proceeds; or do whatever else Lender may decide is reasonably necessary to preserve and protect the Property and Lender’s interest in the Property.”

GENERAL PROVISIONS. The final sentence under the sub-paragraph “Waivers and Consent” under GENERAL PROVISIONS on page 2 of the Agreement, is amended and restated in its entirety to read as follows:

               “Lender may participate or syndicate the Loan and share any information that the Lender decides is necessary about Borrower and the Loan with other participants, provided such other participants are required to keep such information confidential.”

     NONSTANDARD TERMS OF CREDIT AGREEMENT:

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     31. Conditions to Loan. The obligation of Lender to make the Loan shall be subject to the satisfaction of the following conditions precedent (all instruments, agreements and documents from Borrower or any other person to be in form and substance acceptable to Lender in its sole and absolute discretion):

          (a) Executed Credit Documents. Receipt by Lender of duly executed copies of: this Agreement, the Note and all other Loan Documents.

          (b) Formation Documents. Receipt by Lender of the following:

     (i) Charter Documents. Copies of the certificates of incorporation or other charter documents of Borrower certified to be true and complete as of a recent date by the appropriate governmental authority of the state or other jurisdiction of Borrower’s formation and certified by the chief executive officer of Borrower to be true and correct as of the closing date.

     (ii) Bylaws. A copy of the Bylaws of Borrower certified by the chief executive officer to be true and correct as of the closing date.

     (iii) Resolutions. Copies of resolutions or unanimous written consent of the board of directors of Borrower approving and adopting the Loan Documents, the transactions contemplated therein and authorizing execution and delivery thereof, certified by the chief executive officer of Borrower to be true and correct and in force and effect as of the closing date.

     (iv) Good Standing. Copies of (i) a certificate of good standing, existence or its equivalent with respect to Borrower certified as of a recent date by the appropriate governmental authorities of the state or other jurisdiction of their formation and each other jurisdiction in which the failure to so qualify and be in good standing would reasonably be expected to have a material adverse effect and (ii) to the extent available, a certificate indicating payment of all franchise taxes certified as of a recent date by the appropriate taxing governmental authorities.

     (v) Incumbency. An incumbency certificate of Borrower certified by the chief executive officer of Borrower to be true and correct as of the closing date.

     (vi) Perfection Certificates. Borrower shall have delivered to Lender Perfection Certificates for Borrower which shall be true and complete in all material respects. Such Perfection Certificates shall be deemed to be “Loan Documents” for all purposes.

          (c) Financial Statements. Receipt by Lender of such financial statements and other information relating to Borrower as Lender may reasonably require in connection with the Loan.

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          (d) Opinions of Counsel. Receipt by Lender of an opinion, or opinions (which shall cover, among other things, authority, legality, validity, binding effect, enforceability, absence of conflict with laws, formation documents, and all applicable law, and other agreements, and attachment and perfection) satisfactory to Lender, addressed to Lender and dated the closing date, from legal counsel to Borrower.

          (e) Priority of Liens. Lender shall have received satisfactory evidence that (i) Lender holds a perfected first priority Lien on all Collateral, subject only to liens that have been disclosed in writing by Borrower to Lender (including the liens on the assets of Borrower pursuant to that certain Commercial Loan Agreement, dated as of March 30, 2006, by and between Borrower and Brooke Credit Corporation (as amended, together with all agreements and instruments entered into by the parties in connection therewith, the “Existing Senior Debt Documents”), and (ii) none of the Collateral is subject to any liens other than such previously disclosed liens.

          (f) Evidence of Insurance. Receipt by Lender of copies of insurance policies or certificates of insurance (on Acord Forms 25 and 27) of Borrower evidencing liability and casualty insurance meeting the requirements set forth in the Loan Documents, including, without limitation, naming Lender as loss payee and as additional insured as its interests may appear.

          (g) Consents. Receipt by Lender of evidence that all governmental and third party consents and approvals required in connection with the transactions, including without limitation the approval of the holders of the senior debt evidenced by the Existing Senior Debt Documents and the related financings contemplated hereby and expiration of all applicable waiting periods without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on such transactions or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the judgment of Lender could have such effect.

          (h) Officer’s Certificate. Lender shall have received a certificate or certificates executed by the chief executive officer and chief financial officer of Borrower as of the closing date covering such matters as Lender may require, including without limitation the following: (i) after giving effect to the making of the Loan and application of the proceeds thereof, Borrower is in compliance with all existing financial obligations, (ii) all governmental, member and third party consents and approvals, if any, with respect to the Loan Documents and the transactions contemplated thereby have been obtained, (iii) no action, suit, investigation or proceeding is pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect Borrower or any transaction contemplated by the Loan Documents, if such action, suit, investigation or proceeding would reasonably be expected to have a material adverse effect and (iv) immediately after giving effect to this Agreement, the other Loan Documents and all the transactions contemplated therein to occur on such date, (A) Borrower is solvent, (B) no Default or Event of Default exists, (C) all representations and warranties contained herein and in the other Loan Documents are true and correct in all material respects, and (D) the Borrower is in compliance with each of the financial covenants set forth this Agreement.

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          (i) Equity. Evidence that management of the Borrower has contributed not less than $1,000,000 to the capital of Borrower in exchange for common capital stock in Borrower.

          (j) Fees and Expenses. Payment by Borrower of all fees and expenses owed by it to Lender in an amount of up to $75,000.

          (k) Re-Insurance Treaty. Borrower shall have entered into a binding reinsurance treaty with Lender or one of its affiliates on terms acceptable to Lender or such affiliate of Lender.

          (1) Licenses/Permits. Receipt by Lender of copies of all authorizations, licenses, permits and other approvals required for the conduct of Borrower’s business.

          (m) Other. Receipt by Lender of such other documents, instruments, agreements or information as are required to be provided herein or under any other Loan Documents or as may other wise be or have been requested by Lender.

     32. Representation and Warranty regarding Leverage Compliance. Borrower hereby represents and warrants to Lender that, to the best of its knowledge, that, after giving effect to the Loan, as of December 31, 2008 (i) GIC shall be in compliance with all capital requirements, including, without limitation, required statutory leverage tests, under all applicable state laws and regulations and (ii) Borrowers shall be in compliance with all covenants under the Existing Senior Debt Documents. Borrower shall provide Lender with Borrower’s unaudited statutory financial statements with respect to the fiscal year ending December 31, 2008 on or before January 30, 2009. To the extent that such unaudited statutory financial statements indicate that GIC will not be in compliance with all capital requirements, including, without limitation, required statutory leverage tests, required statutory leverage tests under applicable state laws and regulations as of December 31, 2008 or otherwise reflect any other default under the Existing Senior Debt Documents, Borrower shall be deemed to be automatically in default under this Agreement and the other Loan Documents; provided that Borrower shall have until March 1, 2009 to obtain such additional capital contributions and take such other action as may be reasonable required by Lender to cure such default before Lender may enforce any of its rights hereunder with respect to such default.

     33. Representation and Warranty Accuracy and Completeness of Information. Borrower hereby represents and warrants to Lender that all factual information heretofore, contemporaneously or hereafter furnished by or on behalf of Borrower to Lender for purposes of or in connection with this Agreement or any Loan Documents, or any transaction contemplated hereby or thereby, is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time. There is no fact about Borrower, its business now known to any executive officer or director of Borrower which has, or would have, a material adverse effect with respect to Borrower’s property, operations or financial condition, which fact has not been set forth herein, or any certificate, opinion or other written statement made or furnished by Borrower to Lender.

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     34. Representation and Warranty Regarding Solvency. Borrower hereby represents and warrants to Lender that the fair saleable value of Borrower’s assets exceeds all known and reasonably foreseeable liabilities of Borrower, including those to be incurred pursuant to this Agreement. Borrower (i) does not have unreasonably small capital in relation to the business in which it is or proposed to be engaged in (ii) has not incurred, and does not believe that it will incur after giving effect to the transactions contemplated by this Loan Agreement, debts beyond its ability to pay such debts in the ordinary course as they become due.

Initials:

Lender	PRM	PRS Group	GIGI	Patriot RS	PRMF	SunCoast
/s/ James M. Paul
James M. Paul Senior V.P., Chief Operating Officer

[Remainder of page intentionally left blank; Signature page immediately follows]

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     34. Representation and Warranty Regarding Solvency. Borrower hereby represents and warrants to Lender that the fair saleable value of Borrower’s assets exceeds all known and reasonably foreseeable liabilities of Borrower, including those to be incurred pursuant to this Agreement. Borrower (i) does not have unreasonably small capital in relation to the business in which it is or proposed to be engaged in (ii) has not incurred, and does not believe that it will incur after giving effect to the transactions contemplated by this Loan Agreement, debts beyond its ability to pay such debts in the ordinary course as they become due.

Initials:

Lender	PRM	PRS Group	GIGI	Patriot RS	PRMF	SunCoast
	Illegible	Illegible	Illegible	Illegible	Illegible	Illegible

[Remainder of page intentionally left blank; Signature page immediately follows]

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     IN WITNESS WHEREOF, the parties have executed and delivered this Addendum to Commercial Loan Agreement as of the 31^st of December, 2008.

BORROWER:			LENDER:
PATRIOT RISK MANAGEMENT, INC.,			ULLICO INC.,
a Delaware corporation			a Maryland corporation
By:			By:	/s/ James M. Paul
	Name:	Steven M. Mariano		Name:	James M. Paul
	Title:	President and Chief Executive Officer		Title:	Senior V.P., Chief Operating Officer
PRS GROUP, INC.,
a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	Chairman
GUARANTEE INSURANCE GROUP, INC.,
a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PATRIOT RISK SERVICES, INC.,
a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	Chairman
PATRIOT RISK MANAGEMENT OF FLORIDA, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	Chairman

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     IN WITNESS WHEREOF, the parties have executed and delivered this Addendum to Commercial Loan Agreement as of the 31^st of December, 2008.

BORROWER:			LENDER:
PATRIOT RISK MANAGEMENT, INC.,			ULLICO INC.,
a Delaware corporation			a Maryland corporation
By:	/s/ Steven M. Mariano		By:
	Name:	Steven M. Mariano		Name:
	Title:	President and Chief Executive Officer		Title:
PRS GROUP, INC.,
a Delaware corporation
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
GUARANTEE INSURANCE GROUP, INC.,
a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PATRIOT RISK SERVICES, INC.,
a Delaware corporation
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
PATRIOT RISK MANAGEMENT OF FLORIDA, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	Chairman

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SUNCOAST CAPITAL, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

[Signature Page To Addendum to Commercial Loan Agreement (Continued)]

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AGREEMENT NOT TO SOLICIT

     The undersigned individual agrees to and is bound by the covenants set forth in paragraph 9(a) herein and specifically acknowledge that the covenants contained in said paragraph are reasonable and necessary and that the undersigned have received ample consideration for same.

/s/ Steven M. Mariano Steven M. Mariano

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EXHIBIT I

Reports

MONTHLY, QUARTERLY & YEARLY REPORTING

1. All reports and reconciliations are to be provided to Lender under this Agreement in either hard copy or electronic format.

2. All agreed end-of-month accounting, financial and management reports shall be reconciled and delivered on-line or in print within twenty-one (21) days following month-end, or if a Borrower or GIC is required to file a similar report with a regulator, within 15 business days after the date such filing is required to be filed with the regulator.

3. Such reports may include, but are not limited to, information and statistical data required by regulators such as the National Association of Insurance Commissioners (NAIC), Insurance Services Office (ISO), catastrophe pools, reinsurers, or any other reports reasonably requested to monitor and evaluate the subject business.

4.	Other reports may be requested.
5.	Mandatory reports:
	Patriot Risk Management, Inc. (f/k/a SunCoast Holdings, Inc.):

Consolidated Balance Sheet (monthly)

Consolidated Income Statement (monthly)

Consolidated Cash Flow (quarterly)

Guarantee Insurance Group, Inc. (f/k/a Brandywine Insurance Holdings, Inc.):

Consolidated Balance Sheet (monthly)

Consolidated Income Statement (monthly)

Consolidated Cash Flow (quarterly)

PRS Group, Inc. (f/k/a Patriot Risk Management, Inc.):

Consolidated Balance Sheet (monthly)

Consolidated Income Statement (monthly)

Consolidated Cash Flow (quarterly)

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EXHIBIT II

Underwriting Guidelines

[See Attached]

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GUARANTEE

INSURANCE COMPANY

Underwriting Guidelines

Applications

A fully completed, signed application is required for each, workers’ compensation risk. The ACORD Commercial Insurance Application along with the Worker’s Compensation Section or reasonable facsimiles are acceptable forms. All questions must be answered.

The application must include a full account of all operations, the classification code numbers and descriptions, the appropriate payrolls for each classification, and very importantly, the number of employees by individual class code. Underwriters should pursue such key information whenever missing or return incomplete applications to producers.

Prior carrier information of all previous insurers should be provided, including the names, policy numbers, effective dates, premiums and the experience modification factor. This information must be provided for a minimum of the last three years and preferably for the last five.

Loss History

A complete loss history must be secured for a minimum of the past three years (preferably five) plus the current year to date. Whenever possible, the history should be in the form of hard copy loss runs from the previous insurer(s).

The information provided must be valued within 90 days of the effective date being quoted and must minimally include the following data:

• Date of loss;

• Description of loss;

• Paid amounts;

• Reserve amounts.

Depending on premium size, hard copy loss runs from previous insurers are not always available. Therefore, underwriters may consider a tiered approach to obtaining this data as outlined below:

Estimated Annual Premium	Requirement
Less than $10,000 $10,000 to $25,000	Completed, signed application A written statement on company letterhead, signed by an owner or officer plus any available experience rating worksheet.
Greater than $25,000	Hard copy loss runs required from previous insurer, or a loss report from a previous PEO, plus any available experience rating worksheet.

Underwriters must determine the average loss ratio based on the minimum requirement of three years of loss history. Any risk with a loss ratio greater than 50% must be referred to underwriting management for approval. Additionally, an analysis of all loss producing conditions should be included in the documentation form. The information must include how these conditions have been mitigated to prevent similar losses from recurring.

For any risk that has one or more incurred losses equal to or greater than $25,000, a detailed description of the loss must be obtained. Such details should include: how the accident happened, the resulting injury, current work status and details regarding the remaining reserves.

Financial Reports

A financial report such as a Dun & Bradstreet, annual statement or similar synopsis, should be ordered for all accounts with a premium greater than $100,000 or for any risk which may require collateral. Additionally, financials should be obtained for all newly bound accounts as indicated in the matrix below.

	BEST’S HAZARD	BEST’S HAZARD	BEST’S HAZARD
PREMIUM SIZE	1 TO 3	4 TO 7	8 TO 10
Less than $10,000	Not required	Not Required	Underwriter’s Judgment
$10,000 to $25,000	Not Required	Underwriter’s Judgment	Underwriter’s Judgment
$25,000 to $100,000	Underwriter’s Judgment	Underwriter’s Judgment	Required For premiums over $50,000
Over $100,000	Required	Required	Required
All Referral Classes	Underwriter’s Judgment	Underwriter’s Judgment	Required
All Collateralized Risks	Required	Required	Required.

Refer to the section on financial analysis for complete details on how to interpret the information and for our guidelines on acceptability.

Qualifying Accounts

All business applicants must be for a corporation, association, partnership, Limited Liability Company, limited liability partnership, or other legal entity and be in good standing within their state. All underwriting guidelines must be applied to determine the account’s acceptability.

Referral Accounts

Submissions with the following characteristic(s) must be referred to Underwriting Management for approval prior to releasing a quote:

• Accounts with 24 hour operations

• An incurred loss ratio of 50% or higher

• NCCI hazard group III in combination with a Best hazard group of 8 or higher (unless listed as an exclusion)

• Height exposure above 2 stories

• More than 20% use of subcontractors

• An experience modification factor of less than .65 or greater than 1.50

• Any deductible greater than state mandated deductibles

• Risks with an occupational disease exposure other than specifically excluded classifications (those with a “D” or “E” tax load)

• Accounts requiring a review of financials

Non-Qualifying Accounts

We will not provide coverage to risks with exposures that are excluded by our reinsurance contract(s). Attached are the current reinsurance exclusions, which have been categorized as follows:

• Broad Exclusions- those descriptions that may span many class codes and therefore must be considered while evaluating each risk

• Specific Class Code Exclusions- identifiable class codes that are to be excluded. The list does not include State Special codes that may also need to be excluded. Underwriters are not required to identify those through use of the Scopes Manual.

• Specific Business Operation Exclusions — these exclusions apply based on the activities performed by a business and therefore will not always be identified by a class code. The related class codes are provided for those operations that are known to apply to excluded operations. They are not meant to be all-inclusive and do not include State Special codes.

• General Exclusions — these are program restrictions and catastrophic loss exclusions where no coverage is available.

EX-10.69

Exhibit 10.69

DEBTOR NAME AND ADDRESS	SECURED PARTY NAME AND ADDRESS
Patriot Risk Management, Inc. (“PRM”)	Ullico Inc.
PRS Group, Inc. (“PRS Group”)	1625 Eye Street, NW
Guarantee Insurance Group, Inc. (“GIGI”)	Washington, DC 20006
Patriot Risk Services, Inc.
Patriot Risk Management of Florida, Inc.
SunCoast Capital, Inc.
401 East Las Olas Blvd., Suite 1540
Ft. Lauderdale, FL 33301

Type: o individual o  partnership þ  corporation
o                        
state of organization/registration (if applicable)
                                                                                                                                             
o  If checked, refer to addendum for additional
Debtors and signatures.

COMMERCIAL SECURITY AGREEMENT

The date of this Commercial Security Agreement (Agreement) is December 31, 2008.

SECURED DEBTS. This Agreement will secure all sums advanced by Secured Party under the terms of this Agreement and the payment and performance of the following described Secured Debts that (check one)    þ Debtor   o                                                                                   (Borrower) owes to Secured Party:

o.	Specific Debts. The following debts and all extensions, renewals, refinancings, modifications, and replacements (describe):
þ.	All Debts. All present and future debts, even if this Agreement is not referenced, the debts are also secured by other collateral, or the future debt is unrelated to or of a different type than the current debt. Nothing in this Agreement is a commitment to make future loans or advances.

SECURITY INTEREST. To secure the payment and performance of the Secured Debts, Debtor gives Secured Party a security interest in all of the Property described in this Agreement that Debtor owns or has sufficient rights in which to transfer an interest, now or in the future, wherever the Property is or will be located, and all proceeds and products of the Property. “Property” includes all parts, accessories, repairs, replacements, improvements, and accessions to the Property; any original evidence of title or ownership; and all obligations that support the payment on performance of the Property. “Proceeds” includes anything acquired upon the sale, lease, license, exchange, or other disposition of the Property; any rights and claims arising from the Property; and any collections and distributions on account of the Property. This Agreement remains in effect until terminated in writing, even if the Secured Debts are paid and Secured Party is no longer obligated to advance funds in Debtor or Borrower.

PROPERTY DESCRIPTION. The Property is described as follows:

þ.	Accounts and Other Rights to Payment: All rights to payment, whether or not earned by performance, including, but not limited to, payment for property or services sold, leased, rented, licensed, or assigned. This includes any rights and interests (including all liens) which Debtor may have by law or agreement against any account debtor or obligor of Debtor.
þ.	Inventory: All inventory held for ultimate sale or lease, or which has been or will be supplied under contracts of service, or which are raw materials, work in process, or materials used or consumed in Debtor’s business.
þ.	Equipment: All equipment including, but not limited to, machinery, vehicles, furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop equipment, office and record keeping equipment, parts, and tools. The Property includes any equipment described in a list or schedule Debtor gives to Secured Party, but such a list is not necessary to create a valid security interest in all of Debtor’s equipment.
þ.	Instruments and Chattel Paper: All instruments, including negotiable instruments and promissory notes and any other writings or records that evidence the right to payment of a monetary obligation, and tangible and electronic chattel paper.
þ.	General Intangibles: All general intangibles including, but not limited to, tax refunds, patents and applications for patents, copyrights, trademarks, trade secrets, goodwill, trade names, customer lists, permits and franchises, payment intangibles, computer programs and all supporting information provided in connection with a transaction relating to computer programs, and the right to use Debtor’s name.
þ.	Documents: All documents of title including, but not limited to, bills of lading, dock warrants and receipts, and warehouse receipts.
o.	Farm Products and Supplies: All farm products including, but not limited to, all poultry and livestock and their young, along with their produce, products, and replacements; all crops, annual or perennial, and all products of the crops; and all feed, seed, fertilizer, medicines, and other supplies used or produced in Debtor’s farming operations.
þ.	Government Payments and Programs: All payments, accounts, general intangibles, and benefits including, but not limited to, payments in kind, deficiency payments, letters of entitlement, warehouse receipts, storage payments, emergency assistance and diversion payments, production flexibility contracts, and conservation reserve payments under any preexisting, current, or future federal or state government program.
þ.	Investment Property: All investment property including, but not limited to, certificated securities, uncertificated securities, securities entitlements, securities accounts, commodity contracts, commodity accounts, and financial assets.
þ.	Deposit Accounts: All deposit accounts including, but not limited to, demand, time,

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savings, passbook, and similar accounts.

þ.	Specific Property Description: The Property includes, but is not limited by, the following (if required, provide real estate description):
	See also Addendum A dated of even date hereof attached hereto and incorporated herein by this reference.
	See Extension of Security Agreement dated of even date hereof attached hereto and incorporated herein by this reference.

USE OF PROPERTY, The property will be used for o personal þ business o agriculture o                     purposes.

SIGNATURES. Debtor agrees to the terms on all pages of this Agreement and acknowledges receipt of a copy of this Agreement.

DEBTOR		SECURED PARTY
PATRIOT RISK MANAGEMENT, INC.,		ULLICO INC.,
a Delaware corporation		a Maryland corporation
By:		By:	/s/ James M. Paul
	Name: Steven M. Mariano		Name: James M. Paul
	Title: President and Chief Executive Officer		Title: Senior V. P., Chief Operating Officer

PRS GROUP, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	Chairman
GUARANTEE INSURANCE GROUP, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

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	savings, passbook, and similar accounts.
þ.	Specific Property Description: The Property includes, but is not limited by, the following (if required, provide real estate description):
	See also Addendum A dated of even date hereof attached hereto and incorporated herein by this reference.
	See Extension of Security Agreement dated of even date hereof attached hereto and incorporated herein by this reference.

     USE OF PROPERTY, The ___ property will be used for o personal þ business o agriculture o                     purposes.

SIGNATURES. Debtor agrees to the terms on all pages of this Agreement and acknowledges receipt of a copy of this Agreement.

DEBTOR		SECURED PARTY
PATRIOT RISK MANAGEMENT, INC.,		ULLICO INC.,
a Delaware corporation		a Maryland corporation
By:	/s/ Steven M. Mariano	By:
	Name: Steven M. Mariano		Name:
	Title: President and Chief Executive Officer		Title:

PRS GROUP, INC., a Delaware corporation
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
GUARANTEE INSURANCE GROUP, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

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PATRIOT RISK SERVICES, INC., a Delaware corporation
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
PATRIOT RISK MANAGEMENT OF FLORIDA, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	Chairman
SUNCOAST CAPITAL, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

[Signature Page to Commercial Security Agreement (continued)]

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ADDENDUM A

     GENERAL PROVISIONS. Each Debtor’s obligations under this Agreement are independent of the obligations of any other Debtor. Secured Party may sue each Debtor individually or together with any other Debtor. Secured Party may release any part of the Property, and Debtor will remain obligated under this Agreement. The duties and benefits of this Agreement will bind the successors and assigns of Debtor and Secured Party. No modification of this Agreement is effective unless made in writing and signed by Debtor and Secured Party. Whenever used, the plural includes the singular and the singular includes the plural. Time is of the essence.

     APPLICABLE LAW. This Agreement is governed by the laws of the State of Delaware (without regard to conflict of laws principles). In the event of a dispute, the exclusive forum, venue, and place of jurisdiction will be the State of Delaware, unless otherwise required by law. If any provision of this Agreement is unenforceable by law, the unenforceable provision will be severed and the remaining provisions will still be enforceable.

     NAME AND LOCATION. Debtor’s name indicated on the cover page hereto is Debtor’s exact legal name. If Debtor is an individual, Debtor’s address is Debtor’s principal residence. If Debtor is not an individual, Debtor’s address is the location of Debtor’s chief executive offices or sole place of business. If Debtor is an entity organized and registered under state law, Debtor has provided Debtor’s state of registration on the cover page hereto. Debtor will provide verification of registration and location upon Secured Party’s request. Debtor will provide Secured Party with at least 30 days notice prior to any change in Debtor’s name, address, or state of organization or registration.

     WARRANTIES AND REPRESENTATIONS. Debtor has the right, authority, and power to enter into this Agreement. The execution and delivery of this Agreement will not violate any agreement governing Debtor or Debtor’s property, or to which Debtor is a party. Debtor makes the following warranties and representations which continue as long as this Agreement is in effect:

(1)	Debtor is duly organized and validly existing in all jurisdictions in which Debtor does business;
(2)	the execution and performance of the terms of this Agreement have been duly authorized, have received all necessary governmental approval, and will not violate any provision of law or order;
(3)	other than previously disclosed to Secured Party, Debtor has not changed Debtor’s name or principal place of business within the last 10 years and has not used any other trade or fictitious name; and
(4)	Debtor does not and will not use any other name without Secured Party’s prior written consent.

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     Debtor owns all of the Property, and Secured Party’s claim to the Property is ahead of the claims of any other creditor, except as otherwise agreed and disclosed to Secured Party prior to any advance on the Secured Debts. The Property has not been used for any purpose that would violate any laws or subject the Property to forfeiture or seizure.

     DUTIES TOWARD PROPERTY. Debtor will protect the Property and Secured Party’s interest against any competing claim. Except as otherwise agreed, Debtor will keep the Property in Debtor’s possession at the address indicated on the cover page of this Agreement. Debtor will keep the Property in good repair and use the Property only for purposes specified on the cover page hereto. Debtor will not use the Property in violation of any law and will pay all taxes and assessments levied or assessed against the Property. Secured Party has the right of reasonable access to inspect the Property, including the right to require Debtor to assemble and make the Property available to Secured Party. Debtor will immediately notify Secured Party of any loss or damage to the Property. Debtor will prepare and keep books, records, and accounts about the Property and Debtor’s business, to which Debtor will allow Secured Party reasonable access.

     Debtor will not sell, offer to sell, license, lease, or otherwise transfer or encumber the Property without Secured Party’s prior written consent. Any disposition of the Property will violate Secured Party’s rights, unless the Property is inventory sold in the ordinary course of business at fair market value. If the Property includes chattel paper or instruments, either as original collateral or as proceeds of the Property, Debtor will record Secured Party’s interest on the face of the chattel paper or instruments.

     If the Property includes accounts, Debtor will not settle any account for less than the full value, dispose of the accounts by assignment, or make any material change in the terms of any account without Secured Party’s prior written consent. Debtor will collect all accounts in the ordinary course of business, unless otherwise required by Secured Party. Debtor will keep the proceeds of the accounts, and any goods returned to Debtor, in trust for Secured Party and will not commingle the proceeds or returned goods with any of Debtor’s other property. Secured Party has the right to require Debtor to pay Secured Party the full price on any returned items. Secured Party may require account debtors to make payments under the accounts directly to Secured Party. Debtor will deliver the accounts to Secured Party at Secured Party’s request. Debtor will give Secured Party all statements, reports, certificates, lists of account debtors (showing names, addresses, and amounts owing), invoices applicable to each account, and any other data pertaining to the accounts as Secured Party requests.

     If the Property includes farm products, Debtor will provide Secured Party with a list of the buyers, commission merchants, and selling agents to or through whom Debtor may sell the farm products. Debtor authorizes Secured Party to notify any additional parties regarding Secured Party’s interest in Debtor’s farm products, unless prohibited by law. Debtor agrees to plant, cultivate, and harvest crops in due season. Debtor will be in default if any loan proceeds are used for a purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetland to produce or to make possible the production of an agricultural commodity, further explained in 7 CFR Part 1940, Subpart G, Exhibit M.

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     If Debtor pledges the Property to Secured Party (delivers the Property into the possession or control of Secured Party or a designated third party), Debtor will, upon receipt, deliver any proceeds and products of the Property to Secured Party. Debtor will provide Secured Party with any notices, documents, financial statements, reports, and other information relating to the Property Debtor receives as the owner of the Property.

     PERFECTION OF SECURITY INTEREST. Debtor authorizes Secured Party to file a financing statement covering the Property. Debtor will comply with, facilitate, and otherwise assist Secured Party in connection with obtaining possession or control over the Property for purposes of perfecting Secured Party’s interest under the Uniform Commercial Code.

     INSURANCE. Debtor agrees to keep the Property insured against the risks reasonably associated with the Property until the Property is released from this Agreement. Debtor will maintain this insurance in the amounts Secured Party requires. Debtor may choose the insurance company, subject to Secured Party’s approval, which will not be unreasonably withheld. Debtor will have the insurance provider name Secured Party as loss payee on the insurance policy. Debtor will give Secured Party and the insurance provider immediate notice of any loss. Secured Party may apply the insurance proceeds toward the Secured Debts. Secured Party may require additional security as a condition of permitting any insurance proceeds to be used to repair or replace the Property. If Secured Party acquires the Property in damaged condition, Debtor’s rights to any insurance policies and proceeds will pass to Secured Party to the extent of the Secured Debts. Debtor will immediately notify Secured Party of the cancellation or termination of insurance. If Debtor fails to keep the Property insured, or fails to provide Secured Party with proof of insurance, Secured Party may obtain insurance to protect Secured Party’s interest in the Property. The insurance may include coverages not originally required of Debtor, may be written by a company other than one Debtor would choose, and may be written at a higher rate than Debtor could obtain if Debtor purchased the insurance.

     AUTHORITY TO PERFORM. Debtor authorizes Secured Party to do anything Secured Party deems reasonably necessary to protect the Property and Secured Party’s interest in the Property. If Debtor fails to perform any of Debtor’s duties under this Agreement, Secured Party is authorized, without notice to Debtor, to perform the duties or cause them to be performed. These authorizations include, but are not limited to, permission to pay for the repair, maintenance, and preservation of the Property and take any action to realize the value of the Property. Secured Party’s authority to perform for Debtor does not create an obligation to perform, and Secured Party’s failure to perform will not preclude Secured Party from exercising any other rights under the law or this Agreement.

     If Secured Party performs for Debtor, Secured Party will use reasonable care. Reasonable care will not include any steps necessary to preserve rights against prior parties or any duty to take action in connection with the management of the Property.

     If Secured Party comes into possession of the Property, Secured Party will preserve and protect the Property to the extent required by law. Secured Party’s duty of care with respect to the Property will be satisfied if Secured Party exercises reasonable care in the safekeeping of the Property or in the selection of a third party in possession of the Property.

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     Secured Party may enforce the obligations of an account debtor or other person obligated on the Property. Secured Party may exercise Debtor’s rights with respect to the account debtor’s or other person’s obligations to make payment or otherwise render performance to Debtor, and enforce any security interest that secures such obligations.

     PURCHASE MONEY SECURITY INTEREST. If the Property includes items purchased with the Secured Debts, the Property purchased with the Secured Debts will remain subject to Secured Party’s security interest until the Secured Debts are paid in full. Payments on any non-purchase money loan also secured by this Agreement will not be applied to the purchase money loan. Payments on the purchase money loan will be applied first to the non-purchase money portion of the loan, if any, and then to the purchase money portion in the order in which the purchase money Property was acquired. If the purchase money Property was acquired at the same time, payments will be applied in the order Secured Party selects. No security interest will be terminated by application of this formula.

     DEFAULT. Debtor shall be in default if an Event of Default continues under the terms of the Commercial Loan Agreement signed by Debtor of even date herewith after the expiration of any applicable notice, grace, and/or cure periods.

     REMEDIES. After Debtor defaults, and after Secured Party gives any legally required notice and opportunity to cure the default, Secured Party may at Secured Party’s option do any one or more of the following:

(1) make all or any part of the Secured Debts immediately due and accrue interest at the highest post-maturity interest rate;

(2) require Debtor to gather the Property and make it available to Secured Party in a reasonable fashion;

(3) enter upon Debtor’s premises and take possession of all or any part of Debtor’s property for purposes of preserving the Property or its value and use and operate Debtor’s property to protect Secured Party’s interest, all without payment or compensation to Debtor;

(4) use any remedy allowed by state or federal law, or provided in any agreement evidencing or pertaining to the Secured Debts.

     If Secured Party repossesses the Property or enforces the obligations of an account debtor, Secured Party may keep or dispose of the Property as provided by law. Secured Party will apply the proceeds of any collection or disposition first to Secured Party’s expenses of enforcement, which includes reasonable attorneys’ fees and legal expenses to the extent not prohibited by law, and then to the Secured Debts. Debtor (or Borrower, if not the same) will be liable for the deficiency, if any.

     By choosing any one or more of these remedies, Secured Party does not give up the right to use any other remedy. Secured Party does not waive a default by not using a remedy.

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     WAIVER. Debtor waives all claims for damages caused by Secured Party’s acts or omissions where Secured Party acts in good faith.

     NOTICE AND ADDITIONAL DOCUMENTS. Where notice is required, Debtor agrees that 10 days prior written notice will be reasonable notice to Debtor under the Uniform Commercial Code. Notice to one party is notice to all parties. Debtor agrees to sign, deliver, and file any additional documents and certifications Secured Party considers necessary to perfect, continue, or preserve Debtor’s obligations under this Agreement and to confirm Secured Party’s lien status on the Property.

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EXTENSION OF SECURITY AGREEMENT

December 31, 2008

     For value received, the Debtor hereby grants the Secured Party a security interest in the following additional collateral:

     All capitalized terms used herein but not defined shall have the meaning ascribed to them in the Commercial Loan Agreement and Addendum thereto entered into between Debtors and Secured Party on the date hereof.

     As used in this Agreement, the term “Debtor” shall collectively and jointly refer to Patriot Risk Management, Inc. (“PRM”), PRS Group, Inc. (“PRS Group”), Guarantee Insurance Group, Inc. (“GIGI”), Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., and SunCoast Capital, Inc. (“SunCoast”) and their respective successors and assigns, and all obligations under this Agreement shall be the joint and several obligations of each such entity.

     As used in this Agreement, the term “Collateral” means all of Debtor’s respective right, title and interest in, to and under all property and assets granted as collateral security for the Loan, whether real intangible or tangible personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, Chattel mortgage, collateral Chattel mortgage, Chattel trust, tractor’s lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. Collateral shall also include, but not be limited to all of Debtor’s respective right, title and interest in, to and under the following, whether now owned or at any time hereafter acquired:

     (a) All of Debtor’s personal property, whether tangible or intangible, and all of Debtor’s interest in property and fixtures, now owned or existing or hereafter acquired and wherever located, including without limitation, the following: (i) all furniture, inventory, machinery, vehicles, equipment, goods and supplies; (ii) all accounts, including without limitation, the Debtor’s Depository Account; (iii) all instruments, documents (including, without limitation, the customer files), policies and certificates of insurance, securities, negotiable instruments, money, Chattel paper, investment property, deposits, warehouse receipts and things in action; (iv) all general intangibles and rights to payment or proceeds of any kind, including without limitation, rights to insurance premiums, rights to insurance and reinsurance proceeds, dividends, distribution, proceeds and letter of credit proceeds; (v) all documents and contract rights and interests of any kind, including without limitation, the rights and interests set forth in any agency/producer agreement and insurance policy, and the rights and interests set forth in all Material Agency Agreements and in all Managing Agreements with any Insurance Entity; (vi) all intellectual property rights and similar assets, including without limitation trademark rights, service mark rights, rights to licenses and rights to names, customer lists, trade secrets, goodwill, trade names, permits and franchises, payment intangibles, computer programs, etc.; (b) All of PRM’s right, title and interest in GIGI and PRS Group, whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to PRM in its capacity as the sole stockholder of GIGI and PRS Group; (c) All of

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GIGI’s right, title and interest in GIC whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to GIGI in its capacity as the sole stockholder of GIC; (d) All telephone numbers, rights to the lease of office space, post office boxes or other mailing addresses, rights to trademarks and use of trade names, rights to software licenses, and rents received by Debtor for the lease of office space; (e) All deposit accounts, disbursement accounts, accounts receivable, commission receivables, economic interest of Debtor, all Chattel paper, contract rights, instruments, documents, general intangibles, inventory and goods in process of Debtor, whether now in existence or owned or hereafter coming into existence or acquired, wherever located, and all returned goods, and repossessions and replacements thereof; (f) All commissions, policy fees, service fees, underwriting fees, claims fees, administrative and processing fees, fronting fees, risk management and loss/cost control fees, investment income, management fees (including without limitation, case and captive management fees), premium finance revenues, reinsurance brokerage commissions and all other revenue (collectively, “Revenue”) payable to Debtor and any assignment thereof; (g) All “MGA Operations” being defined hereunder as Debtor’s policy administration agreements, related service fees, and any agency, producer, broker, and managing general agency agreements or similar such contracts (collectively, “Managing Agreements”) with any insurance company, reinsurance company, managing general agency, broker or other insurance supplier (collectively, “Insurance Entities”), the policies Debtor has written or placed pursuant to such agreements, the right to commissions and policy fees (new, renewal, additional or other) for any of the foregoing, and Debtor’s customer list and policy information for said customers, and with respect to all of the foregoing, whether now owned by Debtor or at any time hereafter acquired; (h) Any property, tangible or intangible, in which Debtor grants Lender a security interest in any other Loan Document; (i) All “Premium Finance Operations” being defined hereunder as Debtor’s or their affiliates’ existing or future premium finance business, all tangible and intangible property associated therewith, and all Revenue (less amounts due Insurance Entities) derived directly or indirectly therefrom; and (j) All additions, attachments, parts, repairs, accessories, accession, replacement and substitutions to or for any of the foregoing and any proceeds and products of the above-described property.

     For value received the Debtor hereby acknowledges and agrees that the Lender, without liability to Debtor, may take actual possession of the Collateral without the necessity of commencing legal action and that actual possession is deemed to occur when Lender or its agent notifies Debtor of default, Debtor fails to cure such default within the time allowed hereunder, and demands that the Collateral be transferred and paid directly to the Lender. Debtor agrees that, upon Debtor’s default and failure to cure default within the time allowed hereunder, Lender may without liability to Debtor, transfer any of the Collateral or evidence thereof into its own name or that of its designee and/or demand, collect, convert, redeem, receipt for, settle, compromise, adjust, sue for, foreclose or realize upon its collateral in its own name, its designee’s name or in the name of Debtor. Lender, without appointing a receiver, shall be entitled, but is not required, to take possession and control of the Collateral and collect the rents, issues, and profits thereof. However, Lender shall be entitled, but is not required to have a receiver appointed by a court of competent jurisdiction to take possession and control of the Collateral and collect the rents, issues and profits thereof. In the event a receiver is appointed the amount so collected by the receiver shall be applied under the direction of the court to the payment of any judgment rendered or amount found due under the loan documents. However, under no circumstances whatsoever shall the appointment of the receiver be considered to create

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a control of Debtor’s business by Lender and at all times the receiver shall be an agent apart from Lender and responsible only to the appointing court. Debtor shall cooperate fully with Lender or a receiver and promptly endorse, set over, transfer and deliver to Lender or a receiver any Collateral in Debtor’s possession or held by a third party. Debtor expressly agrees and acknowledges Lender’s or a receiver’s right to Collateral, right to possession of Collateral and right to operate Debtor’s business without the necessity of commencing legal action and without Debtor’s further action or authorization.

     Notwithstanding anything herein to the contrary, Lender acknowledges and agrees that it shall not be entitled to vote any shares of GIC, assert ownership or transfer ownership of the voting shares of GIC until it has complied with any applicable Florida law, including without limitation, filing a Form A and having it approved by the Florida Office of Insurance Regulation to the extent applicable.

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EX-10.70

Exhibit 10.70

STOCK PLEDGE AGREEMENT

     This Stock Pledge Agreement (this “Agreement”) is made effective as of the 31st day of December, 2008 (the “Effective Date”) by and between Steven M. Mariano (“Mariano”), Steven M. Mariano Revocable Trust (“Mariano Trust”), Patriot Risk Management, Inc. (formerly known as SunCoast Holdings, Inc.), a Delaware corporation (“PRM”), PRS Group, Inc. (formerly known as Patriot Risk Management, Inc.), a Delaware corporation (“PRS Group”), and Guarantee Insurance Group, Inc. (formerly known as Brandywine Insurance Holdings, Inc.), a Delaware corporation (“GIGI” and, together with Mariano, Mariano Trust, PRM, PRS Group, GIGI and Mariano, “Pledgors”), and Ullico Inc., a Maryland corporation (“Pledgee”).

RECITALS

     A. Mariano, individually, owns shares of capital stock of PRM as of the date hereof representing 1.7% of the voting control of PRM and owns options to purchase additional shares of the issued and outstanding capital stock of PRM in the future (all such currently-owned capital stock and capital stock which may be acquired by Mariano in the future, collectively, the “Mariano PRM Shares”).

     B. Mariano Trust, which is controlled by Mariano, owns shares of capital stock of PRM representing 87.74% of the voting control of PRM as of the date hereof (all such currently-owned capital stock and capital stock which may be acquired by Mariano Trust in the future, collectively, the “Mariano Trust PRM Shares”). Mariano possesses sole dispositive and voting control over the Mariano Trust PRM Shares.

     C. PRM owns 100% of the issued and outstanding capital stock of PRS Group (the “PRS Shares”) and 100% of the issued and outstanding capital stock of GIGI (the “GIGI Shares”).

     D. PRS Group owns 100% of the issued and outstanding capital stock of Patriot Risk Services, Inc., a Delaware corporation (“Patriot RS”).

     E. GIGI owns 100% of the issued and outstanding capital stock of Guarantee Insurance Company, a Florida domiciled insurance company (“GIC”) (the “GIC Shares” and, together with the Mariano PRM Shares, Mariano Trust PRM Shares, PRS Shares, GIGI Shares, Patriot RS Shares, and GIC Shares, the “Shares”).

     F. Pledgee has agreed to make a loan to PRM, PRS Group, GIGI, Patriot RS, Patriot Risk Management of Florida, Inc., a Delaware corporation, and SunCoast Capital, Inc., a Delaware corporation (collectively, “Borrowers”) (the “Loan”), pursuant to that certain promissory note (the “Note”) of even date herewith made payable by Borrowers to Pledgee in the principal amount of $5,450,000 and the related loan documents. The Note, together with this Agreement and all other loan agreements, security agreements, guaranties, pledge agreements and all other documents and instruments that evidence and/or secure the Loan are referred to herein as the “Loan Documents.”

     G. Pledgors agreed to pledge the Pledged Shares (as defined below) to Pledgee to secure Borrowers’ obligations under the Loan Documents.

TERMS AND CONDITIONS

     NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

     1. Definitions. The following terms when used hereinafter shall have the following meaning:

          (a) The term “Pledged Shares” means the Shares and any other stock (whether common, preferred or otherwise) or other securities of PRM, PRS Group, GIGI, Patriot RS and GIC in which Pledgors at any time have an interest, all whether now owned or at any time hereafter acquired.

          (b) The term “Obligations” means (i) the timely, full and complete payment by Borrowers when due of all amounts due under the Note, (ii) the timely, full and complete performance by Borrowers of all of their obligations, liabilities and indebtedness under the Loan Documents, and (iii) the timely, full and complete performance by Pledgors of all of their obligations under this Agreement.

          (c) The term “Event of Default”, as used in this Agreement, means (i) any Event of Default as defined in any of the Loan Documents, (ii) the nonperformance or breach by Pledgors of any provision of this Agreement, (iii) the nonperformance or breach by any of Borrowers of any provision of any of the Loan Documents, or (iv) the failure of the PRS Shares, GIGI Shares, Patriot RS Shares or GIC Shares to constitute at least 100% of the capital stock of, as applicable, PRS Group, GIGI, Patriot RS or GIC.

     2. Pledge.

          (a) As security for the payment and performance of the Obligations, Pledgors hereby pledge to Pledgee the Pledged Shares and grant Pledgee a first priority lien and security interest therein. Mariano, PRM, PRS Group and GIGI represent and warrant that they have previously delivered the original certificate(s) representing the Mariano PRM Shares, PRS Shares, GIGI Shares, Patriot RS Shares and GIC Shares, together with duly executed forms of assignment sufficient to transfer title thereto to Pledgee, to Quivira Capital, LLC (the “Agent”) pursuant to the terms of that certain Stock Pledge Agreement, dated as of March 30, 2006, by and between PRM, GIGI, PRS Group and Brooke Credit Corporation (the “2006 Agreement”). Upon execution of this Agreement, Pledgors shall deliver to Pledgee the original certificates representing the Mariano Trust PRM Shares and additional Mariano PRM Shares currently not held by the Agent, together with duly executed forms of assignment sufficient to transfer title thereto to Pledgee.

          (b) If, while this Agreement is in effect, Pledgors become entitled to receive or receive any securities or other property in addition to, in substitution of, or in exchange for any of the Pledged Shares (whether as a dividend or a distribution and whether in connection

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with any merger, recapitalization, reorganization, or reclassification or otherwise), Pledgors shall accept such securities or other property on behalf of, and for the benefit of, Pledgee as additional security for the Obligations and shall promptly deliver such additional security to the Agent with respect to the securities of GIC and to Pledgee with respect to the securities of PRM, PRS Group, GIGI, or Patriot RS, together with duly executed forms of assignment, and such additional security shall be deemed for all purposes to be part of the Pledged Shares hereunder.

     3. Rights of Pledgee.

          (a) If any Event of Default occurs, then in addition to any other rights set forth herein, Pledgee shall have all the rights of a secured creditor at law or in equity and under the Uniform Commercial Code in effect at the time in the State of Delaware, including that Pledgee, at its sole option, may without demand of performance or other demand, advertisement or notice of any kind (except notice of the time and place of public or private sale, to the extent required by applicable law) to or upon Pledgors or any other person (all of which are, to the extent permitted by law, hereby expressly waived), immediately take any one or more of the following actions:

               (i) realize upon the Pledged Shares, or any part thereof, and retain ownership of such Pledged Shares, provided that Pledgee complies with all required regulatory approvals in connection therewith; or

               (ii) realize upon the Pledged Shares, or any part thereof, and sell or otherwise dispose of and deliver the Pledged Shares, or any part thereof or interest therein, in one or more lots and at such prices and on such terms as Pledgee may deem best, provided that Pledgee complies with all required regulatory approvals in connection therewith; or

               (iii) proceed by a suit at law or in equity to foreclose this Agreement and sell the Pledged Shares, or any portion thereof, under a judgment or decree of a court of competent jurisdiction; or

               (iv) proceed against Pledgors for money damages.

          (b) Should Pledgee choose to sell or otherwise dispose of the Pledged Shares following an Event of Default, the proceeds of any such disposition or other action by Pledgee shall be applied as follows:

               (i) first, to the costs and expenses incurred in connection therewith or incidental thereto or to the care or safekeeping of any of the Pledged Shares or in any way relating to the rights of Pledgee hereunder, including reasonable attorneys’ fees and legal expenses;

               (ii) second, to the satisfaction of the Obligations;

               (iii) third, to the payment of any other amounts required by applicable law; and

               (iv) fourth, to Pledgors to the extent of any surplus proceeds.

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     4. Transfers and Other Liens. Pledgors hereby represent and warrant to Pledgee that Pledgors have good and valid title to the Shares, free and clear of all liens, security interests and encumbrances (other than under this Agreement and, with respect to the GIC Shares, the 2006 Agreement) and that, so long as the Obligations are outstanding, the PRS Shares, GIGI Shares, Patriot RS Shares and GIC Shares shall constitute not less than 100% of the issued and outstanding capital stock of, as applicable, PRS Group, GIGI, Patriot RS, and GIC. Pledgors hereby agree that Pledgors will not:

          (a) sell, transfer, or otherwise dispose of, or grant any option with respect to, any of the Pledged Shares; or

          (b) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Shares, except for the security interest under this Agreement and the 2006 Agreement.

     5. Termination. Upon satisfaction of all the Obligations, including all costs and expenses of Pledgee as provided herein, this Agreement shall terminate, and Pledgee shall instruct the Agent to surrender the GIC Shares to GIGI together with all forms of assignment, and Pledgee shall surrender the other Pledged Shares to Pledgors with all forms of assignment.

     6. Voting Rights and Distributions.

          (a) So long as no Event of Default occurs, Pledgors shall be entitled to exercise any and all voting rights pertaining to the Pledged Shares and shall be entitled to receive and retain any distributions paid or distributed in respect of the Pledged Shares.

          (b) Upon the occurrence and during the continuance of an Event of Default, all rights of Pledgors to exercise the voting rights or receive and retain distributions that they would otherwise be entitled to exercise or receive and retain shall cease, and all such rights shall thereupon automatically become vested in Pledgee, who shall thereupon have the sole right to exercise such voting rights and to receive and retain such distributions. To effectuate this, Pledgors shall execute the Proxy attached as Exhibit A hereto, which is fully incorporated herein, upon the execution of this Agreement. Pledgors shall execute and deliver (or cause to be executed and delivered) to Pledgee any other proxies or instruments as Pledgee may reasonably request for the purpose of enabling Pledgee to exercise the voting rights which it is entitled to exercise and to receive the distributions that it is entitled to receive and retain pursuant to the preceding sentence.

     7. Further Assurances. Pledgors agree that at any time and from time to time upon the written request of Pledgee, Pledgors shall execute and deliver such further documents (including UCC financing statements) and do such further acts and things as Pledgee may reasonably request in order to effect the purposes of this Agreement. Pledgors hereby authorize Pledgee to file all UCC financing statements necessary or desirable in order for Pledgee to perfect its security interest in the Pledged Shares.

     8. Amendments and Miscellaneous Waivers. Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by Pledgors and Pledgee.

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     9. Severability. The provisions of this Agreement shall be deemed severable and the invalidity, illegality or unenforceability of any one or more of the provisions contained herein shall not affect, invalidate or render unenforceable any other provision of this Agreement.

     10. Binding Effect; Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, personal and legal representatives, successors and assigns. Pledgors shall not assign their rights under this Agreement without the prior written consent of Pledgee.

     11. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflict of laws.

     12. No Waiver; Cumulative Remedies. Pledgee shall not, by any act, delay, omission, or otherwise, be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Pledgee, and then only to the extent therein set forth. A waiver by Pledgee of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Pledgee would otherwise have on any future occasion. No failure to exercise nor any delay in exercising on the part of Pledgee, any right, power, or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies herein provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies provided by law.

     13. Entire Agreement. This Agreement and the Loan Documents set forth all of the provisions, agreements, conditions, understandings, representations and warranties among the parties hereto with respect to the subject matter hereof, and supersede all prior agreements or understandings, written or oral, among the parties hereto, with respect to the matters set forth herein and therein.

     14. Counterparts; Facsimile Execution. This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which together will constitute one and the same Agreement. Delivery of an executed counterpart of this Agreement by facsimile will be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by facsimile also will deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart will not affect the validity, enforceability, or binding effect hereof.

     15. Waiver of Jury Trial. PLEDGORS AND PLEDGEE HEREBY WAIVE THEIR RESPECTIVE RlGHTS TO A JURY TRlAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGORS AND PLEDGEE REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

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     16. Florida Regulatory Approval. Notwithstanding anything herein to the contrary, Pledgee acknowledges and agrees that Pledgee shall not be entitled to vote the GIC Shares, assert ownership or transfer ownership of the GIC Shares until it has complied with any applicable Florida law, including without limitation, filing a Form A and having it approved by the Florida Office of Insurance Regulation to the extent applicable.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge Agreement to be executed as of the day and year first above written.

PLEDGORS:
/s/ Steven M. Mariano
Steven M. Mariano, individually
STEVEN M. MARIANO REVOCABLE TRUST
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	Trustee
PATRIOT RISK MANAGEMENT, INC.
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PRS GROUP, INC.
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
GUARANTEE INSURANCE GROUP, INC.
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

PLEDGEE: ULLICO INC.
By:	/s/ James M. Paul
	Name:	James M. Paul
	Title:	Senior V.P., Chief Operating Officer

EXHIBIT A
IRREVOCABLE PROXY

     The undersigned, on behalf of himself individually (“Mariano”) and Steven M. Mariano Revocable Trust (“Mariano Trust”), pursuant to and subject to Ullico Inc., a Maryland corporation (“Ullico”), securing a loan to Patriot Risk Management, Inc. (formerly known as SunCoast Holdings, Inc.), a Delaware corporation and sole shareholder of PRS Group and GIGI (as each is defined herein) (“PRM”), PRS Group, Inc. (formerly known as Patriot Risk Management, Inc.), a Delaware corporation and sole shareholder of Patriot RS and Patriot FL (as each is defined herein) (“PRS Group”), Guarantee Insurance Group, Inc. (formerly known as Brandywine Insurance Holdings, Inc.), a Delaware corporation (“GIGI”), Patriot Risk Services, Inc., a Delaware corporation (“Patriot RS”), Patriot Risk Management of Florida, Inc., a Delaware corporation (“Patriot FL”), and SunCoast Capital, Inc., a Delaware corporation (collectively, the “Borrowers”), hereby nominates and appoints Ullico as its true and lawful attorney and proxy (the “Appointee”), with power of substitution to vote upon all of the shares of the undersigned in PRM, standing in the name of himself and Mariano Trust, as applicable, as of the date hereof or hereafter (the “Shares”) at any meetings of the shareholders of PRM upon the uncured default of any of the Borrowers on the aforementioned loan and subject to the terms and conditions of the Stock Pledge Agreement by and between the Borrowers and Ullico of even date herewith. The Appointee is to have all of the powers the undersigned would possess if present personally or otherwise duly represented at any such meetings. In addition, this Irrevocable Proxy entitles the Appointee to also execute any and all consents of shareholders of PRM executed in lieu of the holding of any such shareholder meetings.

     The undersigned hereby affirms that this Irrevocable Proxy is coupled with an interest sufficient under the laws of the State of Delaware to support an irrevocable proxy. Mariano and Mariano Trust hereby ratify and confirm all that the Appointee of this Irrevocable Proxy may lawfully do or cause to be done by virtue of this Irrevocable Proxy. Mariano and Mariano Trust acknowledge and agree that the irrevocable proxy granted to the Appointee by this Irrevocable Proxy shall not terminate by operation of law, whether by bankruptcy, insolvency or the occurrence of any other event.

     Mariano and Mariano Trust further acknowledge and agree that this Irrevocable Proxy relates to all voting rights with respect to the Shares and does not relate to any other rights incident to the ownership of the Shares (including, without limitation, the right of the undersigned to receive dividends and the right to receive the consideration from any sale of the Shares).

     This Irrevocable Proxy is governed by the laws of the State of Delaware without giving effect to any conflict of laws principles therein. Notwithstanding anything herein to the contrary, Appointee acknowledges and agrees that compliance with Florida law and regulatory approval from the Florida Office of Insurance Regulation (“OIR”) shall be required, to the extent applicable, prior to Appointee voting, asserting ownership of or transferring ownership of the Shares (including, without limitation, filing a Form A and having it approved by OIR, to the extent applicable).

[SIGNATURE PAGE FOLLOWS]

     THIS IRREVOCABLE PROXY WILL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE AGAINST ANY DONEE, TRANSFEREE OR ASSIGNEE OF THE SHARES UNTIL THE INTEREST WITH WHICH IT IS COUPLED IS EXTINGUISHED.

Dated:
	Steven M. Mariano, on behalf of himself individually  and as trustee of the Steven M. Mariano Revocable Trust

EX-10.71

Exhibit 10.71

IRREVOCABLE PROXY

     The undersigned, on behalf of himself individually (“Mariano”) and Steven M. Mariano Revocable Trust (“Mariano Trust”), pursuant to and subject to Ullico Inc., a Maryland corporation (“Ullico”), securing a loan to Patriot Risk Management, Inc. (formerly known as SunCoast Holdings, Inc.), a Delaware corporation and sole shareholder of PRS Group and GIGI (as each is defined herein) (“PRM”), PRS Group, Inc. (formerly known as Patriot Risk Management, Inc.), a Delaware corporation and sole shareholder of Patriot RS and Patriot FL (as each is defined herein) (“PRS Group”), Guarantee Insurance Group, Inc. (formerly known as Brandywine Insurance Holdings, Inc.), a Delaware corporation (“GIGI”), Patriot Risk Services, Inc., a Delaware corporation (“Patriot RS”), Patriot Risk Management of Florida, Inc., a Delaware corporation (“Patriot FL”), and SunCoast Capital, Inc., a Delaware corporation (collectively, the “Borrowers”), hereby nominates and appoints Ullico as its true and lawful attorney and proxy (the “Appointee”), with power of substitution to vote upon all of the shares of the undersigned in PRM, standing in the name of himself and Mariano Trust, as applicable, as of the date hereof or hereafter (the “Shares”) at any meetings of the shareholders of PRM upon the uncured default of any of the Borrowers on the aforementioned loan and subject to the terms and conditions of the Stock Pledge Agreement by and between the Borrowers and Ullico of even date herewith. The Appointee is to have all of the powers the undersigned would possess if present personally or otherwise duly represented at any such meetings. In addition, this Irrevocable Proxy entitles the Appointee to also execute any and all consents of shareholders of PRM executed in lieu of the holding of any such shareholder meetings.

     The undersigned hereby affirms that this Irrevocable Proxy is coupled with an interest sufficient under the laws of the State of Delaware to support an irrevocable proxy. Mariano and Mariano Trust hereby ratify and confirm all that the Appointee of this Irrevocable Proxy may lawfully do or cause to be done by virtue of this Irrevocable Proxy. Mariano and Mariano Trust acknowledge and agree that the irrevocable proxy granted to the Appointee by this Irrevocable Proxy shall not terminate by operation of law, whether by bankruptcy, insolvency or the occurrence of any other event.

     Mariano and Mariano Trust further acknowledge and agree that this Irrevocable Proxy relates to all voting rights with respect to the Shares and does not relate to any other rights incident to the ownership of the Shares (including, without limitation, the right of the undersigned to receive dividends and the right to receive the consideration from any sale of the Shares).

     This Irrevocable Proxy is governed by the laws of the State of Delaware without giving effect to any conflict of laws principles therein. Notwithstanding anything herein to the contrary, Appointee acknowledges and agrees that compliance with Florida law and regulatory approval from the Florida Office of Insurance Regulation (“OIR”) shall be required, to the extent applicable, prior to Appointee voting, asserting ownership of or transferring ownership of the Shares (including, without limitation, filing a Form A and having it approved by OIR, to the extent applicable).

[SIGNATURE PAGE FOLLOWS]

     THIS IRREVOCABLE PROXY WILL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE AGAINST ANY DONEE, TRANSFEREE OR ASSIGNEE OF THE SHARES UNTIL THE INTEREST WITH WHICH IT IS COUPLED IS EXTINGUISHED.

Dated: 12-31-08	/s/ Steven M. Mariano
	Steven M. Mariano, on behalf of himself individually and  as trustee of the Steven M. Mariano Revocable Trust

EX-10.72

Exhibit 10.72

GUARANTY

Wilmington, Delaware December 31, 2008

     For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce Ullico Inc., a Maryland corporation (herein, with its participants, successors and assigns, called “Lender”), at its option, at any time or from time to time to make loans or extend other accommodations to or for the account of any of Patriot Risk Management, Inc., a Delaware corporation (formerly known as SunCoast Holdings, Inc.) (“PRM”), PRS Group, Inc., a Delaware corporation (formerly known as Patriot Risk Management, Inc.), Guarantee Insurance Group, Inc., a Delaware corporation (formerly known as Brandywine Insurance Holdings, Inc.), Patriot Risk Services, Inc., a Delaware corporation, Patriot Risk Management of Florida, Inc., a Delaware corporation, and SunCoast Capital, Inc., a Delaware corporation (herein collectively called “Borrower”), or to engage in any other transactions with Borrower, the Undersigned hereby absolutely and unconditionally guarantees to Lender the full and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of the debts, liabilities and obligations described as follows:

A.

If this o is checked, the Undersigned guarantees to Lender the payment and performance of the debt, liability or obligation of Borrower to Lender evidenced by or arising out of the following:                                                              and any extensions, renewals or replacements thereof (hereinafter referred to as the “Indebtedness”).

B.

If this þ is checked, the Undersigned guarantees to Lender the payment and performance of each and every debt, liability and obligation of every type and description which Borrower may now or at any time hereafter owe to Lender (whether such debt, liability or obligation now exists or is hereafter created or incurred, and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several, or joint and several; all such debts, liabilities and obligations being hereinafter collectively referred to as the “Indebtedness”). Without limitation, this guaranty includes the following described debt(s): Commercial Loan Agreement, Commercial Promissory Note, Stock Pledge Agreement and Commercial Security Agreement each of even date herewith by and among Borrower and Lender.

     The Undersigned further acknowledges and agrees with Lender that:

     1. No act or thing need occur to establish the liability of the Undersigned hereunder, and no act or thing, except full payment and discharge of all Indebtedness, shall in any way exonerate the Undersigned or modify, reduce, limit or release the liability of the Undersigned hereunder.

     2. This is an absolute, unconditional and continuing guaranty of payment of the Indebtedness and shall continue to be in force and be binding upon the Undersigned, whether or not all Indebtedness is paid in full, until this guaranty is revoked by written notice actually

received by the Lender, and such revocation shall not be effective as to Indebtedness existing or committed for at the time of actual receipt of such notice by the Lender, or as to any renewals, extensions and refinancings thereof. If there be more than one Undersigned, such revocation shall be effective only as to the one so revoking. The death or incompetence of the Undersigned shall not revoke this guaranty, except upon actual receipt of written notice thereof by Lender and then only as to the decedent or the incompetent and only prospectively, as to future transactions, as herein set forth.

     3. If the Undersigned shall be dissolved, shall die, shall be or become insolvent (however defined) or shall revoke this guaranty, then the Lender shall have the right to declare immediately due and payable, and the Undersigned will forthwith pay to the Lender, the full amount of all Indebtedness, whether due and payable or unmatured. If the Undersigned voluntarily commences or there is commenced involuntarily against the Undersigned a case under the United States Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or unmatured, shall be immediately due and payable without demand or notice thereof.

     4. The liability of the Undersigned hereunder shall be unlimited to a principal amount (if unlimited or if no amount is stated, the Undersigned shall be liable for all Indebtedness, without any limitation as to amount), plus accrued interest thereon and all attorneys’ fees, collection costs and enforcement expenses referable thereto. Indebtedness may be created and continued in any amount, whether or not in excess of such principal amount, without affecting or impairing the liability of the Undersigned hereunder. The Lender may apply any sums received by or available to Lender on account of the Indebtedness from Borrower or any other person (except the Undersigned), from their properties, out of any collateral security or from any other source to payment of the excess. Such application of receipts shall not reduce, affect or impair the liability of the Undersigned hereunder. If the liability of the Undersigned is limited to a stated amount pursuant to this paragraph 4, any payment made by the Undersigned under this guaranty shall be effective to reduce or discharge such liability only if accompanied by a written transmittal document, received by the Lender, advising the Lender that such payment is made under this guaranty for such purpose.

     5. The Undersigned will pay or reimburse Lender for all costs and expenses (including reasonable attorneys’ fees and legal expenses) incurred by Lender in connection with the protection, defense or enforcement of this guaranty in any litigation or bankruptcy or insolvency proceedings.

     6. This guaranty is o unsecured; o secured by a mortgage or security agreement dated                                                             ; þ secured by a pledge of the Undersigned’s stock of PRM.

     7. Whether or not any existing relationship between the Undersigned and Borrower has been changed or ended and whether or not this guaranty has been revoked, Lender may, but shall not be obligated to, enter into transactions resulting in the creation or continuance of Indebtedness, without any consent or approval by the Undersigned and without any notice to the Undersigned. The liability of the Undersigned shall not be affected or impaired by any of the following acts or things (which Lender is expressly authorized to do, omit or suffer from time to time, both before and after revocation of this guaranty, without notice to or approval by the Undersigned): (i) any acceptance of collateral security, guarantors, accommodation parries or

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sureties for any or all indebtedness; (ii) any one or more extensions or renewals of Indebtedness (whether or not for longer than the original period) or any modification of the interest rates, maturities or other contractual terms applicable to any Indebtedness; (iii) any waiver, adjustment, forbearance, compromise or indulgence granted to Borrower, any delay or lack of diligence in the enforcement of Indebtedness, or any failure to institute proceedings, file a claim, give any required notices or otherwise protect any Indebtedness; (iv) any full or partial release of, settlement with, or agreement not to sue, Borrower or any other guarantor or other person liable in respect of any Indebtedness; (v) any discharge of any evidence of Indebtedness or the acceptance of any instrument in renewal thereof or substitution therefor; (vi) any failure to obtain collateral security (including rights of setoff) for Indebtedness, or to see to the proper or sufficient creation and perfection thereof, or to establish the priority thereof, or to protect, insure, or enforce any collateral security; or any release, modification, substitution, discharge, impairment, deterioration, waste, or loss of any collateral security; (vii) any foreclosure or enforcement of any collateral security; (viii) any transfer of any Indebtedness or any evidence thereof; (ix) any order of application of any payments or credits upon Indebtedness; (x) any election by the Lender under §1111(b)(2) of the United States Bankruptcy Code.

     8. The Undersigned waives any and all defenses, claims and discharges of Borrower, or any other obligor, pertaining to Indebtedness, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the Undersigned will not assert, plead or enforce against Lender any defense of waiver, release, statute of limitations, res judicata, statute of frauds, fraud, incapacity, minority, usury, illegality or unenforceability which may be available to Borrower or any other person liable in respect of any Indebtedness, or any setoff available against Lender to Borrower or any such other person, whether or not an account of a related transaction. The Undersigned expressly agrees that the Undersigned shall be and remain liable, to the fullest extent permitted by applicable law, for any deficiency remaining after foreclosure of any mortgage or security interest securing Indebtedness, whether or not the liability of Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. The Undersigned shall remain obligated, to the fullest extent permitted by law, to pay such amounts as though the Borrower’s obligations had not been discharged.

     9. The Undersigned further agrees that the Undersigned shall be and remain obligated to pay Indebtedness even though any other person obligated to pay Indebtedness, including Borrower, has such obligation discharged in bankruptcy or otherwise discharged by law. “Indebtedness” shall include post-bankruptcy petition interest and attorneys’ fees and any other amounts which Borrower is discharged from paying or which do not otherwise accrue to Indebtedness due to Borrower’s discharge, and the Undersigned shall remain obligated to pay such amounts as though Borrower’s obligations had not been discharged.

     10. If any payment applied by Lender to Indebtedness is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or reorganization of Borrower or any other obligor), the Indebtedness to which such payment was applied shall for the purposes of this guaranty be deemed to have continued in existence, notwithstanding such application, and this guaranty shall be enforceable as to such Indebtedness as fully as if such application had never been made.

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     11. The Undersigned waives any claim, remedy or other right which the Undersigned may now have or hereafter acquire against Borrower or any other person obligated to pay Indebtedness arising out of the creation or performance of the Undersigned’s obligation under this guaranty, including, without limitation, any right of subrogation, contribution, reimbursement, indemnification, exoneration, and any right to participate in any claim or remedy the Undersigned may have against the Borrower, collateral, or other party obligated for Borrower’s debts, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law.

     12. The Undersigned waives presentment, demand for payment, notice of dishonor or nonpayment and protest of any instrument evidencing Indebtedness. Lender shall not be required first to resort for payment of the Indebtedness to Borrower or other persons or their properties, or first to enforce, realize upon or exhaust any collateral security for Indebtedness, before enforcing this guaranty.

     13. The liability of the Undersigned under this guaranty is in addition to and shall be cumulative with all other liabilities of the Undersigned to Lender as guarantor or otherwise, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.

     14. This guaranty shall be enforceable against each person signing this guaranty, even if only one person signs and regardless of any failure of other persons to sign this guaranty. If there be more than one signer, all agreements and promises herein shall be construed to be, and are hereby declared to be, joint and several in each of every particular and shall be fully binding upon and enforceable against either, any or all of the Undersigned. This guaranty shall be effective upon delivery to Lender, without further act, condition or acceptance by Lender, shall be binding upon the Undersigned and the heirs, representatives, successors and assigns of the Undersigned and shall inure to the benefit of Lender and its participants, successors and assigns. Any invalidity or unenforceability of any provision or application of this guaranty shall not affect other lawful provisions and application hereof, and to this end the provisions of this guaranty are declared to be severable. Except as authorized by the terms herein, this guaranty may not be waived, modified, amended, terminated, released or otherwise changed except by a writing signed by the Undersigned and Lender. This guaranty shall be governed by the laws of the State of Delaware, without regard to any of its conflict of law principles. The Undersigned waives notice of Lender’s acceptance hereof. The undersigned also irrevocably waives any and all rights he may have to a trial by jury in any action, proceeding or claim of any nature relating to this guaranty.

     15. Notwithstanding any other provision of this guaranty, in the event Lender executes upon this guaranty, Lender will not seek to attach, and waives its right to proceed against, guarantor’s residential real property, household personal property or personal automobile.

     16. Any loan which has been or may be extended by the Undersigned to Borrower shall be postponed and subordinated in right of payment to all amounts due and owing to Lender in connection with the Indebtedness. The Undersigned shall not accept any payment from Borrower with respect to any such subordinated loan made by the Undersigned to Borrower until

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such time as the Indebtedness shall have been paid in full and the Commercial Loan Agreement shall have been terminated. In the event the Undersigned collects or receives any payment with respect to his subordinated indebtedness at a time when the Undersigned is not permitted to receive any such payment, then the Undersigned will forthwith deliver, or cause to be delivered, the same to Lender in precisely the form held by the Undersigned and until so delivered, the same shall be held in trust by the Undersigned as the property of Lender and shall not be commingled with other property of the Undersigned.

[Signature Page Follows]

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     IN WITNESS WHEREOF, this guaranty has been duly executed by the Undersigned the day and year first above written.

/s/ Steven M. Mariano  

Steven M. Mariano, Individually 

“Undersigned” shall refer to all persons who sign this guaranty, severally and jointly. 

EX-10.73

Exhibit 10.73

INTERCREDITOR AGREEMENT

     THIS INTERCREDITOR AGREEMENT (this “Agreement”) is made as of December 31, 2008 by and among (i) the holders of the Existing Lenders Debt (as defined herein) set forth on Schedule A attached hereto (collectively, the “Existing Lenders”), (ii) Ullico Inc., a Maryland corporation (“Ullico”), and (iii) Patriot Risk Management, Inc. (“PRM”), PRS Group, Inc., Guarantee Insurance Group, Inc. (“GIGI”), Patriot Risk Services, Inc., Patriot Risk Management of Florida, Inc., and SunCoast Capital, Inc., each a Delaware corporation (each, a “Borrower” and collectively, the “Borrowers”).

Background

     WHEREAS, the Borrowers and Aleritas Capital Corporation (f/k/a Brooke Credit Corporation) (“Aleritas”) entered into a certain Commercial Loan Agreement, dated as of March 30, 2006 (as amended, the “Existing Loan Agreement”), pursuant to which Aleritas made the following loans to or for the benefit of the Borrowers (collectively, the “Existing Senior Loans”): (i) a term loan in the original principal amount of $8,652,000 made on March 30, 2006 and evidenced by a promissory note of the Borrowers dated the date thereof; and (ii) a term loan in the original principal amount of $5,768,000 made on September 27, 2007 and evidenced by a promissory note of the Borrowers dated the date thereof (the Existing Loan Agreement and all agreements, instruments and guarantees entered into by the parties in connection therewith and in connection with the Existing Senior Loans are referred to herein as the “Existing Loan Documents”, and the indebtedness of the Borrowers to the Existing Lenders evidenced by the Existing Loan Documents is referred to herein as the “Existing Lenders Debt”);

     WHEREAS, on or about November 21, 2008, Aleritas ceased operations and the Existing Lenders, then participants holding undivided participation interests in the Existing Lenders Debt and all collateral securing the Existing Lenders Debt, were assigned and assumed all rights, and acceded to all rights, remedies, benefits and security Aleritas held with respect to the Existing Lenders Debt and the Existing Loan Documents;

     WHEREAS, contemporaneously herewith, Ullico proposes to enter into a Commercial Loan Agreement with the Borrowers pursuant to which Ullico shall make a term loan to or for the benefit of the Borrowers in the principal amount of $5,450,000 secured by a lien on all of the Borrowers’ assets (the “New Loan”) (such Commercial Loan Agreement and all agreements, instruments and guarantees entered into by the parties in connection therewith and the New Loan are referred to herein as the “New Loan Documents”, the indebtedness of the Borrowers to Ullico evidenced by the New Loan Documents is referred to herein as the “New Senior Debt” and the Existing Loan Documents and the New Loan Documents are collectively referred to herein as the “Loan Documents”);

     WHEREAS, contemporaneously with the New Loan, management of the Borrowers will make an additional equity investment in the Borrower of at least $1,000,000 (the “Additional Equity Investment”);

     WHEREAS, to induce Ullico to make the New Loan to or for the benefit of the Borrowers, and as a condition precedent to the establishment of such credit arrangements, the

Existing Lenders have unconditionally agreed that repayment and collateral security for the New Loan and the Existing Lenders Debt will be on a pari passu basis and none of the Existing Lenders nor Ullico shall have any right to priority over the other in repayment of their respective indebtedness and collateral securing the same; and

     WHEREAS, the Exiting Lenders and Ullico wish to enter into this Agreement to establish (i) the Existing Lenders’ consent to the New Senior Debt and the Additional Equity Investment and (ii) the pari passu rights of the parties with respect to the Existing Lenders Debt and the New Senior Debt.

     NOW, THEREFORE, with the foregoing Background incorporated herein by this reference, and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

     1. Consent and Waiver. The Existing Lenders hereby consent to, and waive any default that has or will occur solely as a result of, the Borrowers’ incurrence of the New Senior Debt, the Borrowers’ grant of security under the New Loan Documents and the Additional Equity Investment. The Existing Lenders and the Borrowers confirm that no default or event of default currently exists under the Existing Loan Documents and that the principal amount of the Existing Lenders Debt as of the date hereof is $12,422,375.05.

     2. Ranking; Parity. Regardless of the order in which the respective liens and security interests of the Existing Lenders and Ullico in or to the assets of the Borrowers (the “Collateral”) have been or are perfected, the Existing Lenders and Ullico each acknowledge and agree that any security interests or liens the Existing Lenders and U1lico now or hereafter have in and to the Collateral under the Existing Loan Documents or the New Loan Documents, as the case may be, or otherwise, are and shall rank pari passu to each other.

     3. Defaults; Remedies.

          3.1 Notice. The Existing Lenders and Ullico each agree to give to the other written notice of the declaration of a default or event of default under such party’s Loan Documents, which notice shall be given promptly after the declaration of such default or event of default. In addition, each party will promptly give the other party notice of any payment default regardless of whether or not a default is declared under the respective Loan Documents. This Agreement is intended, in part, to constitute a request for notice and a written notice of a claim by each party hereto to the other of an interest in such Collateral in accordance with the provisions of Sections 9504 and 9505 of the Uniform Commercial Code.

          3.2 Exercise of Remedies. The Existing Lenders and Ullico shall each have the exclusive, absolute and unconditional right to proceed against, refrain from proceeding against, liquidate or otherwise deal with any of the Collateral, at any time and from time to time, in any manner, and, subject to Section 3.3, to obtain payment on its indebtedness from the Borrowers; provided, however, that if the Existing Lenders and Ullico desire to take any action with respect to the Collateral, they agree to give the other at least ten (10) days’ prior written notice of the time and place of any public sale or the time after which any private sale or other

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intended disposition is to be made of the Collateral (which such disposition will be subject to the other party’s lien).

          3.3 Allocation of Payments and Proceeds. Any (i) repayments on the Existing Lenders Debt and the New Senior Debt, (ii) any payments under any guaranty securing the Existing Lenders Debt or the New Senior Debt and (iii) net proceeds of the Collateral received by the Existing Lenders or Ullico shall be allocated between such parties in accordance with their respective pro rata shares which, for the purposes of this Agreement, shall be a fraction (expressed as a percentage) the numerator of which is the amount of such lender’s principal indebtedness and the denominator of which is the sum of all indebtedness owing by Borrowers to the Existing Lenders and Ullico. Until such time as such sums are paid to the appropriate party, the party holding such sums agrees that it holds such sums in express trust for the other party, and shall pay such sums promptly upon receipt to such other party. In addition, the Existing Lenders and Ullico agree to provide the other party from time to time upon request with a detailed payment history of the Existing Senior Debt and the New Senior Debt, as the case may be, so that each party may confirm the other party’s compliance with the allocation provisions of this Section 3.3.

     4. Payments; Other Rights. Except as expressly set forth in this Agreement, the rights of the parties hereto under their respective Loan Documents shall remain unaltered and in full force and effect. The foregoing is intended to include, without limitation, the right to receive payments, the right to make advances and the right to make advances for the purposes of protecting the Collateral and such party’s liens thereon and security interests therein.

     5. Representations, Warranties, Etc. The Existing Lenders and Ullico each represent, warrant and covenant to the other that:

          5.1 It has delivered to the other true and correct copies of its Loan Documents (it being acknowledged by the Existing Lenders that true and correct copies of the Existing Loan Documents are attached to the Form S-1 Registration Statement (Registration No. 3350150864) filed by PRM on October 2, 2008 and the amendments thereto);

          5.2 It has not subordinated, assigned or transferred, and agrees that it will not subordinate, assign or transfer at any time while this Agreement remains in effect, any right, claim or interest of any kind in or to the Existing Lenders Debt or the New Senior Debt, as the case may be, or its Loan Documents, and any subordination, assignment or transfer in violation of this subparagraph shall be null and void; provided, however, the Existing Lenders and Ullico may transfer their respective Existing Lenders Debt or New Senior Debt, as the case may be, and Loan Documents provided that (i) the transferring or assigning party gives the other party prior written notice of such transfer or assignment and (ii) prior to the effective date of such transfer or assignment, the transferee or assignee agrees in writing to be bound by the terms of this Agreement; and

          5.3 It has received all consents and approvals required, if any, in order for it to execute, deliver and perform its obligations pursuant to the terms of this Agreement.

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     6. Amendments to Documents. The Existing Lenders and Ullico each may, at any time or times, in their discretion and with the consent of the other (which consent may not be unreasonably withheld, contained or delayed), (i) renew or extend the time of payment of the Existing Lenders Debt or New Senior Debt, as the case may be, (ii) waive or release any Collateral or guaranties which may be held therefor or (c) modify or amend their Loan Documents without impairing or affecting this Agreement or any of their rights hereunder.

     7. Representations Concerning Borrowers; Liability. The Existing Lender and Ullico each further agree that they shall have no responsibility to each other or to any other person, firm or entity for (i) the Borrowers’ solvency, financial condition or ability to repay their indebtedness to any party, (ii) any oral or written statements of the Borrowers or (iii) the validity, sufficiency or enforceability of the Existing Lenders Debt or New Senior Debt, as the case may be, any of the Loan Documents or the security interests and liens granted by the Borrowers to either the Existing Lenders or Ullico.

     8. Pledged Securities. The Existing Lenders hereby acknowledge that all securities pledged by the Borrowers as security for the Existing Lenders Debt (collectively, the “Pledged Securities”) are also pledged as security for the New Senior Debt and that Quivira Capital, LLC is holding such Pledged Securities as agent for the Existing Lenders and Ullico.

     9. Right to Purchase the Existing Lenders Debt and the New Debt. Notwithstanding anything to the contrary set forth in this Agreement or in any of the Loan Documents, each of the Existing Lenders and Ullico shall have the right and option (but not the duty or obligation) at any time after the occurrence and during the continuance of an “event of default” (however defined under the terms of the Loan Documents) upon ten (10) business days’ written notice to the other party to purchase the Existing Lenders Debt or New Senior Debt, as the case may be, and the respective Loan Documents for a purchase price equal to the sum of (i) the total principal amount of Existing Lenders Debt or the New Senior Debt, as the case may be, as of the date of such proposed purchase by the Existing Lenders or Ullico, as the case may be, plus (ii) the total of all accrued and unpaid interest on such total outstanding principal amount through the date of such proposed purchase, plus (iii) the amount of reasonable fees and expenses, if any, due and owing to the selling party from the Borrowers under the terms of the Loan Documents. Any such purchase price paid by the Existing Lenders or Ullico, as the case may be, shall be made in immediately available funds pursuant to an electronic funds or wire transfer to an account designated by the selling party. Any such sale of such indebtedness and the corresponding Loan Documents shall be made on a non-recourse basis (subject only to representations and warranties by the selling party that it has not otherwise sold, transferred, granted a lien or security interest on or otherwise encumbered such indebtedness and/or any of the corresponding Loan Documents and that the amount stated by the selling party to be owing as principal, accrued and unpaid interest under such indebtedness and any fees due and payable in order to determine the purchase price under this Section 9 is actually due and owing to the selling party from the Borrowers pursuant to the corresponding Loan Documents).

     10. Borrowers’ Acknowledgement. The Borrowers agree that (i) nothing contained in this Agreement shall be deemed to amend, modify, supersede or otherwise alter the terms of the respective Loan Documents between the Borrowers and each of the Existing Lenders and Ullico and (ii) this Agreement is solely for the benefit of the Existing Lenders and Ullico and

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shall not give the Borrowers, their successors or assigns, or any other person, any rights with respect to any Existing Lenders or Ullico. The Borrowers will pay the Existing Lenders’ reasonable fees and expenses, including reasonable attorneys’ fees, incurred in connection with this Agreement.

     11. Restriction on Premiums. Until such time as Guarantee Insurance Company, a Florida corporation and wholly owned subsidiary of GIGI (“GIC”), obtains additional capital of at least $7,000,000, the Borrowers shall not permit GIC to secure insurance premiums in excess of $130,000,000 on an annualized basis.

     12. Additional Equity. The Borrowers hereby acknowledge and agree that in the event that they fail to obtain additional cash equity investments in the Borrowers of at least $10,000,000 (exclusive of the Additional Equity Investment) on or before November 1, 2009, the Borrowers shall pay the Existing Lenders on November 16, 2009 a fee in an amount equal to one percent (1%) of the outstanding principal balance of the Existing Lenders Debt as of November 1, 2009.

     13. Miscellaneous.

          13.1 This Agreement shall be governed by the laws of the State of Delaware without regard to principles of conflicts of laws. This Agreement contains the entire agreement between the parties hereto and may only be modified by a writing signed by (i) Ullico and (ii) the holders of a majority of the outstanding principal indebtedness of the Existing Lenders Debt.

          13.2 No party’s failure to exercise any right hereunder shall be construed as a waiver of its right to exercise the same or any other right at any other time and from time to time thereafter, and such rights shall be cumulative and not exclusive.

          13.3 Any notices or consents required or permitted by this Agreement shall be in writing and shall be delivered (i) in person, (ii) by commercial courier against receipt or (iii) by certified mail, postage prepaid, return receipt requested, as follows, unless such address is changed by written notice hereunder:

If to Ullico:

Ullico Inc.
Attn: General Counsel
1625 Eye Street, N.W.
Washington, D.C. 20006

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If to the Existing Lenders:

c/o Quivira Capital, LLC
Attn: Kelly Drouillard, CPA, CPCU
14033 53^rd Terrace
Shawnee, Kansas 66216

Quivira Capital, LLC shall be deemed to be acting as the agent of the Existing Lenders for all purposes under this Agreement and any notice delivered to Quivira Capital, LLC shall be deemed to be notice to all of the Existing Lenders.

          13.4 This Agreement shall be binding upon and shall inure to the benefit of each party hereto and their respective successors and permitted assigns.

          13.5 All of the understandings, agreements, representations and warranties contained herein are solely for the benefit of the Existing Lenders and Ullico, and there are no other parties, including, without limitation, the Borrowers, who are intended to be benefitted by this Agreement.

          13.6 This Agreement may be executed in counterparts and by facsimile.

[SIGNATURE PAGE FOLLOWS]

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     IN WITNESS WHEREOF, the parties hereto have duly executed and exchanged this Intercreditor Agreement as of the date first written above.

ULLICO INC.
By:	/s/ James M. Paul
	Name:	James M. Paul
	Title:	Senior V.P., Chief Operating Officer
PEABODY STATE BANK
By:
	Name:
	Title:
SECURITY BANK AND TRUST CO.
By:
	Name:
	Title:
COTTONWOOD VALLEY BANK
By:
	Name:
	Title:
CARSON BANK (MULVANE STATE BANK)
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement

     IN WITNESS WHEREOF, the parties hereto have duly executed and exchanged this Intercreditor Agreement as of the date first written above.

ULLICO INC.
By:
	Name:
	Title:
PEABODY STATE BANK
By:	/s/ Charles Good
	Name:	Charles Good
	Title:	EVP
SECURITY BANK AND TRUST CO.
By:
	Name:
	Title:
COTTONWOOD VALLEY BANK
By:
	Name:
	Title:
CARSON BANK (MULVANE STATE BANK)
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement

     IN WITNESS WHEREOF, the parties hereto have duly executed and exchanged this Intercreditor Agreement as of the date first written above.

ULLICO INC.
By:
	Name:
	Title:
PEABODY STATE BANK
By:
	Name:
	Title:
SECURITY BANK AND TRUST CO.
By:	/s/ Robert C Tyson
	Name:	Robert C Tyson
	Title:	President
COTTONWOOD VALLEY BANK
By:
	Name:
	Title:
CARSON BANK (MULVANE STATE BANK)
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement

     IN WITNESS WHEREOF, the parties hereto have duly executed and exchanged this Intercreditor Agreement as of the date first written above.

ULLICO INC.
By:
	Name:
	Title:
PEABODY STATE BANK
By:
	Name:
	Title:
SECURTIY BANK AND TRUST CO.
By:
	Name:
	Title:
COTTONWOOD VALLEY BANK
By:	/s/ Illegible
	Name:	Illegible
	Title:	Illegible
CARSON BANK (MULVANE STATE BANK)
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement

ENTERPRISE BANK (GREAT AMERICAN BANK)
By:
	Name:
	Title:
KENDALL STATE BANK
By:
	Name:
	Title:
THUNDER BANK
By:
	Name:
	Title:
MILLEDGEVILLE STATE BANK
By:
	Name:
	Title:
FIRST BANK OF KANSAS CITY
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

     IN WITNESS WHEREOF, the parties hereto have duly executed and exchanged this Intercreditor Agreement as of the date first written above.

ULLICO INC.
By:
	Name:
	Title:
PEABODY STATE BANK
By:
	Name:
	Title:
SECURITY BANK AND TRUST CO.
By:
	Name:
	Title:
COTTONWOOD VALLEY BANK
By:
	Name:
	Title:
CARSON BANK (MULVANE STATE BANK)
By:	/s/ Dan Madsen
	Name:	Dan Madsen
	Title:	Vice President

Signature Pages to Intercreditor Agreement

THE SIGNATURE OF ENTERPRISE BANK (GREAT AMERICAN BANK) WILL BE
PROVIDED AT A LATER TIME BY SEPARATE COVER LETTER.

ENTERPRISE BANK (GREAT AMERICAN BANK)
By:
	Name:
	Title:
KENDALL STATE BANK
By:	/s/ Jayne L. Coleman
	Name:	Jayne L. Coleman
	Title:	President/CEO
THUNDER BANK
By:
	Name:
	Title:
MILLEDGEVILLE STATE BANK
By:
	Name:
	Title:
FIRST BANK OF KANSAS CITY
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

ENTERPRISE BANK (GREAT AMERICAN BANK)
By:
	Name:
	Title:
KENDALL STATE BANK
By:
	Name:
	Title:
THUNDER BANK
By:	/s/ Mark Obermueller
	Name:	Mark Obermueller
	Title:	President
MILLEDGEVILLE STATE BANK
By:
	Name:
	Title:
FIRST BANK OF KANSAS CITY
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

ENTERPRISE BANK (GREAT AMERICAN BANK)
By:
	Name:
	Title:
KENDALL STATE BANK
By:
	Name:
	Title:
THUNDER BANK
By:
	Name:
	Title:
MILLEDGEVILLE STATE BANK
By:	/s/ Dan Nederhoff
	Name:	Dan Nederhoff
	Title:	Senior Vice President
FIRST BANK OF KANSAS CITY
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

ENTERPRISE BANK (GREAT AMERICAN BANK)
By:
	Name:
	Title:
KENDALL STATE BANK
By:
	Name:
	Title:
THUNDER BANK
By:
	Name:
	Title:
MILLEDGEVILLE STATE BANK
By:
	Name:
	Title:
FIRST BANK OF KANSAS CITY
By:	/s/ Kerry Welch
	Name:	Kerry Welch
	Title:	Pres/CEO

Signature Pages to Intercreditor Agreement (Continued)

SECURITY STATE BANK
By:	/s/ James Arnold
	Name:	James Arnold
	Title:	President & CEO
FDIC RECEIVER FOR AMERIBANK
By:
	Name:
	Title:
FIRST STATE BANK OF GOFF
By:
	Name:
	Title:
TOWN AND COUNTRY BANK
By:
	Name:
	Title:
MIDWEST COMMUNITY BANK
By:
	Name:
	Title:
COLUMBUS BANK AND TRUST CO.
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

THE SIGNATURE OF FDIC RECEIVER FOR AMERIBANK WILL BE PROVIDED AT A
LATER TIME BY SEPARATE COVER LETTER.

SECURITY STATE BANK
By:
	Name:
	Title:
FDIC RECEIVER FOR AMERIBANK
By:
	Name:
	Title:
FIRST STATE BANK OF GOFF
By:	/s/ Illegible
	Name:
	Title:
TOWN AND COUNTRY BANK
By:
	Name:
	Title:
MIDWEST COMMUNITY BANK
By:
	Name:
	Title:
COLUMBUS BANK AND TRUST CO.
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

SECURITY STATE BANK
By:
	Name:
	Title:
FDIC RECEIVER FOR AMERIBANK
By:
	Name:
	Title:
FIRST STATE BANK OF GOFF
By:
	Name:
	Title:
TOWN AND COUNTRY BANK
By:
	Name:
	Title:
MIDWEST COMMUNITY BANK
By:	/s/ Illegible
	Name:	Illegible
	Title:	Illegible
COLUMBUS BANK AND TRUST CO.
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

SECURITY STATE BANK
By:
	Name:
	Title:
FDIC RECEIVER FOR AMERIBANK
By:
	Name:
	Title:
FIRST STATE BANK OF GOFF
By:
	Name:
	Title:
TOWN AND COUNTRY BANK
By:	/s/ Illegible
	Name:	Illegible
	Title:	Illegible
MIDWEST COMMUNITY BANK
By:
	Name:
	Title:
COLUMBUS BANK AND TRUST CO.
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

SECURITY STATE BANK
By:
	Name:
	Title:
FDIC RECEIVER FOR AMERIBANK
By:
	Name:
	Title:
FIRST STATE BANK OF GOFF
By:
	Name:
	Title:
TOWN AND COUNTRY BANK
By:
	Name:
	Title:
MIDWEST COMMUNITY BANK
By:
	Name:
	Title:
COLUMBUS BANK AND TRUST CO.
By:	/s/ Jeffrey C. Johnson
	Name:	Jeffrey C. Johnson
	Title:	EVP

Signature Pages to Intercreditor Agreement (Continued)

FIRST NATIONAL BANK & TRUST — SYRA
By:	/s/ Alan Britton
	Name:	Alan Britton
	Title:	Senior Vice President
FIRST NATIONAL BANK OF SEDAN
By:
	Name:
	Title:
FIRST NAT’L BANK SMITH CENTER
By:
	Name:
	Title:
1ST STATE BANK — HEALY
By:
	Name:
	Title:
1ST STATE BANK OF BURLINGAME
By:
	Name:
	Title:
HERITAGE BANK
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

FIRST NATIONAL BANK & TRUST — SYRA
By:
	Name:
	Title:
FIRST NATIONAL BANK OF SEDAN
By:	/s/ Timothy A. Hills
	Name:	Timothy A. Hills
	Title:	President
FIRST NAT’L BANK SMITH CENTER
By:
	Name:
	Title:
1ST STATE BANK — HEALY
By:
	Name:
	Title:
1ST STATE BANK OF BURLINGAME
By:
	Name:
	Title:
HERITAGE BANK
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

FIRST NATIONAL BANK & TRUST — SYRA
By:
	Name:
	Title:
FIRST NATIONAL BANK OF SEDAN
By:
	Name:
	Title:
FIRST NAT’L BANK SMITH CENTER
By:	/s/ John E. Ballhorst
	Name:	John E. Ballhorst
	Title:	S.V.P.
1ST STATE BANK — HEALY
By:
	Name:
	Title:
1ST STATE BANK OF BURLINGAME
By:
	Name:
	Title:
HERITAGE BANK
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

FIRST NATIONAL BANK & TRUST — SYRA
By:
	Name:
	Title:
FIRST NATIONAL BANK OF SEDAN
By:
	Name:
	Title:
FIRST NAT’L BANK SMITH CENTER
By:
	Name:
	Title:
1ST STATE BANK — HEALY
By:	/s/ Allen F. Leiker
	Name:	Allen F. Leiker
	Title:	Pres. & CEO
1ST STATE BANK OF BURLINGAME
By:
	Name:
	Title:
HERITAGE BANK
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

FIRST NATIONAL BANK & TRUST — SYRA
By:
	Name:
	Title:
FIRST NATIONAL BANK OF SEDAN
By:
	Name:
	Title:
FIRST NAT’L BANK SMITH CENTER
By:
	Name:
	Title:
1ST STATE BANK — HEALY
By:
	Name:
	Title:
1ST STATE BANK OF BURLINGAME
By:	/s/ John H. Fowler
	Name:	John H. Fowler
	Title:	Pres.
HERITAGE BANK
By:
	Name:
	Title:

Signature Pages to Intercreditor Agreement (Continued)

FIRST NATIONAL BANK & TRUST — SYRA
By:
	Name:
	Title:
FIRST NATIONAL BANK OF SEDAN
By:
	Name:
	Title:
FIRST NAT’L BANK SMITH CENTER
By:
	Name:
	Title:
1ST STATE BANK — HEALY
By:
	Name:
	Title:
1ST STATE BANK OF BURLINGAME
By:
	Name:
	Title:
HERITAGE BANK
By:	/s/ Illegible
	Name:	Illegible
	Title:	Pres/CEO

Signature Pages to Intercreditor Agreement (Continued)

IOWA STATE BANK
By:	/s/ Illegible
	Name:	Illegible
	Title:	Senior Vice President
PATRIOT RISK MANAGEMENT, INC.
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PRS GROUP, INC.
By:
	Name:	Steven M. Mariano
	Title:	Chairman
GUARANTEE INSURANCE GROUP, INC.
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PATRIOT RISK SERVICES, INC.
By:
	Name:	Steven M. Mariano
	Title:	Chairman
PATRIOT RISK MANAGEMENT OF FLORIDA, INC.
By:
	Name:	Steven M. Mariano
	Title:	Chairman

Signature Pages to Intercreditor Agreement (Continued)

IOWA STATE BANK
By:
	Name:
	Title:
PATRIOT RISK MANAGEMENT, INC.
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PRS GROUP, INC.
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
GUARANTEE INSURANCE GROUP, INC.
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PATRIOT RISK SERVICES, INC.
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
PATRIOT RISK MANAGEMENT OF FLORIDA, INC.
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	Chairman

Signature Pages to Intercreditor Agreement (Continued)

SUNCOAST CAPITAL, INC.
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

Signature Pages to Intercreditor Agreement (Continued)

Schedule A

Existing Lenders

Peabody State Bank
Security Bank and Trust Co.
Cottonwood Valley Bank
Carson Bank (Mulvane State Bank)
Enterprise Bank (Great American Bank)
Kendall State Bank
Thunder Bank
Milledgeville State Bank
First Bank of Kansas City
Security State Bank
FDIC Receiver for Ameribank
First State Bank of Goff
Town and Country Bank
Midwest Community Bank
Columbus Bank and Trust Co.
First National Bank & Trust — SYRA
First National Bank of Sedan
First Nat’l Bank Smith Center
1st State Bank — Healy
1st State Bank of Burlingame
Heritage Bank
Iowa State Bank

EX-10.74

Exhibit 10.74

PROMISSORY NOTE

Borrower:	Lender:
Patriot Risk Management, Inc.	Ullico Inc.
PRS Group, Inc.	1625 Eye Street, NW
Guarantee Insurance Group, Inc.	Washington, DC 20006
Patriot Risk Services, Inc.
Patriot Risk Management of Florida, Inc.
SunCoast Capital, Inc.
401 East Las Olas Blvd.
Suite 1540
Ft. Lauderdale, FL 33301

Date: 12/31/2008
Maturity Date: 04/15/2016
Loan Amount: $5,450,000

BORROWER’S NAME AND ADDRESS	LENDER’S NAME AND ADDRESS
“I” includes each borrower above, jointly and severally.	“You” means the lender, its successors and assigns.

     For value received, I promise to pay to you, or your order, at your address listed above, the PRINCIPAL sum of five million four hundred fifty thousand and no/100 Dollars $5,450,000.00.

þ  Single Advance: I will receive all of this principal sum on the date hereof. No additional advances are contemplated under this Note.

o  Multiple Advance: The principal sum shown above is the maximum amount of principal I can borrow under this Note. On                                          I will receive the amount of $                                         and future principal advances are contemplated.

Conditions: The conditions for future advances are                                                                                                                                                   


.

o  Open End Credit: You and I agree that I may borrow up to the maximum amount of principal more than one time. This feature is subject in all other conditions and expires on                     .

o  Closed End Credit: You and I agree that I may borrow up to the maximum only one time (and subject to all other conditions).

INTEREST:  I agree to pay interest on the outstanding principal balance from the date hereof at the variable rate set forth below:

þ Variable Rate:

þ Index Rate: The future rate will be 4.500 percent above the following index rate: Prime Rate, as published in The Wall Street Journal.

o No Index: The future rate will not be subject to any internal or external index. It will be entirely in your control.

þ Frequency and Timing: The rate on this Note may change as often as every day beginning 12/31/2008. A change in the interest rate will take effect on the following day.

o Limitations: During the term of this loan, the applicable annual interest rate will not be more than                                           % or less than                                            %. The rate may not change more than                                         % each                                          .

Effect of Variable Rate: A change in the interest rate will have the following effect on the payments:

þ The amount of each scheduled payment will change.

o The amount of the final payment will change.

o                                                                                                                                                                           .

ACCRUAL METHOD: Interest will be calculated on an Actual/365 basis.

POST MATURITY RATE: I agree to pay interest on the unpaid balance of this Note owing after maturity, and until paid in full, as stated below:

þ on the same fixed or variable rate basis in effect before maturity (as indicated above).

o at a rate equal to                                                                                                                                                                           .

þ LATE CHARGE: If a payment is made more than 5 days after it is due, I agree to pay a late charge of 5.000% of the payment amount.

o ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which o are o are not included in the principal amount above:                                                                                                                                                                          .

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PAYMENTS: I agree to pay this Note as follows:

Commencing on January 15, 2009, I shall make 88 consecutive monthly payments of principal and interest on this Note on the 15th day of each month during the term hereof so that all amounts under this Note are repaid in full on the Maturity Date (April 15, 2016). The initial amount of such monthly payments shall be $83,438.36, but this amount will change upon an adjustment to the interest rate as provided herein. Any such adjustment to the amount of the monthly payment amount shall be computed by re-amortizing the then-outstanding balance of this Note over the remaining term of this Note at equal monthly payments at the new interest rate so that the balance of this Note will be fully repaid as of the Maturity Date.

ADDITIONAL TERMS:

[1] See Commercial Loan Agreement and Addendum thereto dated as of even date hereof.

[2] The term following day referred to in “Frequency and Timing” above refers to the next business day following a change in the Prime Rate as reported in The Wall Street Journal.

[3] As referenced in “Effects of Variable Rate” above, the payments will change on the 15th day of the calendar month following the month during which the rate changed.

[4] Notwithstanding any other provision of this Note, Borrower shall pay a prepayment premium equal to 10% during the first twelve [12] months following the date of this Note, 8% during the second twelve [12] months following the date of this Note [that is, months 13 through 24], and 6% during the third twelve [12] months following the date of this Note [that is, months 25 through 36]. This prepayment premium shall not apply after the thirty-sixth month following the date of this Note.

[5] See Addendum A dated as of even date hereof attached hereto and incorporated herein by this reference.

þ SECURITY: This Note is separately secured by (describe separate document by type and date): Commercial Security Agreement and Stock Pledge Agreements related hereto, each dated as of even date hereof. [This section is for your internal use. Failure to list a separate security document does not mean the agreement will not secure this Note.] PURPOSE: The purpose of this loan is set forth in the Commercial Loan Agreement dated as of even date hereof.
                                                                                

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			SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE   (INCLUDING THOSE ON ADDENDUM A). I have received a copy on today’s date.
Signature for Lender:			BORROWER:
ULLICO INC.			PATRIOT RISK MANAGEMENT, INC., a Delaware corporation
By:	/s/ James M. Paul		By:
	Name:	James M. Paul		Name:	Steven M. Mariano
	Title:	Senior V.P., Chief Operating Officer		Title:	President and Chief Executive Officer

PRS GROUP, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	Chairman
GUARANTEE INSURANCE GROUP, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PATRIOT RISK SERVICES, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	Chairman

(Signature Page to Promissory Note)

		SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE   (INCLUDING THOSE ON ADDENDUM A). I have received a copy on today’s date.
Signature for Lender:		BORROWER:
ULLICO INC.		PATRIOT RISK MANAGEMENT, INC., a Delaware corporation
By:		By:	/s/ Steven M. Mariano
	Name:		Name:	Steven M. Mariano
	Title:		Title:	President and Chief Executive Officer

PRS GROUP, INC., a Delaware corporation
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary
GUARANTEE INSURANCE GROUP, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
PATRIOT RISK SERVICES, INC., a Delaware corporation
By:	/s/ Eric S. Dawson
	Name:	Eric S. Dawson
	Title:	Secretary

(Signature Page to Promissory Note)

PATRIOT RISK MANAGEMENT OF FLORIDA, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	Chairman
SUNCOAST CAPITAL, Inc., a Delaware corporation
By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

(Signature Page to Promissory Note (Continued))

ADDENDUM A

     DEFINITIONS: As used on page 1, “þ” means, the terms that apply to this loan. “I,” “me” or “my” means each Borrower who signs this Note and each other person or legal entity (including guarantors, endorsers, and sureties) who agrees to pay this Note (together referred to as “us”). “You” or “your” means the Lender and its successors and assigns.

     APPLICABLE LAW: The law of the State of Delaware (without regard to its conflict of laws principles) will govern this Note. Any term of this Note which is contrary to applicable law will not be effective, unless the law permits you and me to agree to such a variation. If any provision of this agreement cannot be enforced according to its terms, this fact will not affect the enforceability of the remainder of this agreement. No modification of this agreement may be made without your express written consent. Time is at the essence in this agreement.

     COMMISSIONS OR OTHER REMUNERATION: I understand and agree that any insurance premiums paid to insurance companies as part of this Note will involve money retained by you or paid back to you as commissions or other remuneration.

     In addition, I understand and agree that some other payments to third parties of this Note may also involve money retained by you or paid back to you as commissions or other remuneration.

     PAYMENTS: Each payment I make on this Note will first reduce that amount l owe you for charges which are neither interest nor principal. The remainder of each payment will then reduce accrued unpaid interest, and then unpaid principal. If you and I agree to a different application of payments, we will describe our agreement on this Note. I may prepay a part of, or the entire balance of this loan without penalty, unless we specify to the contrary on this Note. Any partial prepayment will not excuse or reduce any later scheduled payment until this Note is paid in full (unless, when I make the prepayment, you and I agree in writing to the contrary).

     INTEREST: Interest accrues on the principal remaining unpaid from time to time, until paid in full. If I receive the principal in more than one advance, each advance will start to earn interest only when I receive the advance. The interest rate in effect on this Note at any given time will apply to the entire principal advanced at that time. Notwithstanding anything to the contrary, I do not agree to pay and you do not intend to charge any rate of interest that is higher than the maximum rate of interest you could charge under applicable law for the extension of credit that is agreed to here (either before or after maturity). If any notice of interest accrual is sent and is in error, we mutually agree to correct it, and if you actually collect more interest than allowed by law and this agreement, you agree to refund it to me.

     INDEX RATE: The index will serve only as a device for setting the rate on this Note. You do not guarantee by selecting this index, or the margin, that the rate on this Note will be the same rate you charge on any other loans or class of loans to me or other borrowers.

     ACCRUAL METHOD: The amount of interest that I will pay on this loan will be calculated using the interest rate and accrual method stated on the cover pages of this Note. For the purpose of interest calculation, the accrual method will determine the number of days in a year. If no accrual method is stated, then you may use any reasonable accrual method for calculating interest.

     POST MATURITY RATE: For purposes of deciding when the “Post Maturity Rate” (shown on the cover pages of this Note) applies, the term “maturity” means the date at the last scheduled payment indicated on the cover pages of this Note or the date you accelerate payment on the Note, whichever is earlier. SINGLE ADVANCE LOANS. If this is a single advance loan, you and I expect that you will make only one advance of principal. However, you may add other amounts to the principal if you make any payments described in the “PAYMENTS BY LENDER” paragraph below. MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect that you will make more than one advance of principal. If this is closed end credit, repaying a part of the principal will not entitle me to additional credit.

     PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am obligated to pay (such as property insurance premiums,) then you may treat those payments made by you as advances and add them to the unpaid principal under this Note, or you may demand immediate payment of the charges.

     SET-OFF: I agree that you may set off any amount due and payable under this Note against any right I have to receive money from you.

     “Right to receive money from you” means:

     [1] any deposit account balance I have with you;

     [2] any money award to me on an item presented to you or in your possession for collection or exchange; and

     [3] any repurchase agreement or other non deposit obligation.

     “Any amount due and payable under this Note” means the total amount of which you are entitled to demand payment under the terms of this Note at the time you set-off. This total includes any balance the due date for which you properly accelerate under this Note.

     If my right to receive money from you is also owned by someone who has not agreed to pay this Note, your right of set-off will apply to my interest in the obligation and to any other amounts I could withdraw on my sole request or endorsement. Your right of set-off does not apply to an account or other obligation where my rights are only as a representative, it also does not apply to any Individual Retirement Account or other tax-deferred retirement account.

     You will not be liable for the dishonor of any check when the dishonor occurs because you set-off this debt against any of my accounts. I agree to hold you harmless from any such claims arising as a result of your exercise of your right of set-off:

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     REAL ESTATE OR RESIDENCE SECURITY: If this Note is secured by real estate or a residence that is personal property, the existence of a default and your remedies for such a default will be determined by applicable law, by the terms of any separate instrument creating the security interest and, in the extent not prohibited by law and not contrary in the terms of the separate security Instrument, by the “Default” and “Remedies” paragraphs herein.

     DEFAULT: I will be in default if any one or more of the following occur:

     (1) Borrower makes any written statement or provides any financial information that is untrue or inaccurate at the time it was/is provided and within 30 days of written notice to Borrower by Lender, Borrower fails to take the action necessary to make the written statement or financial information provided to Lender true and accurate;

     (2) Any collateral securing this Note is used in a manner or for a purpose which threatens confiscation by a legal authority;

     (3) Any Borrower changes its name or assumes an additional name without first notifying Lender before making such a change; and/or

     (4) An Event of Default continues under the terms of the Commercial Loan Agreement signed by Borrower of even date herewith after the expiration of any applicable notice, grace and/or cure periods.

     REMEDIES: If I am in default on this Note you have, but are not limited to the following remedies:

     (1) You may demand immediate payment of all I owe you under this Note [principal accrued unpaid interest and other accrued charges].

     (2) You may set-off this debt against any right I have to the payment of money from you, subject to the terms at the set-off paragraph herein.

     (3) You may demand security, additional security, or additional parties to be obligated to pay this Note, as a condition for not using any other remedy.

     (4) You may refuse to make advances to me or allow purchases on credit by me.

     (5) You may use any remedy you have under state or federal law. By selecting anyone or more of those remedies you do not give up your right to later use any other remedy. By waiving your right to declare an event to be a default, you do not waive your right to later consider the event as a default if it continues or happens again.

     COLLECTION COSTS AND ATTORNEY’S FEES: I agree to pay all costs of collection, replevin or any other or similar type of cost if I am in default. In addition, if you hire an attorney to collect this Note, I also agree to pay any fee you incur with such attorney plus court costs (except where prohibited by law). To the extent permitted by the United States Bankruptcy Code, I also agree to pay the reasonable attorney’s fees and cost you incur to collect this debt as awarded by any court exercising jurisdiction under the Bankruptcy Code.

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     WAIVER: I Give up my rights to require you to do certain things. I will not require you to:

     [1] demand payment of amounts due presentment;

     [2] obtain official certification of nonpayment protest; or

     [3] give notice that amounts due have not been paid (notice of dishonor).

     I waive any defenses I have based and notice of dishonor or impairment of collateral.

     OBLIGATIONS INDEPENDENT: I understand that I must pay this Note even if someone else has also agreed to pay it (by, for example, signing this loan or a separate guarantee or endorsement). You may sue me alone or anyone else who is obligated on this Note, or any number of us together, to collect this Note. You may do so without any notice that it has not been paid (notice of dishonor). You may without notice release any party to this agreement without releasing any other party. If you give up any of your rights, with or without notice, it will not affect my duty to pay this Note. Any extension of new credit to any of us, or renewal of this Note by all of less than all us, will not release me from my duty to pay it. [Of course, you are entitled to one payment in full.] I agree that you may at your option extend this Note or the debt represented by this Note, or any portion of the Note or debt from time to time, without limit or notice and for any term without affecting my liability for payment of the Note. I will not assign my obligation under this agreement without your prior written approval,

     FINANCIAL INFORMATION: I agree to provide you, upon request, any financial statement or information you may deem necessary. I warrant that the financial statement and information I provide to you are or will be current, correct and complete.

     NOTICE: Unless otherwise required by law, any notice to me shall be given by delivering it or mailing it by first class mail addressed to me at my last known address. My current address is on the cover pages of this Note. I agree to inform you in writing of any change in my address. I will give any notice to you by mailing it first class to your address dated on the cover pages of this agreement or to any other address that you have designated.

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EX-21.1

EXHIBIT 21.1

Subsidiaries of the Registrant

	State of Incorporation
Entity	or Formation
Guarantee Insurance Company	Florida
Guarantee Insurance Group, Inc.	Delaware
Patriot Insurance Management Company	Delaware
Patriot Re International, Inc.	Delaware
Patriot Risk Management of Florida, Inc.	Delaware
Patriot Risk Services, Inc.	Delaware
PRS Group, Inc.	Delaware
Patriot Underwriters, Inc.	Delaware
Patriot General Agency, Inc.	Delaware
Patriot Recovery, Inc.	Delaware

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

Patriot Risk Management, Inc.
Fort Lauderdale, Florida

We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated April 22, 2009, relating to the consolidated financial statements of Patriot Risk Management, Inc. which is contained in that Prospectus, and of our report dated April 22, 2009, relating to the financial statement schedules, which is contained in Part II of the Registration Statement.

We also consent to the reference to us under the caption “Experts” in the Prospectus.

/s/ BDO Seidman, LLP

Grand Rapids, Michigan
November 9, 2009