S-1

As filed with the Securities and Exchange Commission on May 13, 2008

Registration No. 333- 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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
(State or other jurisdiction of
incorporation or organization) 6331
(Primary Standard Industrial
Classification Code Number) 73-1665495
(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

Title of Each Class of	Proposed Maximum Aggregate
Securities to be Registered	Offering Price (1)(2)		Amount of Registration Fee
Common Stock, par value $0.001 per share	$	115,000,000	$	4,519.50

(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.

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 MAY 13, 2008

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 have applied to have shares of our common stock approved for listing on the Nasdaq Global Market under the symbol “PRMI.”

     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⁾ See “Underwriting” on page 150 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      , 2008.

Friedman Billings Ramsey

The date of this prospectus is           , 2008.

TABLE OF CONTENTS

Page

Certain Important Information	ii
Prospectus Summary	1
Risk Factors	12
Forward-Looking Statements	32
Use of Proceeds	34
Dividend Policy	34
Capitalization	36
Dilution	38
Selected Historical Consolidated Financial Information	39
Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Business	71
Management	120
Executive Compensation	125
Certain Relationships and Related Transactions	139
Principal Stockholders	142
Description of Capital Stock	144
Shares Eligible for Future Sale	147
Underwriting	150
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	154
Legal Matters	155
Experts	155
Where You Can Find More Information	155
Index to Financial Statements	F-1
Stock Purchase Agreement
Investor Rights Agreement
Waiver Relating to Investor Rights Agreement
Form of Guarantee Insurance Company's Surplus Notes
Form of Registrant's Subordinated Debentures
Offer Letter to Theodore G. Bryant
Offer Letter to Timothy J. Ermatinger
Employment Agreement - Michael W. Grandstaff
2005 Stock Option Plan
2006 Stock Option Plan
Commercial Loan Agreement
Commercial Promissory Note
Commercial Security Agreement
Extension of Security Agreement
Stock Pledge Agreement
Irrevocable Proxy
Irrevocable Proxy
Guaranty and Addendum A to Guaranty
Amendment to Commercial Loan Agreement
Commercial Promissory Note
Form of Commercial Security Agreement
Form of Extension of Security Agreement
Second Amendment to Commercial Loan Agreement
Third Amendment to Commercial Loan Agreement
Workers' Compensation Excess of Loss Reinsurance Agremeent
Workers' Compensation Excess of Loss Reinsurance Agremeent
Workers' Compensation Excess of Loss Reinsurance Agremeent
Workers' Compensation Excess of Loss Reinsurance Agremeent
Quota Share Reinsurance Agreement
Collateral Carry Forward Agreement
Non-Negotiable Fully Subordinated Surplus Note
Workers Compensation Reinsurance Agreement
Note Offset and Call Option Agreement
Participation Agreement
Renewal Participation Agrement
Purchase and Sale Agreement
Promissory Note
Personal Guaranty of Promissory Note
Contribution Agreement
Settlement Stipulation and Release
Subsidiaries of the Registrant
Consent of BDO Seidman LLP

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CERTAIN IMPORTANT INFORMATION

     For your convenience we have included below definitions of terms used in this prospectus that are specific to the business of Patriot.

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

• references to “Guarantee Fire & Casualty” and “Madison” refer solely to Madison Insurance Company, a shell property and casualty insurance company domiciled in Georgia that is not currently writing new business and that we plan to acquire upon completion of this offering and rename as Guarantee Fire & Casualty Insurance Company;

• 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;

• 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. This business also includes other arrangements through which we share underwriting risk with our policyholders, such as pursuant to a high deductible policy or a retrospectively rated policy; and

• “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 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:

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

• all share amounts and share prices contained in this prospectus will be adjusted to reflect a stock split that we expect to effect prior to the completion of this offering; and

• all share numbers assume the reclassification of all of the outstanding shares of our Series A common stock, par value $0.001 per share, and Series B common stock, par value $0.001 per share, into shares of common stock on a one-for-one basis, which we expect to effect immediately prior to this offering.

     In February 2008, we changed the names of several of our companies. Prior to February 2008, Patriot Risk Management 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.

     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.

 iii

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, but that the underwriters will not exercise their over-allotment option.

Overview

     We are a workers’ compensation risk management company that provides alternative market and traditional workers’ compensation products and services. Our business model has two components:

• in our insurance segment, we generate underwriting and investment income by providing alternative market risk transfer solutions and traditional workers’ compensation insurance; and

• in our insurance services segment, we generate fee income by providing nurse case management, cost containment and captive management services.

     We provide risk management products and services to employers in Florida, where we write a majority of our business, 18 other states and the District of Columbia. We believe that our specialty product knowledge, our low expense ratio 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, particularly in the alternative market. Although we currently focus our business in the Midwest and Southeast, we believe that there are opportunities for us to market our products and services, including in particular our alternative market program, in other areas of the United States.

Our Products

     Through our subsidiary Guarantee Insurance Company, or Guarantee Insurance, we provide workers’ compensation alternative market risk transfer solutions and traditional workers’ compensation insurance. Alternative market risk transfer refers to workers’ compensation policies or arrangements where the policyholder or another party bears a substantial portion of the underwriting risk. For example, the policyholder 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 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. Our alternative market business also includes other arrangements through which we share underwriting risk with our policyholders such as high deductible policies or 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. We typically write this alternative market business for:

• larger and medium-sized employers such as hospitality companies, construction companies, professional employer organizations, 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.

     In our traditional workers’ compensation insurance business, we write workers’ compensation insurance policies under which Guarantee Insurance bears substantially all of the underwriting risk, subject to

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reinsurance arrangements. We manage that risk through quota share and excess of loss reinsurance agreements. We typically write these policies for:

• small to medium-sized employers such as restaurants, retail and wholesale stores and artisan contractors;

• low to medium hazard classes; and

• accounts with annual premiums below $250,000.

     Through our subsidiary PRS Group, Inc. and its subsidiaries, which collectively we refer to as PRS, we earn insurance services fee 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 our quota share reinsurer. Our unconsolidated insurance services segment income includes all insurance services fee income earned by PRS. However, the fees earned by PRS from Guarantee Insurance that are attributable to the portion of the insurance risk that Guarantee Insurance retains are 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 the segregated portfolio captives and our quota share reinsurer, which represent the fees paid by the segregated portfolio captives and our quota share reinsurer for services performed on their behalf and for which Guarantee Insurance is reimbursed through a ceding commission. For financial reporting purposes, we treat ceding commissions as a reduction in underwriting expenses. The principal services provided by PRS include:

• nurse case management services;

• cost containment services for workers’ compensation claims; and

• captive management services.

     Because our consolidated insurance services income is generated principally from the services we provide to Guarantee Insurance on behalf of the segregated portfolio captives and our quota share reinsurer, our consolidated insurance services income is currently almost wholly dependent on Guarantee Insurance’s premium and risk retention levels. However, we expect our insurance services business will become less dependent over time on Guarantee Insurance’s premium and risk retention levels as we seek to expand our general agency appointments and obtain new third-party fee-for-service contracts.

Our Competitive Strengths

     We believe we have the following competitive strengths:

• Exclusive Focus on Workers’ Compensation Insurance and Related Services. Our operations are focused exclusively on providing alternative market risk management solutions and traditional workers’ compensation insurance and related services. We believe this focus allows us to provide superior products and services to our customers relative to traditional multi-line carriers.

• Hybrid Business Model. In addition to the income we earn from our risk bearing insurance business, we earn consolidated fee income for insurance services, including nurse case management, cost containment and captive management services, which we currently provide to Guarantee Insurance for the benefit of the segregated portfolio captives and our quota share reinsurer. We believe that by changing the emphasis we place on our premium-based risk-bearing business relative to our fee-for-service business, which is currently almost wholly dependent on Guarantee Insurance’s premium and risk retention levels, we will be better able to achieve attractive returns and growth through a range of market cycles than if we only offered premium-based risk-bearing products.

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• Enhanced Product Offerings. Although other insurers generally only offer alternative market products to large corporate customers, we offer such products to medium-sized employers as well as larger companies, enabling them to share in their own claims experience and be rewarded for favorable loss experience. In our traditional business, we offer “pay-as-you-go,” an innovative program in which we partner with payroll service companies and our independent agents and their clients to collect premiums and payroll information on a monthly basis. This program provides us with up-to-date, accurate payroll data and gives employers a way in which to purchase workers’ compensation insurance without requiring an upfront premium payment, easing employers’ cash flow burden.

• Specialized Underwriting Expertise. We select and price our alternative market and traditional policies 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. Our field underwriters are experienced underwriting workers’ compensation insurance in their respective geographic areas. 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. On our traditional and alternative market workers’ compensation insurance business for the year ended December 31, 2007, we achieved a net loss ratio of 61.7% and a net combined ratio of 86.2%.

• Proactive Claims Management and Sound Reserving Practices. Guarantee Insurance began writing business under the Patriot umbrella in the second quarter of 2004. As our business has grown, we have demonstrated success in (1) estimating our total liabilities for losses, (2) establishing and maintaining adequate case reserves and (3) rapidly closing claims. We provide our customers with an active claims management program. Our claims department employees average more than 15 years of workers’ compensation insurance industry experience, and members of our claims management team average 25 years of workers’ compensation experience. Our case management professionals have extensive training and expertise in assisting injured workers to return to work quickly. As of December 31, 2007, approximately 99%, 97%, 91% and 70% of claims reported for policy years 2004, 2005, 2006 and 2007, respectively, were closed, and net paid losses and loss adjustment expenses associated with these claims was 16.9% less than the initial reserves established for them.

• Reinsurance Arrangements. We manage our exposure to insurance risk through quota share and excess of loss reinsurance agreements, which we deploy as appropriate to reduce premium leverage, strengthen risk-based capital and stabilize underwriting results through industry pricing cycles. Guarantee Insurance has a quota share reinsurance treaty with National Indemnity Company, an “A++” (Superior) A.M. Best-rated subsidiary of Berkshire Hathaway, Inc. We also maintain excess of loss reinsurance that provides up to $19 million in coverage on losses in excess of $1 million. These agreements allow us to limit our exposure on risks that we underwrite. In addition, we earn ceding commissions from our quota share reinsurer on our traditional business, and from the segregated portfolio captives on our alternative market business.

• Strong Distribution Relationships. We maintain relationships with our network of more than 300 independent, non-exclusive agencies in 15 states by emphasizing personal interaction, offering superior services and maintaining an exclusive focus on workers’ compensation insurance. Our experienced underwriters work closely with our independent agents to market our products and serve the needs of prospective policyholders.

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• Proven Leadership and Experienced Management. The members of our senior management team average over 19 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 plan to write and the flexibility to retain more of our existing book of business. 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 superior returns to our investors. Our strategy to achieve these goals is:

• 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 the strength of our risk selection, claims management, nurse case management and cost containment services positions us to profitably increase our market share in our existing markets.

• Expand into Additional Markets. We are licensed to write workers’ compensation insurance in 25 states and the District of Columbia, and we also hold 4 inactive licenses. We are currently focused on actively marketing our traditional and alternative market business in the 7 jurisdictions that we believe provide the greatest opportunity for near-term profitable growth without being rated by A.M. Best: Florida, Missouri, Indiana, Arkansas, New Jersey, Georgia and Nebraska. In the year ended December 31, 2007, we wrote approximately 59% of our traditional and alternative market business in Florida. With the additional capital from this offering and a favorable A.M. Best rating we hope to obtain upon completion of this offering, we plan to expand our business to other states where we believe we can profitably write business. To do this, we plan to leverage our talented pool of personnel that have prior expertise operating in states in which we do not currently operate.

• Expand Fee-Generating Insurance Services. We plan to continue to generate fee income through our insurance services segment by offering nurse case management, cost containment and captive management services to the segregated portfolio captives and our quota share reinsurer. We plan to offer these fee-generating insurance services, together with reinsurance intermediary, claims administration and general agency services, to other regional and national insurance companies and self-insured employers. We also plan to increase the amount of fee income we earn by expanding both organically and through strategic acquisitions of claim administrators, general agencies, or preferred provider network organizations.

• 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.

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• Leverage Existing Infrastructure. We service our policyholders and customers through our regional offices in three states, each of which we believe has been staffed to accommodate a certain level of premium growth. We plan to realize economies of scale in our workforce and leverage other scalable infrastructure costs, which will lower our expense ratio as we increase gross premiums written.

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, Patriot’s wholly-owned subsidiary, Guarantee Insurance Group, Inc., acquired Guarantee Insurance Company, 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 part of the Patriot family in the second quarter of 2004. Guarantee Insurance is currently licensed to write workers’ compensation insurance in 25 states and the District of Columbia, and also holds 4 inactive licenses.

     In 2005, we formed PRS Group, Inc. as a wholly-owned subsidiary of Patriot Risk Management, and incorporated Patriot Risk Services, Inc. and Patriot Re International, Inc. as wholly-owned subsidiaries of PRS Group. PRS provides nurse case management, cost containment and captive management services for the benefit of Guarantee Insurance, the segregated portfolio captives and our quota share reinsurer. Patriot Risk Services is currently licensed as an insurance agent or producer in 18 jurisdictions. Patriot Insurance Management is currently licensed as an insurance agent or producer in 23 jurisdictions, and Patriot Re International is licensed as a reinsurance intermediary broker in 2 jurisdictions.

Recent Developments

     On March 4, 2008, we entered into a stock purchase agreement to acquire Madison Insurance Company, a shell property and casualty insurance company domiciled in Georgia that was not writing new business. Madison is licensed to write workers’ compensation insurance in Florida, Georgia, Maryland, Tennessee, Virginia and the District of Columbia. Guarantee Insurance is licensed in each of these jurisdictions except for Maryland. We plan to rename Madison as Guarantee Fire & Casualty Insurance Company after we acquire it upon completion of this offering. We intend to contribute a substantial portion of the net proceeds of this offering to Guarantee Insurance and Guarantee Fire & Casualty (after we acquire it) in order to support their premium writings.

     We believe that the acquisition of Guarantee Fire & Casualty 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 Guarantee Insurance alone.

     In February 2008, we changed the names of several of our companies. Prior to February 2008, Patriot Risk Management 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.

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     Our current corporate structure is as follows:

¹ We plan to acquire Guarantee Fire & Casualty upon completion of this offering.

Certain 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 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.

• 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 four administered pricing states where insurance rates are set by the state insurance regulatory authorities and are adjusted periodically. For the year ended December 31, 2007, we wrote approximately 74% of our direct premiums written in these four 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. The workers’ compensation insurance industry has historically fluctuated with periods of low premium rates and excess

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underwriting capacity resulting from increased competition followed by periods of high premium rates and shortages of underwriting capacity resulting from decreased competition. This cyclicality may cause our net income to fluctuate.

     Patriot Risk Management, Inc. is an insurance holding company that was incorporated in Delaware in 2003. Our principal subsidiaries are Guarantee Insurance Company 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, which is 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, and after deducting the underwriting discounts and commissions and our estimated offering expenses. We intend to contribute approximately $      million to Guarantee Insurance and Guarantee Fire & Casualty (after we acquire it) to support their premium writings. We intend to use approximately $      million of the net proceeds of this offering to pay the purchase price to acquire Guarantee Fire & Casualty upon completion of this offering. In addition, we plan to use approximately $      million of the net proceeds from this offering to pay off the entire remaining balance of our loans with Aleritas Capital Corporation (formerly Brooke Credit Corporation) on or before March 31, 2009. We expect that the remaining $      million will be used to make additional capital contributions to our insurance company subsidiaries as necessary to support our anticipated growth and general corporate purposes and to fund other holding company operations, including potential acquisitions although we have no current understandings or agreements regarding any such acquisitions (other than Guarantee Fire & Casualty).
Dividend policy	Our board of directors currently intends to authorize the payment of a quarterly cash dividend of $0.025 per share of common stock to our stockholders of record beginning in the quarter of 2008.
Proposed Nasdaq Global Market symbol	“PRMI”

     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;

• 170,200 shares of common stock issuable upon the exercise of options outstanding as of April 30, 2008;

•           shares of common stock that may be issued pursuant to stock options we intend to grant to our executive officers and other employees upon completion of this offering, at an exercise price equal to the initial public offering price;

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•           shares of restricted common stock that we intend to grant to our non-employee directors upon completion of this offering; and

• additional shares of common stock available for future issuance under our 2008 Stock Incentive Plan.

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

     The following income statement data for the years ended December 31, 2007, 2006 and 2005 and the following balance sheet data as of December 31, 2007 were derived from our audited consolidated financial statements included elsewhere in this prospectus. The income statement data for the year ended December 31, 2004 was derived from our 2004 audited consolidated financial statements, which 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 in this prospectus.

	Years Ended December 31,
In thousands, except per share data	2007			2006			2005			2004 (1)
Income Statement Data
Gross premiums written	$	85,810		$	62,372		$	47,576		$	30,911
Ceded premiums written		54,849			42,986			23,617			22,702
Net premiums written		30,961			19,386			23,959			8,209
Revenues
Net premiums earned		24,613			21,053			21,336			2,948
Insurance services income		7,027			7,175			4,369			6,429
Net investment income		1,326			1,321			1,077			233
Net realized losses on investments		(5	)		(1,346	)		(2,298	)		(4,632	)
Total revenues		32,961			28,203			24,484			4,978
Expenses
Net losses and loss adjustment expense		15,182			17,839			12,022			2,616
Net policy acquisition and underwriting expenses		6,023			3,834			3,168			2,016
Other operating expenses		8,519			9,704			6,378			4,989
Interest expense		1,290			1,109			1,129			555
Total expenses		31,014			32,486			22,697			10,176
Other income		—			796	(2)		—			110
Gain on early extinguishment of debt		—			6,586	(2)		—			—
Income (loss) before income taxes		1,947			3,099			1,787			(5,088	)
Income tax expense (benefit)		(432	)		1,489			687			(751	)
Net income (loss)	$	2,379		$	1,610		$	1,100		$	(4,337	)
Earnings Per Share
Basic	$	1.77		$	1.16		$	.88		NM		(3)
Diluted		1.76			1.15			.87		NM		(3)
Weighted Average Number of Shares Used in the Determination of:
Basic		1,342			1,392			1,251		NM		(3)
Diluted		1,351			1,398			1,258		NM		(3)
Return on average equity		58.5	%		107.0	%	NM		(3)	NM		(3)
Selected Insurance Ratios (4)
Net loss and loss adjustment expense ratio		61.7	%		84.7	%		56.3	%	NM		(3)
Net expense ratio		24.5			18.2			14.8		NM		(3)
Net combined ratio		86.2	%		102.9	%		71.1	%	NM		(3)

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	December 31, 2007
			As
			Adjusted (5)
In thousands, except per share data	Actual		(Unaudited)
Balance Sheet Data
Cash and cash equivalents	$	4,943
Investments		56,816
Amounts recoverable from reinsurers		47,519
Premiums receivable		36,748
Prepaid reinsurance premiums		14,963
Other assets		14,248
Total assets	$	175,237
Reserves for losses and loss adjustment expenses	$	69,881
Unearned and advanced premium reserves		29,160
Reinsurance funds withheld and balances payable		44,073
Debt		16,907
Other liabilities		9,780
Total liabilities		169,801
Stockholders’ equity		5,436
Total liabilities and stockholders’ equity	$	175,237

(1)	We began our current workers’ compensation business operations in 2004. The income statement data reflects the results of our insurance services operations for the full year and the results of our insurance operations for the last two quarters of 2004.
(2)	In 2006, we 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)	Not meaningful.
(4)	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.
(5)	The As Adjusted balance sheet data as of December 31, 2007 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 estimated 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 historical claims data is limited and not fully developed, and, accordingly, we currently rely principally on 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. 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 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 reserves and our 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.

     We may reduce or eliminate our quota share reinsurance on our traditional business upon the completion of this offering. An increase in our retention on traditional business will increase the impact on our operating results of differences between estimated reserves for losses and loss adjustment expenses and ultimate amounts paid.

     Additionally, Guarantee Insurance has 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, New York, Indiana or New Jersey.

     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.

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     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 underlying costs are known. Like other workers’ compensation insurance 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 underprice our policy 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 year ended December 31, 2007, we wrote approximately 74% of our direct premiums written in four administered pricing states — Florida, New York, 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. In October 2007, the National Council on Compensation Insurance, or NCCI, submitted an amended filing calling for a Florida statewide rate decrease of 18.4%, which was approved by the Florida Office of Insurance Regulation, or Florida OIR, on October 31, 2007 to be effective January 1, 2008. In October 2006, the Florida OIR approved an average statewide

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rate decrease of 15.7%, effective January 1, 2007. If a state insurance regulator lowers premium rates, we will be less profitable, and we may choose not to write policies in that state. Generally, 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. 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.

     We currently write insurance in 19 states and the District of Columbia. For the year ended December 31, 2007, approximately 59% of our total direct premiums written were concentrated in Florida. In 2007, approximately 41% of our traditional business direct premiums written were concentrated in Florida, and approximately 17%, 12% and 11% were concentrated in Missouri, Indiana and Arkansas, respectively. No other state accounted for more than 5% of our direct premiums written in our traditional business in 2007. In 2007, 84% of our alternative market business direct premiums written were concentrated in Florida. No other state accounted for more than 5% of our alternative market business direct premiums written. 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 most premium, and also in Indiana, New York 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 business is 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. See “Business—Policyholders.”

     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 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. Beginning in 2000 and accelerating in 2001, the workers’ compensation insurance industry experienced a hardening market, featuring increasing premium rates and more conservative risk selection. We believe these trends slowed beginning in 2004. We also believe that the current workers’ compensation insurance market has been transitioning to a more competitive market environment in which underwriting capacity and price competition may increase. 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

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companies seeking to maintain or increase market share at the expense of underwriting discipline. In our traditional workers’ compensation business, we experienced increased price competition beginning in 2007 in certain markets, and these cyclical patterns, the actions of our competitors and general economic factors could cause our revenues 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 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. In addition, our business plan contemplates that we will expand into new geographic areas. We cannot assure you that we will obtain the regulatory approvals necessary for us to conduct our 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 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 is almost wholly dependent on Guarantee Insurance’s premium and retention levels.

     Because our insurance services fee income is generated from the segregated portfolio captives and our quota share reinsurer, it is currently almost wholly dependent on Guarantee Insurance’s premium and risk retention levels. There can be no assurance that we will maintain these premium and retention levels. As part of our business plan, we expect to expand our fee-generating insurance services by offering reinsurance intermediary, claims administration and general agency services to other regional and national insurance companies and self-insured employers and through strategic acquisitions of claim administrators, general agencies or preferred provider network organizations. In order to expand these services, we will need to obtain additional licenses to allow us to provide these services to third parties. We have recently obtained two general agency property and casualty licenses in Florida, and have applied for a third-party administrator license in Florida. We will need additional licenses to expand these services in other states. 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;

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• 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, 2007, we had established reserves in the amount of $6.8 million for losses attributable to legacy asbestos and environmental claims, which include 38 direct claims and our participation in two reinsurance pools and our estimate for the impact of unreported claims. Our liability for the pooled claims is based on our percentage of participation in the pool. We review quarterly our loss and loss adjustment expense reserves for our 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, 2007, we had established reserves in the amount of $3.7 million for losses attributable to legacy commercial general liability claims. For the year ended December 31, 2007, incurred losses and loss adjustment expenses associated with favorable development of reserves for legacy claims were $1.3 million. For the years ended December 31, 2006 and 2005, incurred losses and loss adjustment expenses associated with adverse development of reserves for legacy asbestos and environmental and commercial general liability claims were $516,000 and $421,000, respectively. 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.

     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 300 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 year ended December 31, 2007, approximately 16% of our total direct premiums written were derived from various offices of Insurance Office of America, and approximately 15% of our total direct premiums written were derived from the agent whose single account with us is Progressive Employer Services, Inc., our largest policyholder. For such period, 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 meet the requirements and preferences of our independent agencies and their customers. A significant decrease in business from, or the entire loss of, our

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largest agent or several of our other large agents, would have a material adverse effect on our business, financial condition and results of operations.

     Our largest customer is controlled by one of our stockholders, and the loss of this customer would adversely affect us.

     For the year ended December 31, 2007, approximately 15% of our direct premiums written were attributable to one customer, Progressive Employer Services, Inc., or Progressive. This customer is controlled by Steven Herrig, who controls our second largest stockholder, Westwind Holding Company, LLC. If Westwind Holding Company, LLC were to cease to be a significant stockholder of ours or cease to control Progressive, or if for any other reason Progressive were to reduce or terminate its business with us, there would be a material adverse effect on our business, financial condition and results of operations.

     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 an arrangement in which an insurance company, called the ceding company, transfers insurance risk by sharing premiums with another insurance company, called the reinsurer. In return, the reinsurer assumes insurance risk from the ceding company. We currently participate in quota share and excess of loss reinsurance arrangements. Under our current quota share reinsurance agreement with National Indemnity, a subsidiary of Berkshire Hathaway, Inc., Guarantee Insurance cedes 50% of all net retained liabilities arising from all traditional business premiums written, excluding premiums written in South Carolina, Georgia, and Indiana. This quota share agreement covers all losses up to $500,000 per occurrence, subject to various restrictions and exclusions. The excess of loss reinsurance for both our traditional and alternative market business under our 2007/2008 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. Since Guarantee Insurance’s quota share reinsurance is included within its retention for purposes of this 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 $750,000. 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 either our quota share reinsurance agreement with National Indemnity or any of our 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. In addition, it is possible that with the increased surplus in Guarantee Insurance as a result of this offering, we may elect to reduce or eliminate the amount of quota share reinsurance that we currently cede to our quota share reinsurer. If we do so, we will have greater exposure to catastrophic and other losses and our underwriting results will be subject to greater variability. Any reduction or other changes in our reinsurance arrangements could materially adversely affect our business, financial condition and results of operations.

     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 an alternative market policy to a segregated portfolio captive and the captive reinsures between 50% and 90% of all losses under the policy up to $1 million per occurrence, subject to various restrictions and exclusions, including an aggregate limit on the captive’s reinsurance obligations. Any losses in excess of this aggregate limit are borne by Guarantee Insurance. If we set this aggregate limit too low with the result that a substantial

17

amount of losses are borne by Guarantee Insurance, our business, financial condition and results of operations would be adversely affected.

     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 our obligations under the insurance policies we write. 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.

     As of December 31, 2007, we had $62.8 million of gross exposures to reinsurers, comprised of reinsurance recoverables on paid and unpaid losses and loss adjustment expenses and prepaid reinsurance premiums. Furthermore, we had $22.6 million of net exposure to reinsurers — $20.0 million from authorized reinsurers rated “A-” (Excellent) or better by A.M. Best and $2.6 million from unauthorized reinsurers and authorized reinsurers not rated “A-” (Excellent) or better by A.M. Best. If we are unable to collect amounts recoverable from our reinsurers, our business, financial condition and results of operations would be adversely affected.

     Because we are subject to extensive state regulation, 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. We will also be subject to extensive regulation by the Georgia Department of Insurance upon our acquisition of Guarantee Fire & Casualty, which we expect to complete following the completion of this offering. 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 the insurance policies we offer;

• restrictions on the way our premium rates are established and the premium rates we may charge;

• 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 our insurance company subsidiaries to pay dividends to Patriot;

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• 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 our 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 maintain a minimum policyholders’ surplus.

     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 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 requires Guarantee Insurance to maintain a minimum policyholders surplus of $9.0 million, 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 shareholder 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 minimum surplus of $9.0 million. The consent order required Guarantee Insurance to provide documentation of compliance with these requirements. Guarantee Insurance believes that it has addressed all of the matters raised in the examination report and has provided the required documentation.

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     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.

     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 us to invest in assets more conservatively than we would if we were not subject to state law restrictions and may prevent us from obtaining as high a return on our assets as we 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.

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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 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.

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

     We only write workers’ compensation insurance. Although we plan to provide services to other types of insurers through PRS, we have no current plans to focus our efforts on offering other types 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 types of insurance.

     Acquisitions could result in operating difficulties, dilution and other harmful consequences.

     We do not have a great deal of experience acquiring companies. 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 larger 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 is highly competitive. Competition in our business is based on many factors, including pricing (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,

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perceived financial strength, effective loss prevention, ability to reduce claims expenses and general experience. In some cases, our competitors offer lower priced products than we do. If our competitors offer more competitive premiums, dividends, payment plans, services or commissions to independent agencies, we could lose market share or have to reduce our premium rates in order to maintain market share, which would adversely affect our profitability. Our competitors include insurance companies, professional employer organizations, third-party administrators, self-insurance funds and state insurance pools. Many of our existing and potential competitors 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.

     Our main competitors in the principal states in which we operate vary from state to state but are usually those companies that offer a full range of services in underwriting, loss prevention and claims, including Zenith National Insurance Corporation, St. Paul Travelers, The Hartford Financial Services Group, Inc. and Liberty Mutual Insurance Company. In Florida, which represented 59% of our total direct written premium for the year ended December 31, 2007, our principal competitors are Summit Holdings Southeast, Inc., a division of Liberty Mutual Insurance Company, AmCOMP, Inc., Zenith Insurance Company, and American International Group, Inc. In the other Southeast states, CNA Financial Corporation, The Travelers Companies, Inc., American International Group, Inc., Liberty Mutual Insurance Company and other national and regional carriers are very competitive. In the Midwest, our principal competitors are Accident Fund Insurance Company of America, Liberty Mutual Insurance Company, American International Group, Inc. and numerous other smaller regional carriers.

     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.

     In the alternative market, our principal competitors are Liberty Mutual Insurance Company, American International Group, Inc. and Hartford Insurance Company, as well as smaller regional carriers, although we believe that these companies generally target customers with annual premiums of at least $5 million, whereas our target market generally is customers with annual premiums of $3 million or less.

     PRS’s principal competitors in the managed care market are CorVel Corporation, GENEX Services, Inc. and various other smaller managed care providers. In the wholesale brokerage market, PRS has no principal competitors, but competes with numerous national wholesale brokers.

     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, opportunistically acquiring books of business, other insurance companies or 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;

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• 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 December 31, 2007, approximately 1%, 3% 9% and 30% of claims reported in policy 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.

     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 December 31, 2007, our investment portfolio, including cash and cash equivalents, had a carrying value of $61.8 million, and for the years ended December 31, 2007 and 2006, we had net investment income of $1.3 million and $1.2 million, respectively. Our investment portfolio is managed by an independent asset manager pursuant to investment guidelines approved by our 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 2007 credit markets were significantly impacted by sub-prime mortgage losses, increased mortgage defaults and worldwide market dislocations. 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.

     In addition, our investment portfolio includes mortgage-backed securities. As of December 31, 2007, mortgage-backed securities constituted approximately 18.6% of our invested assets. 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 mortgage-backed securities included in our investment portfolio. When interest rates fall, 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, 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

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and the fair value of such assets is below our original cost, we may recognize realized 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, 2007, and, accordingly, are now carried at market value. Decreases in the value of our fixed securities may have a material adverse affect on our business, financial condition and results of operations.

     These and other factors affect the capital markets and, consequently, the value of our investment portfolio and our investment income. Any significant decline in our investment income would adversely affect our revenues and net income and, as a result, decrease our stockholders’ equity and decrease our surplus.

     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 upon the services of our executive management team and other key employees. 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 have entered into an employment agreement with Michael W. Grandstaff, our Senior Vice President and Chief Financial Officer, and plan to enter into employment agreements with Steven M. Mariano and our other executive officers prior to the completion of this offering. 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 is a holding company that transacts business through its operating subsidiaries. Patriot’s primary assets are the capital stock of these operating subsidiaries. Thus, the ability of Patriot to pay dividends to our stockholders depends upon the surplus and earnings of our subsidiaries and their ability to pay dividends to Patriot. 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 may not be able to receive dividends from its insurance subsidiaries or may not receive dividends in amounts necessary to pay dividends on our capital stock.

     PRS is not statutorily restricted from paying dividends to us, although our credit facility with Aleritas Capital Corporation prohibits us and our operating subsidiaries from paying any dividends on our and their respective capital stock without the consent of Aleritas Capital Corporation. We intend to pay off the entire remaining balance of our loan from Aleritas Capital Corporation with a portion of the proceeds of this offering on or before March 31, 2009. However, future debt agreements may contain certain prohibitions or limitations on the payment of dividends. Because Guarantee Insurance is regulated by the Florida OIR, and Guarantee Fire & Casualty is, and after we acquire it will be, regulated by the Georgia Department of Insurance, Guarantee Insurance and Guarantee Fire & Casualty are, and 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 accumulated deficit. See Note 16 to our audited consolidated financial statements as of December 31, 2007 and for the year then ended, which financial statements are included elsewhere in this prospectus (our “Consolidated Financial Statements”). 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

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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 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.

     We plan to write a substantial portion of our business through Guarantee Fire & Casualty after we acquire it upon completion of this offering. The Georgia Insurance Department will need to approve any dividend that may be paid by Guarantee Fire & Casualty that, together with all other dividends paid by Guarantee Fire & Casualty during the preceding twelve months, exceeds the greater of 10 percent of Guarantee Fire & Casualty’s prior year end surplus or the net income from the prior year, not including realized capital gains. Accordingly, there can be no assurance whether or to what extent Guarantee Fire & Casualty will be able to pay dividends to Patriot in the future.

     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 us may increase as we increase our 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, 2007 and 2006, gross expenses incurred in connection with assessments for state guaranty funds and second injury funds were $3.4 million and $2.6 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

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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. We currently participate in the NCCI national workers’ compensation insurance pool. Net underwriting losses associated with this mandatory pooling arrangement for the years ended December 31, 2007 and 2006 were approximately $159,000 and $138,000, 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 recent insurance industry investigations and regulatory proposals could adversely affect our business, financial condition and results of operations and cause the price of our common stock to be volatile.

     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, as a result of complaints related to claims handling practices by insurers in the wake of the 2005 hurricanes that struck the Gulf Coast states, Congress has examined a possible repeal of the McCarran-Ferguson Act, which exempts the insurance industry from federal anti-trust laws. We cannot assure you 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.

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     TRIA provides coassistance 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, recent 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 $20 million for 2007. 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 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 it is not currently clear whether that assistance will 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 have applied to have our shares of common stock approved for listing on the Nasdaq Global Market under the symbol “PRMI.” 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 industries;

• changes in laws and regulations;

• announcements of claims against us by third parties;

• future sales of our common stock;

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• 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 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, if you purchase shares in this offering, you 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

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outstanding. Moreover, 170,200 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 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 170,200 of these shares and also the            shares reserved for issuance under the 2008 Stock Option 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 as 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 Nasdaq Stock Market. 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 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.

     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 by no later than December 31, 2009. 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.

     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. 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

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statements and the trading price of our common stock may 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.

     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 financial statements. However, it is 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 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.

     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 general 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,

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our charter eliminates our stockholders’ ability to act without a meeting other than by unanimous written consent.

     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. 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 “—Directors and Executive Officers.” 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 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. Upon our acquisition of Guarantee Fire & Casualty, we will also be subject to Georgia insurance law. Georgia insurance law would prohibit any person from acquiring 10% or more of our outstanding voting securities or those of any of our insurance subsidiaries without the prior approval of the Georgia Department of Insurance. Obtaining these approvals may result in the material delay or, 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.

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     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 underwriting discounts and commissions and our estimated offering expenses.

     We intend to contribute approximately $          million to Guarantee Insurance and, after we acquire it, Guarantee Fire & Casualty, to support their premium writings. We intend to use approximately $          million of the net proceeds of this offering to pay the purchase price to acquire Guarantee Fire & Casualty upon completion of this offering.

     We expect that the remaining $          million will be used to make additional capital contributions to our insurance company subsidiaries as necessary to support our anticipated growth and general corporate purposes and to fund other holding company operations, including potential acquisitions although we have no current understandings or agreements regarding any such acquisitions (other than Guarantee Fire & Casualty).

     In addition, we plan to use approximately $        million of the net proceeds from this offering to pay off the entire remaining balance of our credit facility with Aleritas Capital Corporation on or before March 31, 2009. Our credit facility with Aleritas Capital Corporation originally consisted of a loan in the principal amount of $9.0 million with an interest rate of prime plus 4.5% and a guaranty fee of 4.0%. In September 2007, we borrowed an additional $5.7 million in principal from the same lender under the same interest rate and guaranty fee terms. See “Certain Relationships and Related Transactions–Personal Guaranty.” The proceeds of this additional loan were used to provide $3.0 million of additional surplus to Guarantee Insurance and for general corporate purposes. The loans under the credit facility mature on April 15, 2016.

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

DIVIDEND POLICY

     Our board of directors currently intends to authorize the payment of a quarterly cash dividend of $0.025 per share of common stock to our stockholders of record beginning in the quarter of 2008. Any 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 or other restrictions on the payment of dividends by our subsidiaries to Patriot, and other factors that our board of directors deems relevant.

     Patriot 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. PRS is not statutorily restricted from paying dividends to us, although our credit facility with Aleritas Capital Corporation prohibits us and our operating subsidiaries from paying any dividends on our and their respective capital stock without the consent of Aleritas Capital Corporation. We intend to pay off the entire remaining balance of our loan from Aleritas Capital Corporation with a portion of the proceeds of this offering on or before March 31, 2009. However, future debt agreements may contain certain prohibitions or limitations on the payment of dividends. Because Guarantee Insurance is regulated by the Florida OIR, and Guarantee Fire & Casualty is, and after we acquire it will continue to be, regulated by the Georgia Department of Insurance, Guarantee Insurance is, and Guarantee Fire & Casualty 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.

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     At the time we acquired Guarantee Insurance, it had a large statutory accumulated deficit. See Note 16 to our Consolidated Financial Statements. 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.

     We plan to write most of our business through Guarantee Fire & Casualty after we acquire it upon completion of this offering. The Georgia Insurance Department must approve any dividend that may be paid by Guarantee Fire & Casualty after we acquire it, that, together with all other dividends paid by Guarantee Fire & Casualty during the preceding twelve months, exceeds the greater of 10% of Guarantee Fire & Casualty’s prior year end surplus or the net income from the prior year, not including realized capital gains.

     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 December 31, 2007 on an actual basis and on an as adjusted basis giving effect to the sale of            shares of common stock in this offering 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 December 31, 2007
	Actual			As Adjusted
	(Unaudited)
	(in thousands)
Debt Outstanding
Notes payable	$	13,740		$
Surplus Notes		1,368
Subordinated Debentures		1,799
Total debt outstanding		16,907
Stockholders’ equity
Series A common stock, par value $0.001 per share, 3,000,000 shares authorized, 561,289 shares issued and outstanding (1)		1
Series B common stock, par value $0.001 per share, 800,000 shares authorized, 800,000 shares issued and outstanding (1)		1
Common stock, par value $0.001 per share, 40,000,000 shares authorized;           shares issued and outstanding		—
Additional paid-in capital		5,363
Retained earnings		196
Accumulated other comprehensive income		(125	)
Total stockholders’ equity		5,436
Total capitalization	$	22,343

⁽¹⁾ Immediately prior to this offering, all outstanding shares of Series A common stock and Series B common stock will be reclassified into shares of common stock on a one-for-one basis.

     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;

• 170,200 shares of common stock issuable upon the exercise of options outstanding as of April 30, 2008;

•            shares of common stock that may be issued pursuant to stock options we intend to grant to our executive officers and other employees upon completion of this offering, at an exercise price equal to the initial public offering price;

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•            shares of restricted common stock that we intend to grant to our non-employee directors upon completion of this offering; and

•            additional shares available for future issuance under our 2008 Stock Incentive Plan.

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DILUTION

     As of December 31, 2007, our net tangible book value was $6.0 million, or $4.43 per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities divided by the number of shares of our 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 net tangible book value as of December 31, 2007 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		$
Net tangible book value per share as of December 31, 2007	$
Increase in net tangible book value per share attributable to this offering
Net tangible book value per share after this offering
Dilution per share to new investors in this offering		$

     The table below sets forth, as of December 31, 2007, the number of shares of our common stock issued, 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 of $          per share.

											Average
	Shares Issued					Total Consideration					Price
	Number		Percent			Amount		Percent			Per Share
Existing stockholders		1,361,289			%	$	5,363,879			%	$	3.94
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;

•           170,200 shares of common stock issuable upon the exercise of options outstanding as of April 30, 2008;

•           shares of common stock that may be issued pursuant to stock options we intend to grant to our executive officers and other employees upon completion of this offering, at an exercise price equal to the initial public offering price;

•           shares of restricted common stock that we intend to grant to our non-employee directors upon completion of this offering; and

• additional shares available for future issuance under our 2008 Stock Incentive Plan.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

     The following income statement data for the years ended December 31, 2007, 2006 and 2005 and the following balance sheet data as of December 31, 2007 and 2006 were derived from our audited consolidated financial statements included elsewhere in this prospectus. The income statement data for the year ended December 31, 2004 and the balance sheet data as of December 31, 2005 and 2004 were derived from our audited consolidated financial statements that are not included in this prospectus. The income statement data for the year ended December 31, 2003 and the balance sheet data as of December 31, 2003 were derived from our unaudited 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 in this prospectus.

	Years Ended December 31,
	2007			2006			2005			2004(2)			2003(1)
In thousands, except per share data
Income Statement Data
Gross premiums written	$	85,810		$	62,372		$	47,576		$	30,911		$	—
Ceded premiums written		54,849			42,986			23,617			22,702			—
Net premiums written		30,961			19,386			23,959			8,209			—
Revenues
Net premiums earned		24,613			21,053			21,336			2,948			—
Insurance services income		7,027			7,175			4,369			6,429			5,952
Net investment income		1,326			1,321			1,077			233			94
Net realized losses on investments		(5	)		(1,346	)		(2,298	)		(4,632	)		126
Total revenues		32,961			28,203			24,484			4,978	)		6,172
Expenses
Net losses and loss adjustment expense		15,182			17,839			12,022			2,616			—
Net policy acquisition and underwriting expenses		6,023			3,834			3,168			2,016			—
Other operating expenses		8,519			9,704			6,378			4,989			7,760
Interest expense		1,290			1,109			1,129			555			148
Total expenses		31,014			32,486			22,697			10,176			7,908
Other income		—			796	(3)		—			110			—
Gain on early extinguishment of debt		—			6,586	(3)		—			—			—
Income (loss) before income taxes		1,947			3,099			1,787			(5,088	)		(1,736	)
Income tax expense (benefit)		(432	)		1,489			687			(751	)		—
Net income (loss)	$	2,379		$	1,610		$	1,100		$	(4,337	)	$	(1,736	)
Earnings Per Share
Basic	$	1.77		$	1.16		$	.88		NM		(4)	NM		(4)
Diluted		1.76			1.15			.87		NM		(4)	NM		(4)
Weighted Average Number of Shares Used in the Determination of:
Basic		1,342			1,392			1,251		NM		(4)	NM		(4)
Diluted		1,351			1,398			1,258		NM		(4)	NM		(4)
Return on average equity		58.5	%		107.0	%	NM		(3)	NM		(4)	NM		(4)
Selected Insurance Ratios (5)
Net loss and loss adjustment expense ratio		61.7	%		84.7	%		56.3	%	NM		(4)	NM		(4)
Net expense ratio		24.5			18.2			14.8		NM		(4)	NM		(4)
Net combined ratio		86.2	%		102.9	%		71.1	%	NM		(4)	NM		(4)

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	Years Ended December 31,
	2007		2006		2005		2004(2)		2003(1)
In thousands, except per share data
Balance Sheet Data
Cash and cash equivalents	$	4,943	$	17,841	$	20,420	$	3,965	$	2,276
Investments		56,816		32,543		20,955		16,446		17,577
Amounts recoverable from reinsurers		47,519		41,531		22,955		10,978		8,265
Premiums receivable		36,748		19,450		21,943		19,244		—
Prepaid reinsurance premiums		14,963		7,466		4,402		14,925		—
Other assets		14,248		11,838		9,563		8,957		5,352
Total assets	$	175,237	$	130,669	$	100,328	$	74,515	$	33,470
Reserves for losses and loss adjustment expenses	$	69,881	$	65,953	$	39,478	$	19,885	$	13,676
Unearned and advanced premium reserves		29,160		15,643		13,214		20,185		—
Reinsurance funds withheld and balances payable		44,073		26,787		25,195		15,697		2,685
Debt		16,907		11,741		11,995		10,379		8,934
Other liabilities		9,780		7,851		10,040		8,324		6,558
Total liabilities		169,801		127,975		99,922		74,470		31,853
Stockholders’ equity		5,436		2,694		316		45		1,617
Total liabilities and stockholders’ equity	$	175,237	$	130,669	$	100,238	$	74,515	$	33,470

(1)	The income statement data reflects the results of our insurance services operations. The balance sheet at December 31, 2003 reflects the financial position associated with Guarantee Insurance’s legacy commercial general liability business, which Guarantee Insurance ceased writing in 1983, together with our insurance services operations.
(2)	We began our current workers’ compensation business operations in 2004. The income statement data reflects the results of our insurance services operations for the full year and the results of our insurance operations for the last two quarters of 2004.
(3)	In 2006, we 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.
(4)	Not meaningful.
(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 in 2008 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements.

Overview

     Patriot Risk Management, Inc. is a workers’ compensation risk management company that provides alternative market and traditional workers’ compensation products and services. Our business model has two components: insurance and insurance services. In our insurance segment, we generate underwriting and investment income by providing alternative market risk transfer solutions and traditional workers’ compensation insurance. In our insurance services segment, we generate fee income by providing nurse case management, cost containment and captive management services to Guarantee Insurance, the segregated portfolio captives and our quota share reinsurer. We plan to offer these fee-generating insurance services, together with reinsurance intermediary, claims administration and general agency services, to other regional and national insurance companies and self-insured employers. We also plan to increase the amount of fee income we earn by expanding both organically and through strategic acquisitions of claim administrators, general agencies, or preferred provider network organizations.

     We provide insurance and insurance services in 19 states and the District of Columbia. In 2007, approximately 59% of our total direct premiums written were concentrated in Florida. In 2007, in our traditional business, approximately 41% of the direct premiums written were concentrated in Florida, and approximately 17%, 12% and 11% of the direct premiums written were concentrated in Missouri, Indiana and Arkansas, respectively. No other state accounted for more than 5% of our total direct premiums written in 2007. In 2007, in our alternative market business, approximately 84% of our direct premiums written were concentrated in Florida. No other state accounted for more than 5% of our alternative market business direct premiums written in 2007. Total direct premiums written for 2007 were $84.9 million, with approximately 60% from traditional business and 40% from alternative market business.

     Invested assets and associated investment income are an important part of our business. 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 our 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 many other lines of business. From December 31, 2004 to December 31, 2007, our investment portfolio, including cash and cash equivalents, increased from $20.4 million to $61.8 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. 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 that we retain for our own account. See “Business–Reserves.”

     At December 31, 2007, we maintained a quota share reinsurance agreement for our traditional workers’ compensation business with National Indemnity Company, a subsidiary of Berkshire Hathaway rated A++ (Superior) by A.M. Best. Quota share reinsurance agreements are proportional in nature. The assuming company shares proportionally in the premiums and losses and loss adjustment expenses of the ceding company. This agreement covers new and renewal traditional policies becoming effective during the

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period from July 1, 2007 through June 30, 2008 (excluding certain states). Under the terms on this agreement, Guarantee Insurance cedes 50% of premiums and associated losses and loss adjustment expenses on traditional workers’ compensation business in all states other than South Carolina, Georgia, and Indiana, where we retain 100% of the risk. The quota share agreement covers all losses and loss adjustment expenses up to $500,000 per occurrence, subject to various restrictions and exclusions. Guarantee Insurance earns a ceding commission on the ceded premium. As with any reinsurance arrangement, the ultimate liability for the payment of losses and loss adjustment expenses resides with Guarantee Insurance, as the ceding company.

     In addition to quota share reinsurance, we maintain excess of loss reinsurance for our traditional workers’ compensation coverage with third-party reinsurers. Our excess of loss reinsurance agreements cover losses per occurrence in excess of the retention level and up to the limit of the reinsurance coverage. Our reinsurers provide various layers of coverage up to a specified amount. As consideration for this coverage, we pay excess of loss reinsurers a percentage of our direct premiums, subject to certain annual minimum reinsurance premium requirements. At December 31, 2007, our retention for traditional workers’ compensation business was $1.0 million per occurrence. Accordingly, for business subject to quota share reinsurance agreement with National Indemnity Company, our effective retention for a $1 million claim is $750,000: 50% of the first $500,000 and 100% of the next $500,000. Upon completion of this offering, we may reduce or eliminate our quota share on our traditional business. Our first, second and third layers of excess of loss reinsurance provide $4.0 million of coverage per occurrence in excess of our $1.0 million retention, $5.0 million of coverage per occurrence in excess of $5.0 million and $10.0 million of coverage per occurrence in excess of $10.0 million, respectively. See “Business – Reinsurance.”

     With our captive insurance plan, 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, 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. For a segregated portfolio cell that is controlled by a policyholder, Guarantee Insurance generally cedes on a quota share basis to the segregated portfolio captive 90% of the risk on the workers’ compensation policy up to a level specified in the reinsurance agreement, and retains 10% of the risk. For a segregated portfolio cell that is controlled by an insurance agency, Guarantee Insurance generally cedes on a quota share basis to the segregated portfolio captive 50% of the risk on policies produced by the agency up to a level specified in the reinsurance agreement, and retains 50% of the risk. Any amount of losses in excess of $1.0 million per occurrence are not covered by this reinsurance agreement. 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, 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. See “Business—Reinsurance – Alternative Market 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 our 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 transitioning to an environment in which underwriting capacity and price competition have increased. In our traditional workers’ compensation business, we experienced increased price competition in 2007 in certain markets.

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     In 2007, we wrote approximately 74% of our direct premiums written in four administered pricing states — Florida, New York, 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. The Florida OIR approved statewide rate decreases of 18.4% and 15.7%, effective January 1, 2008 and January 1, 2007, respectively. If a state insurance regulator lowers premium rates, we will be less profitable. We have responded to these rate decreases by expanding our alternative market business in Florida, strengthening our collateral on that business where appropriate, and increasing consent-to-rate (a limited program under which the Florida OIR allows insurers to charge a rate that exceeds the state-established rate when deemed necessary by the insurer) on renewal policies on Florida traditional business. 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 for us 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 to fluctuate. Our strategy across market cycles is to maintain premium rates, 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, Patriot’s wholly-owned subsidiary, Guarantee Insurance Group, Inc., acquired Guarantee Insurance Company, 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 Patriot for certain losses in excess of reserves arising from these claims up to the amount of the original purchase price. On March 30, 2006, Patriot 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 Patriot for losses in excess of reserves. In 2006, we recognized a pre-tax $6.6 million gain on early extinguishment of debt in connection with this settlement and termination agreement. As of December 31, 2007, we held net reserves in the amount of approximately $4.8 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 from mandatory pooling arrangements.

     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, 2007 for an employer with constant payroll during the term of the policy, we would earn half of the premiums in 2007 and the other half in 2008.

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     Many of our policies renew on January 1 of each year. As a result, we experience some seasonality in our net premiums written in that generally we write more new and renewal policies during the first quarter. 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 business 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. Insurance services income is currently generated almost exclusively from nurse case management, cost containment and captive management services, which we provide to Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and our quota share reinsurer. Our unconsolidated insurance services segment income includes all insurance services fee income earned by PRS. However, the fees earned by PRS from Guarantee Insurance that are attributable to the portion of the insurance risk that Guarantee Insurance retains are 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 the segregated portfolio captives and our quota share reinsurer, which represent the pass through of fees paid by our quota share reinsurer and the segregated portfolio captives for services performed on their behalf and for which Guarantee Insurance is reimbursed through a ceding commission. For financial reporting purposes, we treat ceding commissions as a reduction in underwriting expenses.

     The fees earned by PRS that are attributable to the portion of the insurance risk assumed by the segregated portfolio captives and our quota share reinsurer represent consideration for the fair value of these insurance services. The fair value of nurse case management services is based on a monthly charge per claimant. The fair value of cost containment services is based on a percentage of claim savings. The fair value of captive management services is based on a percentage of earned premium attributable to segregated portfolio captives serviced by PRS. Although consolidated insurance services income is currently almost wholly dependent on Guarantee Insurance’s premium and risk retention levels, we plan to offer these fee-generating insurance services, together with reinsurance intermediary, claims administration and general agency services, to other regional and national insurance companies and self-insured employers. We also plan to increase the amount of fee income we earn by expanding both organically and through strategic acquisitions of claim administrators, general agencies, or preferred provider network organizations.

     Through PRS, we intend to continue to generate insurance services income from nurse case management, cost containment and captive management services performed for the benefit of the segregated portfolio captives and our quota share reinsurer. The captive management services that historically had been performed by PRS included working with agents to market segregated portfolio captive insurance solutions as well as providing captive administration services subsequent to the placement of the business. Effective January 1, 2008, Guarantee Insurance began working directly with agents to market segregated portfolio captive insurance solutions, but we plan to continue to provide captive administrative services through PRS to segregated portfolio captives once they are established.

     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 acquired 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.

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     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 our investments are reported separately from our net investment income. Net realized gains occur when our investment securities are sold for more than their costs or amortized costs, as applicable. Net realized losses occur when our 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 represents our largest expense item. Losses and loss adjustment expenses are comprised of paid losses and loss adjustment expenses, estimates of future claim 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 the traditional and alternative market workers’ compensation insurance policies we issue. 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 costs 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. These expenses include (i) the cost of providing nurse case management services, (ii) preferred provider network costs for access to discounted health care services to reduce the losses and loss adjustment expenses incurred by the segregated portfolio captives operated by our alternative market policyholders or other parties and incurred by our quota share reinsurer, and (iii) commissions to brokers and agents for the acquisition of alternative market business.

     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 business operations. For our insurance business, we measure growth in terms of gross and net premiums written, and we measure

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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 measure the adequacy of capital in relation to premiums written. For insurance services, we measure growth in terms of fee income produced from insurance services. We analyze profitability by evaluating income before taxes. On a consolidated basis, we measure profitability in terms of 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 of insurance products. Gross premiums written also correlates to our ability to generate net premiums earned and, with respect to the premiums we cede to the segregated portfolio captives and our quota share reinsurer, ceding commissions and insurance services income.

     Net loss ratio. 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 the effectiveness of our underwriting efforts.

     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 business. 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 reinsurance and related ceding commission income) to measure the effects on our consolidated income before income taxes. Ceding commission revenue reduces our gross underwriting expenses in our insurance operations.

     Combined ratio. We use the combined ratio to measure our underwriting profitability. 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 our 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. 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.”

     Return on Average Equity

     One of the key financial measures that we use to evaluate our operating performance is return on average equity. We 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 58.5% and 154.0% for the years ended December 31, 2007 and 2006, respectively. With the increased capitalization as a result of this offering, we expect our return on average equity to decrease. Our overall financial objective is to produce a return on equity of at least 12% in the near term and 15% over the long term.

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     Insurance Services

     Because our consolidated insurance services fee income is currently generated almost entirely from the segregated portfolio captives and our quota share reinsurer, it is currently almost wholly dependent on Guarantee Insurance’s premium and risk retention levels. Through PRS, we intend to continue to generate insurance services income from nurse case management, cost containment and captive management services performed for the benefit of the segregated portfolio captives and our quota share reinsurer. The captive management services that historically had been performed by PRS included working with agents to market segregated portfolio captive insurance solutions as well as providing captive administration services subsequent to the placement of the business. Effective January 1, 2008, Guarantee Insurance began working directly with agents to market segregated portfolio captive insurance solutions, but we plan to continue to provide captive administrative services through PRS to segregated portfolio captives once they are established.

     We plan to offer these fee-generating insurance services, together with reinsurance intermediary, claims administration and general agency services, to other regional and national insurance companies and self-insured employers in the future. We also plan to increase the amount of fee income we earn by expanding both organically and through strategic acquisitions of claim administrators, general agencies, or preferred provider network organizations. In order to achieve our return on average equity objectives, we target unconsolidated insurance services revenues and pre-tax net income to increase by at least 20% per year. Our unconsolidated insurance services revenues increased by 11% in 2007 and 56% in 2006. Our unconsolidated insurance services pre-tax net income increased by 12% in 2007 and 60% in 2006.

     Underwriting Ratios

     We target a combined ratio from our insurance operations of 95% or lower, comprised of a targeted net loss and loss adjustment expense ratio of 65% to 70% and a targeted net expense ratio of 25% to 30%. Over the longer term, we expect gross and net premiums written to increase if we are successful in obtaining an A.M. Best rating, further penetrating existing markets and expanding into additional markets. Growth in gross and net premiums written are expected to generate improved economies of scale with respect to certain components of our expense ratio that are not expected to increase in proportion to the increase in gross and net premiums written. We expect this to result in a lower net expense ratio over the longer term. As we reduce our net expense ratio in connection with improved economies of scale, we expect to be able to compete more effectively for increased business that meets our underwriting guidelines while maintaining a targeted 95% combined ratio. Our combined ratio from our insurance operations was 86.2% for the year ended December 31, 2007 and 89.6% from the inception of our workers’ compensation business in 2004 through December 31, 2007.

     Reinsurance

     We expect that the net proceeds of this offering will provide us with the flexibility to retain more of our book of business. Depending upon the pricing and availability of reinsurance, we may increase our retention by reducing or eliminating the amount of premiums that we currently cede to our quota share reinsurer. We intend to maintain our current retention rates (generally between 10% and 50%) on the alternative market business that we cede to the segregated portfolio captives.

     Leverage

     Over the long term, we plan to target a net leverage ratio, as measured by net premiums written to statutory capital and surplus, of approximately 2.5 to 1. We do not anticipate incurring any indebtedness in the near term, but intend to utilize debt over the longer term, as appropriate, to maintain our targeted net leverage ratio. We intend to target a debt to total capital ratio no higher than 0.35 over the longer term. We expect actual leverage ratios in the near term to be lower than target because we do not expect to be able to immediately fully deploy the proceeds of this offering. Furthermore, actual leverage ratios over the longer term may vary from targets due to factors that affect our ratings with various organizations and capital

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adequacy requirements imposed by insurance regulatory authorities. These factors include but are not limited to the amount of our statutory surplus and stockholders’ equity, premium growth, quality and terms of reinsurance and line of business mix.

     Investments

     We expect the majority 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. We expect our aggregate tax-adjusted yield on our fixed income portfolio to diminish modestly in the near term as we add securities to the portfolio at prevailing yields that are somewhat lower than the overall yield on our current portfolio. Our tax-equivalent book yield on our investment portfolio, excluding cash and cash equivalents, as of December 31, 2007 was 5.19%. We are targeting a tax-equivalent book yield on our investment portfolio in the range of 4.50% to 5.50% over the near term. When we have fully deployed our capital, we plan to target an invested assets to equity ratio of between 1.0 to 1 and 1.5 to 1.

     Indebtedness

     We plan to use a portion of the net proceeds from this offering to pay off the entire remaining balance of our credit facility with Aleritas Capital Corporation on or before March 31, 2009. At March 31, 2008, the remaining principal balances of these loans totaled $13.3 million. The credit agreement and amendments provide for a prepayment premium equal to 6% if prepayment is made on or before March 29, 2009. There is no prepayment premium if prepayment is made after March 30, 2009. Upon repayment of this loan we expect to write off the unamortized balance of capital loan costs, which totaled approximately $1.6 million at December 31, 2007.

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 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. Additional information regarding our reserves for losses and loss adjustment expenses can be found in “Business—Loss and Loss Adjustment Expense Reserves.”

     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

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us of liability 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. With respect to authorized reinsurers such as segregated portfolio captives, we manage our credit risk by generally selecting reinsurers with a financial strength rating of “A–” (Excellent) or better by A.M. Best Company and by performing quarterly credit reviews of our reinsurers. With respect to reinsurers not licensed in Florida, which we refer to as unauthorized reinsurers, we manage our credit risk by 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 on a periodic basis to determine whether reinsurance accounting or deposit accounting is appropriate.

     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 collectibility, and management provides an allowance for estimated doubtful accounts which reduces premiums receivable.

     Revenue Recognition

     Premiums are earned pro rata over the terms of the policies, which are typically annual. The portion of premiums that are expected to be earned in the future are deferred and reported as unearned premiums. Insurance services income is earned as billed.

     Deferred Policy Acquisition Costs

     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 commission income. These acquisition costs are capitalized and charged to expense ratably as premiums are earned. In calculating deferred policy acquisition costs, 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 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.

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     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 realized, management considers whether it is more likely than not that we will generate future taxable income during the periods in which those temporary differences become deductible. Management considers 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. As of December 31, 2007, no such valuation has been deemed necessary.

     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 Financial Accounting Standards Board, or FASB, (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.

     Share-Based Compensation Costs

     In December 2004, FASB issued Statement of Financial Standards 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, 2007 or 2006. We anticipate compensation costs of approximately $        million, relating to            stock options that we expect to be granted upon the consummation of this offering, to be recognized on a pro rata basis over the three year vesting period subsequent to the consummation of this offering.

     Business Combinations

     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 of the outstanding capital stock of The Tarheel Group, Inc., or Tarheel, to Patriot Risk Management, Inc. with the result that Tarheel and its subsidiary, Tarheel Insurance Management Company, or TIMCO, became wholly-owned indirect subsidiaries of Patriot Risk Management. We 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(R) — Business Combinations: Applying the Acquisition Method. Consequently, the accompanying consolidated financial statements have been retroactively restated, as if the combining companies had been consolidated for all periods. Foundation Insurance Company, or 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

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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.

     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 it to recover its value.

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. It does not require any new fair value measurements but applies whenever other standards require or permit assets or liabilities to be measured at fair value. SFAS No. 157 was initially effective for us beginning January 1, 2008. In February 2008, the FASB approved the issuance of FASB Staff Position FAS 157-2, which defers the effective date of SFAS No. 157 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. We do not expect the provisions of SFAS No. 157 to have a material effect on our consolidated financial condition or results of operations.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115.” SFAS No. 159 grants entities the option to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis as of specified election dates. This election is irrevocable. The objective of SFAS No. 159 is to improve financial reporting and reduce the volatility in reported earnings caused by measuring related assets and liabilities differently. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the provisions of SFAS No. 159(R) to have a material effect on our consolidated financial condition or results of operations.

     In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) provides revised guidance on how an acquirer recognizes and measures in its financial statements, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. In addition, it provides revised guidance on the recognition and measurement of goodwill acquired in the business combination. SFAS No. 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141(R) is effective for business combinations completed on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, or January 1, 2009. Unless we make a material acquisition, we do not expect the provisions of SFAS No. 141(R) to have a material effect on our consolidated financial condition or results of operations.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51.” SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We do not expect the provisions of SFAS No. 160 to have a material effect on our consolidated financial condition or results of operations.

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     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). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted FIN 48 as of January 1, 2007. The effect of adopting FIN 48 on our financial statements was not material.

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

     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 carryforwards attributable to Tarheel operations until April 2007, at which time we reversed the valuation allowance, as discussed more fully below.

     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:

In thousands	2007		2006
Direct business:
Traditional business	$	50,599	$	26,636
Alternative market		34,316		33,921
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.

     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 comprised of a 127% increase in the number of policies written, from 1,335 at December 31, 2006 to 3,034 at December 31, 2007, 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 increase in the number of in-force policies, which we refer to as policy counts, was principally attributable to the expansion of the traditional business pay-as-you-

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go plan. 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 192%. Gross premiums written on alternative market business for 2007 were $34.3 million compared to $33.9 million for 2006, an increase of $428,000 or 1%.

     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, cost containment and captive management services provided for the benefit of the segregated portfolio captives and our quota share reinsurer. Captive management services include working with agents to market segregated portfolio captive insurance solutions as well as providing captive administration services to the segregated portfolio captives once they are established. In determining consolidated insurance services income, insurance services income generated from nurse case management and cost containment services provided to Guarantee Insurance is eliminated as intersegment revenue.

     The decrease in consolidated insurance services income was attributable to lower captive management fees associated with working with agents to market segregated portfolio insurance solutions, which decreased to $2.0 million in 2007 from $3.0 million in 2006 due to lower earned premium associated with segregated portfolio cell captives serviced by PRS. This decrease was partially offset by an increase in insurance services income associated with nurse case management and cost containment services, which increased to $4.6 million in 2007 from $3.6 million in 2006 due to higher aggregate traditional and alternative market earned premium (and associated claims activity) and a larger portion of the insurance risk assumed by our quota share reinsurer. Consolidated insurance services income attributable to services provided to parties other than segregated portfolio captives and our quota share reinsurer 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.

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     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 69.6% for accident year 2007 compared to 72.8% for accident year 2006, a decrease of 3.2 percentage points.

     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%. Gross policy acquisition and underwriting expenses, which include agent commissions, premium taxes and assessments and general operating expenses associated with insurance operations, were $22.8 million for 2007, compared to $19.4 million for 2006, an increase of $3.3 million or 17%. The increase in gross policy acquisition and underwriting expenses was generally consistent with the growth in gross premiums earned. Our gross expense ratio decreased to 30.9% in 2007 compared to 32.1% in 2006, reflecting economies of scale arising from the fact that certain of our gross policy acquisition and underwriting expenses did not increase in proportion to gross earned premium.

     Ceding commissions, which offset gross expenses, were $16.7 million for 2007 compared to $15.6 million for 2006, an increase of $1.1 million or 7%. The blended effective ceding commission rate for 2007 was 34.1% compared to 39.4% in 2006. The decrease was attributable to an increase in ceded quota share reinsurance premiums on our traditional business, which have a lower effective ceding commission rate than our ceded premiums on our alternative market business. The increase in ceded quota share reinsurance premiums on our traditional business was attributable to higher gross premiums written on traditional business in 2007 than in 2006 and the fact that the 50% quota share reinsurance treaty on our traditional business (excluding certain states) was in effect for the full year 2007, but only the second half of 2006. The decrease in the blended effective ceding commission rate caused the net expense ratio to increase to 24.5% for 2007 compared to 18.2% for 2006.

     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 Patriot borrowed an additional $5.7 million in September 2007 at an interest rate of prime plus 4.5%.

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     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 carryforwards. 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 carryforwards could be utilized and, accordingly, maintained a 100% valuation allowance on the deferred tax asset attributable to Tarheel net operating loss carryforwards. 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, Inc. with the result that Tarheel and its subsidiary, TIMCO, became wholly-owned indirect subsidiaries of Patriot Risk Management, Inc. 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.

     Excluding changes in the valuation allowance, 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, 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.

     2006 Compared to 2005

     Overview of Operating Results – Net income for 2006 was $1.6 million compared to $1.1 million for 2005. The $510,000 increase in net income is comprised of a $1.3 million increase in pre-tax net income, partially offset by an $802,000 increase in income tax expense. The $1.3 million increase in pre-tax net income is comprised principally of an increase in pre-tax net income related to (i) a $7.4 million gain on early extinguishment of debt and associated other income, (ii) a $1.4 million increase in pre-tax net income from insurance services operations and (iii) a $1.0 million decrease in realized losses on investments, partially offset by a 31.8 percentage point increase in our combined ratio from insurance operations.

     Gross Premiums Written – Gross premiums written for 2006 were $62.4 million compared to $47.6 million for 2005, an increase of $14.8 million or 31%. Gross premiums written by line of business were as follows:

In thousands	2006		2005
Direct business:
Traditional business	$	26,636	$	19.525
Alternative market		33,921		26,541
Total direct business		60,557		46,066
Assumed business(1)		1,815		1,510
Total	$	62,372	$	47,576

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

     The increase was attributable to both traditional and alternative market business. Gross premiums written on traditional business for 2006 were $26.6 million compared to $19.5 million for 2005, an increase of $7.1 million or 36%. The increase in traditional business gross premiums written was comprised of a 103% increase in policy counts, from 657 at December 31, 2005 to 1,335 at December 31, 2006, partially offset by a 32% decrease in average annual in-force premium per policy, from approximately $27,300 at December 31, 2005 to approximately $18,500 at December 31, 2006. The increase in in-force policy counts was generally attributable to expanded marketing efforts in Florida as well as other jurisdictions. The decrease in average annual in-force premium per policy was generally attributable to a marketing emphasis on smaller accounts and, to a lesser degree, mandatory rate decreases in the state of Florida, an administered pricing state. Gross

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premiums written on alternative market business for 2006 were $33.9 million compared to $26.5 million for 2005, an increase of $7.4 million or 28%.

     Net Premiums Written – Net premiums written for 2006 were $19.4 million compared to $24.0 million for 2005, a decrease of $4.6 million or 19%. The $14.8 million period-over-period increase in gross premiums written was more than offset by a $19.4 million increase in ceded premiums written. The increase in ceded premiums written was primarily attributable to our entry into a 50% quota share reinsurance treaty (excluding certain states) on traditional business effective July 1, 2006 and, to a lesser extent, additional ceded written premium associated with the growth in alternative market gross premiums written.

     Net Premiums Earned – Net premiums earned for 2006 were $21.1 million compared to $21.3 million for 2005, a decrease of $283,000 or 1%. The decrease was attributable to the decrease 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 for 2006 was $7.2 million compared to $4.4 million for 2005, an increase of $2.8 million or 64%. Consolidated insurance services income in 2006 was generated principally from nurse case management, cost containment and captive management services provided for the benefit of the segregated portfolio captives and our quota share reinsurer. Captive management services include working with agents to market segregated portfolio captive insurance solutions as well as providing captive administration services to segregated portfolio cell captives after they are established. Consolidated insurance services income in 2005 was earned by Tarheel. Approximately 65% of consolidated insurance services income in 2005 was generated from nurse case management, cost containment and captive management services provided for the benefit of the segregated portfolio captives and our quota share reinsurer and approximately 35% was generated from cost containment and other services provided to other third parties.

     In determining consolidated insurance services income, insurance services income generated from nurse case management and cost containment services provided to Guarantee Insurance is eliminated as intersegment revenue.

     The increase in consolidated insurance services income was principally attributable to nurse case management and cost containment services, which increased to $3.6 million in 2006 from $1.0 million in 2005 due to higher aggregate traditional and alternative market earned premium (and associated claims activity) and a larger portion of the insurance risk ceded to our quota share reinsurer. To a lesser extent, the increase was attributable to captive management fees associated with working with agents to market segregated portfolio captive insurance solutions, which increased to $3.0 million in 2006 from $1.8 million in 2005 due to higher earned premium associated with segregated portfolio cell captives serviced by PRS in 2006 compared to Tarheel in 2005. These increases were partially offset by a $1.1 million decrease in income from cost containment and other services provided to third parties by Tarheel, which decreased to $373,000 in 2006 from $1.5 million in 2005. The majority of these service relationships between Tarheel and other third parties were terminated or sold in 2005.

     Net Investment Income – Net investment income for 2006 was $1.3 million compared to $1.1 million for 2005, an increase of $244,000 or 22%. Gross investment income for 2006 was $2.1 million compared to $1.2 million for 2005, an increase of $847,000 or 70%. 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. Investment expenses for 2006 were $732,000 compared to $129,000 for 2005, an increase of $603,000. 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, 2005 to December 31, 2006 and higher weighted average monthly funds held balances throughout 2006 associated with increased alternative market net premiums written.

     Net Realized Losses on Investments – Net realized losses on investments for 2006 were $1.3 million compared to $2.3 million for 2005. In 2006, we recognized realized losses of approximately $1.7 million in

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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. In 2005, we recognized realized losses of approximately $950,000 in connection with Tarheel’s investment in Foundation, which was deemed to be other-than-temporarily impaired. Additionally, in 2005, we recognized approximately $1.6 million of other-than-temporary impairments on equity securities available for sale. These 2005 realized losses associated with other-than-temporary impairments were partially offset by realized gains on the sales of equity securities.

     Other Income – For 2006, we recognized $796,000 of other income in connection with the forgiveness of accrued interest associated with the early extinguishment of debt. No other income was recognized for 2005.

     Net Losses and Loss Adjustment Expenses – Net losses and loss adjustment expenses were $17.8 million for 2006 compared to $12.0 million for 2005, an increase of $5.8 million or 48%. The increase was attributable to a higher calendar year net loss ratio, which was 84.7% for 2006 compared to 56.3% for 2005, an increase of 28.4 percentage points. The increase in the loss ratio was partially the result of unfavorable development in 2006 on both workers’ compensation and legacy reserves associated with prior accident years. Our net loss ratio was 72.8% for accident year 2006 compared to 53.6% for accident year 2005, an increase of 19.2 percentage points.

     Net Policy Acquisition and Underwriting Expenses – Net policy acquisition and underwriting expenses were $3.8 million for 2006 compared to $3.2 million for 2005, an increase of $666,000 or 21%. Our net expense ratio was 18.2% for 2006 compared to 14.8% for 2005, an increase of 3.4 percentage points. The increase in the net expense ratio was primarily the result of an increase in the gross policy acquisition and underwriting expenses to $19.4 million for 2006 from $16.9 million for 2005, partially offset by an increase in ceding commissions attributable to ceded quota share reinsurance premiums on our traditional business pursuant to the 50% quota share reinsurance treaty commencing effective July 1, 2006.

     Other Operating Expenses – Other operating expenses, which are primarily comprised of holding company expenses and expenses attributable to our insurance services operations, were $9.7 million for 2006 compared to $6.4 million for 2005, an increase of $3.3 million or 52%. For 2006, other operating expenses included approximately $6.4 million associated with insurance services operations and $3.3 million associated with holding company operations. For 2005, other operating expenses included approximately $4.2 million associated with insurance services operations and $2.2 million associated with holding company operations. The increase in other operating expenses was attributable to a higher expense base in support of higher insurance services income and, to a lesser extent, higher holding company expenses.

     Interest Expense – Interest expense was $1.1 million for both 2006 and 2005. We had notes payable and subordinated debentures, including accrued interest, totaling approximately $12.0 million, $11.7 million and $10.4 million at December 31, 2006, 2005 and 2004, respectively.

     Income Tax Expense – Income tax expense for 2006 was $1.5 million compared to $687,000 for 2005, an increase of $802,000. The increase was primarily attributable to the increase in pre-tax net income. At December 31, 2006 and 2005, we maintained a valuation allowance for 100% of the deferred tax asset associated with Tarheel net operating losses. Accordingly, in connection with net operating losses incurred by Tarheel in 2006 and 2005, we increased this valuation allowance by $457,000 and $136,000, respectively. Excluding changes in the valuation allowance, our effective tax rate was approximately 33% for 2006 compared to 31% for 2005.

Segment Information

     Patriot manages its operations through two business segments: insurance and insurance services. In the insurance segment, we provide workers’ compensation policies to businesses. These products include both traditional insurance and alternative market products. The products offered in our insurance segment encompass a variety of options designed to fit the needs of our policyholders and employer groups. The

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insurance services segment provides nurse case management, cost containment and captive management services to Guarantee Insurance, the segregated portfolio captives and our quota share reinsurer.

     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.

     Business segment results are as follows (in thousands):

	Year Ended December 31,
	2007			2006			2005
Insurance Segment
Revenues:
Premiums earned	$	24,613		$	21,053		$	21,336
Investment income, net		1,326			1,321			1,077
Net realized gains (losses) on investments		(5	)		393			(1,348	)
Total revenues	$	25,934		$	22,767		$	21,065
Pre-tax net income (loss)	$	431		$	(1,939	)	$	3,692
Insurance Services Segment
Revenues — insurance services income	$	11,325		$	10,208		$	6,552
Pre-tax net income	$	4,201		$	3,764		$	2,358

Insurance Segment Results of Operations

     2007 Compared to 2006

     Net Premiums Earned – Net premiums earned for 2007 were $24.6 million 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 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 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 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 – The 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 fixed income securities prior to their maturity and equity securities.

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

     2006 Compared to 2005

     Net Premiums Earned — Net premiums earned for 2006 were $21.1 million compared to $21.3 million for 2005, a decrease of $283,000 or 1%. The decrease was attributable to the decrease in net premiums written, recognized as revenue on a pro rata basis over the terms of the policies written.

     Net Investment Income — Net investment income for 2006 was $1.3 million compared to $1.1 million for 2005, an increase of $244,000 or 22%. Gross investment income for 2006 was $2.1 million compared to $1.2 million for 2005, an increase of $847,000 or 70%. 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. Investment expenses for 2006 were $732,000 compared to $129,000 for 2005, an increase of $603,000. 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, 2005 to December 31, 2006 and higher weighted average monthly funds held balances throughout 2006 associated with increased alternative market net premiums written.

     Net Realized Gains (Losses) on Investments — The insurance segment had $393,000 of net realized gains on investments for 2006 compared to a $1.3 million net realized loss on investments in 2005. In 2005, we recognized approximately $1.6 million of other-than-temporary impairments on equity securities available for sale. These 2005 realized losses associated with other-than-temporary impairments were partially offset by realized gains on the sales of equity securities. Realized gains and losses on investments occur from time to time in connection with the sale of fixed income securities prior to their maturity and equity securities.

     Pre-Tax Net (Loss) Income — The pre-tax net loss for the insurance segment for 2006 was $1.9 million compared to pre-tax net income of $3.7 million for 2006. The decrease in pre-tax net income reflects a higher calendar year loss ratio in 2006 as discussed above.

Insurance Services Segment Results of Operations

     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%. Unconsolidated insurance services income in 2007 and 2006 was generated principally from nurse case management, cost containment and captive management services provided for the benefit of the segregated portfolio captives and our quota share reinsurer. Captive management services include working with agents to market segregated portfolio captive insurance solutions as well as providing captive administration services to segregated portfolio cell captives after they are established.

     The increase in unconsolidated insurance services income was attributable to nurse case management and cost containment services, which increased to $7.2 million in 2007 from $4.8 million in 2006 due to higher aggregate traditional and alternative market earned premium (and associated claims activity). 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 captive management fees associated with working with agents to market segregated portfolio insurance solutions, which fees 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 reinsurer decreased to $107,000 in 2007 from $373,000 in 2006.

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     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.

     2006 Compared to 2005

     Insurance Services Income — Unconsolidated insurance services income for 2006 was $10.2 million compared to $6.5 million for 2005, an increase of $3.7 million or 56%. Unconsolidated insurance services income in 2006 was primarily earned by PRS, and was generated principally from nurse case management, cost containment and captive management services provided for the benefit of the segregated portfolio captives and our quota share reinsurer. Captive management services include working with agents to market segregated portfolio captive insurance solutions as well as providing captive administration services to the segregated portfolio captives after they are established. Unconsolidated insurance services income in 2005 was earned by Tarheel. Approximately 76% of unconsolidated insurance services income in 2005 was generated from nurse case management, cost containment and captive management services provided for the benefit of Guarantee Insurance, the segregated portfolio captives and our quota share reinsurer and approximately 24% was generated from cost containment and other services provided to other third parties.

     The increase in unconsolidated insurance services income was principally attributable to an increase to $4.8 million in 2006 from $1.9 million in 2005 in income from nurse case management and cost containment services due to higher aggregate traditional and alternative market earned premium (and associated claims activity). To a lesser extent, the increase was attributable to captive management fees associated with working with agents to market segregated portfolio captive insurance solutions, which increased to $4.2 million in 2006 from $2.9 million in 2005 due to higher earned premium associated with segregated portfolio cell captives serviced by PRS in 2006 compared to Tarheel in 2005. Additionally, unconsolidated insurance services income attributable to reinsurance brokerage fees from Guarantee Insurance totaled $624,000 for 2006. No such services were provided to Guarantee Insurance in 2005. These increases were partially offset by cost containment and other services provided to third parties, which decreased to $373,000 in 2006 from $1.5 million in 2005. The majority of these service relationships with other third parties were terminated in 2005.

     Pre-Tax Net Income — Pre-tax net income for 2006 for the insurance services segment was $3.8 million compared to $2.4 million for 2005, an increase of $1.4 million or 60%. 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.

Liquidity and Capital Resources

     Sources and Uses of Funds

     We are organized as a holding company with two principal operating units — Guarantee Insurance Group and PRS. Patriot’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.

     Currently, Patriot’s principal source of liquidity is dividends from PRS, as well as financing through borrowings, issuances of its securities and fees received under intercompany agreements as described below.

     At the time we acquired Guarantee Insurance, it had a large statutory accumulated deficit. 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

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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.

     Over time, we plan to write a substantial portion of our business through Guarantee Fire & Casualty after we acquire it upon completion of this offering. The Georgia Insurance Department will need to approve any dividend that may be paid by Guarantee Fire & Casualty that, together with all other dividends paid by Guarantee Fire & Casualty during the preceding twelve months, exceeds the greater of 10 percent of Guarantee Fire & Casualty’s prior year end surplus or the net income from the prior year, not including realized capital gains. Although there can be no assurance whether or to what extent Guarantee Fire & Casualty will be able to pay dividends to Patriot in the future, we anticipate periodically paying dividends from Guarantee Fire & Casualty, through Guarantee Insurance Group, to Patriot to fund its liquidity needs in the future.

     We presently expect that the net proceeds that the holding company retains from our initial public 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 with sufficient liquidity to repay our debt, pay income taxes on behalf of Patriot and its wholly-owned subsidiaries, fund holding company operating expenses not attributable to subsidiary operations for the next two years and pay dividends to our stockholders if and when declared by the board of directors.

     We plan to contribute approximately $      million from the net proceeds of this offering to Guarantee Insurance and, after we acquire it, Guarantee Fire & Casualty, to support their premium writings. We intend to use approximately $      million of the net proceeds of this offering to pay the purchase price to acquire Guarantee Fire & Casualty upon completion of this offering. In addition, we plan to use approximately $      million of the net proceeds from this offering to pay off the entire remaining balance of our credit facility with Aleritas Capital Corporation on or before March 31, 2009. We expect that the remaining $      million will be used to make additional capital contributions to our insurance company subsidiaries as necessary to support our anticipated growth and general corporate purposes and to fund other holding company operations, including potential acquisitions, although we have no current understandings or agreements regarding any such acquisitions (other than Guarantee Fire & Casualty).

     The net proceeds from this offering will be 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. We expect our net investment income to increase as a result, although the amount of the increase will depend on prevailing interest rates. See “—Investment Portfolio” for a further description of our investment practices.

     Pursuant to a tax allocation agreement by and among Patriot Risk Management and its subsidiaries, we compute and pay federal income taxes on a consolidated basis. At the end of each consolidated return year, each subsidiary must compute and pay to Patriot its respective share of the federal income tax liability primarily based on separate return calculations. During 2007, Guarantee Insurance paid approximately $850,000 to Patriot under this agreement.

     Pursuant to a Management Services Agreement dated as of January 1, 2004 between Patriot and Guarantee Insurance, Patriot provides Guarantee Insurance with strategic planning and capital raising, prospective acquisition management, human resources and benefits administration and certain other management services. Guarantee Insurance pays Patriot for its share of the actual costs of such services on a monthly basis. During 2007, Guarantee Insurance paid a total of approximately $3.1 million to Patriot under this agreement. Additionally, a portion of the actual costs for such services are allocated to PRS Group, Inc. During 2007, PRS Group Inc. paid a total of approximately $300,000 to Patriot for its share of such services.

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     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, cost containment and captive management services to Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and our quota share reinsurer. During 2007, Patriot Risk Services earned a total of $11.3 million under this agreement, $4.3 million of which represented consideration for services performed for the benefit of Guarantee Insurance. These fees are eliminated in consolidation. The remaining $7.0 million earned by Patriot Risk Services under this agreement represents income derived from the segregated portfolio captives and our quota share reinsurer for services performed on their behalf and is reflected as insurance services income on our consolidated income statement.

     Operating Activities

     In our insurance operations, our principal sources of operating funds are premium collections and investment income. Our primary uses of operating funds include payments of claims and operating expenses. Currently, we pay claims using cash flow from operations and invest our 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 $13.5 million, $10.4 million and $6.4 million for 2007, 2006 and 2005, 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. We presently expect to maintain sufficient cash flows from operations to meet our anticipated claim obligations and operating needs. Depending on the level of acquisition activity, we may need to raise more capital over time.

     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 2008 reinsurance program. We reevaluate our reinsurance program at least annually, taking into consideration a number of factors, including cost of reinsurance, our liquidity requirements, operating leverage and coverage terms. If we decrease our retention levels, or we 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 we 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. A portion of the proceeds of this offering will be used to increase the capital and surplus of our insurance company subsidiary, which is expected to substantially reduce our premium-to-surplus leverage ratio. We expect to increase our retention levels subsequent to this offering.

     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 almost exclusively to Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and our quota share reinsurer. Our primary uses of operating funds are for payments of operating expenses.

     Investment Activities

     Our investment portfolio, including cash and cash equivalents, has increased from $33.3 million at December 31, 2005 to $49.8 million at December 31, 2006 to $61.8 million at December 31, 2007.

     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 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.

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     Effective March 30, 2006, we entered into a loan agreement with Aleritas Capital Corporation for $9.0 million with an interest rate of prime plus 4.5% (9.5% at April 30, 2008). The proceeds were used to pay the $2.2 million early extinguishment of debt described above, to provide $3.0 million of additional surplus to Guarantee Insurance 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 loan taken in 2006. The proceeds were used to provide $3.0 million of additional surplus to Guarantee Insurance and for general corporate purposes. The loan is guaranteed by Mr. Mariano, our Chairman, President and Chief Executive Officer and the beneficial owner of a majority of our outstanding shares. The principal balance and accrued interest associated with this loan at March 31, 2008 were approximately $13.3 million and $53,000, respectively. Principal and interest payments, based on the prevailing prime rate at March 31, 2008, are approximately $198,000 per month. Due to the variable rate, payment amounts may change. In addition, we pay a guaranty fee of 4% of the principal balance to Mr. Mariano each year.

     The loan is secured by a first lien on all the assets of Patriot Risk Management, PRS Group, Guarantee Insurance Group, Patriot Risk Services, SunCoast Capital and Patriot Risk Management of Florida (each a “borrower”). The loan agreement, as amended, contains 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 the lender’s consent. Additionally, none of the borrowers may pay dividends on its capital stock without the lender’s consent.

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

• Steven M. Mariano ceases to directly or indirectly own 51% or more of the ownership and/or profit interest in Patriot or 51% or more of the voting control of Patriot;

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

• Guarantee Insurance becomes subject to any regulatory supervision, control or rehabilitation, fails to meet certain risk based capital ratios, or has any certificate of authority suspended or revoked;

• material impairment of the value of collateral;

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

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• 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 Aleritas;

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

• another creditor of a borrower attempts to collect any debt any borrower owes through a court proceeding.

     The credit agreement and amendments provide for a prepayment premium equal to 6% if prepayment is made before March 29, 2009. There is no prepayment premium if prepayment is made after March 30, 2009. We plan to repay this loan with a portion of the net proceeds from this offering on or before March 31, 2009.

     We were not in compliance with the stockholders’ equity covenant at December 31, 2007, and are not in compliance with certain other non-financial covenants; however, we expect to obtain a waiver from the lender regarding these covenants to the extent we remain in non-compliance.

     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 principal balance and accrued interest associated with these notes at December 31, 2007 was approximately $1.3 million and $100,000, respectively. The notes are unsecured, are subordinated to all general liabilities and claims of policyholders and creditors of Guarantee Insurance, have stated maturities of five years and an interest rate of three percent (3%). The principal and interest due under the subordinated 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. The subordinated notes cannot be repaid unless either (1) 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 (2) we obtain regulatory approval to make such payments.

     Between May and August 2005, we issued subordinated debentures totaling approximately $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 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 principal balance on these debentures was approximately $1.8 million at December 31, 2007.

     The following table summarizes our outstanding notes payable, surplus notes payable and subordinated debentures as of December 31, 2007:

in thousands:

				Interest			Principal
				Rate at			and
Year of			Interest Rate	December			Accrued
Issuance	Description	Years Due	Terms	31,2007			Interest
2006/2007	Notes payable	2008-2016	Prime plus 4.5%		11.75	%	$	13,740
2004	Surplus notes payable	2009	3.0%		3.0	%		1,368
2005	Subordinated debentures	2008	3.0 %		3.0	%		1,799
							$	16,908

     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 or 43%. The primary components of net cash provided by operating activities are illustrated below:

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In thousands	2007			2006
Net income	$	2,379		$	1,610
Changes in balances typically reflecting growth in net premiums written (1)		6,008			3,450
Changes in balances typically reflecting claim payment patterns (2)		(2,060	)		7,899
Non-cash income derived from early extinguishment of debt and related other income		—			(7,382	)
Non-cash charges related to net realized investment losses		—			1,346
Other non cash items (3)		800			(1,934	)
	$	7,127		$	4,989

(1)	Includes premiums receivable, unearned and advanced premium reserves, reinsurance funds withheld and balances payable and prepaid reinsurance premiums
(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 or 83%. 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 by 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 or 18%. 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.

     2006 Compared to 2005

     Net cash provided by operating activities was $5.0 million in 2006 compared to $22.7 million in 2005, a decrease of $17.7 million or 78%. The primary components of net cash provided by operating activities are illustrated below:

In thousands	2006			2005
Net income	$	1,610		$	1,100
Changes in balances generally reflecting growth in net premiums written (1)		3,450			10,351
Changes in balances generally reflecting claim payment patterns (2)		7,899			7,618
Non-cash income derived from early extinguishment of debt and related other income		(7,382	)		—
Non-cash charges related to net realized investment losses		1,346			2,297
Other non cash items (3)		(1,934	)		1,363
	$	4,989		$	22,729

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(1)	Includes premiums receivable, unearned and advanced premium reserves, reinsurance funds withheld and balances payable and prepaid reinsurance premiums
(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 $13.7 million in 2006 compared to $7.1 million in 2005, an increase of $6.6 million or 93%. In 2006, the primary components of net cash used by investing activities included purchases of debt 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. In 2005, the primary components of net cash used by investing activities included purchases of debt and equity securities, short-term investments, real estate and fixed assets totaling $12.7 million, offset by proceeds from sales and maturities of debt securities and sales of equity securities totaling $5.7 million.

     Net cash provided by financing activities was $6.1 million for 2006 compared to $808,000 for 2005, an increase of $5.3 million. 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. In 2005, we received $2.0 million of proceeds from the issuance of subordinated debentures and $250,000 from the issuance of common stock, paid dividends of $1.1 million and made payments totaling $341,000 on affiliated loans.

     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 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 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, 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.

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     Our fixed maturity securities, which are classified as available-for-sale, and certain cash equivalent investments are managed by 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. Our equity securities include U.S. dollar-denominated common stocks of U.S. corporations. Our real estate portfolio consists of one rental property in Florida. See “Business — Investments.”

     Patriot retains Gen Re — New England Asset Managers, a subsidiary of Berkshire Hathaway to manage our portfolio of fixed maturity securities available for sale. We manage our investment credit risk through a diversification strategy that reduces our exposure to any business sector or security. Approximately 98% of our fixed maturity securities were rated A or above by Standard & Poor’s as of December 31, 2007. See “Business—Investments” for additional information. Our investment portfolio, including cash and cash equivalents, had a carrying value of $61.8 million at December 31, 2007, and is summarized below (in thousands):

	Carrying		Percentage
	Value		of Portfolio
	(in thousands)
Debt securities available for sale:
U.S. government securities	$	4,033		6.5	%
U.S. government agencies		2,749		4.5
Asset-backed securities including mortgage-backed securities		16,113		26.1
Corporate securities		10,278		16.6
State and political subdivisions		22,515		36.5
Total fixed maturity securities		55,688		90.2
Equity securities available for sale		634		1.0
Short-term investments		238		0.4
Real estate held for the production of income		256		0.4
Cash and cash equivalents		4,943		8.0
Total investments, including cash and cash equivalents	$	61,759		100.0	%

     We regularly review our investment portfolio to identify other-than-temporary impairments in the fair values of the securities held in our investment portfolio. 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 its operations or earnings;

• Our intent and ability to keep the security for a sufficient time period for it to recover its value;

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

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

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     For the year ended December 31, 2007, there were no other than temporary declines in the values of the securities held in our investment portfolio. We do not believe that our investment portfolio contains any material exposure to subprime mortgage securities.

     The tax-equivalent investment yield on our investment portfolio was 5.19% at December 31, 2007.

     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 December 31, 2007, we are contingently liable for annuities totaling $1.4 million in connection with the purchase of structured settlements related to the resolution of workers’ compensation claims. Loss reserves eliminated by these annuities at December 31, 2007 totaled $1.7 million. Each of the life insurance companies issuing these annuities, or the entity guaranteeing the life insurance company, has an A.M. Best rating of “A” (Excellent) or better. These annuities were purchased in connection with the settlement of certain workers compensation claims.

     The table below provides information with respect to our long-term debt and contractual commitments as of December 31, 2007 (in thousands).

			Payment Due by Period
			Less Than						More Than
	Total		1 year		1-3 years		3-5 years		5 years
Reserves for losses and loss adjustment expenses (1)	$	68,381	$	27,352	$	23,933	$	13,676	$	3,420
Notes payable (2)		23,882		2,987		6,080		5,868		8,947
Surplus notes payable (2)		1,443		—		1,443		—		—
Subordinated debentures (2)(3)		1,799		1,799		—		—		—
Non-cancelable operating leases		2,561		997		1,564		—		—
Other obligations		330		180		150
	$	98,396	$	33,315	$	33,170	$	19,544	$	12,367

(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—Loss Reserves.” 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. See “Risk Factors — 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” 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, 2007 associated with these obligations. The principal and accrued interest on our notes payable at March 31, 2008 was $13.3 million. The interest rate on our notes payable to Aleritas is prime plus 4.5% (9.5% at April 30, 2008) and may change on a daily basis. Payments on our notes payable include a guaranty fee and do not contemplate prepayment. However, pursuant to the credit agreement and amendments thereto, notes payable may be prepaid, subject to a prepayment penalty equal to 6% if prepayment is made on or before March 29, 2009. There is no prepayment premium if prepayment is made after March 30, 2009. The principal and accrued interest on our surplus notes payable at December 31, 2007 was $1.4

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	million. Interest rates on our surplus notes payable and subordinated 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, at our option, generally for an additional term of three years. Certain of the subordinated debentures are subject to renewal, at our option, 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, interest rate risk and equity price risk. 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 also independently, and through our independent asset manager, monitor the financial condition of all issuers of our fixed maturity securities. To limit our risk exposure, we employ diversification policies that limit the credit exposure to any single issuer or business sector. At December 31, 2007, 99.1% of our fixed maturity securities 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 selecting reinsurers with a financial strength rating of “A-” (Excellent) or better by A.M. Best Company and by performing quarterly credit reviews of our reinsurers. At December 31, 2007, 96.9% of our gross exposures to authorized reinsurers were from reinsurers rated “A-” (Excellent) or better by A.M. Best Company. With respect to unauthorized reinsurers, which include the segregated portfolio captives, we manage our credit risk by maintaining collateral, typically in the form of funds withheld and letters of credit, to secure reinsurance recoverable balances. At December 31, 2007, 96.5% 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.”

     Interest Rate Risk. We had fixed maturity debt securities available for sale with a fair value of $55.7 million at December 31, 2007, which are subject to interest rate risk. Interest rate risk is the risk that we may incur losses due to adverse changes in 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 and subordinated debt securities.

     The table below summarizes the interest rate risk associated with our fixed maturity debt securities held at December 31, 2007 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 debt securities as available-for-sale. These fixed maturity debt securities available-for-sale are carried on our balance sheet at fair value. Temporary changes in the fair value of our fixed maturity debt securities available for sale impact the carrying value of these securities and are reported in our stockholders’ equity as a component of other comprehensive income, net of deferred taxes. The selected scenarios in the table below

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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 debt securities and on our stockholders’ equity.

In thousands

			Estimated Increase
			(Decrease) In
Hypothetical Change in						Stockholders’
Interest Rates	Fair Value		Fair Value			Equity
200 basis point increase	$	52,013	$	(3,675	)	$	(2,426	)
100 basis point increase		53,828		(1,860	)		(1,228	)
No change		55,688		—			—
100 basis point decrease		57,554		1,866			1,232
200 basis point decrease		59,441		3,753			2,477

     We are also subject to interest rate risk on our notes payable, which have an interest rate based on prime plus a fixed margin.

     Equity Price Risk. Equity price risk is the risk that we may incur losses due to adverse changes in the market prices of the equity securities we hold in our investment portfolio. We classify our portfolio of equity securities as available for sale and carry these securities at fair value. Accordingly, adverse changes in the market prices of our equity securities would result in a decrease in the value of our total assets and a decrease in our stockholders’ equity. At December 31, 2007, we held equity securities available for sale of $634,000, representing 1.1% of our total investments.

     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 the continual 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 are a workers’ compensation risk management company that provides alternative market and traditional workers’ compensation products and services. We refer to our alternative market business as arrangements in which our subsidiary Guarantee Insurance Company, or Guarantee Insurance, writes a workers’ compensation policy and the policyholder or another party bears a substantial portion of the risk. For example, the policyholder or another party may bear a substantial portion of the underwriting risk through a segregated portfolio captive that is controlled by the policyholder 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. Our alternative market business also includes other arrangements through which we share underwriting risk with our policyholders, such as high deductible policies or 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. While these products are generally available only to large corporate customers from other insurers, we offer them to middle market clients, which we define as accounts with less than $3 million dollars in annual premiums, that we believe have stable profitable claims experience. We refer to guaranteed cost workers’ compensation insurance policies written by Guarantee Insurance as our “traditional business.”

     Workers’ compensation is a statutory system under which an employer is required to pay for its employees’ medical, disability, vocational rehabilitation and death benefit costs for injuries or occupational diseases arising out of employment. Employers may either insure their workers’ compensation obligations or, subject to regulatory approval, self-insure their liabilities. Our workers’ compensation policies provide payments to covered, injured employees of the policyholder for, among other things, temporary or permanent disability benefits, death benefits and medical and hospital expenses. The benefits payable and the duration of such benefits are set by statute, and vary by jurisdiction and with the nature and severity of the injury or disease and the wages, occupation and age of the employee.

     Our business model has two components. In our insurance segment, we generate underwriting and investment income by providing alternative market risk transfer solutions and traditional workers’ compensation insurance. In our insurance services segment, we generate fee income by providing nurse case management, cost containment and captive management services, currently almost exclusively to Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and our quota share reinsurer. We provide these services to employers in Florida, where we write a majority of our business, 18 other states and the District of Columbia.

     We believe that the current workers’ compensation insurance climate is creating increasing opportunities for us to market and distribute our products and services. We believe that our specialty product knowledge, our low expense ratio 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 we believe are underserved by competitors, particularly in the alternative market. We believe that in most states only a handful of other carriers compete in this sector, with most of these carriers focusing on accounts with over $5 million dollars in annual premium. Although we currently focus our business in the Midwest and Southeast, we believe that there are opportunities for us to market our products and services, including in particular our alternative market program, in other areas of the U.S.

Our Competitive Strengths

     We believe we have the following competitive strengths:

• Exclusive Focus on Workers’ Compensation Insurance and Related Services. Our operations are focused exclusively on providing alternative market risk management solutions and

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traditional workers’ compensation insurance and related services. We believe this focus allows us to provide superior products and services to our customers relative to traditional multi-line carriers.

• Hybrid Business Model. In addition to the income we earn from our risk bearing insurance business, we earn consolidated fee income for insurance services, including nurse case management, cost containment and captive management services, which we currently provide to Guarantee Insurance for the benefit of the segregated portfolio captives and our quota share reinsurer. We believe that by changing the emphasis we place on our premium-based risk-bearing business relative to our fee-for-service business, which is currently almost wholly dependent on Guarantee Insurance’s premium and risk retention levels, we will be better able to achieve attractive returns and growth through a range of market cycles than if we only offered premium-based risk-bearing products.

• Enhanced Product Offerings. Although other insurers generally only offer alternative market products to large corporate customers, we offer such products to medium-sized employers as well as larger companies, enabling them to share in their own claims experience and be rewarded for favorable loss experience. In our traditional business, we offer “pay-as-you-go,” an innovative program in which we partner with payroll service companies and our independent agents and their clients to collect premiums and payroll information on a monthly basis. This program provides us with up-to-date, accurate payroll data and gives employers a way in which to purchase workers’ compensation insurance without requiring an upfront premium payment, easing employers’ cash flow burden.

• Specialized Underwriting Expertise. We select and price our alternative market and traditional policies 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. Our field underwriters are experienced underwriting workers’ compensation insurance in their respective geographic areas. 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. On our traditional and alternative market workers’ compensation insurance business for the year ended December 31, 2007, we achieved a net loss ratio of 61.7% and a net combined ratio of 86.2%.

• Proactive Claims Management and Sound Reserving Practices. Guarantee Insurance began writing business under the Patriot umbrella in the second quarter of 2004. As our business has grown, we have demonstrated success in (1) estimating our total liabilities for losses, (2) establishing and maintaining adequate case reserves and (3) rapidly closing claims. We provide our customers with an active claims management program. Our claims department employees average more than 15 years of workers’ compensation insurance industry experience, and members of our claims management team average 25 years of workers’ compensation experience. Our case management professionals have extensive training and expertise in assisting injured workers to return to work quickly. As of December 31, 2007, approximately 99%, 97%, 91% and 70% of claims reported for policy years 2004, 2005, 2006 and 2007, respectively, were closed, and net paid losses and loss adjustment expenses associated with these claims was 16.9% less than the initial reserves established for them.

• Reinsurance Arrangements. We manage our exposure to insurance risk through quota share and excess of loss reinsurance agreements, which we deploy as appropriate to reduce premium leverage, strengthen risk-based capital and stabilize underwriting results through industry pricing cycles. Under our current quota share reinsurance agreement with National Indemnity Company, an “A++” (Superior) A.M. Best-rated subsidiary of Berkshire Hathaway, Inc., Guarantee Insurance cedes 50% of all net retained liabilities arising from all

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	traditional business undertaken, excluding business written in South Carolina, Georgia, and Indiana. This quota share agreement covers all losses up to $500,000 per occurrence with some restrictions and exclusions. We also maintain excess of loss reinsurance that provides up to $19 million in coverage on losses in excess of $1 million. These agreements allow us to limit our exposure on risks that we underwrite. In addition, we earn ceding commissions from our quota share reinsurer on our traditional business, and from the segregated portfolio captives on our alternative market business.
•	Strong Distribution Relationships. We maintain relationships with our network of more than 300 independent, non-exclusive agencies in 15 states by emphasizing personal interaction, offering superior services and maintaining an exclusive focus on workers’ compensation insurance. 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 19 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 plan to write and the flexibility to retain more of our existing book of business. 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 superior returns to our investors. Our strategy to achieve these goals is:

• 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 the strength of our risk selection, claims management, nurse case management and cost containment services positions us to profitably increase our market share in our existing markets.

• Expand into Additional Markets. We are licensed to write workers’ compensation insurance in 25 states and the District of Columbia, and we also hold 4 inactive licenses. We are currently focused on actively marketing our traditional and alternative market business in the 7 jurisdictions that we believe provide the greatest opportunity for near-term profitable growth without being rated by A.M. Best: Florida, Missouri, Indiana, Arkansas, New Jersey, Georgia and Nebraska. In the year ended December 31, 2007, we wrote approximately 59% of our traditional and alternative market business in Florida. With the additional capital from this offering and a favorable A.M. Best rating we hope to obtain upon completion of this offering, we plan to expand our business to other states where we believe we can profitably write business. To do this, we plan to leverage our talented pool of personnel that have prior expertise operating in states in which we do not currently operate.

• Expand Fee-Generating Insurance Services. We plan to continue to generate fee income through our insurance services segment by offering nurse case management, cost containment and captive management services to the segregated portfolio captives and our quota share reinsurer. We plan to offer these fee-generating insurance services, together with reinsurance intermediary, claims administration and general agency services, to other regional and national insurance companies and self-insured employers. We also plan to increase the

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	amount of fee income we earn by expanding both organically and through strategic acquisitions of claim administrators, general agencies, or preferred provider network organizations.
•	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 policyholders and customers through our regional offices in three states, each of which we believe has been staffed to accommodate a certain level of premium growth. We plan to realize economies of scale in our workforce and leverage other scalable infrastructure costs, which will lower our expense ratio as we increase gross premiums written.

Our Organization

     Patriot Risk Management was incorporated in Delaware in April 2003 by Steven M. Mariano, our Chairman, President and Chief Executive Officer. In September 2003, Patriot’s wholly-owned subsidiary, Guarantee Insurance Group, Inc., acquired Guarantee Insurance Company, a shell property and casualty insurance company that was not writing new business at the time we acquired it and was licensed to write business in 41 states and the District of Columbia. Patriot paid approximately $9.5 million for Guarantee Insurance, in the form of $750,000 in cash and a note in the amount of approximately $8.8 million. As of the date of the purchase, Guarantee Insurance had gross reserves of approximately $14.7 million, net reserves of approximately $3.2 million and total assets of approximately $18.4 million. At the time we acquired Guarantee Insurance, it had not written any business since 1987, and it had not written any commercial general liability insurance business, including business with exposures to asbestos and environmental claims, since 1983. The former owner of Guarantee Insurance agreed to indemnify Patriot for certain losses in excess of reserves arising from these claims up to the amount of the original purchase price. On March 30, 2006, Patriot entered into a settlement and termination agreement with the seller pursuant to which 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 Patriot for losses in excess of reserves.

     Guarantee Insurance began writing business as part of the Patriot family in the second quarter of 2004. At the time we acquired it, we redomesticated Guarantee Insurance from Delaware to South Carolina. At the end of 2006, we redomesticated Guarantee Insurance to Florida. Guarantee Insurance is currently licensed to write workers’ compensation insurance in 25 states and the District of Columbia, and also holds 4 inactive licenses.

     In 2005, we formed PRS Group, Inc. as a wholly-owned subsidiary of Patriot Risk Management, and incorporated Patriot Risk Services, Inc. and Patriot Re International, Inc. as wholly-owned subsidiaries of PRS Group. As more fully discussed under “Certain Relationships and Related Transactions,” in April 2007 Mr. Mariano contributed all of the outstanding capital stock of Tarheel to Patriot with the result that Tarheel and its subsidiary, TIMCO, became wholly-owned indirect subsidiaries of Patriot. We 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. We refer to PRS Group and its direct and indirect wholly-owned subsidiaries collectively as “PRS.” PRS currently provides nurse case management, cost containment and captive management services to Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and our quota share reinsurer. Patriot Risk Services is currently licensed as an insurance agent or producer in 18 jurisdictions. Patriot Insurance Management is currently licensed as an insurance agent or producer in 23 jurisdictions, and Patriot Re International is licensed as a reinsurance intermediary broker in 2 jurisdictions.

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     On March 4, 2008 we entered into a stock purchase agreement to acquire Madison, a shell property and casualty insurance company domiciled in Georgia that was not then writing new business for a cash price of $500,000 plus approximately $9.0 million, which was the statutory surplus of that company. As of December 31, 2007, Madison had approximately $6.2 million of total assets, comprised entirely of cash and invested assets, and had approximately $235,000 of total liabilities, including $64,000 of net loss and loss adjustment expense reserves. For the year ended December 31, 2007, Madison had approximately $5.1 million in net premiums earned and $3.9 million in net income. The operations of Madison for the years ended December 31, 2007, 2006 and 2005 were substantially different from our operations and virtually all in-force business was transferred out of Madison prior to December 31, 2007. Madison’s annual historical financial statements for the years ended December 31, 2007, 2006 and 2005 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.

     Madison is licensed to write workers’ compensation insurance in Florida, Georgia, Maryland, Tennessee, Virginia and the District of Columbia. Guarantee Insurance is licensed in each of these jurisdictions except for Maryland. We plan to rename Madison as Guarantee Fire & Casualty Insurance Company after we acquire it upon completion of this offering. We intend to contribute a substantial portion of the proceeds of this offering to Guarantee Insurance and, after we acquire it, Guarantee Fire & Casualty, 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 Guarantee Fire & Casualty upon completion of this offering. We believe that the acquisition of Guarantee Fire & Casualty 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 changed the names of several of our companies. Prior to February 2008, Patriot Risk Management 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.

Industry Background

Overview

     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. Employers may either insure their workers’ compensation obligations or, subject to regulatory approval, self-insure their liabilities. 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.

     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, determines the level of medical benefits required 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: (1) medical benefits, which include expenses related to diagnosis and treatment of the injury, as well as any required rehabilitation, and (2) 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

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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.

     We currently focus on writing business in the states that we believe provide us with the greatest opportunity for profitable growth. In selecting the states in which we operate, we take into account a number of criteria, including prevailing underwriting profitability as measured by the NCCI. For the year ended December 31, 2007, approximately 78% of our direct premiums written were written in five of the ten states with the lowest industry combined ratios according to NCCI data for the 2006 calendar year.

Industry Outlook

     We believe the challenges faced by the workers’ compensation insurance industry over the past decade have created significant opportunity for workers’ compensation insurers to increase the amount of business that they write. According to the NCCI State of the Line Report, the industry combined ratio for 2006 was the best underwriting result in at least 30 years, with the industry combined ratio declining in each of the five prior years from 122.0% in 2001 to a projected 93.1% in 2006.

     Generally, market opportunities for commercial workers’ compensation insurers are more favorable when residual markets are less prominent and less profitable. Residual market organizations are formed to be “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, but not limited to, Joint Underwriting Associations, Health Associations, and Compensation Funds. NCCI’s State of the Line shows that residual market policy year volume decreased slightly from $1.4 billion in 2005 to $1.2 billion in 2006 and is estimated to decline to $1.0 billion for 2007. Calendar year market share for the residual market has also decreased slightly from 12% in 2005 to less than 10% of the entire workers’ compensation market according to the most current data available. Furthermore, according to NCCI’s State Advisory Forum, the state with the lowest residual market share by premium value as of December 31, 2006 is Florida, which accounted for approximately 59% of Guarantee Insurance’s direct premiums written for the year ended December 31, 2007.

     According to the NCCI, the most significant challenge to the health of the workers’ compensation market remains rising medical costs, which costs have increased at or near double-digit rates. These increases have pushed medical losses to approximately 60% of the total losses in workers’ compensation for NCCI states for 2006. To help control rising medical costs, more and more states, insurers, and employers are enacting fee schedules, aggressively managing vendor selection and performance, and controlling prescription drug expenditures through the use of generic drugs, care management initiatives and employee communication and engagement.

     Florida, the state in which we write the most premiums, is an administered pricing state. In administered pricing states, insurance rates are established by the state insurance regulators and are adjusted periodically. Rate competition generally is not permitted in these states. In October 2007, 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, to be effective January 1, 2008. Significant declines in claim frequency and an improvement in loss development in Florida since the legislature enacted certain reforms in 2003 are the two main reasons for the mandated premium level decreases. We have responded to these rate decreases by expanding our alternative market business in the state, strengthening our collateral on reinsurance balances on Florida alternative market business and increasing consents to rate-on-renewal policies on Florida traditional 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 for us as our competitors with higher expense ratios find the Florida market less desirable.

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Business Segments

     We operate in two business segments:

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

• Insurance Services Segment. In our insurance services segment, we generate fee income related to Guarantee Insurance’s premium and risk retention levels by providing nurse case management, cost containment and captive management services to Guarantee Insurance, both on its behalf and on behalf of the segregated portfolio captives and our quota share reinsurer.

     Certain items are not allocated to segments, including gains on the early extinguishment of debt, holding company expenses, interest expense, incurred losses and loss adjustment expenses resulting from adverse or favorable development on reserves associated with Guarantee Insurance’s legacy commercial general liability claims, including asbestos and environmental liability claims.

Insurance Segment

Operating Strategy

     Guarantee Insurance is committed to individual account underwriting within the middle market business sector and to selecting quality risks in the low to middle risk classification and hazard levels such as clerical office, light manufacturing, artisan contractors and the service industry. Within our insurance segment, we have two lines of business: traditional business and alternative market.

     Traditional Business. We began writing workers’ compensation policies through Guarantee Insurance in the second quarter of 2004. We focus on servicing small to mid-sized employers such as restaurants, retail and wholesale stores and artisan contractors 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 policies for larger employers. We typically write these policies for:

• low to medium hazard classes; and

• accounts with annual premiums below $250,000.

     Alternative Market Business. Generally, we write higher risk classifications and hazard levels for the alternative market, where risks are reinsured to a segregated portfolio captive, as more fully discussed below. Our alternative market programs allow policyholders to share in their own claims experience and be rewarded for low claims losses rather than simply paying fixed premiums. While we believe that these products are generally available only to large corporate customers from other insurers, we offer them to middle market clients with stable profitable claims experience. We typically write this alternative market business for:

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

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

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

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Policyholders and Segregated Portfolio Captives

     As of December 31, 2007, we had approximately 3,000 traditional workers’ compensation policyholders, and an average annual in-force premium per policyholder of approximately $16,400. Our policy renewal rate on traditional business that we elected to quote for renewal in 2007 was approximately 82% and 66%, based on policy counts and in-force premium, respectively.

     As of December 31, 2007, there were 15 segregated portfolio cells with in-force policies in our alternative market segregated portfolio captive program. The largest of these segregated portfolio cells had an annual in-force premium of approximately $20.5 million, representing approximately 55% of our total alternative market workers’ compensation in-force premium at December 31, 2007. The average annual in-force premium for the remaining 14 segregated portfolio cells at December 31, 2007 was approximately $1.2 million per cell. Our policy renewal rates on alternative market business that we elected to quote for renewal in 2007 were approximately 100% and 78%, based on policy counts and in-force premium, respectively. The decline in in-force premium reflects lower rates principally in administered pricing states.

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 policy is appropriate for each risk.

     Traditional Business. The different types of policies that we write and payment plans we offer in our traditional business are as follows:

• Guaranteed cost plans. Our basic 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 year ended December 31, 2007, approximately 63% of our direct premiums written on traditional business were derived from guaranteed cost products.

• 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, which we refer to as pay-as-you-go plans. Pay-as-you-go plans are a 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.

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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 year ended December 31, 2007, 35% of our direct premiums written on traditional business were derived from pay-as-you-go plans.

•

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 year ended December 31, 2007, 2% our direct premiums written on traditional business were derived from policyholder dividend plans.

     Alternative Market Business. We provide a variety of services to employers or other parties who wish to bear a substantial portion of the underwriting risk with respect to workers’ compensation exposures, including providing fronting, claims adjusting, claims administration and investment management services. Similar to the pay-as-you-go plan in our traditional business, our alternative market customers are subject to, at a minimum, monthly self-reporting of payroll figures. The different types of products we offer in our alternative market business are as follows:

• Segregated portfolio captive insurance plans. We offer a segregated portfolio captive plan to medium-sized and large employers such as hospitality companies, construction companies, professional employer organizations, industrial companies and car dealerships, using offshore and onshore captive facilities. Prior to the advent of segregated portfolio captive programs, only very large risks could afford the capitalization and administrative costs associated with captive formation. Our approach utilizes standardized agreements and processes that allow employers with annual premiums as low as $250,000 to participate. With our captive insurance plan, 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, its manager and insurance regulators in the jurisdiction where the captive is domiciled. These 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 (“Captive Reinsurance Agreement”) with the segregated portfolio captive acting on behalf of the segregated portfolio cell. For a segregated portfolio cell that is controlled by a policyholder or another party (other than an insurance agency), Guarantee Insurance generally cedes on a quota share basis to the segregated portfolio captive 90% of the risk on the workers’ compensation policy up to a level specified in the Captive Reinsurance Agreement, and retains 10% of the risk. For a segregated portfolio cell that is controlled by an insurance agency, Guarantee Insurance generally cedes on a quota share basis to the segregated portfolio captive 50% of the risk on policies produced by the agency up to a level specified in the Captive Reinsurance Agreement, and retains 50% of the risk. Any amount of losses in excess of $1.0 million per occurrence are not covered by the Captive Reinsurance Agreement. If the aggregate covered losses for the segregated portfolio

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cell exceed the specified level, 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 funds in a funds withheld account 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. The funds withheld account consists of ceded premiums, net of ceding commissions, and collateral that the segregated portfolio captive is required to post on behalf of the cell in the form of cash, letters of credit or other financial instruments acceptable to Guarantee Insurance, together with interest credited monthly on the amounts in the funds withheld account. The segregated portfolio captive is required to maintain assets in the funds withheld account in an amount that is greater than or equal to the ceded reserves that Guarantee Insurance has determined to be required on the underlying workers’ compensation policies on a monthly basis. 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.

     In order for the party controlling a segregate portfolio cell to receive any funds from the 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, it will submit a formal request to the domiciliary captive manager, supported with relevant 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.

     In exchange for ceding risk to the segregated portfolio captive, Guarantee Insurance earns a ceding commission from the segregated portfolio captive. For the year ended December 31, 2007, Guarantee Insurance’s aggregate effective ceding commission rate on in-force captive reinsurance contracts was approximately 41%. For the year ended December 31, 2007, the weighted average percentage of risks ceded to segregated portfolio captives on a quota share basis by Guarantee Insurance was approximately 89%.

     For the year ended December 31, 2007, 94% of our direct premiums written on alternative market business were derived from captive insurance arrangements. The following schematic illustrates the basic elements of a segregated portfolio captive arrangement, with our subsidiaries shaded:

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* 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.

• 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 incurred and paid during the policy period, subject to a minimum and maximum premium. These policies are typically subject to annual adjustment until claims are closed. Unlike policyholder dividend plans in our traditional business, 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 in excess of $100,000. At December 31, 2007, approximately 6% of our direct premiums written were derived from retrospectively rated policies.

• High deductible plans. In 2008, we began offering high deductible plans in our alternative market business. Under these plans, Guarantee Insurance generally receives a lower premium than a guaranteed cost, pay-as-you-go or policyholder dividend 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. We expect the per-occurrence deductibles on these plans to 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 bill the policyholder for reimbursement. These types of programs require substantial collateral from the policyholder based upon its individual loss profile and the loss development factors in the states where it

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is insured. None of our direct premiums written on alternative market business were derived from high deductible plans in 2007.

     The following table sets forth gross and net premiums written for traditional and alternative market business (in thousands):

	Year Ended December 31,
	2007		2006		2005
Gross premiums written:
Direct business:
Traditional business	$	50,599	$	26,636	$	19,525
Alternative market		34,316		33,921		26,541
Total direct business		84,915		60,557		46,066
Assumed business1		895		1,815		1,510
Total	$	85,810	$	62,372	$	47,576
Net premiums earned:
Direct business:
Traditional business	$	20,490	$	16,584	$	16,090
Alternative market		2,243		3,663		15,237
Total direct business		22,733		20,247		31,327
Assumed business1		1,069		1,617		1,194
Total	$	23,802	$	21,864	$	32,521

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

The following table sets forth the total gross written premium for the years ended December 31, 2007 and 2006 by state:

	Year Ended December 31, 2007
	Traditional Business					Alternative Market Business						Total
In thousands	Premium		Percentage			Premium			Percentage			Premium		Percentage
Florida	$	20,788		41.1	%	$	28,906			84.2	%	$	49,694		58.5	%
Missouri		8,596		17.0			726			2.1			9,322		11.0
Indiana		5,820		11.5			46			0.1			5,866		6.9
Arkansas*		5,390		10.7			(23	)		(0.1	)		5,367		6.3
New Jersey		2,391		4.7			1,230			3.6			3,621		4.3
New York		1,775		3.5			1,568			4.6			3,343		3.9
Georgia		1,936		3.8			545			1.6			2,481		2.9
New Mexico		1,586		3.1			110			0.3			1,696		2.0
Oklahoma		504		1.0			257			0.7			761		0.9
Other States		1,813		3.6			951			2.9			2,764		3.3
Total	$	50,599		100.0	%	$	34,316			100.0	%	$	84,915		100.0	%

* The negative premium on Arkansas reflects the return of premium to a policyholder as a result of a premium audit.

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	Year Ended December 31, 2006
	Traditional Business					Alternative Market Business					Total
In thousands	Premium		Percentage			Premium		Percentage			Premium		Percentage
Florida	$	7,116		26.7	%	$	27,021		79.7	%	$	34,137		56.4	%
Missouri		7,327		27.5			583		1.7			7,910		13.1
Indiana		4,977		18.7			1		0.0			4,978		8.2
Arkansas		4,460		16.7			—		0.0			4,460		7.4
Georgia		463		1.7			1,696		5.0			2,159		3.6
New York		983		3.7			296		0.9			1,279		2.1
New Jersey		247		0.9			545		1.6			792		1.3
Oklahoma		89		0.3			585		1.7			674		1.1
Virginia		147		0.6			487		1.4			634		1.0
Other States		860		3.2			2,674		7.9			3,534		5.8
Total	$	26,669		100.0	%	$	33,888		100.0	%	$	60,557		100.0	%

Marketing and Distribution

     Traditional Business. We distribute our workers’ compensation products and services exclusively through a network of independent agencies. We choose agencies based on several key factors such as size and scope of the agency’s operations, loss ratio of their existing business, targeted classes of business, reputation of the agency and its 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 of our respective states in which we operate. Guarantee Insurance has direct contracts with more than 300 independent non-exclusive agencies, with approximately 175 in the Midwest and 135 in the Southeast, including approximately 120 in Florida. As we expand geographically, we plan to continue to devote considerable time to developing strong relationships with quality agents that share our service philosophy.

     We assign marketing representatives and underwriters based on relationships with agents and not necessarily 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/underwriting staff. However, key management personnel also maintain strong relationships with most of our agencies’ principals/producers.

     With our focus on workers’ compensation insurance, our range of workers’ compensation insurance products and our quality of service, 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” program, in 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 not only print advertising in trade magazines, but also involvement in these associations. We target

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the trade organizations that service the classes of business that we believe to be desirable. This involvement helps to build client loyalty not only at the agency level, but at the insured level as well.

     Alternative Market Business. The marketing of alternative market business is substantially the same as that of our traditional policies. Our independent producers market the products to potential customer groups within our geographic target markets. Working in conjunction with our agents, we evaluate whether a given risk is appropriate for the traditional or alternative market. Our alternative market products are attractive to our agents’ larger employer customers with favorable loss profiles because they are able to share in the risk and save money if they have favorable loss experience.

Underwriting

     Traditional Business. 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 agents in our independent agency network through telephone and Internet contact and personal visits. Our 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. 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 in either our traditional or alternative market business.

     In assessing a risk, the underwriter and underwriting management will review the individual risk and consider many factors, including an employer’s prior loss experience, risk exposures, 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 underwrite as well as any information pertinent to the risk itself.

     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 among the insured, the agent and us 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.

     Alternative Market Business. Our underwriting process and risk management service for our alternative market products are substantially the same as described above except that we use two additional underwriting criteria. Using an actuarial loss model, we complete a loss development model, which is used to trend past losses and develop pricing for the prospective year. We also conduct a financial review on the prospective insured. We write higher risk classifications and hazard levels in the alternative market than we do in our traditional business. However, these risks are either reinsured to a segregated portfolio captive or written on a high deductible or retrospectively rated policy, and therefore the policyholder is motivated to achieve a favorable loss experience.

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Loss Control

     Our loss control process begins with a request from our underwriting department to perform an inspection. Our inspection focuses on a policyholder’s operations, loss exposures and existing safety controls to prevent potential loss. The factors considered in our inspection 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 each policyholder, we seek to continue to emphasize workplace safety through periodic workplace visits, 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 contract with third-party vendors to provide inspection services.

     Our loss control procedures support our loss prevention philosophy of 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 prevention philosophy.

Pricing

     Generally, premiums for our traditional and alternative market workers’ compensation insurance policies 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 “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 product offering 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 or retrospectively rated policies, we seek to obtain appropriate pricing in administered pricing states for policyholders that would be difficult to insure in a traditional guaranteed cost program. Florida, Indiana, New Jersey and New York 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 states, we have more flexibility to offer premium rates that reflect the risk we are taking based on each employer’s profile. In administered pricing states, we are able to obtain appropriate pricing by adjusting collateral requirements, using consent-to-rate programs and applying experience modification factors to our rates.

     Through its 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 resulted 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 obtain appropriate pricing in Florida’s administered pricing environment. We look for a strong partnership with and

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a commitment from the policyholder and its agent when selecting a policyholder to participate in this program.

     We use this program primarily when rehabilitation of a policyholder is required or the exposures of a policyholder warrant additional premium. Approximately 4% of our policies written in Florida in 2007 were part of this program, which represented approximately 7% of our direct premiums written in Florida for 2007. Through this program, we have been able to underwrite otherwise borderline 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 provide 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 at the premises or work environment; 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 payments, losses and loss adjustment expenses, and our overhead and produce an underwriting profit for us.

Claims

     Traditional Business. We believe that the claims management process is an integral part of our success. Conducting routine random audits while reviewing outcomes and benchmarks assist us in obtaining our goals and objectives. Our claims management program strives to ensure that the injured worker’s health care provider and medical care are of high quality to restore health in an efficient manner, promotes an early return to work for the injured worker, provides the injured worker appropriate and prompt payment of benefits, and delivers an efficient and economical net claim cost to the insured employer.

     We have established claims controls and an infrastructure to assist us in meeting these goals. The foundation of our claims quality and service excellence is built on the following initiatives that we refer to as our best practices for claims handing:

• Coverage: Immediate documentation of confirmation or analysis 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 medical provider. We find that using a team approach of having both the adjuster and nurse make these contacts and plan the appropriate medical treatment helps restore health to the injured worker as soon as possible.

• Investigation: Within 14 days of receipt of a claim, a strategy to resolve the claim, including identification of appropriate medical treatment and indemnity benefits to be paid, is developed.

• Recovery/Cost Offsets: Effective recognition, investigation and pursuit of recovery and cost offsets. Recoveries can be for a third-party claim, while some states (e.g., South Carolina and Georgia) allow recoveries for second injury fund claims, if accepted. In some jurisdictions, such as Florida, where the claimant may 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

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	state laws, rules and regulations and corporate, insurer, reinsurer and employer reporting requirements.
•	Medical/Disability/Rehabilitation Management: Aggressive management of the medical care and treatment of the injured worker, utilizing a wide variety of techniques designed to return the injured worker to work as quickly as possible. The most successful technique in returning injured workers back to work as soon as possible is the ongoing communication with the injured worker, medical provider and employer. Consistent contact with the medical provider and requesting light duty restrictions as soon as feasible 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 also stress to the employer that a working employee is more beneficial to the employer’s bottom line. Our nurses, adjusters and loss control specialists can often identify suitable light duty work at most employers’ locations. Obtaining an employer’s cooperation to identify suitable jobs and assist in returning employees back to work promptly ultimately reduces the overall expenses of a claim.
•	Negotiation/Disposition: Timely claims disposition based on sound reasoning and good communications with the parties involved 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 that our best practices of claims handling are met.
•	Data Quality: Clear understanding of the importance of data quality, reflected through prompt, accurate and thorough completion of data elements, 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.

     In order to implement our best practices for claims handling, we target experienced claims adjusters with a minimum of 5 years of experience handling workers’ compensation claims within their jurisdictions of assignments. Our claims department employees average over 15 years of workers’ compensation insurance industry experience, and members of our claims management team average 25 years of workers’ compensation experience. We promote successful claims handling by limiting 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, a claims kit is sent to the insured outlining the insured’s responsibilities in assisting us by promptly reporting claims. In this kit, besides the policy and mandated posting notices, information on how to report a claim and answers to routine questions are offered to assist the insured. We make available a toll-free reporting line for insureds or employers to report injuries that is available 24 hours a day, seven days a week. We also can receive notices of injury via the Internet.

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     We use preferred provider organization networks and bill review services to reduce our overall claims expenses. We assign authority levels for settlement authority and reserve placement to handling 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 reasons for the reserve requested. This report is sent to senior management for review. 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 work with a third-party vendor to monitor open claims with potential for subrogation in order to make sure that subrogation is identified and pursued to collection. Subrogation is the recovery of a portion of our paid medical and indemnity losses from a third party who has liability for the losses suffered. Working with the vendor, we review new reported claims daily to help ensure timely identification of potential third-party claims. The vendor receives a daily download of all the new claims that have been reported. The vendor undertakes its own subrogation investigation and works closely with our adjusters to determine if there is a viable claim against a third party. The vendor seeks to place the third party on notice and continue to keep the third party updated through the life of the claim at regular intervals, advising the amounts currently expended for medical and indemnity benefits. The vendor keeps 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 and specific guidelines that assist our SIU managers with claims handling. These guidelines exceed the minimal SIU standard 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, our SIU gathers the information necessary to submit to the appropriate division of insurance fraud for further investigation.

     We utilize an internal control specialist, or ICS, to monitor the adjusting staff’s compliance with our best practices for claims handling outlined above. The ICS reviews specific areas of performance such as timely contact, 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 the adjuster’s performance. We have utilized these reviews to assist us in additional training programs and coaching points with our adjusters. The use of these ICS reviews assists Guarantee Insurance in determining that its claims procedures and protocols are being carried out by its claims staff and its performance standards and goals are being consistently met.

     Alternative Market Business. Claims administration for our alternative market products is handled in a similar manner as it is for our traditional products. We have dedicated adjusters assigned to our alternative market program, both for the medical only and lost time claims, to help ensure a smooth working relationship with alternative market program policyholders. Our alternative market policies tend to be larger risks and higher hazard than our traditional policies, which results in increased potential exposure for us. However, we generally have more contact and communication with our alternative market customers as they have a shared interest in resolving claims as effectively as possible and are pro-active in the return to work process. 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 the reserve integrity on a regular basis until claims are closed.

     We view the success of our claims handling as paramount to the success of our workers’ compensation insurance programs. We strive for rapid closure of claims in order to reduce the cost of

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medical and indemnity expenses. The table below sets forth our reported claim counts for the policy years indicated, together with the number of such claims open and closed as of December 31, 2007 for traditional business and alternative market business in the aggregate:

	Policy Years Ended December 31,
	2007			2006			2005			2004
Reported claims		3,476			4,844			3,190			2,418
As of December 31, 2007
Open claims		1,046			424			100			26
Closed claims		2,430			4,420			3,090			2,392
Percentage of policy year claims closed as of December 31, 2007		70	%		91	%		97	%		99	%

Policyholder Audits

     We conduct premium audits on our traditional business 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 Segment

Operating Strategy

     The principal services provided by PRS include nurse case management, cost containment services for workers’ compensation claims and captive claims and captive management services. Additionally, PRS began providing general agency services to other insurance carriers in 2007. Captive management services have historically included working with agents to market segregated portfolio captive insurance solutions as well as providing captive administration services to the segregated portfolio captives once they are established. Effective January 1, 2008, Guarantee Insurance began working directly with agents to market segregated portfolio captive insurance solutions, but we plan to continue to provide captive administration services through PRS to the segregated portfolio captives. For the years ended December 31, 2007 and 2006, services performed for Guarantee Insurance, the segregated portfolio captives and its quota share reinsurer accounted for nearly all of PRS’s unconsolidated revenues. For the year ended December 31, 2005, approximately 25% of PRS’s unconsolidated revenues were generated from cost containment and other services performed by Tarheel for the benefit of other third parties.

     Our unconsolidated insurance services segment income includes all insurance services fee income earned by PRS. However, the fees earned by PRS from Guarantee Insurance that are attributable to the portion of the insurance risk that Guarantee Insurance retains are 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 the segregated portfolio captives and our quota share reinsurer, which represent the fees paid by the segregated portfolio captives and our quota share reinsurer for services performed on their behalf and for which Guarantee Insurance is reimbursed through a ceding commission. For financial reporting purposes, we treat ceding commissions as a reduction in underwriting expenses.

     Because our consolidated insurance services income is generated principally from the services we provide to Guarantee Insurance on behalf of the segregated portfolio captives and our quota share reinsurer, our consolidated insurance services income is currently almost wholly dependent on Guarantee Insurance’s premium and risk retention levels. Following this offering, we expect that PRS will continue to generate fee income from the segregated portfolio captives organized by our alternative market policyholders or other

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parties and from our quota share reinsurer for nurse case management, cost containment and captive management services. In addition, we expect our insurance services business will diversify and continue to grow as we expand geographically and develop additional third party insurance services business, including wholesale and reinsurance brokerage, which would not be dependent on Guarantee Insurance’s premium and risk retention levels.

     To complement our organic growth, we also intend to expand our insurance services business through targeted strategic acquisitions. We plan to explore the acquisition of preferred provider network acquisitions, third party administrators or other similar service providers to enhance our cost-containment services provided to the segregated portfolio captives organized by our alternative market policyholders and other parties and to our quota share reinsurer, as well as other regional and national insurance companies and self-insured employers. Although we are not currently engaged in discussions with any potential acquisition candidates, we are routinely pursuing and evaluating acquisitions to further our fee-generating insurance services business.

Customers

     Although nearly all of PRS’s revenue for the years ended December 31, 2007, 2006 and 2005 was derived from Guarantee Insurance, the segregated portfolio captives and our quota share reinsurer, PRS believes it will be able to obtain appointments from other carriers using its recently acquired agency licenses that will allow PRS to expand its general agency services.

Products and Services

     PRS earns insurance services income for the following services:

• Nurse Case Management. PRS provides nurse case management services for the benefit of Guarantee Insurance, the segregated portfolio captives and our quota share reinsurer. Our 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. Our 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 from claim filing to assess and assist in the early-intervention process. 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 Guarantee Insurance adjuster work together to achieve the overall goal of helping the injured employee return to work and closing of 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 provides these nurse case management services for a flat monthly fee over the life of the claim. For the year ended December 31, 2007, fees earned by PRS for nurse case management services represented approximately 29% of total unconsolidated PRS insurance services income.

• Cost Containment Services. PRS provides cost containment services for the benefit of Guarantee Insurance, the segregated portfolio captives and our quota share reinsurer. 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 savings in medical costs. For the year ended December 31, 2007, PRS cost containment activities reduced medical bills by an average of 45%, resulting in a total savings in medical costs of $10.6 million. PRS provides these bill review services on a percentage of savings basis. For the year ended

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	December 31, 2007, fees earned by PRS for cost containment services represented approximately 34% of total unconsolidated PRS insurance services income.
•	Captive Management Services. PRS provides captive administration services to segregated portfolio captives, including accounting and regulatory reporting. PRS’s fees for captive management services are based on a percentage of premium. PRS does not perform underwriting, claim, or loss prevention services on behalf of segregated portfolio captives. For the year ended December 31, 2007, fees earned by PRS for captive management services represented approximately 27% of total unconsolidated PRS insurance services income. Most of this unconsolidated income was derived from fees earned by working with agents to market segregated portfolio captive insurance solutions, which services are now provided by Guarantee Insurance. Therefore, PRS’s unconsolidated income from these services will be materially less starting in 2008.
•	Reinsurance Intermediary Services. Through a co-brokering relationship that we entered into in 2008 with an independent reinsurance intermediary, PRS places excess of loss reinsurance and quota share reinsurance for Guarantee Insurance.
•	General Agency Services. PRS began acting as a general agent for other insurance companies in late 2007. 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 does not take underwriting risk. For the year ended December 31, 2007, fees earned by PRS for generally agency services represented approximately 1% of total unconsolidated PRS insurance services income. PRS plans to expand its general agency services by obtaining additional carrier appointments.
•	Claims Administration Services. PRS plans to provide claim handling services for medical and lost-time claims to other carriers and self-insured plans. These services are expected to be provided pursuant to and in compliance with state rules and regulations as well as client-specific process guidelines. PRS expects to provide these services for both workers compensation insurance policies and other casualty lines. PRS is in the process of submitting an application for a third-party administrator license in Florida. Once this license is granted, PRS can market these services.

Marketing

     PRS markets its insurance products through independent agents throughout the country. By developing a portfolio of coverages to offer, PRS will seek to increase its value to its agents. PRS plans to secure its own field underwriters and marketing representatives in the territories it is targeting. This should allow personal interaction with the agents on a regular basis and help ensure that we are attentive to their needs. Additionally, PRS plans to participate at agent conventions, advertise in industry publications and develop collateral marketing materials to develop its own brand in the marketplace.

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

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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;

• decrease leverage; and

• increase its underwriting capacity.

     Guarantee Insurance determines 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 satisfactory to us as those currently in effect. If we were unable to renew or replace our reinsurance agreements, or elected not to obtain 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, the reinsurance purchased by Guarantee Insurance excludes coverage for many high-risk occupations, such as tunnel construction, mining and logging. 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 provides lower limits of coverage for extra contractual damages, including punitive, exemplary, compensatory and consequential damages, as well as for losses paid in excess of policy limits. The majority of the reinsurance purchased by Guarantee Insurance includes so-called “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, the reinsurance purchased by Guarantee Insurance includes commutation clauses which permit the reinsurers to terminate their obligations by making

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a final payment to Guarantee Insurance based on an estimate of their remaining reinsurance liabilities, which may ultimately prove to be inadequate. Also, some of the reinsurance purchased by Guarantee Insurance excludes all coverage of terrorism losses, while other reinsurance agreements exclude coverage for terrorism losses involving nuclear, biological or chemical explosion, pollution or contamination and/or apply an aggregate limit on the recovery of terrorism losses.

Traditional Business

     Quota Share Reinsurance. Effective July 1, 2006, Guarantee Insurance entered into a quota share reinsurance agreement with National Indemnity Company, a subsidiary of Berkshire Hathaway that is rated A++ (Superior) by A.M. Best. Pursuant to this agreement, National Indemnity reinsures Guarantee Insurance both for its traditional business in force on July 1, 2006 and for new and renewal traditional policies becoming 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 pursuant to which National Indemnity reinsures it for new and renewal traditional policies becoming effective during the period from July 1, 2007 through June 30, 2008. Under the terms of both of these agreements, Guarantee Insurance cedes 50% of all net retained liabilities arising from all traditional business undertaken, excluding business written in South Carolina, Georgia, and Indiana. The quota share agreements cover all losses less than $500,000 per occurrence, subject to various restrictions and exclusions. Under these agreements, Guarantee Insurance cedes premiums and receives a ceding commission in return. As with any reinsurance arrangement, the ultimate liability for the payment of claims resides with the ceding company, Guarantee Insurance. For the year ended December 31, 2007, Guarantee Insurance earned a ceding commission on this quota share reinsurance in an amount equal to 36% of written premium ceded to National Indemnity.

     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. Since Guarantee Insurance’s quota share reinsurance is included within this retention, its effective retention for a $1.0 million claim arising out of its traditional business covered by quota share reinsurance would be $750,000. All of Guarantee Insurance’s excess of loss agreements are subject to various restrictions and exclusions. For example, the higher layers of Guarantee Insurance’s excess of loss reinsurance generally exclude coverage for the employer’s liability insurance that is included in Guarantee Insurance’s workers’ compensation policies, and the first layer generally reinsures employer’s liability losses at lower limits than those applicable to Guarantee Insurance’s statutory workers’ compensation liabilities.

     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, 2008. Different layers of this excess of loss reinsurance were renewed at different times during the applicable calendar year. All of the layers in the 2007/2008 program are scheduled to expire on June 30, 2008. In addition, the first layer of this reinsurance is written on a so-called “risks 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, while certain upper layers of this reinsurance apply only to losses occurring during the reinsurance contract period. Thus, 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.

     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 employers) that apply to both its traditional and its 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 our 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

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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 employers.

• 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 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.

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• 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.

• For losses insured under policies commencing during the period July 1, 2007 through June 30, 2008, the first layer of this excess of loss reinsurance provides $4.0 million of coverage per occurrence excess of Guarantee Insurance’s $1.0 million retention. It reinsures losses in excess of $1.0 million up to $5.0 million.

• For losses occurring on or after January 1, 2007 and prior to July 1, 2008, the second layer of excess of loss reinsurance provides $5.0 million of coverage per occurrence in excess of $5.0 million. It 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, which applies to losses occurring from January 1, 2007 through June 30, 2008. It provides $10.0 million of coverage per occurrence in excess of $10.0 million, subject to an aggregate limit of $20.0 million. It reinsures losses in excess of $10.0 million up to $20.0 million.

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. The segregated portfolio captive reinsures on a quota share basis a percentage (typically, 90%, or in the case of agency-controlled captive cells, 50%) of the premiums and losses on the insurance that Guarantee Insurance issues for participating employers. Any amount of losses in excess of $1.0 million per occurrence are not covered by this reinsurance agreement. 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, except to the

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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 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. The aggregate effective ceding commission rate paid by the segregated portfolio captive to Guarantee Insurance under such reinsurance agreements in force as of December 31, 2007 was approximately 41%.

     Excess of Loss Reinsurance. Guarantee Insurance has purchased excess of loss reinsurance for 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 described above. Some of the excess of loss reinsurance purchased by Guarantee Insurance applies solely to its 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 workers’ compensation claims covered under alternative market insurance policies that commence during the period 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 applies to both traditional and alternative market business and is described above in the section describing excess of loss reinsurance for traditional business.

     July 1, 2006 through April 30, 2007. For workers’ compensation claims covered under alternative market insurance policies that commence during the period July 1, 2006 through April 30, 2007, Guarantee Insurance retains $1.0 million per occurrence. It 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 is provided by excess of loss and clash cover reinsurance attaching over $5.0 million per occurrence, which is described above in the section relating to excess of loss reinsurance for traditional business.

     May 1, 2007 through July 31, 2008. For workers’ compensation claims covered under alternative market insurance policies that commence during the period from May 1, 2007 through July 31, 2008, Guarantee Insurance retains $1.0 million per occurrence and cedes losses greater than this $1.0 million retention. 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. It 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 fifteen-month 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 above in the section dealing with excess of loss reinsurance for traditional business.

     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, we receive credit on our 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, we receive 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.

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     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 to us 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 we maintain from certain reinsurers serves to mitigate this risk.

     As of December 31, 2007, 96% of our gross reinsurance recoverables are either due from authorized reinsurers with an “A-” or higher by A.M. Best or are fully secured with collateral provided by the 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, which we believe to be adequate. The table below sets forth our reinsurance recoverable balances by authorized and unauthorized reinsurer as of December 31, 2007:

in thousands

									Gross				Net
	A.M.						Prepaid		Exposure				Exposure
	Best		Paid		Unpaid		Reinsurance		to		Collateral		to
Reinsurer	Rating		Losses		Losses		Premiums		Reinsurers		(1)		Reinsurers
Authorized reinsurers:
National Indemnity Company		A++	$	3,803	$	10,848	$	10,579	$	25,230	$	11,585	$	13,645
Midwest Employers Casualty Company		A+		354		4,037		1,206		5,597		381		5,216
Lloyd’s Syndicates, in the aggregate		A		—		209		—		209		—		209
Paris Re American Insurance Company		A-		17		352		—		369		—		369
Aspen Ins UK Ltd				—		94		—		94		—		94
Trenwick America Reinsurance Corp	NR-1			—		288		—		288		—		288
Republic Insurance Company	NR-5			135		108		—		243		—		243
Swiss Reinsurance America Corporation		A+		24		207		—		231		—		231
Sompo Japan Fire & Marine Insurance Company of America		A-		16		172		—		188		—		188
Northwestern National Insurance Company of Milwaukee				—		173		—		173		—		173
United States Fire Insurance Company		A-		—		141		—		141		—		141
Other authorized reinsurers				2		234		—		236		—		236
Total authorized reinsurers				4,351		16,863		11,785		32,999		11,966		21,033
Unauthorized reinsurers:
Segregated portfolio cell captives, in the aggregate (2)				—		21,696		2,377		24,073		35,398		523
All other unauthorized reinsurers				151		4,758		801		5,710		8,672		1,033
Total unauthorized reinsurers				151		26,454		3,178		29,783		44,070		1,556
Total				4,502	$	43,317	$	14,963	$	62,782	$	56,036	$	22,589

(1)	Collateral is primarily comprised of funds held by Guarantee Insurance under reinsurance treaties or letters of credit.
(2)	At December 31, 2007, Guarantee Insurance held a net exposure with respect to two segregated portfolio captives for approximately $523,000. Collateral held by Guarantee Insurance exceeded gross exposures for all other segregated portfolio captives.

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 a given point in time. We do not discount loss and loss adjustment expense reserves.

     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

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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 (AO reserves).

     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 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

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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, though limited, and the use of industry experience by state. We project ultimate losses using accepted actuarial methods. We evaluate statistical information to determine which methods are most appropriate and whether adjustments are needed within the particular methods. This supplementary information may include any or all of the following: 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 reserves, or AO 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 pooling arrangements. We record reserves for mandatory pooling arrangements as those reserves are reported to us by the pool administrators.

     Because we only began writing workers’ compensation policies in 2004, our historical loss experience data is limited. Accordingly, the statistical and actuarial analysis we employ in estimating our loss and loss adjustment expense reserves is based primarily on state-specific NCCI loss development factors, modified as we deem appropriate. 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 arrive at our reserves for losses and loss adjustment expenses. These modifications consist primarily of the following:

• NCCI loss development factors are modified by a factor to reflect more favorable loss reserve development experience from our first two policy years ended December 31, 2004 and 2005, which we believe is principally attributable to our claims reserving and claims management practices.

• NCCI loss development factors are modified by a factor to reflect the difference between unlimited benefits, which serve as the basis for NCCI factors, and our excess of loss reinsurance per occurrence retention.

• We have certain open claims for which we are carrying case reserves, as though the claims were eligible for payment, even though we have denied the claims for various reasons. Our historical experience indicates that a substantial portion of these open but denied claims will ultimately be closed with no payment. Our aggregate reserves for losses and loss adjustment expenses includes the case reserves on these claims, with no further adverse development. This methodology reflects the assumption that favorable development on open but denied claims ultimately closed with no payment will fully offset any adverse development on open but denied claims ultimately settled and paid.

     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.

     In determining the degree to which we modify NCCI loss development factors for purposes of establishing our reserves for losses and loss adjustment expenses, we review our own statistical information to determine whether modifications are appropriate. This supplemental information may include:

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• open and closed claim counts and percentages,

• claim closure rates,

• changes in average case reserves and average losses and loss adjustment expenses incurred on open claims,

• reported and ultimate average case incurred changes,

• reported and projected ultimate loss ratios,

• loss payment patterns, and

• claim denial rates and the portion of denied claims closed with no payment.

     As of December 31, 2007, our best estimate of our ultimate liability for losses and loss adjustment expenses, net of amounts recoverable from reinsurers, was approximately $25.1 million. This amount included approximately $1.6 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 $4.8 million in net reserves for legacy asbestos and environmental and commercial general liability claims, $609,000 of which related to 38 direct claims for which we maintain reserves, and $4.2 million of which related to pooling arrangements, for which reserves are maintained as reported by the pool administrators.

     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, 2007 by analyzing the effect of reasonably likely changes to the assumptions used to adjust 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.

     The composite low end of the range of our sensitivity analysis was derived from the cumulative effect of changes attributable to the following assumptions:

• a 10% decrease in the factor which we apply to NCCI loss development factors to reflect what we believe to be differences in our claims reserving and claims management practices,

• a 10% decrease in the factor which we apply to NCCI loss development factors to reflect the estimated effect of our per occurrence excess of loss reinsurance retention, and

• 25% of open but denied claims, which are fully reserved on a case-by-case basis, will ultimately be closed with no payment and the remaining 75% of open but denied claims will ultimately be settled at case reserve amounts.

     The composite high end of the range of our sensitivity analysis was derived from the cumulative effect of changes attributable to the following assumptions:

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• a 10% increase in the factor which we apply to NCCI loss development factors to reflect what we believe to be differences in our claims reserving and claims management practices,

• a 10% increase in the factor which we apply to NCCI loss development factors to reflect the estimated effect of our per occurrence excess of loss reinsurance retention, and

• No open but denied claims will ultimately be closed with no payment, and all such claims will ultimately be settled in an amount that includes the estimated adverse development commensurate with our total book of business.

									Unallocated
			Alternative						Loss
	Traditional		Market		Assumed		Legacy		Adjustment
In thousands	Business		Business		Business		Business		Expenses		Total
Composite low end of the range	$	13,875	$	2,429	$	1,602	$	4,777	$	995	$	23,678
Net reserves, as reported		16,215		2,975		1,602		4,777		995		26,564
Composite high end of the range		15,717		3,684		1,602		4,777		995		26,775

     The resulting range derived from this sensitivity analysis would have increased net reserves by $200,000 or decreased net reserves by $2.9 million, at December 31, 2007. The increase would have reduced net income and stockholders’ equity by approximately $130,000. The decrease would have increased net income and stockholders equity by $1.9 million. 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. Depending on the pricing and availability of reinsurance, we may reduce or eliminate the amount of premiums that we currently cede to our quota share reinsurer. 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.

     Net reserves on assumed business are maintained as reported by the NCCI, and net reserves on the commercial general liability pool legacy business are primarily maintained as reported by pool administrators and net reserves on direct commercial general liability legacy business are maintained on a case-by-case basis. We believe these reserves amounts reported by third parties 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.

     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:

In thousands	2007			2006			2005
Balances, January 1	$	65,953		$	39,084		$	19,989
Less reinsurance recoverable		(41,103	)		(21,699	)		(8,189	)
Net balances, January 1		24,850			17,385			11,800
Incurred related to
Current year		18,642			15,328			11,439

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In thousands	2007			2006		2005
Prior years		(3,460	)		2,511		583
Total incurred		15,182			17,839		12,022
Paid related to
Current year		4,668			3,290		4,674
Prior years		8,800			7,084		1,763
Total paid		13,468			10,374		6,437
Net balances, December 31		26,564			24,850		17,385
Plus reinsurance recoverable		43,317			41,103		21,699
Balances, December 31	$	69,881		$	65,953	$	39,084

     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, 2007, 2006 or 2005.

     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 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.

     As a result of adverse development on prior accident year reserves, incurred losses and loss adjustment expenses increased by $583,000 for the year ended December 31, 2005. The $583,000 of adverse development reflects approximately $162,000 of adverse development in 2005 on workers’ compensation reserves for prior accident years and approximately $421,000 of adverse development in 2005 on legacy asbestos and environmental exposures and commercial general liability exposures. See “Legacy Claims.”

     Our gross reserves for losses and loss adjustment expenses of $69.9 million as of December 31, 2007 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 45% of our total gross reserves as of December 31, 2007. At December 31, 2007, we had 1,596 open workers’ compensation claims with average gross case reserves for known losses and loss adjustment expenses of approximately $18,000. During 2007, 4,916 new claims were reported, and 5,186 claims were closed.

     As of December 31, 2006, our gross reserves for losses and loss adjustment expenses were approximately $66.0 million, of which our IBNR reserves represented 54%.

Legacy Claims

     In addition to workers’ compensation insurance claims, Guarantee Insurance has exposure to legacy asbestos and environmental claims and commercial general liability claims which arose from the sale of

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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.

     Guarantee Insurance estimates 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.

     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,
In thousands	2007			2006			2005
Balances, January 1	$	6,999		$	7,302		$	7,433
Less reinsurance recoverable		(3,402	)		(3,780	)		(3,735	)
Net balances, January 1		3,597			3,522			3,698
Incurred related to claims in prior years		(169	)		363			119
Paid related to prior years		(397	)		(288	)		(295	)
Net balances, December 31		3,031			3,597			3,522
Plus reinsurance recoverable		3,758			3,402			3,780
Balances, December 31	$	6,789		$	6,999		$	7,302

     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,
In thousands	2007			2006			2005
Balances, January 1	$	6,050		$	6,006		$	5,864
Less reinsurance recoverable		(2,974	)		(2,949	)		(2,773	)
Net balances, January 1		3,056			3,057			3,091
Incurred related to claims in prior years		(1,154	)		153			302
Paid related to prior years		(176	)		(134	)		(336	)
Net balances, December 31		1,746			3,076			3,057
Plus reinsurance recoverable		1,996			2,974			2,949
Balances, December 31	$	3,742		$	6,050		$	6,006

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

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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 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.” For each of the accident years 2006, 2005 and 2004, we have had redundancy as of December 31, 2007 in our loss and loss adjustment expense reserves.

     The following table shows the development of 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 2007. The table shows the changes in our reserves for losses and loss adjustment expenses in subsequent years from the prior loss 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.

	Years Ended December 31,
In thousands	2004			2005			2006			2007
Net reserves for losses and loss adjustment expenses at end of year	$	11,800		$	17,385		$	24,850		$	26,564
Reserves re-estimated:
One year later		12,383			19,896			21,390
Two years later		13,506			16,887
Three years later		10,973
Net cumulative redundancy:
Amount	$	827		$	498		$	3,460
Percentage		7.0	%		2.9	%		13.9	%
Cumulative net paid losses and loss adjustment expenses at:
End of current year	$	203		$	3,996		$	6,071
One year later		1,966			10,159			12,124
Two years later		3,308			13,312
Three years later		4,048
Reserves at end of year:
Net reserves for losses and loss adjustment expenses	$	11,800		$	17,385		$	24,850		$	26,564
Reinsurance recoverables on unpaid losses and loss adjustment expenses		8,189			21,699			41,103			43,317
Reserves for losses and loss adjustment expenses	$	19,989		$	39,084		$	65,953		$	69,881
Reserves re-estimated at December 31, 2007:
Net reserves for losses and loss adjustment expenses	$	10,973		$	16,887		$	21,390

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	Years Ended December 31,
In thousands	2004			2005			2006			2007
Reinsurance recoverables on unpaid losses and loss adjustment expenses		9,785			21,540			31,439
Reserves for losses and loss adjustment expenses	$	20,758		$	38,427		$	52,829
Gross cumulative redundancy (deficiency):
Amount	$	(769	)	$	657		$	13,124
Percentage		(3.8	%)		1.7	%		19.9	%

     We have a limited history and therefore future development patterns may differ substantially from this data.

     For the year ended December 31, 2007, in our traditional business, we had closed 3,013 reported claims, and the amount of our paid losses on those claims was 20.5% less than the initial reserves established for them. For that period, in the alternative market, we had closed 2,173 reported claims, and the amount of our paid losses on those claims was 15.1% less than the initial reserves established for them.

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 its book of business, the adequacy and soundness of its reinsurance, the quality and estimated market value of its assets, the adequacy of its unpaid losses and loss adjustment expenses, the adequacy of its surplus, its capital structure, the experience and competence of its management and its market presence. This rating is intended to provide an independent opinion of an insurer’s ability to meet its obligations to policyholders and is not an evaluation directed at investors.

     We do not currently have a rating from A.M. Best. We believe that employers in our targeted size categories are not as sensitive to A.M. Best ratings as larger employers and that they place more importance on a workers’ compensation carrier’s ability to assist in the prevention of injuries on the jobsite.

     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, 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.

Competition

     The market for workers’ compensation insurance products is highly competitive. Competition in our business is based on many factors, including pricing (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 than we do. If our competitors offer more competitive premiums, dividends, payment plans, services or commissions to independent agencies, we could lose market share or have to reduce our premium rates in order to maintain market share, which would adversely affect our profitability. Our competitors include insurance companies, professional employer organizations, third-party administrators, self-insurance funds and state insurance pools. Many of our existing and potential competitors are significantly larger and possess considerably greater financial, marketing,

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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.

     Our main competitors in the principal states in which we operate vary from state to state but are usually those companies that offer a full range of services in underwriting, loss prevention and claims, including Zenith National Insurance Corporation, St. Paul Travelers, The Hartford Financial Services Group, Inc. and Liberty Mutual Insurance Company. In Florida, which represented 59% of our total direct written premium for the year ended December 31, 2007, our principal competitors are Summit Holdings Southeast, Inc., a division of Liberty Mutual Insurance Company, AmCOMP, Inc., Zenith Insurance Company, and American International Group, Inc. In the other Southeast states, CNA Financial Corporation, The Travelers Companies, Inc., American International Group, Inc., Liberty Mutual Insurance Company and other national and regional carriers are very competitive. In the Midwest, our principal competitors are Accident Fund Insurance Company of America, Liberty Mutual Insurance Company, American International Group, Inc. and numerous other smaller regional carriers.

     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.

     In the alternative market, our principal competitors are Liberty Mutual Insurance Company, American International Group, Inc. and Hartford Insurance Company, as well as smaller regional carriers, although we believe that these companies generally target customers with annual premiums of at least $5 million, whereas our target market generally is customers with annual premiums of $3 million or less. We believe that many of our competitors in this market underwrite by class or utilize managing general underwriters to produce business, which over time we believe is a less profitable business model than underwriting by specific risk as we do.

     PRS’s principal competitors in the managed care market are CorVel Corporation, GENEX Services, Inc. and various other smaller managed care providers. In the wholesale brokerage market, PRS has no principal competitors, but competes with numerous national wholesale brokers.

     In the seven states in which we currently focus our operations, aggregate workers’ compensation direct premiums written totaled $76.6 million in 2007. We believe that our products and services are competitively priced. In Florida, Indiana, New Jersey and New York, 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 our 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’ compensation costs. We believe our ability to offer alternative market products to our policyholders and other parties is another factor that provides us with a competitive advantage. Our alternative market products, particularly our segregated portfolio captive program, permit policyholders to lower their insurance costs if they have favorable loss experience by sharing in the underwriting risk of their policy.

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Investments

     The first priority of our investment strategy is capital preservation, with a secondary focus on achieving an appropriate risk adjusted return. We also seek to manage our investment portfolio such that the security maturities provide adequate liquidity relative to our expected claims payout pattern. We presently 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 our 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.

     We allocate our portfolio into four categories: cash and cash equivalents, fixed maturity securities, equity securities and real estate. 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 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 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 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 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, 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.

     Our equity securities, which are also classified as available for sale and stated at fair value, include U.S. dollar-denominated common stocks of U.S. corporations. Our real estate portfolio consists of one residential property, stated at amortized cost.

     We employ diversification policies and 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 $61.8 million as of December 31, 2007, and are summarized by type of investment below.

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	Carrying		Percentage
In thousands	Value		of Portfolio
Fixed maturity securities, available for sale:
U.S. Treasury securities and obligations of U.S. government agencies	$	6,782		11	%
Asset-backed securities including mortgage-backed securities		16,113		26
Corporate bonds		10,278		17
State and political subdivisions		22,515		37
Total fixed maturity securities, available for sale		55,688		91
Equity securities, available for sale		634		1
Real estate		256		—
Total investments, excluding cash and cash equivalents		56,815		92
Cash and cash equivalents		4,943		8
Total investments and cash and cash equivalents	$	61,758		100	%

     We regularly evaluate our investment portfolio to identify other-than-temporary impairments in the fair values of the securities held in our investment portfolio. Factors considered in determining whether an impairment is other-than-temporary include length of time and extent to which fair value has been below cost, the financial condition and near-term prospects of the issuer and our intent to hold the security until its expected recovery. A write-down for other-than-temporary impairments would be recognized as a realized investment loss. In 2007, we did not recognize any other-than-temporary impairments. In 2006 and 2005, we recognized realized losses of approximately $1.7 million and $950,000, respectively, in connection with Tarheel’s investment in Foundation, which was deemed to be other-than-temporarily impaired. Additionally, in 2005 we determined that certain equity securities available for sale were other-than-temporarily impaired and, accordingly, recognized a realized loss of approximately $1.6 million.

     The following table shows the distribution of our fixed maturity securities as of December 31, 2007 as rated by Standard & Poor’s:

In thousands

	Carrying		Percentage
S&P Credit Rating	Value		of Portfolio
AAA	$	38,925		70	%
AA+		3,450		6
AA		3,191		6
AA-		3,245		6
A+		2,009		4
A		3,114		6
A-		1,246		2
BBB+		261		—
BBB		247		—
Total	$	55,688		100	%

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     A summary of the carrying value of fixed maturities at December 31, 2007, by contractual maturity, is as follows:

	Carrying		Percentage
In thousands	Value		of Portfolio
Due in one year or less	$	7,343		13	%
Due after one year through five years		18,398		33
Due after five years through ten years		8,359		15
Due after ten years		5,475		10
Mortgage and asset backed securities		16,113		29
Total	$	55,688		100	%

Technology

Information Technology Environment

     Our information technology department services all companies under the Patriot Risk Management umbrella, providing information technology infrastructure, software applications and support.

     All Patriot applications are hosted on Patriot 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 seven of the Patriot sites (Fort Mill, Charlotte — Peak 10, Chesterfield, Lake Mary, Sarasota, Fort Lauderdale I and Fort Lauderdale II) operate on at least a 100 Megabit Ethernet network, using standard equipment from Cisco Systems.

     Patriot 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 grow the network as we add new sites 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 strategy includes the recent purchase and implementation of our workers’ compensation information system, or WCS, technology that provides us with improved capabilities to handle and process insurance policy rating, issuance and billing. WCS provides rates, quotes and policy issuance, then electronically feeds the policy data into a billing and collections module to manage the payables and receivables on each policy account. WCS automatically transfers policy data to claims systems that utilize workflow rules to automate procedures and enforce proper claims adjudication compliance with jurisdictional requirements.

     The WCS package 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 their policy, billing and claim information. Both services produce extensive management reports, while also allowing for ad hoc report writing depending on security level assigned to the client or agent.

     We predominately operate in a paperless environment. Substantially all information is imaged and placed on our system so that anyone with access to the system can access the information. Integration with business information for reporting and data integrity are strengths of the application. The system is integrated with NCCI which handles the bulk of our compliance requirements with respect to Electronic Proof of Coverage, Workers’ Compensation Policy Tape Reporting Specifications and Workers’ Compensation Statistical Reporting Specifications requirements. Our arrangement with this system vendor helps us to comply with claims reporting requirements.

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Business Continuity/ Disaster Recovery

     Currently, we are under contract with a vendor to provide us with a parallel-processing recovery site for most of our computer systems located in Charlotte, North Carolina. Our off-site tape storage is also located in Charlotte. Backup files are stored on storage devices with 1 day rotations and are sent to a secure location for offsite storage, reducing our exposure to lost data to 1 day. We are currently evaluating a process to further reduce our lost data exposure. A Citrix environment allows us to access our systems remotely over the Internet.

Employees

     As of April 30, 2008, we had approximately 150 employees. We plan to enter into employment agreements with Steven M. Mariano and our other executive officers prior to the completion of this offering. 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 15,400 square feet of leased office space in two locations in Fort Lauderdale, Florida. We also lease branch offices consisting of approximately 4,100 square feet in Chesterfield, Missouri; 1,950 square feet in Fort Mill, South Carolina; 5,450 square feet in Lake Mary, Florida; and 3,950 square feet in Sarasota, Florida. We conduct claims and underwriting operations in our branch offices. We do not own any real property other than for investment purposes. We consider our leased facilities to be adequate for our current operations. The conduct of our business in our insurance segment and our services segment is integrated throughout our offices.

Legal Proceedings

     The following is a description of certain litigation matters in which we are both a plaintiff and a defendant:

     PRS v. First Health Group Corp.

     PRS Group and Patriot Insurance Management Company filed an arbitration action on October 1, 2007 with the American Arbitration Association in Charlotte, North Carolina against First Health Group Corp., a former provider of claims handling and bill review services, alleging that First Health Group used an incorrect discount percentage in determining the fees payable to PRS and that First Health Group double billed for certain medical services. We requested that the court award us damages in the amount of $1.6 million for the excessive fees and over billing. First Health Group filed a counterclaim alleging that PRS owed First Health Group $800,000 in unpaid fees. An arbitrator has been selected, and the case is proceeding with discovery.

     Guarantee Insurance v. CRL Management, LLC, et al.

     On November 9, 2005, Guarantee Insurance filed suit in Florida state court against CRL Management, LLC and its principal, C.R. Langston III, alleging that CRL Management, Guarantee Insurance’s former investment manager, and Langston negligently caused a loss in Guarantee Insurance’s investment account of approximately $1 million. The activities alleged to have caused such loss include: unsuitable trades for an insurance company, unauthorized trades in securities, and making improper investment recommendations. 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 $118,000 purportedly executed by Mr. Mariano, enforcement of a lien contained in the note securing its payment against 3% of the stock of Guarantee Insurance 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 while specifically

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noting that 100% of Guarantee Insurance stock is owned by Guarantee Insurance Group and could not have been used as collateral as alleged in the complaint. This case is still in discovery, and no trial date has been set. If we prevail in this litigation, it is uncertain at this stage whether CRL Management or Langston will have sufficient assets to satisfy any judgment.

     Drury Development Corp. v. Foundation, Inc., et al.

     On April 28, 2006, Drury Development Corporation filed a complaint in the U.S. District Court for the District of South Carolina against Tarheel, Tarheel’s wholly-owned subsidiary, TIMCO, Mr. Mariano, Foundation Insurance Company and others. Tarheel and TIMCO were companies controlled by Mr. Mariano, which, as more fully discussed under “Certain Relationships and Related Transactions,” Mr. Mariano contributed to Patriot in April 2007, with the result that Tarheel and TIMCO became wholly-owned indirect subsidiaries of Patriot. Foundation Insurance Company, or Foundation, a limited purpose captive insurance entity that was a subsidiary of Tarheel, reinsured workers’ compensation program business. Through risk-sharing agreements, customers of Foundation were able to share in the net profits, if any under the program. Foundation was declared insolvent and placed into receivership on March 24, 2006 and was ultimately dissolved. On March 13, 2007, Drury Development filed an amended complaint against the same defendants. The complaint seeks damages based on fraud, corporate alter ego and veil piercing theories. The amended complaint seeks damages of $86,000 plus interest that was allegedly owed by Foundation pursuant to a risk-sharing agreement. It also contains a request for punitive damages in conjunction with the fraud claim. We have moved for summary judgment on the grounds that (a) all claims are time-barred under the South Carolina insurance company insolvency statute and (b) that under South Carolina law, no action may be brought against a parent company unless an underlying judgment is first obtained against its subsidiary. On November 21, 2007, the court certified two questions of law related to certain of our defenses to the South Carolina Supreme Court. Argument on these questions is scheduled later this year.

     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 are 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 claims or lawsuits 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: standards of solvency, including risk-based capital requirements; restrictions on the nature, quality and concentration of investments; restrictions on the types of terms that we can include in the insurance policies we offer; 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; limitations on 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 closure of covered 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.

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     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.

Premium Rate Restrictions

     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 by us to insure employers for those liabilities.

Administered Pricing States

     The regulatory agencies in Florida, Indiana, New Jersey and New York 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, we are 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 in which we operate.

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 us at any time, require disclosure of material transactions and require prior notice of or approval for certain transactions. Under these laws, all material transactions among companies in the Patriot holding company system to which any insurance company within the holding company system is a party, 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, 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.

     Upon our acquisition of Madison, we will also be subject to Georgia insurance law. Georgia insurance law would prohibit any person from acquiring 10% or more of our outstanding voting securities or those of any of our insurance subsidiaries without the prior approval of the Georgia Department of Insurance.

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     These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Patriot, 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, 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 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 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 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 no amounts have been provided for returns of any excess profits in our financial statements.

     Insurance producers are subject to regulation and supervision by the department of insurance in each state in which they are licensed. Patriot Risk Services is currently licensed as an insurance producer in 18 jurisdictions and Patriot Insurance Management is currently licensed as an insurance producer in 23 jurisdictions. Both Patriot Risk Services and Patriot Insurance Management are incorporated in Delaware. In each state where they are transacting insurance business, they are subject to regulation 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

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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 requires Guarantee Insurance to maintain a minimum policyholders surplus of $9.0 million, 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 shareholder 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 minimum surplus of $9.0 million. The consent order required Guarantee Insurance to provide documentation of compliance with these requirements. Patriot believes that it has addressed all of the matters raised in the examination report and has provided the required documentation.

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.

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

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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, 2007, Guarantee Insurance had assumed premiums from the NCCI pool in the amount of $895,000.

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, 2007, 2006 and 2005 were approximately $321,000, $538,000 and $397,000, respectively.

     Since we began operations in 2004, we have not received any recoveries from state-managed trust funds.

Dividend Limitations

     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.

     Moreover, at the time we acquired Guarantee Insurance, it had a large statutory accumulated deficit. See Note 16 to our Consolidated Financial Statements. Under Florida law, insurance companies may only pay dividends out of available and accumulated surplus derived from realized net operating profits on their business and net realized capital gains, except under limited circumstances with the approval of the Florida OIR. 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.

     The Georgia Insurance Department must approve any dividend that may be paid by Guarantee Fire & Casualty after we acquire it, that, together with all other dividends paid by Guarantee Fire & Casualty during the preceding twelve months, exceeds the greater of 10 percent of Guarantee Fire & Casualty’s prior year end surplus or the net income from the prior year, not including realized capital gains.

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 information. We have established policies and procedures to comply with the Gramm-Leach-Bliley Act and other similar privacy laws and regulations.

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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

     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 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, 2007, Guarantee Insurance had four IRIS ratios outside the usual range, as set forth in the following table:

Ratio	Usual Range	Actual Results			Reasons for Unusual Results
Change in Net Premiums Written	Less than 33%, greater than -33%		44.0	%	Our gross premiums written increased by 35% in 2007 compared to 2006. We believe that the premium growth in 2007 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%		36.0	%	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 have generally assumed between 50% and 90% of the risk written by us, our results typically generate a surplus aid unusual value relative to the industry as a whole, which generally retains a larger portion of its direct business.
Investment Yield	Less than 6.5%, greater than 3%		1.7	%	Pursuant to our alternative market business segregated portfolio captive arrangements, funds representing ceded premiums, net of ceding commissions and paid losses and loss adjustments expenses are held on a funds withheld basis, together with collateral, for reinsurance recoverables from segregated portfolio captives. These funds held are credited with interest at negotiated contractual rates, and the credited interest is accounted for as interest expense, serving to reduce net investment yields below the usual range.
Gross Change in Policyholder’s Surplus	Less than 50%, greater than -10%		52.0	%	Guarantee Insurance received a $3.0 million capital infusion in 2007. The IRIS usual range does not contemplate capital infusions. Absent the capital infusion, the gross change in policyholders’ surplus was within the usual range at 21%.

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 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.

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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 insurance companies from exceeding a ratio of 1.25 times gross premiums written to statutory surplus of 10 to 1 and a ratio of 1.25 times net premiums written to statutory surplus of 4 to 1. Guarantee Insurance’s gross and net premium leverage ratios as of December 31, 2007 were 7.17 to 1 and 2.49 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 relating to 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.

     At December 31, 2007, 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 $9.0 million. At December 31, 2007, our statutory surplus was $14,812,880.

PRS

     The insurance marketing and administration activities of PRS are subject to licensing requirements and regulation under the laws of each of the jurisdictions in which it operates. Certain PRS subsidiaries are authorized to act as an insurance producer under firm licenses, or licenses held by one of its officers, in 25 states and the District of Columbia. In each state where PRS transacts insurance business, it is subject to

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regulation relating to licensing, sales and marketing practices, premium collection and safekeeping, and other market conduct practices. PRS’s business depends on the validity of, and continued good standing under, the licenses and approvals pursuant to which it operates, as well as compliance with pertinent regulations. PRS therefore devotes significant effort toward maintaining its licenses and managing its operations and practices to help ensure compliance with a diverse and complex regulatory structure. In some instances, PRS follows 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.

     In order to expand its services, PRS will need to obtain additional licenses to allow it to provide these services to third parties. We have recently obtained two general agency property and casualty licenses in Florida, and have applied for a third-party administrator license in Florida.

     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 and Executive Officers

     The table below provides information about our directors and executive officers. 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
Directors and Executive Officers
Steven M. Mariano ( )		43	Chairman of the Board, President and Chief Executive Officer
Michael W. Grandstaff		48	Senior Vice President and Chief Financial Officer
Timothy J. Ermatinger		59	Chief Executive Officer of PRS Group, Inc.
Theodore G. Bryant		38	Senior Vice President, Counsel and Secretary
Timothy J. Tompkins ( )		46	Director
Richard F. Allen ( )		74	Director
Ronald P. Formento Sr. ( )		65	Director
John R. Del Pizzo ( )		61	Director
C. Timothy Morris ( )		57	Director

(1)	Term expires in 2009.
(2)	Term expires in 2010.
(3)	Term expires in 2011.

     Set forth below is certain background information relating to our directors and executive officers.

     Steven M. Mariano — Chairman of the Board, President and Chief Executive Officer for Patriot. 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, Inc. 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 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. 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.

     Timothy J. Ermatinger, CPA — Chief Executive Officer of PRS Group. 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 as its Chief Executive Officer in September, 2007. Mr. Ermatinger was a Principal in the Merger & Acquisitions department of Rachlin,

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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.

     Theodore G. Bryant, Esq. Senior Vice President, Counsel and Secretary of Patriot. 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 the largest provider of collector car and classic boat insurance. 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.

     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, 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.

Board Composition

     We are managed under the direction of our board of directors. Upon completion of this offering, we expect our board will consist of 7 directors, 6 of whom will not be, and will never have been, employees of our company, nor do we expect that they will 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 Nasdaq Global Market. There are no family relationships among any of our directors or executive officers.

     Prior to 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.                    .com) and upon written request by our stockholders at no cost.

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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. 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 directors upon completion of this offering is noted above in the table listing our directors and executive officers under “—Directors and Executive Officers.” Pursuant to our bylaws, each director will serve until his or her successor is duly elected and qualified, unless he or she dies, resigns, retires, becomes disqualified or is removed. Our 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 newly created directorships in our board may be filled by election at an annual or special meeting of our stockholders called for that purpose or by our board of directors. Any director chosen to fill a newly created directorship will hold office until the next election of one or more directors by the stockholders. Any other vacancies in our board may be filled by election at an annual or special meeting of our stockholders called for that purpose or by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum. Any director chosen to fill a vacancy not resulting from a newly created directorship will hold office for the unexpired term of his or her predecessor.

Board Committees

     Our board has an audit committee and a compensation committee and, upon completion of this offering, will have a nominating and corporate governance committee. Each committee will consist of three directors. 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 Nasdaq, and, in the case of the audit committee, by the rules of the Nasdaq and the SEC.

     Audit Committee. The audit committee is comprised of three directors: John R. Del Pizzo (Chair), Ronald P. Formento Sr. and Timothy J. Tompkins. 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;

• engaging 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;

• 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;

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• 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 has the ability to read and understand fundamental financial statements. Our board has determined that 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. The compensation committee is comprised of three directors: Timothy J. Tompkins (Chair), Richard F. Allen and John R. Del Pizzo. 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 will 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; and

• reviewing the adequacy of the compensation committee charter.

     Nominating and Corporate Governance Committee. Upon completion of this offering, the nominating and corporate governance committee will be comprised of three directors: Richard F. Allen (Chair), Timothy J. Tompkins and Ronald P. Formento Sr. 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;

• 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.

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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. “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. In 2008, we expect to also provide our executive officers with retirement benefits and severance and change in control benefits in certain circumstances.

     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 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 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 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

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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 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 executives 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 2007, our compensation program for our executive officers consisted of three primary elements: base salary, a discretionary annual bonus and, for our Chief Executive Officer and new hires, equity awards. In 2008, the compensation program will include retirement benefits as set forth below.

     Base Salary. Base salary is used to recognize the experience, skills, knowledge and responsibilities of our 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 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 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. No executive officer had an employment contract in 2007. Beginning in 2008, each of our executive officers will have 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 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 executive’s offer letter and, starting in 2008, in such executive officer’s employment agreement. The discretionary annual bonus is intended to compensate executive officers for their efforts in achieving Patriot’s 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. In the case of our Chief Executive Officer, the board of directors believed his performance was exceptional based on the period of strong growth of Patriot, the recruitment of new executives to Patriot, the completion of the redomestication of Guarantee Insurance to Florida and the expansion of Patriot into insurance services. We awarded bonuses to our Chief Executive Officer totaling $500,000 for 2007. For our other executive officers, we paid bonuses that were agreed to in their offer letters. In the case of Mr. Bryant, he received an additional discretionary bonus of $35,000 based on the recommendation of the Chief Executive Officer. Although the employment agreements with our executive officers will provide that our board will set criteria on which annual bonuses will be based, the amounts of the bonuses have been determined to date by our board of directors in its discretion. When determining the annual bonus to be paid to an executive officer, our board reviews Patriot’s overall performance, specifically

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our top-line growth and completion of our prior year’s initiatives, and the executive’s contribution to Patriot’s performance. Our board of directors also considers the recommendation of our Chief Executive Officer and the compensation committee and its own assessment of the executive officer’s performance when determining whether the executive officer’s performance merits a bonus in a particular year. Our board looks broadly at the performance of the executive officer as set against the backdrop of Patriot’s goals and objectives as well as the Chief Executive Officer’s opinion of the particular executive officer’s performance in making its determination of whether a bonus should be awarded.

     Equity Awards. In May 2007, the board of directors approved a grant to Mr. Mariano, our Chairman and Chief Executive Officer, of options to purchase 20,000 shares of our common stock because the board believed his performance was exceptional based on the period of strong growth of Patriot, the recruitment of new executives to Patriot, the completion of the redomestication of Guarantee Insurance to Florida and the expansion of Patriot into insurance services. Half of these options will vest on the first anniversary of the grant date and the other half of these options will vest on the second anniversary of the grant date. The exercise price for these options is $8.02 per share. Because Mr. Mariano also served as our Chairman, he was also eligible to receive shares of our stock pursuant to the compensation paid to our board members. See “Director Compensation.” No other executive officer received equity awards for the year ended December 31, 2007.

     Our executive officers will be eligible to receive equity compensation awards under the stock incentive plan to be implemented for 2008. We intend for equity awards to become an integral part of our overall executive compensation program, because we believe Patriot’s 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 executives, our board of directors, upon recommendation from the compensation committee and 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 executive’s total compensation, Patriot’s overall performance, specifically our top-line growth and completion of our prior year’s initiatives, and the executive’s contribution to Patriot’s 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 defined contribution (other than our 401(k) plan) or defined benefit pension plans and there are no alternative plans in place for our senior management or executive officers.

     Employment Agreements. In 2008, we entered into an employment agreement with Michael W. Grandstaff, our Senior Vice President and Chief Financial Officer. Prior to the completion of this offering, we expect to enter into employment agreements with each of our executive officers. These employment agreements will be subject to approval by our board of directors upon the recommendation of the Compensation Committee. We expect that the employment agreements will 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. We expect that the employment agreements will modify certain elements of compensation of some of our executive officers. Under his employment agreement, Mr. Mariano’s base salary is expected to be $550,000, a 38% increase over his 2007 base salary of $400,000. Under his employment agreement, Mr. Bryant’s base salary is expected to be $250,000, a 39% increase over his 2007 base salary of $180,000. Mr. Ermatinger’s 2008 base salary is expected to be unchanged in his employment agreement. In determining these 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 Mr. Mariano and Mr. Bryant, their increased responsibilities in growing the company and transitioning it to a publicly-held company.

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     We expect that the employment agreements will also 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, 500,000 shares, and Mr. Bryant, 70,000 shares. Under his employment agreement, Mr. Grandstaff is eligible to receive a stock option grant in the amount of 100,000 shares concurrently with the consummation of this offering, at an exercise price equal to the offering price and vesting in equal amounts over three years. In determining the size of these option awards, the Compensation Committee has considered the peer group data referenced above.

     Severance and Change in Control Payments. As noted above, in 2008 we entered into an employment agreement with Michael W. Grandstaff, our Senior Vice President and Chief Financial Officer, and we expect to enter into employment agreements with each of our executive officers prior to the completion of this offering. We expect these agreements to provide for certain payments, or termination benefits, to our executive officers subsequent to, or in connection with, the termination of their employment by us without cause or by the executive officers for good reason or upon a change in control of our company. We expect payment and benefit levels to be 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 Mr. Grandstaff’s employment agreement, see “Employment Agreements.”

     Other Benefits. Our 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, in 2007 we paid Mr. Mariano $42,000 as a car allowance (representing a $1,000 per month allowance that had not been paid to him for 42 months) and $12,648 for homeowner’s association dues and assessments.

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 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 limit 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 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 2011 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 employees.

Summary Compensation Table

     The following table sets forth certain summary information regarding the compensation awarded or paid by Patriot to or for the account of our Chief Executive Officer, our Chief Financial Officer and our two other executive officers for the fiscal year ended December 31, 2007. We refer to these four officers as the “named executive officers.”

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							Stock			Option			All Other
							Awards (1)			Awards (1)			Compensation			Total
Name and Principal Position	Year		Salary ($)		Bonus ($)		($)			($)			($)			($)
Steven M. Mariano President and Chief Executive Officer		2007		400,000		500,000		240,600	(3)		23,161	(4)		54,648	(2)		1,218,409
Timothy J. Ermatinger - Chief Executive Officer of PRS Group, Inc.		2007		205,000		—					15,276						220,276
Theodore G. Bryant - Senior Vice President, Counsel and Secretary		2007		180,000		47,500					6,731						234,231
Michelle A. Masotti Chief Financial Officer (5)		2007		241,231		20,000					12,865			8,630	(6)		282,726

(1)	The value of this unrestricted grant of shares was determined by multiplying the number of shares granted by the per-share price of $8.02, which was the fair value of our common stock as established by our board of directors at the time of grant. 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. 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 2006 or 2007.
(2)	Consists of a car allowance of $42,000 (representing a $1,000 per month allowance that had not been paid to Mr. Mariano for 42 months), and payment of dues and assessments for Mr. Mariano’s homeowner’s association.
(3)	Represents an unrestricted grant of 30,000 shares of our common stock for Mr. Mariano’s service on our Board of Directors.
(4)	Represents an award of options to purchase 20,000 shares of our common stock for Mr. Mariano’s service on our Board of Directors.
	(5) Ms. Masotti ceased service as the Chief Financial Officer in February 2008.
(6)	Represents Ms. Masotti’s temporary living expenses during her move to Florida.

Grants of Plan-Based Awards

     The following table sets forth certain information regarding grants of plan-based awards to our Chief Executive Officer during the fiscal year ended December 31, 2007. None of our other named executive officers received grants in 2007.

		All other option
		awards: Number					Grant Date Fair
		of securities		Exercise or base			Value of Stock and
		underlying		price of option			Option Awards
Name	Grant Date	options (#)		awards ($/Sh)			($)(1)
Steven M. Mariano	May 20, 2007		20,000	$	8.02	(2)		44,606	(3)

⁽¹⁾ The dollar amount shown represents the full grant date fair value of the award determined in accordance with SFAS 123R. The assumptions used to calculate these values are set forth in Note 15 to our Consolidated Financial Statements included elsewhere in this prospectus.

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(2)	The exercise price of this award was determined by the board of directors based on their determination of the fair market value of the stock underlying these awards.
(3)	50% of this award will vest on May 20, 2008, the remainder will vest on May 20, 2009.

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, 2007.

	Option Awards
			Number of
	Number of		Securities
	Securities		Underlying
	Underlying		Unexercised
	Unexercised		Options		Option
	Options		(#)		Exercise		Option
	(#)		Un-		Price		Expiration
Name	Exercisable		exercisable		($)		Date
Steven M. Mariano		7,534		12,466		8.02	May 19, 2017(1)
		25,360		0		8.02	February 10, 2015(2)
		9,630		370		8.02	February 22, 2016(3)
Timothy J. Ermatinger		1,465		3,535		8.02	June 1, 2016(4)
		6,720		3,280		8.02	October 11, 2017(5)
Theodore G. Bryant		3,105		1,895		8.02	December 17, 2017(6)
Michelle A. Masotti		6,454		3,546		8.02	November 15, 2017(7)

(1)	50% of this award will vest on May 20, 2008; the remainder will vest on May 20, 2009.
(2)	This award fully vested on February 11, 2007.
(3)	50% of this award vested on February 23, 2007; the remainder vested on February 23, 2008.
(4)	33% of this award vested on June 2, 2007; 33% will vest on June 2, 2008; and the remainder will vest on June 2, 2009.
(5)	33% of this award vested on October 12, 2007; 33% will vest on October 12, 2008; and the remainder will vest on October 12, 2009.
(6)	33% of this award vested on December 18, 2007; 33% will vest on December 18, 2008; and the remainder will vest on December 18, 2009.
(7)	33% of this award vested on November 16, 2007; 33% will vest on November 16, 2008; and the remainder will vest on November 16, 2009.

Option Exercises and Stock Vested

     The following table sets forth certain information regarding the vesting of restricted stock held by our Chief Executive Officer during the fiscal year ended December 31, 2007.

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	Stock Awards
	Number of Shares		Value Realized
	Acquired on Vesting		on Vesting
Name	(#)		($) (1)
Steven M. Mariano		30,000		240,600

⁽¹⁾ The value of this unrestricted grant of shares was determined by multiplying the number of shares granted by the per-share price of $8.02, which was the fair value of our common stock as established by our board of directors at the time of grant.

Potential Payments Upon Termination or Change of Control

     As of December 31, 2007, none of our named executive officers had an employment agreement with us, and no such officer was entitled to compensation upon a change of control or termination of employment, except that in the case of Timothy J. Ermatinger, Theodore G. Bryant and Michelle A. Masotti, each such officer was entitled, pursuant to his or her offer letter from Patriot, to one year’s severance in the amount of $205,000, $180,000 and $241,231, respectively, upon termination of employment. In 2008 we entered into an employment agreement with Mr. Grandstaff, which provides 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 the fiscal year ended December 31, 2007.

	Fees Earned or
	Paid In Cash		Stock Awards			Option Awards			Total
Name	($) (1)		($) (1)			($)			($)
John R. Del Pizzo		100,000		120,300	(2)		60,150	(3)		280,450
Timothy J. Tompkins		57,000		64,160	(4)		40,100	(5)		161,260

(1)	The dollar amounts shown represent the compensation cost for the year ended December 31, 2007 of stock awards and option awards granted to certain of our non-employee directors as determined pursuant to SFAS 123R. The assumptions used to calculate these values are set forth in Note 15 to our Consolidated Financial Statements included elsewhere in this prospectus.
(2)	Consists of an unrestricted grant of 15,000 shares of our common stock.
(3)	Consists of an option to purchase 7,500 shares of our common stock which will vest as follows: 3,750 shares on May 20, 2008 and 3,750 shares on May 20, 2009.
(4)	Consists of an unrestricted grant of 5,000 shares of our common stock.
(5)	Consists of an option to purchase 5,000 shares of our common stock which will vest as follows: 2,500 shares on May 20, 2008 and 2,500 shares on May 20, 2009.

     Pursuant to our director compensation program, we 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 will expend in fulfilling their duties as well as the skill level required of our directors.

     Directors who are also our full-time employees will not receive additional compensation for their service as directors. Each non-employee director will receive compensation for service on our board of directors as described below.

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     Non-employee directors will receive an annual cash retainer of $24,000. The chair of the audit committee will receive an additional annual cash retainer of $7,500 and each other member of the audit committee will receive an additional annual cash retainer of $3,500. The chairs of the compensation committee and nominating and corporate governance committee will each receive an additional annual cash retainer of $5,000, and each other member of these committees will receive an annual cash retainer of $2,000. Our non-employee directors will also receive meeting participation fees. Each non-employee director will receive $1,500 per meeting and each committee member will receive $1,000 per meeting.

     Upon completion of this offering, our non-employee directors will receive initial grants of shares of our restricted stock. We also expect to reimburse all directors for reasonable out-of-pocket expenses they incur in connection with their service as directors.

Employment Agreements

     Michael W. Grandstaff

     Under Mr. Grandstaff’s employment agreement, dated as of February 11, 2008, Mr. Grandstaff has agreed to serve as our 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 the 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 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. Grandstaff is terminable by us 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 us 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 (a “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 us 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 200% of the Severance Payment. The employment agreement contains a noncompetition and nonsolicitation provision restricting Mr. Grandstaff from competing with us for a period of one year following termination of his employment.

Option Plans

2008 Stock Incentive Plan

     Prior to completion of this offering, our Board of Directors will adopt, and our stockholders will approve, the Patriot Risk Management, Inc. 2008 Stock Incentive Plan (the “Plan”). With the adoption of the Plan, no further grants will be made under our 2005 and 2006 Stock Option Plans. The following description of the Plan is qualified in its entirety by the full text of the 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 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

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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 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 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 Plan, to establish, amend and rescind any rules and regulations relating to the 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 Plan.

     Eligibility Under the Plan. The compensation committee will determine the employees, non-employee directors, consultants and advisors who receive awards under the Plan.

     Duration of Plan. The Plan has a term of ten years following its approval by our stockholders.

     Types of Awards. Awards under the 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 Plan. The Plan authorizes awards of shares of our common stock. In addition, if any award under the 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 Plan, such shares will again be available for award under the Plan.

     Stock options and stock appreciation rights covering more than 500,000 shares of common stock may not be granted to any employee in any calendar year. Incentive stock options may not be awarded under the Plan for in excess of            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 500,000 shares (if the award is denominated in shares), or having a maximum payment with a value greater than $1,000,000 (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 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 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. 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 Plan.

     Stock Options. The 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 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

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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 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 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 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 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 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 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 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 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 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 Plan), all outstanding awards are immediately forfeited. Upon termination of an employee’s service for

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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 Plan, all outstanding awards under the 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 the 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, his or her right to exercise stock options and stock appreciation rights under the 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

     In 2005, our board of directors approved our 2005 Stock Option Plan or, 2005 Plan. On February 23, 2006, our board of directors approved our 2006 Stock Option Plan, or 2006 Plan.

     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 111,000 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 170,200, 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.) 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 our 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.

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     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 repricing 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 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.

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     Withholding. We will 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 equity compensation plans as of December 31, 2007.

					Number of securities
					remaining for future
	Number of securities to		Weighted-average		issuance under equity
	be issued upon exercise		exercise price of		compensation plans
	of outstanding options,		outstanding options,		(excluding securities
Plan Category	warrants and rights		warrants and rights		reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		—		—		—
Equity compensation plans not approved by security holders		173,500	$	8.09		176,500
Total		173,500	$	8.09		176,500

Limitations of Liability and Indemnification of Directors and Officers

     Our amended and restated 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 amended and restated 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 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 permit us to secure 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

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of whether our bylaws would otherwise permit indemnification. We may enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. These agreements would 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 bylaw provisions 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 and bylaws 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 regarding 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 or bylaws 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

Personal Guaranty

     Steven M. Mariano, our Chairman, President and Chief Executive Officer, provided a personal guaranty to Aleritas Capital Corporation in connection with the financing provided to us by Aleritas Capital Corporation. Under the guarantee, Mr. Mariano guaranteed the payment and performance of Patriot under the commercial loan agreement. Mr. Mariano is paid a 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 our board of directors on terms that they believe are comparable to those that could be obtained from unaffiliated third parties. In 2007 and 2006, the outstanding balances on the loan guaranteed by Mr. Mariano were $13.4 million and $7.8 million respectively, and we paid Mr. Mariano $444,252 and $350,000, respectively, in guaranty fees. We have paid Mr. Mariano $428,000 in guaranty fees in 2008.

Progressive Employer Services

     As of December 31, 2007, 2006 and 2005, approximately $12.6 million, $9.9 million and $4.8 million, representing 14.7%, 15.9% and 13.2%, respectively, of our direct premiums written were concentrated in one customer, Progressive Employer Services, Inc., an employee leasing company. This customer is controlled by Steven Herrig, who beneficially owns approximately 15.8% of our common stock (before giving effect to the consummation of this offering) and is the Chief Executive Officer of Progressive. Most of Progressive’s employees are located in Florida, where the rates are set by the state. Accordingly, we believe that the premium rates for this policy were set on an arms-length basis.

Westwind Holding Company, LLC

     Through Westwind Holdings, LLC, Steven Herrig beneficially owns approximately 15.8% of our common stock. In 2004, Westwind established a cell within a segregated portfolio captive. Acting on behalf of this cell, the segregated portfolio captive reinsures 90% of the of the liability of Guarantee Insurance arising from policies written to cover employees of Progressive Employer Services. As part of the arrangement to establish the cell, Westwind is 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. Westwind also purchased a fully subordinated surplus note from Guarantee Insurance in the amount of $500,000, and entered into a note offset and call agreement which, should Westwind default on its obligation to contribute additional capital to the segregated portfolio cell, allows 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 does not satisfy the obligation, we have 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 terminates 90 days after Westwind’s obligation to make additional capital contributions to the segregated portfolio cell terminates.

National Capital Advisors, Inc.

     C. Timothy Morris, a member of our board of directors, is the Managing Director of National Capital Advisors, Inc., an insurance consulting firm located in Charleston, South Carolina. In 2006, National Capital Advisors assisted us in securing our credit facility with Aleritas Capital Corporation and was paid a finder’s fee by Brooke Capital Advisors, an affiliate of Aleritas, of $150,000 in 2006 and $100,000 in 2007 for that assistance.

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.

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     After our purchase of Guarantee Insurance in 2003, TIMCO began providing Guarantee Insurance with non-exclusive general agency services under a producer agreement, and managed care services under a managed care agreement. Tarheel agreed to share Guarantee Insurance’s administrative and office expenses under an expense sharing agreement. The terms of these agreements were on terms our board of directors believed could be obtained from unaffiliated third parties. In 2005, Guarantee Insurance paid TIMCO approximately $2.4 million under the producer agreement and approximately $1.5 million under the managed care agreement and Tarheel paid Guarantee Insurance approximately $500,000 under the expense sharing agreement.

     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, and the independent directors approved the purchase of 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 169,000 shares of our common stock valued at $8.02 per share to Tarheel. All but 9,161 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 (a) the contracts had no book value and (b) Mr. Mariano controlled both 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. Patriot made all the payments required under the settlement agreement.

     On June 13, 2006, Patriot 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 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 9,161 shares of our common stock, owned by Tarheel, to Mr. Mariano, with a total value of approximately $73,500.

     On April 7, 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. 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 of Patriot 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 certain obligations of Foundation. The settlement stipulation called for two payments of $75,000 to be made on or before July 27, 2007, and 29

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monthly payments of $15,000 to be made beginning on July 12, 2007. The obligation to make these payments has been assumed by Patriot and was approved by all of the independent members of our board of directors.

     Currently, it is our unwritten policy that all material transactions with related parties be reviewed and approved by a majority of our independent directors. Following the consummation of this offering, all proposed transactions with related parties shall be reviewed by the audit committee pursuant to its charter to ensure that they are on terms that are comparable to those that could be obtained from unaffiliated third parties.

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PRINCIPAL STOCKHOLDERS

     The table below contains information about the beneficial ownership of our common stock as of April 30, 2008, 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.

     The number of shares and percentage of shares beneficially owned is based on 1,361,289 shares of common stock outstanding as of April 30, 2008. 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 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 April 30, 2008. 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 shown as beneficially owned by them.

     Unless otherwise indicated, the address for all of our executive officers and directors named below is c/o Patriot Risk Management, Inc., 401 East Las Olas Boulevard, Suite 1540, Fort Lauderdale, Florida 33301.

	Beneficial Ownership					Beneficial Ownership
	Prior to the Offering					After the Offering
			Percentage of					Percentage of
			Outstanding					Outstanding
Name of Beneficial Owner	Number of Shares		Shares			Number of Shares		Shares
Common Stock:
Steven M. Mariano (1)		1,011,661		71.8	%		1,011,661
Steven F. Herrig (2)		215,263		15.8	%		215,263
John R. Del Pizzo (3)		51,250		3.7	%		51,250
Timothy J. Tompkins (4)		23,000		1.5	%		23,000
Ronald P. Formento Sr.(5)		19,569		1.4	%		19,569
Timothy J. Ermatinger (6)		6,666		*			6,666
Theodore G. Bryant (7)		1,667		*			1,667
Michael W. Grandstaff		—					—
Richard F. Allen		—					—
C. Timothy Morris		—					—
All directors and executive officers as a group (9 persons)		1,113,813		81.8	%

*	Less than 1%.
(1)	Includes 900,000 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 47,500 shares issuable upon exercise of options that are exercisable within 60 days after April 30, 2008. Mr. Mariano also holds options to purchase 12,500 additional shares that will vest on May 20, 2009.
(2)	These shares are held in the name of Westwind Holding Company, LLC, an entity that is controlled by Elite II, Inc., a company that is controlled by Mr. Herrig. Mr. Herrig has sole dispositive and voting control over these shares. Mr. Herrig’s address is 2921 Stirling Road, Fort Lauderdale, Florida 33312.
(3)	Includes 23,750 shares issuable upon exercise of options that are exercisable within 60 days after April 30, 2008. Mr. Del Pizzo also holds options to purchase 3,750 additional shares that will vest on May 20, 2009.
(4)	Includes 2,500 shares issuable upon exercise of options that are exercisable within 60 days after April 30, 2008. Mr. Tompkins also holds options to purchase 2,500 additional shares that will vest on May 20, 2009.
(5)	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.

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(6)	Consists of 6,666 shares issuable upon exercise of options that are exercisable within 60 days after April 30, 2008. Mr. Ermatinger also holds options to purchase 3,333 additional shares that will vest on October 12, 2008, options to purchase 1,666 additional shares that will vest on June 2, 2009 and options to purchase 3,333 additional shares that will vest on October 12, 2009.
(7)	Consists of 1,667 shares issuable upon exercise of options that are exercisable within 60 days after April 30, 2008. Mr. Bryant also holds options to purchase 1,666 additional shares that will vest on December 18, 2008 and options to purchase 1,666 additional shares that will vest on December 18, 2009.

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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 $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. As of April 30, 2008, there were 19 holders of our common stock. Upon completion of this offering,         shares of common stock will be issued and outstanding and no shares of 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 outstanding shares of our common stock are 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

     Following the closing of this offering, our board of directors will be 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.

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.

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Limits on Ability of Stockholders to Act by Written Consent

     We have provided in our certificate of incorporation and bylaws 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 amended 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 and Executive Officers.” Pursuant to our bylaws, each director will serve until his or her successor is duly elected and qualified, unless he or she dies, resigns, retires, becomes disqualified or is removed. Our 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.

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

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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 66 2/3% 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 have applied to list our common stock on the Nasdaq Global Market under the symbol “PRMI.”

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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, 170,200 shares of common stock will be issuable upon the exercise of options outstanding as of April 30, 2008 and            shares will be issuable upon the exercise of outstanding options that we intend to grant to our executive officers and other employees, at an exercise price equal to the initial public offering price.

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 Friedman, Billings, Ramsey & Co., Inc. (FBR), we and they will not, during the period ending 180 days after the date of this prospectus:

• 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, 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 period of 180 days after the date of the final prospectus relating to this offering. The 180-day restricted period described in the preceding sentence will be extended if:

• during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs; or

• prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period;

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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 2008 Stock Incentive Plan described in this prospectus.

Note Offset and Call Option Agreements

     Under note offset and call option agreements entered into in 2004, we have the right under certain circumstances to repurchase a portion of the 239,724 shares held by two 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 each 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 Nasdaq Global Market 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.

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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 1,361,289 shares of common stock outstanding as of the date of this prospectus, 1,298,789 shares of such common stock would be available to be sold pursuant to Rule 144, including 349,128 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 Friedman, Billings, Ramsey & Co., Inc. (“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
Friedman, Billings, Ramsey & Co., Inc.
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 Exercise	Full Exercise
Paid by Us
Per Share	$	$
Total	$	$

     The underwriters have agreed to credit $200,000 of their retainer fee against underwriting discounts and commissions to be paid by us. In addition, we have agreed to reimburse FBR for its out-of-pocket expenses incurred in connection with this offering, whether or not this offering is consummated, including legal fees and expenses up to a maximum amount of $300,000. We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions (and the $200,000 retainer fee that will be credited against such underwriting discounts and commissions), will be approximately $ .

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     Listing. We have applied to have our common stock approved for listing, subsequent to official notice of issuance, on the Nasdaq Global Market, under the symbol “PRMI.”

     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 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 Nasdaq Global Market 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 representative of the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

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     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, during the period ending 180 days after the date of this prospectus:

• 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;

• 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 period of 180 days after the date of the final prospectus relating to this offering. The 180-day restricted period described in the preceding sentence will be extended if:

• during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs; or

• prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day 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.

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     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 180-day 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, shares of common stock for sale to our 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 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 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 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 prior to the first anniversary of the closing of this offering. 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.

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

 

     We engaged BDO Seidman, LLP, or BDO, as our principal independent registered public accounting firm effective October 24, 2006. Concurrent with this appointment, we dismissed Dixon Hughes, PLLC, effective October 24, 2006. The decision to change our principal independent registered public accounting firm was approved by our board of directors.

     The reports of Dixon Hughes on the Company’s consolidated financial statements for each of the fiscal years ended December 31, 2004 and 2005 did not contain an adverse opinion or disclaimer of opinion, nor were they modified as to uncertainty, audit scope or accounting principles. During the Company’s fiscal years ended December 31, 2004 and 2005, and during the subsequent period through to the date of Dixon Hughes’ dismissal, there were no disagreements between the Company and Dixon Hughes, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Dixon Hughes, would have caused Dixon Hughes to make reference thereto in their reports on the Company’s audited consolidated financial statements.

     In preparation for this offering, we entered into discussions with Dixon Hughes regarding the use of their reports on our financial statements for the year ended December 31, 2005 in this prospectus. Dixon Hughes informed us that they could not consent to the use of their report in this prospectus due to the scope of their work on the audit of our financial statements for the year ended December 31, 2005, which, while satisfying the independence standards set forth by the American Institute of Certified Public Accounts at that time, did not meet the independence standards set forth by the Public Company Accounting Oversight Board.

     In connection with the Company’s appointment of BDO as the Company’s principal independent registered public accounting firm, the Company did not consult with BDO on any matter relating to the application of accounting principles to a specific transaction, either completed or contemplated, or the type of audit opinion that might be rendered on the Company’s financial statements.

 

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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, 2007 and 2006 and for each of the years ended December 31, 2007, 2006 and 2005 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.                    .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.

155

INDEX TO FINANCIAL STATEMENTS

Patriot Risk Management, Inc. (formerly SunCoast Holdings, Inc.) and its Wholly-Owned Subsidiaries

	Page
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, 2007		F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006		F-3
Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005		F-6
Notes to Consolidated Financial Statements		F-7

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, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. 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, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO Seidman, LLP
Grand Rapids, Michigan

May 8, 2008

F-2

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Consolidated Balance Sheets (in thousands)

	December 31,
	2007			2006
Assets
Investments
Debt securities, available for sale, at fair value for 2007 and held to maturity, at amortized cost for 2006	$	55,688		$	30,697
Equity securities, available for sale, at fair value		634			1,581
Short-term investments		238			—
Real estate held for the production of income		256			265
Total investments		56,816			32,543
Cash and cash equivalents		4,943			17,841
Premiums receivable		36,748			19,450
Deferred policy acquisition costs		1,477			774
Prepaid reinsurance premiums		14,963			7,466
Reinsurance recoverable
Unpaid losses and loss adjustment expenses		43,317			41,103
Paid losses and loss adjustment expenses		4,202			428
Funds held by ceding companies and other amounts due from reinsurers		2,550			2,419
Net deferred tax assets		3,022			1,639
Fixed assets		1,165			1,411
Federal income taxes recoverable		391			—
Intangible assets		1,287			1,287
Other assets		4,356			4,308
Total Assets	$	175,237		$	130,669
Liabilities and Stockholders’ Equity
Liabilities
Reserves for losses and loss adjustment expenses	$	69,881		$	65,953
Reinsurance payable on paid losses and loss adjustment expenses		404			647
Unearned and advanced premium reserves		29,160			15,643
Reinsurance funds withheld and balances payable		44,073			26,787
Notes payable and accrued interest		15,108			9,785
Subordinated debentures		1,799			1,956
Income taxes payable		—			1,438
Accounts payable and accrued expenses		9,376			5,766
Total liabilities		169,801			127,975
Stockholders’ Equity
Common stock — Series A		1			1
Common stock — Series B		1			1
Paid-in capital		5,363			4,901
Accumulated earnings (deficit)		196			(2,183	)
Accumulated other comprehensive loss, net of deferred income taxes		(125	)		(26	)
Total stockholders’ equity		5,436			2,694
Total Liabilities and Stockholders’ Equity	$	175,237		$	130,669

See accompanying notes to consolidated financial statements.

F-3

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Consolidated Statements of Income (in thousands except per share data)

	2007			2006			2005
Revenues
Premiums earned	$	24,613		$	21,053		$	21,336
Insurance services income		7,027			7,175			4,369
Investment income, net		1,326			1,321			1,077
Net realized losses on investments		(5	)		(1,346	)		(2,298	)
Total revenues		32,961			28,203			24,484
Expenses
Net losses and loss adjustment expenses		15,182			17,839			12,022
Net policy acquisition and underwriting expenses		6,023			3,834			3,168
Other operating expenses		8,519			9,704			6,378
Interest expense		1,290			1,109			1,129
Total expenses		31,014			32,486			22,697
Other Income		—			796			—
Gain on Early Extinguishment of Debt		—			6,586			—
Income before income tax expense		1,947			3,099			1,787
Income Tax Expense (Benefit)		(432	)		1,489			687
Net Income	$	2,379		$	1,610		$	1,100
Earnings Per Share
Basic	$	1.77		$	1.16		$	.88
Diluted		1.76			1.15			.87
Weighted Average Number of Shares Used in the Determination of:
Basic		1,342			1,392			1,251
Diluted		1,351			1,398			1,258

See accompanying notes to consolidated financial statements.

F-4

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Consolidated Statements of Stockholders’ Equity (in thousands)

																Accumulated
																Other
				Common				Common					Accumulated			Comprehensive			Total
				Stock				Stock		Paid-in			Earnings			Income			Stockholders’
	Shares			Series A		Shares		Series B		Capital			(Deficit)			(Loss)			Equity
Balance, January 1, 2005		359		$	—		800	$	1	$	3,416		$	(3,066	)	$	(307	)	$	44
Issuance of common stock and paid in capital		25			—		—		—		250			—			—			250
Cash dividends		—			—		—		—		—			(1,057	)		—			(1,057	)
Balance before comprehensive income		384			—		800		1		3,666			(4,123	)		(307	)		(763	)
Comprehensive income
Net income		—			—		—		—		—			1,100			—			1,100
Net unrealized depreciation in available for sale securities, net of deferred taxes of $467,000		—			—		—		—		—			—			(1,002	)		(1,002	)
Reclassification adjustment for net gains realized in net income during the year, net of tax effect of $505,000		—			—		—		—		—			—			981			981
Total comprehensive income		—			—		—		—		—			1,100			(21	)		1,079
Balance, December 31, 2005		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

See accompanying notes to consolidated financial statements.

F-5

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

	2007			2006			2005
Operating Activities
Net income	$	2,379		$	1,610		$	1,100
Adjustments to reconcile net income to net cash from operating activities:
Gain on early extinguishment of debt		—			(6,586	)		—
Net realized losses on investments		5			1,346			2,297
Depreciation and amortization		1,030			396			134
Stock compensation expense		561			692			—
Amortization (accretion) of debt securities		(63	)		(76	)		18
Deferred income tax expense (benefit)		(1,331	)		69			(573	)
Decrease (increase) in premiums receivable		(17,298	)		2,493			(2,699	)
Decrease (increase) in deferred policy acquisition costs		(703	)		636			(1,476	)
Decrease (increase) in prepaid reinsurance premiums		(7,497	)		(3,064	)		10,523
Decrease (increase) in reinsurance recoverable on:
Unpaid losses and loss adjustment expenses		(2,214	)		(19,404	)		(11,361	)
Paid losses and loss adjustment expenses		(3,774	)		828			(615	)
Decrease (increase) in funds held by ceding companies and other amounts due from reinsurers		(131	)		(36	)		412
Decrease (increase) in other assets		(193	)		(3,001	)		597
Increase in reserves for losses and loss adjustment expenses		3,928			26,475			19,594
Increase (decrease) in reinsurance payable on paid loss and loss adjustment expenses		(243	)		(627	)		963
Increase (decrease) in unearned and advanced premium reserves		13,517			2,429			(6,971	)
Increase in reinsurance funds withheld and balances payable		17,286			1,592			9,498
Increase (decrease) in income taxes payable		(1,829	)		178			1,260
Increase (decrease) in accounts payable and accrued expenses		3,697			(961	)		28
Net Cash Provided By Operating Activities		7,127			4,989			22,729
Investment Activities
Proceeds from sales and maturities of debt securities		20,817			6,899			3,895
Purchases of debt securities		(45,224	)		(22,168	)		(7,057	)
Proceeds from sales of equity securities		280			2,457			1,760
Net sales (purchases) of short-term investments		(238	)		2,142			(2,142	)
Purchase of real estate		—			—			(272	)
Purchases of equity securities		—			(1,766	)		(2,994	)
Purchases of fixed assets		(639	)		(1,235	)		(272	)
Net Cash Used In Investment Activities		(25,004	)		(13,671	)		(7,082	)
Financing Activities
Proceeds from notes payable		5,665			8,652			—
Net proceeds from issuance of common stock		—			1,355			250
Net disbursements for redemption of common stock		(100	)		(984	)		—
Repayment of debt		(586	)		(2,320	)		—
Proceeds from issuance of subordinated debentures		—			—			1,956
Dividends paid		—			(600	)		(1,057	)
Payments on affiliated loans		—			—			(341	)
Net Cash Provided By Financing Activities		4,979			6,103			808
(Decrease) Increase in Cash and Cash Equivalents		(12,898	)		(2,579	)		16,455
Cash and Cash Equivalents, beginning of period		17,841			20,420			3,965
Cash and Cash Equivalents, end of period	$	4,943		$	17,841		$	20,420
Supplemental Cash Flow Information
Cash paid during the period for:
Interest	$	1,188		$	1,538		$	924
Income taxes		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.

     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 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.

     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 is domiciled in Florida and is currently licensed to write workers’ compensation insurance in 25 states and the District of Columbia and also holds four inactive licenses. Guarantee Insurance began writing both traditional and alternative market workers’ compensation business in 2004. Through traditional business, the Company bears the underwriting risk, ceding a portion, during certain periods, to third-party reinsurers pursuant to a quota share reinsurance agreement. Through alternative market business, the policyholder or another party bears a substantial portion of the underwriting risk through the reinsurance of the risk by a captive insurance company, a high deductible policy, a retrospectively rated policy or other risk sharing arrangement. For the year ended December 31, 2007, the Company’s traditional and alternative market business was written in 19 states and the District of Columbia, with approximately 59% concentrated in Florida.

     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 reinsurer. 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 services, cost containment services for workers’ compensation claims and captive management services. Patriot Risk Services, Inc. is currently licensed as an insurance agent or producer in 18 jurisdictions. Patriot Insurance Management Company is currently licensed as an insurance agent or producer in 23 jurisdictions, and Patriot Re International, Inc. is licensed as a reinsurance intermediary broker in 2 jurisdictions.

     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 Series A common stock, including the prospectus contained therein and all required exhibits thereto with the United States Securities and Exchange Commission.

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.

     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.

     Significant Accounting Policies

     Investments

     Debt securities at December 31, 2007 are classified as available for sale and stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income, net of deferred income taxes. Debt securities at December 31, 2006 were classified as held to maturity and stated at amortized cost.

     Equity securities available for sale are stated at fair value, with net unrealized gains and losses included in accumulated other comprehensive income, 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 $16,000 and $7,000 at December 31, 2007 and 2006, 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. Investment securities are regularly reviewed for impairment based on criteria that include the extent to which cost exceeds market value, the duration of the market decline, and the financial health of and specific prospects for the issuer. Unrealized losses that are considered to be other-than-temporary are recognized in net investment gains/losses in the consolidated statements of income. Realized gains and losses on dispositions of securities are determined by the specific-identification method.

     The Company evaluates all investments for other-than-temporary impairments. Securities deemed to have other-than-temporary impairments would be written down to fair value in the period the securities are deemed to be other-than-temporarily impaired, based on management’s case-by-case evaluation of the decline in fair value and prospects for recovery. The write-down would be recognized as a realized investment loss. In 2007, the Company did not recognize any other-than-temporary impairments. In 2006, the Company determined that the balance of its investment in Foundation Insurance Company, or Foundation, a limited purpose captive insurance subsidiary of Tarheel that reinsured workers’ compensation program business, was other-than-temporarily impaired and, accordingly, recognized a realized loss of approximately $950,000. In 2005, the Company determined that a portion of its investment in Foundation was other-than-temporarily impaired and, accordingly, recognized a realized loss of approximately $1.7 million. Additionally, in 2005, the Company determined that certain equity securities available for sale were other-than-temporarily impaired and, accordingly, recognized a realized loss of approximately $1.6 million.

F-8

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

     At December 31, 2007, cash and invested assets with a fair value of $4.6 million were on deposit with state departments of insurance to satisfy regulatory requirements.

     Cash and Cash Equivalents

     The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be 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 collectibility and management provides an allowance for doubtful accounts, as deemed necessary, which reduces premiums receivable.

     Deferred Policy Acquisition Costs

     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.

     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, 2007 or 2006.

     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 $1.6 million and $1.1 million at December 31, 2007 and 2006, respectively, are included in other assets.

     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

F-9

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

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.

     The reinsurance recoverable on paid losses is carried net of an allowance for doubtful accounts of $300,000 at December 31, 2007 and 2006.

     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 reinsurer. 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 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

F-10

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

attributable to the portion of the insurance risk assumed by the segregated portfolio captives and Guarantee Insurance’s quota share reinsurer, which represent the fees paid by the segregated portfolio captives and Guarantee Insurance’s quota share reinsurer 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.

     Earnings Per Share

     Basic earnings per share is based on weighted average ordinary shares outstanding and excludes dilutive effects of stock options and stock awards. Diluted earnings per share assumes the exercise of all dilutive stock options and stock awards using the treasury method.

     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.

(2) Debt Securities

     At December 31, 2006, the Company did not anticipate that its 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), debt securities at December 31, 2006 were stated at amortized cost.

F-11

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

     In 2007, the Company 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, the Company 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 the Company would, on a routine basis, desire to sell its 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. The Company anticipated that all of its 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, the Company transferred all of its 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 the Company’s debt securities at December 31, 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, the Company recognized a net unrealized gain of approximately $215,000.

     The amortized cost, gross unrealized gains, gross unrealized losses and fair values of debt securities at December 31, 2007 and 2006 are as follows:

2007			Gross		Gross
	Amortized		Unrealized		Unrealized
Available for sale	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
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

2006			Gross		Gross
	Amortized		Unrealized		Unrealized
Held to maturity	Cost		Gains		Losses		Fair Value
	(in thousands)
U.S. government securities	$	5,287	$	—	$	42	$	5,245
U.S. government agencies		8,921		44		—		8,965
Corporate securities		16,489		19		93		16,415
	$	30,697	$	63	$	135	$	30,625

F-12

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, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2007 and 2006 are as follows:

2007	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	$	651	$	1	$	—	$	—	$	651	$	1
U.S. government agencies		—		—		1,059		1		1,059		1
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

2006	Less than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Held to maturity	Value		Losses		Value		Losses		Value		Losses
	(in thousands, except numbers of securities data)
U.S. government securities	$	3,013	$	14	$	2,132	$	28	$	5,145	$	42
U.S. government agencies		1,510		—		—		—		1,510		—
Corporate securities		4,902		13		6,749		80		11,651		93
Total	$	9,425	$	27	$	8,881	$	108	$	18,306	$	135
Total Number of Securities in an Unrealized Loss Position				34				27				61

     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.

     Amortized cost and estimated fair value of the Company’s debt securities available for sale at December 31, 2007, by contractual maturity, are as follows:

	Amortized		Fair
	Cost		Value
	(in thousands)
Due in one year or less	$	7,323	$	7,343
Due after one year through five years		18,218		18,398
Due after five years		13,635		13,834
		39,176		39,575
Mortgage-backed securities		15,994		16,113
	$	55,170	$	55,688

     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 mortgage-backed securities may differ from contractual maturities because borrowers may have

F-13

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

the right to call or prepay the obligations and are, therefore, classified separately with no specific contractual maturity dates.

(3) Equity Securities Available for Sale

     The cost, gross unrealized gains, gross unrealized losses and fair values of equity securities available for sale as of December 31, 2007 and 2006 are as follows:

2007			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(in thousands)
Common stock	$	1,341	$	—	$	707	$	634

2006			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(in thousands)
Common stock	$	1,622	$	216	$	257	$	1,581

     At December 31, 2007, the Company held a total of eight industrial and miscellaneous equity securities, all of which were in a gross unrealized loss position.

     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, 2007 and 2006 are as follows:

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

2006	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	$	—	$	—	$	413	$	257	$	413	$	257
Total Number of Securities in an Unrealized Loss Position				—				6				6

F-14

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

(4) Net Investment Income

     The details of investment income, net of investment expenses which are primarily attributable to interest credited to funds held balances, are as follows:

	2007			2006			2005
	(in thousands)
Debt securities	$	2,088		$	764		$	413
Equity securities		8			15			38
Cash, cash equivalents, short-term and other investment income		412			1,264			755
Rent income		10			10			—
Gross investment income		2,518			2,053			1,206
Investment expenses		(1,192	)		(732	)		(129	)
Net investment income	$	1,326		$	1,321		$	1,077

(5) Net Realized Losses on Investments

     Proceeds from the sale, maturity or repayment of debt securities were $20.8 million, $6.9 million and $3.9 million for the years ended December 31, 2007, 2006 and 2005, respectively. Proceeds from the sales of equity securities available for sale were $280,000, $1.8 million and $1.7 million for the years ended December 31, 2007, 2006 and 2005, respectively. Net realized losses on investments were comprised of the following:

	2007			2006			2005
	(in thousands)
Debt securities:
Gross realized gains on sales	$	3		$	—		$	—
Gross realized losses on sales		—			—			—
Net realized gains on debt securities		3			—			—
Equity securities:
Gross realized gains on sales		—			587			265
Gross realized losses:
On sales		(8	)		(194	)		—
On securities deemed other-than-temporarily impaired		—			(1,739	)		(2,563	)
Net realized losses on equity securities		(8	)		(1,346	)		(2,298	)
Net realized losses on investments	$	(5	)	$	(1,346	)	$	(2,298	)

(6) Premiums Receivable

     The premiums receivable, which are net of an allowance for uncollectible accounts of $700,000 as of December 31, 2007 and 2006, are comprised of the following:

	2007		2006
	(in thousands)
Uncollected premium balances in the course of collection	$	4,718	$	11,273
Installments booked but deferred and not yet due		32,030		8,177
Premiums receivable	$	36,748	$	19,450

F-15

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

(7) Deferred Policy Acquisition Costs

     The policy acquisition costs that the Company has capitalized and amortized over the effective period of the related policies are as follows:

	2007			2006			2005
	(in thousands)
Balance, beginning of period	$	774		$	1,410		$	(66	)
Amounts capitalized:
Direct and assumed		19,852			14,582			11,138
Ceding commissions		(18,492	)		(15,253	)		(7.806	)
Amounts capitalized, net of ceding commissions		1,360			(671	)		3,332
Amounts amortized, net of ceding commissions		(657	)		35			(1,856	)
Balance, end of period	$	1,477		$	774		$	1,410

(8) Fixed Assets

     Fixed assets as of December 31, 2007 and 2006 are summarized as follows:

	2007			2006
	(in thousands)
Software	$	1,857		$	1,653
Furniture, equipment and leasehold improvements		706			350
		2,563			2,003
Accumulated depreciation and amortization		(1,398	)		(592	)
Fixed assets, net of accumulated depreciation	$	1,165		$	1,411

     The Company recorded depreciation and amortization expense of $884,000, $364,000 and $134,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

(9) Reinsurance

     To reduce the Company’s exposure to losses from events that cause unfavorable underwriting results, the Company has reinsured certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers under excess of loss agreements and quota share agreements. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies.

     The Company generally cedes 90% of premiums and loss exposure on the alternative market to segregated portfolios within a captive reinsurer.

     During 2006, the Company entered into a quota share agreement with National Indemnity Company, a Berkshire Hathaway subsidiary. Under the terms of this agreement, the Company cedes 50% of all net retained liabilities arising from all insurance and reinsurance business undertaken, excluding business written in South Carolina, Georgia, and Indiana. This quota share agreement covers all losses less than $500,000. This contract was renewed during 2007 with the same terms as the 2006 contract.

F-16

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

     For traditional workers’ compensation claims, 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.

     For alternative market workers’ compensation claims, Guarantee Insurance also retains $1.0 million per occurrence. Guarantee Insurance generally cedes 90% of the losses falling within this $1.0 million retention under the segregated cell captive quota share reinsurance agreements described above.

     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 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:

	2007				2006				2005
	Written		Earned		Written		Earned		Written		Earned
	(in thousands)
Direct and assumed premiums	$	85,810	$	73,714	$	62,372	$	60,672	$	47,576	$	55,781
Ceded premiums		54,849		49,101		42,986		39,619		23,617		34,445
Net Premiums	$	30,961	$	24,613	$	19,386	$	21,053	$	23,959	$	21,336

     The amount of recoveries pertaining to reinsurance contracts that were deducted from losses incurred for the years ended December 31, 2007, 2006 and 2005 was approximately $17.5 million, $26.1 million and $19.0 million, respectively.

     The Company provided letters of credit for $612,000 and $720,000 as of December 31, 2007 and 2006, respectively, in connection with certain business assumed. The Company pledged assets of $658,000 as collateral for these letters of credit as of December 31, 2006. No assets were pledged as collateral as of December 31, 2007.

(10) Federal Income Taxes

     The Company and its subsidiaries file a consolidated federal income tax return. The provision for income taxes consists of the following:

	2007			2006			2005
	(in thousands)
Current income tax expense	$	899		$	1,419		$	1,260
Deferred income tax expense (benefit):
Tax expense (benefit) on temporary differences		(130	)		(387	)		(709	)
Increase (decrease) in valuation allowance		(1,201	)		457			136
Deferred income tax expense (benefit)		(1,331	)		70			(573	)
Income tax expense (benefit)	$	(432	)	$	1,489		$	687

F-17

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

     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, 2005 and 2006, 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 a substantial portion of these net operating loss carryforwards will be utilized in 2008. 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 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:

	2007						2006						2005
	Amount			Rate			Amount			Rate			Amount			Rate
	(in thousands)
Income before income tax expense	$	1,947					$	3,099					$	1,787
Income tax at statutory rate	$	662			34.0	%	$	1,054			34.0	%		608			34.0	%
Tax effect of:
Tax exempt investment income		(85	)		(4.3	)		—			—			—			—
Other items, net		127			6.5			(22	)		(0.7	)		(57	)		(3.2	)
True up related to prior years		65			3.3			—			—			—			—
		769			39.5			1,032			33.3			551			30.8
Increase (decrease) in valuation allowance		(1,201	)		(61.7	)		457			14.7			136			7.6
Actual income tax rate	$	(432	)		(22.2	)%	$	1,489			48.0	%	$	687			38.4	%

     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, 2007 and 2006 are as follows:

	2007		2006
	(in thousands)
Deferred Tax Assets
Loss reserve adjustments	$	1,174	$	980
Unearned premium adjustments		965		777
Net operating loss carryforward		1,318		1,912
Unrealized capital losses		64		14
Other than temporary impairment on investments		431		447
Stock option compensation		111		65
Bad debt allowance		340		340
Other		125		—
		4,528		4,535
Less valuation allowance		—		(1,912	)
Total deferred tax assets		4,528		2,623
Deferred Tax Liabilities
Deferred acquisition costs		1,110		655
Purchase price adjustment		293		293
Other		103		36
Total deferred tax liabilities		1,506		984
Net deferred tax assets	$	3,022	$	1,639

F-18

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

     At December 31, 2007, the Company had $3.8 million of net operating loss carryforwards, which expire as follows: approximately $600,000 in 2023, $1.8 million in 2024, $400,000 in 2025 and $1.0 million in 2026.

(11) 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:

	2007			2006			2005
	(in thousands)
Balances, January 1	$	65,953		$	39,084		$	19,989
Less reinsurance recoverable		(41,103	)		(21,699	)		(8,189	)
Net balances, January 1		24,850			17,385			11,800
Incurred related to
Current years		18,642			15,328			11,439
Prior years		(3,460	)		2,511			583
Total incurred		15,182			17,839			12,022
Paid related to
Current years		4,668			3,290			4,674
Prior years		8,800			7,084			1,763
Total paid		13,468			10,374			6,437
Net balances, December 31		26,564			24,850			17,385
Plus reinsurance recoverable		43,317			41,103			21,699
Balances, December 31	$	69,881		$	65,953		$	39,084

     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, 2007, 2006 or 2005.

     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 exposures, the latter as discussed more fully below. The $516,000, together with an additional

F-19

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

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.

     As a result of adverse development on prior accident year reserves, incurred losses and loss adjustment expenses increased by $583,000 for the year ended December 31, 2005. The $583,000 of adverse development reflects approximately $162,000 of adverse development in 2005 on workers’ compensation reserves for prior accident years and approximately $421,000 of adverse development in 2005 on legacy asbestos and environmental exposures and commercial general liability exposures, the latter as discussed more fully below.

     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:

	2007			2006			2005
	(in thousands)
Balances, January 1	$	6,999		$	7,302		$	7,433
Less reinsurance recoverable		(3,402	)		(3,780	)		(3,735	)
Net balances, January 1		3,597			3,522			3,698
Incurred related to claims in prior years		(169	)		363			119
Paid related to prior years		(397	)		(288	)		(295	)
Net balances, December 31		3,031			3,597			3,522
Plus reinsurance recoverable		3,758			3,402			3,780
Balances, December 31	$	6,789		$	6,999		$	7,302

     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:

F-20

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

	2007			2006			2005
	(in thousands)
Balances, January 1	$	6,050		$	6,006		$	5,864
Less reinsurance recoverable		(2,974	)		(2,949	)		(2,773	)
Net balances, January 1		3,076			3,057			3,091
Incurred related to claims in prior years		(1,154	)		153			302
Paid related to prior years		(176	)		(134	)		(336	)
Net balances, December 31		1,746			3,076			3,057
Plus reinsurance recoverable		1,996			2,974			2,949
Balances, December 31	$	3,742		$	6,050		$	6,006

(12) 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. The Company recognized a gain on the early extinguishment of debt of $6.6 million.

     Effective March 30, 2006, the Company entered into a loan agreement for $9.0 million with an interest rate of prime plus 4.5% (effectively 11.75% at December 31, 2007). Principal and interest payments of $125,000 are made monthly beginning May 15, 2006. Due to the variable rate, the payment amount may change. The proceeds of the loan were used to pay the $2.2 million early extinguishment of debt noted above and provide additional surplus to Guarantee Insurance. 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 aggregate principal balance and accrued interest associated with this loan at December 31, 2007 were approximately $13.5 million and $200,000, respectively. The loan has a financial covenant requiring that Guarantee Insurance maintain equity pursuant to generally accepted accounting principles exceeding $14.5 million. The Company was in compliance with this covenant at December 31, 2007. The loan also has a financial covenant requiring that the Company maintain consolidated stockholders’ equity pursuant to generally accepted accounting principles exceeding $5.5 million. The Company was not in compliance with this financial covenant, and certain other non-financial covenants, at December 31, 2007. However, pursuant to the loan agreement, these failed covenants were not deemed to constitute an event of default. The Company complied with the consolidated stockholders’ equity financial covenant subsequent to December 31, 2007.

     As of December 31, 2007, the Company’s obligation for future payments on notes payable, based on the rates in effect at December 31, 2007, are as follows:

					Guaranty
	Principal		Interest		Fees		Total
	(in thousands)
2008	$	1,041	$	1,526	$	428	$	2,995
2009		1,161		1,406		496		3,063
2010		1,305		1,262		449		3,016
2011		1,466		1,101		397		2,964
Thereafter		8,563		2,356		933		11,852
	$	13,536	$	7,651	$	2,703	$	23,890

F-21

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

     The Company has outstanding surplus notes with aggregate principal and accrued interest of approximately $1.3 million and $115,000, respectively. 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). The principal balance of the surplus notes and accrued interest thereon are due in 2009. Repayment is subject to Florida OIR authorization.

(13) 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. The principal balance on these debentures was approximately $1.8 million at December 31, 2007.

(14) Common and Preferred Stock

     The Company’s authorized common stock consists of 3,000,000 shares of common stock — Series A, par value $0.001 per share, and 800,000 shares of common stock — Series B, par value $0.001 per share. Common stock — Series A shares have the right to one vote per share and common stock - Series B shares have the right to four votes per share.

     As of December 31, 2007, the Company had 561,289 shares of common stock — Series A and 800,000 shares of common stock — Series B issued and outstanding. As of December 31, 2006, the Company had 520,789 shares of common stock — Series A and 800,000 shares of common stock — Series B issued and outstanding.

     The Company issued common stock and paid in capital, granted unrestricted common stock and redeemed 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.

     The Company’s authorized preferred stock consists of 800,000 shares of preferred stock - Series A. As of December 31, 2007 and 2006, no preferred stock was issued or outstanding.

     The Company plans to reclassify all outstanding shares of common stock — Series A and common stock — Series B into shares of common stock on a one-for-one basis upon consummation of the planned initial public offering as discussed in Note 1.

(15) 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. 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, 2007.

     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

F-22

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

$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. The pro forma disclosures as required by Financial Accounting Standards Board Statement of Financial Standards No. 123, Share-Based Payment are not material.

     In December 2004, the Financial Accounting Standards Board issued Statement of Financial Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 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 is required to provide service in exchange for the award (typically the vesting period). The Company adopted SFAS 123R effective January 1, 2006, 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. 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 2006 or 2007.

     The following table summarizes stock options granted, exercised and canceled.

				Weighted
	Number of			Average
	Options			Exercise
	(in thousands)			Price
Options Outstanding, January 1, 2005		—		$	—
Options granted		148			8.82
Options exercised		—			—
Options canceled		—			—
Options Outstanding, December 31, 2005		148			8.82
Options granted		72			8.02
Options exercised		—			—
Options canceled		(55	)		5.00
Options Outstanding, December 31, 2006		165			9.74
Options granted		58			8.02
Options exercised		—			—
Options canceled		(50	)		13.43
Options Outstanding, December 31, 2007		173		$	8.09
Options Exercisable, December 31, 2007		120		$	8.51

     The total intrinsic value of options outstanding and options exercisable at December 31, 2007 was approximately $106,000. Unvested options have no total intrinsic value at December 31, 2007.

     The weighted-average grant-date fair value of options granted during the years ended December 31, 2007, 2006 and 2005 was $ 2.24, $2.16 and $1.51, respectively. No options were exercised during the year

F-23

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

ended December 31, 2007, 2006 or 2005. The range of exercise prices for options outstanding at December 31, 2007 was $5.00 to $14.78.

     A summary of the status of the Company’s unvested options is as follows:

				Weighted
	Number of			Average
	Options			Grant Date
	(in thousands)			Fair Value
Unvested options, January 1, 2005		—		$	—
Options granted		148			1.51
Options vested		(65	)		1.09
Options canceled		—			—
Unvested options, December 31, 2005		83			2.00
Options granted		72			2.16
Options vested		(68	)		2.47
Options canceled		(4	)		1.01
Unvested options, December 31, 2006		83			1.80
Options granted		58			2.24
Options vested		(55	)		2.02
Options canceled		(33	)		2.23
Unvested options, December 31, 2007		53		$	1.78

     As of December 31, 2007, there was approximately $94,000 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 1.7 years.

     The Plan also authorized the board, in its sole discretion, to grant stock awards to members of the board of directors. During 2006, 62,500 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 $501,000. During 2007, 50,000 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 $401,000.

(16) Capital, Surplus and Dividend Restrictions

     At the time the Company acquired Guarantee Insurance, it had a large statutory accumulated deficit. At December 31, 2007, the statutory accumulated deficit was approximately $93 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, 2006 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 2007, 2006 or 2005.

     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

F-24

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

GAAP. Guarantee Insurance Company reported a SAP net loss of approximately $802,000, for the year ended December 31, 2007 and SAP net income of approximately $457,000 and $1.2 million for the years ended December 31, 2006 and 2005, respectively. SAP surplus as regards policyholders was $14.4 million and $9.8 million at December 31, 2007 and 2006, respectively. Pursuant to the Florida OIR December 29, 2006 consent order, Guarantee Insurance is required to maintain a minimum capital and surplus of $9.0 million.

     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, 2007 the Company’s adjusted statutory capital and surplus was 272% 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. Although the results of these matters are always uncertain, the Company’s management does not believe the results of any of the current examinations will have a material impact on its financial statements.

(17) Other Contingencies and Commitments

     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.

     As of December 31, 2007, the Company’s commitment for future rent payments is as follows:

	(in thousands)
2008	$	997
2009		847
2010		717
	$	2,561

F-25

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

     Rental expense was $840,000, $591,000 and $255,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

(18) 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, 2007, the Company had $62.8 million of gross exposures to reinsurers, comprised of reinsurance recoverables on paid and unpaid losses and loss adjustment expenses and prepaid reinsurance premiums. Furthermore, the Company had $22.6 million of net unsecured reinsurance exposures consisting of $20.0 million from admitted reinsurers rated “A-” (Excellent) or better by A.M. Best Company and $2.6 million from nonadmitted reinsurers and admitted reinsurers not rated “A-” (Excellent) or better by A.M. Best Company. The Company reviews the financial strength of all of its admitted and nonadmitted 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, 2007, the Company maintained an allowance for doubtful accounts on reinsurance recoverable balances of $300,000.

(19) 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 have been made to the plan during the years ended December 31, 2007, 2006 or 2005.

(20) Segment Reporting

     The Company operates two business segments — insurance and insurance services. 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 segment, the Company provides workers’ compensation policies to businesses. These products include guaranteed cost policies, policyholder dividend plans, retrospective rated policies, and alternative market products.

     In the insurance services segment, the Company provides nurse case management, cost containment and captive management 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. It would be impracticable for the Company to determine the allocation of assets between the two segments.

F-26

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

     Business segment results are as follows:

	2007			2006			2005
	(in thousands)
Revenues Premiums earned	$	24,613		$	21,053		$	21,336
Investment income, net		1,326			1,321			1,077
Net realized gains (losses) on investments		(5	)		393			(1,348	)
Insurance segment revenues		25,934			22,767			21,065
Insurance services income		11,325			10,208			6,552
Intersegment revenues		(4,298	)		(3,033	)		(2,183	)
Non-allocated items		—			(1,739	)		(950	)
Consolidated revenues	$	32,961		$	28,203		$	24,484
Pre-Tax Net Income (Loss)
Insurance segment	$	431		$	(1,939	)	$	3,692
Insurance services segment		4,201			3,764			2,358
Non-allocated items		(2,685	)		1,274			(4,263	)
Consolidated pre-tax net income	$	1,947		$	3,099		$	1,787

     Items not allocated to segments’ pre-tax net income include the following:

	2007			2006			2005
	(in thousands)
Gain on early extinguishment of debt	$	—		$	6,586		$	—
Other income — forgiveness of interest due on extinguished debt		—			796			—
Holding company expenses		(1,395	)		(3,260	)		(2,184	)
Interest expense		(1,290	)		(1,109	)		(1,129	)
Other than temporary impairment of Tarheel investment in Foundation		—			(1,739	)		(950	)
Total unallocated items	$	(2,685	)	$	1,274		$	(4,263	)

     Income tax expense is not allocated to segments for purposes of segment management.

(21) Related Party Transactions

     The Company’s Chairman, President and Chief Executive Officer provided a personal guarantee to Aleritas Capital Corporation in connection with the notes payable described in Note 12. 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 2007 and 2006, the Company paid its Chairman, President and Chief Executive Officer $444,252 and $350,000, respectively, in guaranty fees.

(22) 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

F-27

Patriot Risk Management, Inc. and its Wholly-Owned Subsidiaries
Notes to Consolidated Financial Statements — (Continued)

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:

	2007			2006			2005
	(in thousands)
Revenues	$	—		$	283		$	3,647
Pre-tax net income (loss)		(343	)		(326	)		69

(23) Subsequent Events

     In the first quarter of 2008, the Company paid its Chairman, President and Chief Executive Officer guaranty fees of $428,000 associated with the personal guaranty in connection with the Company’s notes payable as described in Note 21.

     On March 4, 2008, the Company entered into a stock purchase agreement to acquire Madison Insurance Company (Madison), a shell property and casualty insurance company domiciled in Georgia that was not writing new business. Madison is licensed to write workers’ compensation insurance in Florida, Georgia, Maryland, Tennessee, Virginia and the District of Columbia. As consideration for the purchase price of $9.5 million plus $50,000 for each calendar month beyond April 30, 2008 until the completion of the acquisition, the Company will receive cash and invested assets with a fair value of $9.0 million. The Company plans to complete the acquisition of Madison upon consummation of the planned initial public offering as discussed in Note 1. Upon completion of the acquisition, the Company plans to rename Madison as Guarantee Fire & Casualty Insurance Company.

     In February 2008, the Company entered into an employment agreement with an executive officer. The agreement has an initial three-year term, at which time the agreement will automatically renew for successive one year terms, unless the executive officer or the Company provides 90 days written notice of non-renewal. The agreement terminates 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 agreement may also be terminated by the Company without cause; provided however, that in such event, the executive officer is entitled to a cash severance amount equal to one year’s salary, or $350,000, at the time of termination. 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 the executive officer’s employment by the Company without cause or by the executive officer for good reason (as defined in the agreement) within twelve months of such change in control, the executive officer is entitled to a cash severance amount equal to two year’s salary at the time of termination. The Company expects to enter into employment agreements with other executive officers prior to the consummation of the planned initial public offering as discussed in Note 1.

F-28

     Until      , 2008 (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

Friedman Billings Ramsey

, 2008.

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	$	4,519.50
FINRA Filing Fees		12,000.00
Nasdaq Listing Fee		*
Legal Fees and Expenses		*
Accounting Fees and Expenses		*
Transfer Agent and Registrar Fees		*
Underwriters’ Expense Reimbursement		*
Printing and Engraving Expenses		*
Blue Sky Fees and Expenses		*
Miscellaneous Expenses		*
Total	$	*

* To be provided 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.

     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. Between May and August, 2005, the registrant issued 23 subordinated debentures to 20 investors for a total cash consideration of $1,955,600.

II -1

2.	In January 2006, the registrant issued 169,000 shares of Class A common stock to Tarheel Group, Inc. with an aggregate value of $1,355,380.
3.	Since February 2005, the registrant has issued to directors, officers, employees and consultants options to purchase 282,500 of shares of common stock with per share exercise prices ranging from $5.00 to $14.78, and has issued 117,500 shares of common stock in stock grants to directors with an aggregate value of $942,350.

     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 3 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*
2.1	Stock Purchase Agreement dated March 4, 2008 between SunTrust Bank Holding Company and Guarantee Insurance Group, Inc.
3.1	Amended and Restated Certificate of Incorporation of the Registrant*
3.2	Amended and Restated Bylaws of the Registrant*
4.1	Investor Rights Agreement, dated November 2, 2004, among the Registrant, Steven M. Mariano and Westwind Holding Company, LLC
4.2	Waiver, dated March 5, 2008, relating to Investor Rights Agreement, dated November 2, 2004, among the Registrant, Steven M. Mariano and Westwind Holding Company, LLC
4.3	Form of Guarantee Insurance Company’s Surplus Notes
4.4	Form of Registrant’s Subordinated Debentures
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	Employment Agreement between the Registrant and Theodore G. Bryant*
10.4	Offer Letter to Timothy J. Ermatinger dated August 1, 2007

II -2

Exhibit
No.	Description of Exhibit
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	2008 Stock Incentive Plan*
10.12	Form of Option Award Agreement for 2008 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.

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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*
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
10.33	Collateral Carry Forward Agreement for Owner of Segregated Portfolio in Caledonian Reinsurance SPC, dated August 16, 2005, among Westwind Holding Company, LLC, Progressive Employer Services III, LLC and Guarantee Insurance Company
10.34	Subordinated Debenture between the Registrant and Westwind Holding Company, LLC*
10.35	Non-Negotiable Fully Subordinated Surplus Note, dated August 13, 2004, between Guarantee Insurance Company and Westwind Holding Company, LLC
10.36	Workers Compensation Reinsurance Agreement Quota Share Agreement and Aggregate Excess of Loss, dated August, 2005, between Guarantee Insurance Company and Segregated Portfolio 110, a segregated portfolio of Caledonian Reinsurance SPC
10.37	Note Offset and Call Option Agreement dated July 29, 2004 and Amendment dated November 2, 2004 between Guarantee Insurance Company and Westwind Holding Company, LLC
10.38	Participation Agreement dated August 16, 2004 between Westwind Holding Company, LLC and Caledonian Reinsurance SPC
10.39	Renewal Participation Agreement dated August 16, 2005 between Westwind Holding Company, LLC and Caledonian Reinsurance SPC
10.40	Subscription Agreement between Westwind Holding Company, LLC and Caledonian Reinsurance SPC*

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Exhibit
No.	Description of Exhibit
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 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*
21.1	Subsidiaries of the Registrant
23.1	Consent of Locke Lord Bissell & Liddell LLP (included as part of its opinion to be filed as Exhibit 5.1 hereto)
23.2	Consent of BDO Seidman, LLP
24.1	Power of Attorney (Included on Signature Page)

* To be filed by amendment

(b) Financial Statement Schedules.

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 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

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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.

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SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fort Lauderdale, State of Florida, on May 13, 2008.

Patriot Risk Management, Inc.
By:	/s/ Steven M. Mariano
	Steven M. Mariano
	President and Chief Executive Officer

POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Steven M. Mariano and Theodore G. Bryant and each of them, with full power of substitution and full power to act, his true and lawful attorney-in-fact and agent to act for him in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, any and all registration statements filed pursuant to Rule 462(b) of the Securities Act of 1933 (including post-effective amendments) to register additional securities and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in order to effectuate the same as fully, to all intents and purposes, as they or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Steven M. Mariano	Principal Executive Officer and Director	May 13, 2008
Steven M. Mariano
/s/ Michael W. Grandstaff Michael W. Grandstaff	Principal Financial Officer and Principal Accounting Officer	May 13, 2008
/s/ Richard F. Allen	Director	May 13, 2008
Richard F. Allen
/s/ John R. Del Pizzo	Director	May 13, 2008
John R. Del Pizzo
/s/ Timothy J. Tompkins	Director	May 13, 2008
Timothy J. Tompkins
/s/ Ronald P. Formento Sr.	Director	May 13, 2008
Ronald P. Formento Sr.
/s/ C. Timothy Morris	Director	May 13, 2008
C. Timothy Morris

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Exhibit List

Exhibit
No.	Description of Exhibit
1.1	Form of Underwriting Agreement*
2.1	Stock Purchase Agreement dated March 4, 2008 between SunTrust Bank Holding Company and Guarantee Insurance Group, Inc.
3.1	Amended and Restated Certificate of Incorporation of the Registrant*
3.2	Amended and Restated Bylaws of the Registrant*
4.1	Investor Rights Agreement, dated November 2, 2004, among the Registrant, Steven M. Mariano and Westwind Holding Company, LLC
4.2	Waiver, dated March 5, 2008, relating to Investor Rights Agreement, dated November 2, 2004, among the Registrant, Steven M. Mariano and Westwind Holding Company, LLC
4.3	Form of Guarantee Insurance Company’s Surplus Notes
4.4	Form of Registrant’s Subordinated Debentures
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	Employment Agreement 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	2008 Stock Incentive Plan*
10.12	Form of Option Award Agreement for 2008 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.

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Exhibit
No.	Description of Exhibit
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.
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*
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

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Exhibit
No.	Description of Exhibit
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
10.33	Collateral Carry Forward Agreement for Owner of Segregated Portfolio in Caledonian Reinsurance SPC, dated August 16, 2005, among Westwind Holding Company, LLC, Progressive Employer Services III, LLC and Guarantee Insurance Company
10.34	Subordinated Debenture between the Registrant and Westwind Holding Company, LLC*
10.35	Non-Negotiable Fully Subordinated Surplus Note, dated August 13, 2004, between Guarantee Insurance Company and Westwind Holding Company, LLC
10.36	Workers Compensation Reinsurance Agreement Quota Share Agreement and Aggregate Excess of Loss, dated August, 2005, between Guarantee Insurance Company and Segregated Portfolio 110, a segregated portfolio of Caledonian Reinsurance SPC
10.37	Note Offset and Call Option Agreement dated July 29, 2004 and Amendment dated November 2, 2004 between Guarantee Insurance Company and Westwind Holding Company, LLC
10.38	Participation Agreement dated August 16, 2004 between Westwind Holding Company, LLC and Caledonian Reinsurance SPC
10.39	Renewal Participation Agreement dated August 16, 2005 between Westwind Holding Company, LLC and Caledonian Reinsurance SPC
10.40	Subscription Agreement between Westwind Holding Company, LLC and Caledonian Reinsurance SPC*
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 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*
21.1	Subsidiaries of the Registrant

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Exhibit
No.	Description of Exhibit
23.1	Consent of Locke Lord Bissell & Liddell LLP (included as part of its opinion to be filed as Exhibit 5.1 hereto)
23.2	Consent of BDO Seidman, LLP
24.1	Power of Attorney (Included on Signature Page)

* To be filed by amendment

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EX-2.1

Exhibit 2.1

EXECUTION VERSION

STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE AGREEMENT (“Agreement”) is entered into as of the 4th day of March, 2008 (the “Effective Date”) by and among SunTrust Bank Holding Company (“Seller”) and Guarantee Insurance Group, Inc. (“Buyer”) and solely for purposes of Section 9.2, Madison Insurance Company (the “Company”).

RECITALS

     1. Seller is a corporation organized under the laws of the State of Florida with its principal executive offices located at 200 South Orange Avenue, Orlando, Florida.

     2. Buyer is a corporation organized under the laws of the State of Delaware with its principal executive offices located at 401 E. Las Olas Boulevard, Ft. Lauderdale, Florida.

     3. Seller is the beneficial and record owner of fifty thousand (50,000) shares of common stock, $100 par value (the “Common Stock”), of the Company, which shares represent one hundred percent (100%) of the issued and outstanding capital stock (the “Stock”) of the Company. Seller formed the Company in 1997 and previously used the Company to insure risks related to the business conducted by Seller’s other companies. Seller has developed other sources of insurance coverage for its other companies and no longer has a need to own the Company.

     4. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller the Stock, upon the terms and conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants of the parties as hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I — DEFINITIONS

          The following terms shall have the respective meanings set forth below throughout this Agreement:

     “AAA Rules” has the meaning set forth in Section 10.8.

     “Affiliate” means, with respect to any Person, at the time in question, any other Person controlling, controlled by or under common control with such Person.

     “Agreement” has the meaning set forth in the first paragraph of this Agreement.

     “Annual Financial Statements” has the meaning set forth in Section 3.11.

     “Applicable Law” means any domestic or foreign federal, state or local statute, law, ordinance or code, or any rules, regulations, administrative interpretations, or orders issued by

any governmental authority pursuant to any of the foregoing, and any order, writ, injunction, directive, judgment or decree of a court of competent jurisdiction applicable to the parties hereto.

     “Asserted Liability” has the meaning set forth in Section 9.4.

     “Basket” has the meaning set forth in Section 9.3.

     “Books and Records” means all records, documents, databases, administrative records, claim records, policy files, sales records, files and records relating to regulatory matters or correspondence with regulatory authorities, reinsurance records, underwriting records, accounting records and all other records, data and information (in whatever form maintained) in the possession or control of the Company relating exclusively to the conduct of the Company’s business as currently conducted, but excluding any such books and records that are subject to the attorney-client or any other privilege or to the work product doctrine.

     “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are required or authorized by law to be closed.

     “Buyer” has the meaning set forth in the Recitals of this Agreement.

     “Buyer Indemnified Parties” has the meaning set forth in Section 9.1.

     “Capital and Surplus” shall mean the net admitted assets of the Company minus the total liabilities of the Company.

     “Claims Notice” has the meaning set forth in Section 9.4.

     “Closing” has the meaning set forth in Section 2.3.

     “Closing Date” has the meaning set forth in Section 2.3.

     “Code” has the meaning set forth in Section 3.16.

     “Company” has the meaning set forth in the Recitals of this Agreement.

     “Common Stock” has the meaning set forth in the Recitals of this Agreement.

     “Confidentiality Agreement” has the meaning set forth in Section 5.12.

     “Consolidated Returns” has the meaning set forth in Section 3.16.

     “Contract” means a contract, agreement, guarantee, commitment, indenture, note, bond, mortgage, non-governmental license or assignment, whether written or oral.

     “Effective Date” has the meaning set forth in the preamble of this Agreement.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and all regulations promulgated thereunder.

     “GDOI” means the Georgia Department of Insurance.

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     “Indemnified Party” means a Buyer Indemnified Party or a Seller Indemnified Party, as applicable.

     “Invested Assets” has the meaning given such term in Section 3.22.

     “Knowledge” means (i) with respect to the knowledge of the Seller, the actual knowledge of the individuals listed on Schedule 1.01 (a), and (ii) with respect to the knowledge of the Buyer, the actual knowledge of the individuals listed on Schedule 1.01(b).

     “Lien” means any lien, pledge, security interest, encumbrance, restriction, easement, limitation, claim, charge or defect of title.

     “Losses” has the meaning set forth in Section 9.1.

     “Material Adverse Effect” with respect to a Person means (unless otherwise indicated) any circumstance, change in, or effect on the business and affairs of such Person that (i) is, or would reasonably be expected to be, materially adverse to the business, operations, assets or liabilities, results of operations, or financial condition of such Person, or (ii) would reasonably be expected to prevent or materially delay the performance by such Person of its obligations hereunder or the consummation of the transactions contemplated hereby.

     “Person” means any individual, corporation, limited liability company, partnership, limited partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, governmental, judicial or regulatory body or other entity.

     “Purchase Price” has the meaning set forth in Section 2.2.

     “Required Consent” has the meaning set forth in Section 3.21.

     “SAP” means statutory accounting practices prescribed or permitted by the insurance regulatory authorities of the applicable states where the Company is licensed to transact insurance.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Seller” has the meaning set forth in the Recitals of this Agreement.

     “Seller Indemnified Parties” has the meaning set forth in Section 9.2.

     “Stock” has the meaning set forth in the Recitals of this Agreement.

     “Straddle Period” has the meaning set forth in Section 5.3.

     “Subsidiary” means any corporation, partnership, joint venture or other legal entity in which the person or entity directly or indirectly, owns or controls the voting of at least a 50% share or other equity interest or for which such person or entity, directly or indirectly, acts as a general partner.

     “Taxes” (or “Tax” as the context may require) mean (i) all federal, state, county, local, foreign and other taxes (including, without limitation, income, payroll and employee

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withholding, unemployment insurance, social security, premium (or similar taxes based on premiums), license, transfer, excise, sales, use, gross receipts, franchise, ad valorem, severance, capital and property taxes and other governmental charges and assessments), and includes interest, additions to tax and penalties with respect thereto and (ii) any liability of the Company for the payment of amounts with respect to payments of a type described in clause (i) above as a result of being a member of an affiliated, consolidated, combined or unitary group, or as a result of any obligation of the Company under any Tax sharing arrangement or Tax indemnity arrangement.

     “Trademarks” means all United States and foreign trademarks (including service marks and trade names, whether registered or at common law), registrations and applications therefor, domain names, logos and designs owned by the Company and used in connection with the conduct of the business as currently conducted by the Company, together with the goodwill associated therewith, together with any and all (i) renewals thereof and (ii) rights to sue for past, present and future infringement or misappropriation thereof.

     “2007 Unaudited Financial Statements” has the meaning set forth in Section 3.11.

ARTICLE II — PURCHASE AND SALE OF STOCK

     2.1 Purchase and Sale of Stock. Subject to the terms and conditions set forth in this Agreement, Seller shall sell, convey, assign, transfer and deliver the Stock and all rights and title thereto to Buyer at the Closing, and Buyer shall purchase, acquire and accept the Stock from Seller at the Closing for the Purchase Price set forth in Section 2.2 hereof.

     2.2 Purchase Price. As consideration for the purchase of the Stock, at the Closing (defined below) the Buyer shall pay to Seller an amount in cash equal to Nine Million Four Hundred Eighty-Eight Thousand Six Hundred Ninety-Six Dollars ($9,488,696.00), plus the additional amount of consideration, if any, described in Section 2.3 below.

     2.3 Time, Date and Place of Closing. The transactions which are the subject of this Agreement shall be closed (the “Closing”) on the first Business Day after the date on which all of the conditions set forth in Sections 6.1 and 6.2 are satisfied or waived (other than conditions which by their terms are to be satisfied at the Closing); or on such other date and time as the parties shall mutually agree in writing (the “Closing Date”); provided, however, that if the Closing Date occurs after April 30, 2008 for any reason other than delays attributable solely to acts or omissions of Seller, the Buyer shall pay to the Seller at Closing, in addition to the consideration set forth in Section 2.2, consideration equal to $50,000 for each total calendar month (or, in the case of a partial month, pro-rated according to the number of days elapsed as compared to the actual number of days in such calendar month) past April 30, 2008 by which the Closing Date is extended (the “Delay Premium”). The Closing shall take place at the offices of Morris, Manning & Martin, LLP in Atlanta, Georgia, or at such other place as may be mutually agreed upon by the parties.

     2.4 Earnest Money. Within two Business Days after the execution of this Agreement, Buyer shall pay to Seller an earnest money payment of $50,000 (“Earnest Money Payment”), which shall be nonrefundable (except for Seller’s material breach, as noted below),

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but which may be applied by Buyer as an offset and reduction to either (i) the purchase price payable at Closing pursuant to Section 2.2 or (ii) any Delay Premium payable pursuant to Section 2.3 which remains due and owing at the Closing. However, if the transaction fails to close due to Seller’s material breach of a representation, warranty or covenant which is not cured as described in Section 6.3(c), Seller shall refund the Earnest Money Payment in full to Buyer within five Business Days of the termination.

ARTICLE III — SELLER’S REPRESENTATIONS AND WARRANTIES

     Seller represents and warrants to Buyer as of the date of this Agreement as follows:

     3.1 Organization of Seller and the Company. The Seller is a corporation, duly organized, validly existing and in good standing under the laws of the State of Florida. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia and has all requisite corporate power and authority to loan, lease and operate its properties, whether real, personal or mixed property, and whether tangible or intangible, and to conduct its business as currently being conducted. Seller has heretofore delivered to the Buyer true and complete copies of the Articles of Incorporation (or other charter or organization documents), including all amendments thereto, and Bylaws, as currently in effect, of the Company. The Company is duly qualified and in good standing as a foreign corporation in all jurisdictions in which the nature of its business or the ownership of its properties makes such a qualification necessary, except in such instances where the failure to be so qualified or in good standing would not result in a Material Adverse Effect.

     3.2 Authority. The execution, delivery, and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby have been duly and properly authorized by all necessary corporate action in accordance with the Articles of Incorporation and Bylaws of Seller, and no other corporate proceedings on the part of Seller are necessary to authorize the execution, delivery and performance of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement and the other agreements and instruments to be executed, delivered and performed by Seller in connection with the transactions contemplated hereby, have been duly executed and delivered by the Seller, and constitute the legal, valid and binding obligations of Seller, enforceable against the Seller, in accordance with their terms except as such enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditors’ rights generally, and except as rights to specific enforcement may be limited by the application of equitable principles (whether such equitable principles are applied in a proceeding of law or equity).

     3.3 No Conflicts. Except as set forth on Schedule 3.3, neither the execution and delivery of this Agreement nor the performance by Seller of any of its obligations hereunder will: (a) conflict with or result in the breach of, or constitute a default under, the Articles of Incorporation or the Bylaws of the Seller or the Company or of any Contract to which the Company or Seller is a party or by which the Company, Seller, or any property or assets of the Company or Seller may be bound or affected where the conflict, breach or default thereunder would result in a Material Adverse Effect; (b) create or impose any Lien on any of the assets of the Company; or (c) violate or be in conflict with any Applicable Law, the violation or conflict of which would constitute a Material Adverse Effect.

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     3.4 Capitalization of the Company. The authorized capital stock of the Company consists solely of one hundred thousand (100,000) shares of common stock, $100 par value per share, 50,000 of which are now validly issued and outstanding, fully paid, nonassessable and free of preemptive and rescission rights of any kind. Except for the rights of Buyer with respect to the Stock provided for herein, there are no outstanding options, subscriptions, contracts, agreements, arrangements, warrants or other rights, written or oral, to purchase or otherwise acquire any of the Stock or any other capital stock of the Company, or securities convertible into or exchangeable for, any of the Stock or any other capital stock of the Company. No Person has any right to any payment or consideration with respect to any ownership or other claim relating to the Stock or any other capital stock of the Company except for Seller. Except for the rights of Buyer with respect to the Stock provided for herein, neither Seller nor the Company has made any commitment relating to the issuance, voting, sale or disposition of any of the Stock or any other capital stock of the Company, or any such warrants, options, subscriptions, contracts, agreements, arrangements, rights, convertible or exchangeable securities, or evidences of indebtedness of the Company.

     3.5 Ownership of Stock of the Company. All of the Stock is owned of record and beneficially by Seller, free and clear of all Liens. No Person has any rights by way of stock option, convertible security, subscription, warrant, contract or other agreement or arrangement, written or oral, to purchase or acquire any capital stock of the Company. Seller has full right, power and authority to transfer the Stock to Buyer and upon Closing, Buyer will receive good and marketable title to the Stock free and clear of all Liens. The Company has not issued or entered into any note, loan, subordinated debenture, surplus debenture, debt security or other agreement, document or instrument evidencing indebtedness for borrowed money which remains unpaid as of the date hereof, that affects Seller’s ownership of the Stock or Seller’s authority to transfer the Stock to Buyer upon Closing.

     3.6 Corporate Records. The minute books and stock record books of the Company which have been made available for Buyer’s review are complete and correct in all material respects and set forth all material actions of the Board of Directors, committees of the Board of Directors and the shareholders of the Company (in the case of the minute book) and a record of all stock issuances and transfers (in the case of the stock record book), through the Closing Date.

     3.7 Officers and Directors. Schedule 3.7 attached hereto sets forth the name and office of every current officer and director of the Company.

     3.8 Compliance with Applicable Laws. Except as described on Schedule 3.8, (i) the Company has complied, in all material respects, with all Applicable Laws and (ii) to Seller’s Knowledge, has not received notice of any alleged violation of any Applicable Law.

     3.9 Contracts. Except as described on Schedule 3.9(a) the Company is not a party to, nor does it have any obligations under, nor are any of its assets bound by, any contract, agreement, relationship or commitment, whether written or oral, including, without limitation, agreements relating to the hiring of agents, brokers, producers, representatives or other independent contractors; reinsurance agreements; service contracts; claims adjustment service contracts; agreements regarding the sale of insurance products or services; bonus or incentives, deferred compensation, group insurance and other employee benefit plans or arrangements;

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leases or other contracts relating to real or personal property; loan agreements, security agreements, conditional sale or title retention agreements or other instruments relating to financing; managing general agency agreements; contracts for the purchase or sale of materials, supplies or equipment; contracts for the purchase, acquisition, sale or disposition of any assets of the Company or the grant to any Person of any option or preferential rights to purchase any assets of Company; contracts relating to licenses of Trademarks; employment agreements; contracts with any officers, directors or Affiliates of the Company or of the Seller. Schedule 3.9(b) is a true and complete list of all insurance policies and settlement agreements made in connection with insurance claims, copies of which have been, or will be made available to Buyer for inspection prior to Closing and which are all such policies and settlement agreements to which the Company is a party or bound. Seller has furnished Buyer a true and accurate copy of each written contract and a true and accurate summary of each such oral agreement listed on Schedule 3.9(a).

     3.10 Real Estate. The Company neither owns nor leases any real estate.

     3.11 Financial Statements. Seller has delivered to Buyer true, correct and complete copies of the Company’s unaudited statutory financial statement of December 31, 2007 (the “2007 Unaudited Financial Statement”) and the Company’s audited annual statements for calendar years ended December 31, 2005 and December 31, 2006 (the “Annual Financial Statements”). The 2007 Unaudited Financial Statement and the Annual Financial Statements present fairly, in all material respects, admitted assets, liabilities, stockholder’s Capital and Surplus, results of its operations and cash flows of the Company as of the dates and for the periods indicated, determined in conformity with SAP applied on a basis consistent with prior periods. The Company did not as of the respective dates of the Annual Financial Statements and the 2007 Unaudited Financial Statement have any liabilities or obligations which, in conformity with SAP applied on a basis consistent with prior periods, would have been required to be disclosed or provided for in either the 2007 Unaudited Financial Statement or the Annual Financial Statements. The Annual Financial Statements comply in all material respects with all Applicable Laws, and were and are complete and correct in all material respects when filed. As of the date of the Closing the Company will have no liabilities or obligations or any kind or nature, whether known or unknown as of such date, which have not been fully reserved and provided for in the 2007 Unaudited Financial Statement.

     3.12 Reserves. All reserves for claims, losses (including, without limitation, incurred but not reported losses) and loss adjustment expenses (whether allocated or unallocated) as reflected in each of the 2007 Unaudited Financial Statement and the Annual Financial Statements:

          (a) meet the requirements of the insurance laws of the State of Georgia,

          (b) are consistent with reserves computed in accordance with Standards of Practice issued by the Actuarial Standards Board (including the Casualty Actuarial Society’s Statement of Principles Regarding Property and Casualty Loss and Loss Adjustment Expense Reserves),

          (c) make a reasonable and sufficient provision for all unpaid loss and loss expense obligations of the Company under the terms of its policies and agreements, and

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          (d) are adequate to satisfy any unpaid loss and loss expense obligations incurred by the Company on or prior to the Closing Date.

     3.13 Absence of Changes.

          (a) Except as set forth on Schedule 3.13, since December 31, 2007, there has not been any material change in the financial condition or in the results of operations, business, properties or assets of the Company.

          (b) Except as set forth in Schedule 3.13 and except for the discharge of liabilities and distribution of capital incident to the Company’s winding up activities, since December 31, 2007, the Company has operated its business only in the ordinary course of business consistent with past practice and has not:

               (i) amended its Certificate or Articles of Incorporation, Bylaws or other charter or organizational document, or merged with or into or consolidated with any other Person, subdivided or in any way reclassified any shares of its capital stock or changed or agreed to change in any manner the rights of its outstanding capital stock;

               (ii) issued or sold any capital stock or other equity interest or any bonds, debentures, notes, debt instruments, evidences of indebtedness or other securities of any kind, including, without limitation, any stock appreciation rights, options, warrants, calls or any other rights of any kind to purchase or otherwise receive an equity interest;

               (iii) made any direct or indirect redemption, retirement, purchase or other acquisition of any shares of its capital stock or other equity interest or any bonds, debentures, notes, debt instruments, evidences of indebtedness or other securities of any kind;

               (iv) incurred any indebtedness for borrowed money or entered into any commitment to borrow money or guarantee any liability for borrowed money;

               (v) made any change in its accounting or reserving methods or practices;

               (vi) allowed the creation of any Lien on any of its tangible or intangible assets or property, or any sale, transfer, assignment, lease or abandonment of any interest in any of its tangible or intangible assets or property, other than sales, transfers, assignments and leases in the ordinary course of business consistent with past practice;

               (vii) entered into any contract, commitment or transaction resulting in the imposition of liabilities or obligations not fully reserved and provided for in the 2007 Unaudited Financial Statement;

               (viii) made any acquisition of all or any substantial part of the assets, properties, securities or business of any other Person;

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               (ix) increased or agreed to increase any salary, wages, bonus, severance, compensation, pension or other benefits payable or to become payable, or granted any severance or termination payments or benefits, to any of its current or former officers, directors, employees, consultants, agents or other representatives; or

               (x) entered into any contract, commitment or transaction to do any of the foregoing.

     3.14 Employee Benefit Plans. The Company has no employees or employee benefit plans. The Company is not required to have or maintain any such employee benefit plan, nor is the Company subject to any ERISA requirements or subject to liability pursuant to any ERISA requirements.

     3.15 Labor Matters.

          (a) There are no employment agreements, collective bargaining agreements, union contracts or similar types of agreements (including, without limitation, any side letters) to which the Company is a party to or by which the Company is bound or covered.

          (c) There has been no strike or union organizational activity or any allegation, charge or complaint of employment discrimination, unfair labor practice or other similar occurrence, nor are any such occurrences pending or, to the Seller’s Knowledge, threatened against the Company.

          (d) No present or former employee of the Company has any claim against the Company (whether under federal or state law, any employment agreement or otherwise) on account of or for (i) overtime pay; (ii) wages or salary; (iii) vacation time off or pay in lieu of vacation time off; or (iv) any material violation of any statute, ordinance or regulation relating to minimum wages or maximum hours of work. Except as described in Schedule 3.15, no person or party (including, but not limited to, governmental agencies of any kind) has filed, or to the Knowledge of Seller has threatened to file, any claim against the Company under or arising out of any statute, ordinance or regulation relating to discrimination in employment or employment practices. As of the date of the Closing, the Company will have no obligation or liability with respect to any employees or former employees of the Company, financial or otherwise, with respect to any employee benefit plan, pension or retirement plan, bonus plan or deferred compensation arrangement maintained by the Company or covering any employee or former employee of the Company.

     3.16 Tax Returns. Other than Tax returns and reports for which the failure to file would not result in a Material Adverse Effect, through the Effective Date the Company has filed all federal, state, county, local and foreign Tax returns and reports which it is required to file under Applicable Law, whether for itself or in consolidation with Affiliates, and solely with respect to the Company, such returns and reports are correct and complete, in all material respects, and timely filed (including any applicable filing extensions). Solely with respect to the Company, as of the Effective Date, the Company has paid all Taxes which have become due pursuant to such returns or reports or pursuant to any assessment received with respect thereto. The Company has paid for all premium Taxes which are owed or estimated to be owed by the Company and as of the Effective Date is current with respect to all premium Tax returns and Tax

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payments in all states of operation. The Seller’s parent files consolidated federal income Tax returns and certain consolidated and unitary state income Tax returns (collectively, the “Consolidated Returns”) which include the Company and other Affiliates and such Consolidated Returns are the subject of frequent audits; however, to Seller’s Knowledge, there are no threatened actions, proceedings or investigations by any governmental authority with respect to any separate Tax returns filed solely by the Company or any income, loss or deduction items of the Company reported on the Consolidated Returns which could have a Material Adverse Effect on the Company. With respect to any period of time through Closing for which Tax returns or reports have not yet been filed, or for which Taxes are not yet due or owing, the Seller has established or has caused the Company to establish adequate reserves for all liabilities for Taxes relating to the Company which are accrued but not yet due and payable. The Company has made all payments of estimated Taxes required to be made by the Company through the Effective Date under Applicable Law. No penalties or other charges are due with respect to the late filing of any Tax return of the Company required to be filed on or before the Effective Date. There is no Lien for Taxes (other than for Taxes not yet due and payable), whether imposed by any federal, state, county or local taxing authority, outstanding against the Company’s assets, properties or business. Neither the Company nor the Seller has ever made an election pursuant to Section 1362 or Section 341(f) of the Internal Revenue Code of 1986, as amended (the “Code”), that the Company be taxed as a Subchapter S corporation or a collapsible corporation. Through the Closing Date, the Company’s net operating losses for federal income tax purposes as set forth in the Annual Financial Statements are not subject to any limitations imposed by Section 382 of the Code.

     3.17 Personal Property. Attached hereto as Schedule 3.17 is a true, correct and complete list and description of all personal property owned or leased by Company. The Company has good and marketable title to all of its personal property free and clear of any Lien.

     3.18 Legal Proceedings. Attached hereto as Schedule 3.18 is a true, correct and complete list of currently open insurance policy claims incurred in the regular course of the business and all other such claims incurred under or related to any insurance or reinsurance policy written or assumed by the Company as of the date hereof, and other than such claims there is no claim, suit, action, arbitration proceeding, or investigation pending or, to Seller’s Knowledge, threatened against the Company or to which the Company is otherwise a party, before any court, or before any governmental department, commission, board, agency, or instrumentality or before any arbitration panel; nor to Seller’s Knowledge is there any basis for any such claim, suit, action, proceeding, or investigation. The Company is not bound by or subject to any order, judgment, injunction, award or decree of any court, governmental or regulatory body, or arbitration tribunal which has had or is reasonably likely to have a Material Adverse Effect.

     3.19 Certificates of Authority. The Company possesses all certificates of authority necessary for the conduct of its business as previously conducted. Schedule 3.19 sets forth a true and complete list of all such certificates of authority and the jurisdictions to which they apply, identifying all authorized lines of insurance in such jurisdictions. All such certificates of authority are valid and in full force and effect. Except as disclosed on Schedule 3.19, there is no action, proceeding, inquiry or investigation pending or, to Seller’s Knowledge, threatened for the suspension, modification, limitation, cancellation, revocation or non-renewal of any such certificate of authority and the Seller has no Knowledge of any existing fact or circumstance

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which (with or without notice or lapse of time or both) is reasonably likely to result in the suspension, modification, limitation, cancellation, revocation or non-renewal of any such certificate of authority. The Company is not engaged in any insurance business in any jurisdiction in which it is not duly authorized or qualified to transact such business.

     3.20 Bank Accounts and Deposits. Attached hereto as Schedule 3.20 is a true, accurate and complete list of (i) each bank, or other financial institution in which the Company has an account or safe deposit box, the number of each such account or box, a list of all assets held in each account or box and the names of all persons authorized to draw thereon, give instructions with respect thereto or to have access thereto; and (ii) any account or deposit maintained with the Georgia Department of Insurance or any other federal or state governmental entity. The deposits listed in Schedule 3.20 are the only deposits required by statute, regulation, bulletin, or otherwise, in any state where the Company is licensed to transact business, and such deposits are in an amount equal to or greater than the amount of any applicable required deposit.

     3.21 Required Consents. Schedule 3.21 sets forth a complete and accurate list and description of each registration, filing, application, notice, transfer, consent, approval, court order, qualification or waiver (each a “Required Consent”, collectively “Required Consents”) that to the Seller’s Knowledge is required to be obtained by Seller or the Company by virtue of the execution of this Agreement or the consummation of the transactions contemplated herein to prevent the possibility of a termination, breach or impairment of any contract, reinsurance or other agreement disclosed or referred to in any schedule hereto or to continue after Closing the agreements of the reinsurers to provide reinsurance to the Company.

     3.22 Investments. The Company is in possession of all certificates or other documentation evidencing ownership of the “Invested Assets” (which shall be defined as those assets of the Company listed in the 2007 Unaudited Financial Statements) and has good and marketable title, free and clear of all Liens, to all of the Invested Assets. None of the Invested Assets is in default in the payment of principal, interest or dividends, and all Invested Assets substantially comply with the investment guidelines adopted by the Company and all insurance laws and regulations of each of the jurisdictions to which the Company is subject thereto. Schedule 3.22 sets forth all amounts deposited by the Company for the benefit of policyholders as required by regulatory authorities.

     3.23 Regulatory Filings. Except as may be required for the transactions contemplated by this Agreement, the Company has duly filed with appropriate governmental authorities, to the extent that filing of the same is required by laws, rules or regulations, all annual and quarterly statements and other statements, documents, filings, registrations and reports including, without limitation, any filings required under any state’s insurance holding company system act. All such statements, documents, filings, registrations and reports were in compliance in all material respects with all Applicable Law when filed, and there are no material omissions therefrom. Except as set forth in Schedule 3.23, there is no action, proceeding, dispute, controversy, inquiry or investigation pending or, to Seller’s Knowledge, threatened by any governmental authority relating to the Company. Except for regular periodic assessments in the ordinary course of business, no claim or assessment is pending or, to Seller’s Knowledge, threatened against the Company by any state insurance guaranty association in connection with that association’s fund relating to insolvent insurers.

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     3.24 Agents and Producers. All agents of the Company have been canceled and terminated, and cancellation and termination of such agents were done in conformity with any such agreements with the terminated agents. The termination of such agents prior to Closing will not subject the Company or the Buyer to any liability for breach of contract or any other liability, claim or obligation. Schedule 3.24 lists all agents, brokers, producers, managing general agents, underwriting managers and other Persons through whom Company has written or sold any insurance, reinsurance or retrocessional coverage. All Persons listed on Schedule 3.24 are, and at all relevant times were, duly licensed to act as agents, brokers, producers, managing general agents or underwriting managers in the jurisdictions where they engage in such activities. Except as set forth in Schedule 3.24, there are no laws or contracts which prohibit the termination of any appointment or agreement with such Persons other than the sending of written notice without cause by the Company of ninety (90) days or less.

     3.25 No Brokers. No broker, finder or investment banker has been retained or engaged on behalf of Seller or the Company, nor is any Person claiming to have been engaged by Seller or the Company entitled to any brokerage, finders or other fee, compensation or commission in connection with the transactions contemplated by this Agreement.

ARTICLE IV — BUYER’S REPRESENTATIONS AND WARRANTIES

     Buyer represents and warrants to Seller as of the date of this Agreement as follows:

     4.1 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby.

     4.2 Authority, Validity and Enforceability. The execution, delivery, and performance of this Agreement by Buyer and the consummation of the transactions contemplated hereby by the Buyer have been duly and properly authorized by all necessary corporate action in accordance with applicable law and with the Articles of Incorporation and Bylaws of Buyer, and no other corporate proceedings on the part of Buyer are necessary to authorize the execution, delivery and performance of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement and the other agreements and instruments to be executed, delivered and performed by Buyer in connection with the transactions contemplated hereby, have been duly executed and delivered by the Buyer and constitute the legal, valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and except as rights to specific enforcement may be limited by the application of equitable principles (whether such equitable principles are applied in a proceeding of law or equity).

     4.3 Transaction not a Breach. Neither the execution and delivery of this Agreement nor its performance by Buyer will conflict with or result in a breach of the terms, conditions or provisions of the Articles of Incorporation or Bylaws of Buyer, or any contract, agreement, mortgage or other instrument or obligation of any nature to which Buyer is a party or by which Buyer is bound, and except for the approval of the GDOI which Buyer must obtain, neither the

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execution and delivery of this Agreement nor its performance by Buyer will contravene or violate any statute or any judicial or governmental regulation, order, injunction, judgment or decree, or require the approval, consent or permission of any governmental or regulatory body or authority.

     4.4 Investment Intent. The Stock will be acquired by the Buyer for its own account without a view to a distribution or resale thereof, it being understood that the Buyer shall have the right to sell or otherwise dispose of any of the Stock pursuant to a registration or an
exemption therefrom under the Securities Act and any applicable state securities law.

     4.5 Litigation. There are no actions, causes of action, proceedings, claims at law or equity pending or, to the knowledge of Buyer, threatened against or involving Buyer or any of its Affiliates which relates to this Agreement or any of the transactions contemplated hereby or which would have a Material Adverse Effect.

     4.6 No Brokers. No broker, finder or investment banker retained or engaged on behalf of Buyer or any of its Affiliates, nor any Person claiming to have been engaged by Buyer or any of its Affiliates, is entitled to any brokerage, finders or other fee, compensation or commission in connection with the transactions contemplated by this Agreement.

     4.7 No Reliance. Buyer acknowledges and agrees that it is not relying upon any representation or warranty of the Seller or the Company not set forth in this Agreement. Buyer acknowledges that it has conducted its own independent review and analysis of the business,
assets, condition, operation and prospects of the Company and acknowledges that, to the extent requested, it has been provided access to the books and records of the Company for this purpose.

ARTICLE V — OTHER AGREEMENTS

     5.1 Inspection. Seller shall allow the Buyer and its authorized representatives or designees access at reasonable times after the date hereof, and prior to the Closing Date, to all of the properties and records of the Company, and shall furnish Buyer and its authorized representatives or designees such access to the properties and records of the Company, as will allow Buyer to obtain requested information and to make preparations for the continued post-closing operation of the business of the Company. The Seller will reasonably cause the officers and employees of Seller or its Affiliates, having any knowledge concerning the operation of the business of the Company, to cooperate in connection with any such requests and examinations and to make disclosure to Buyer and its representatives of all reasonably requested facts, information and documentation regarding the condition of the Company, and pertaining to the business of the Company. The Seller further agrees to cooperate with Buyer and request the auditors, actuaries, consultants, reinsurers, advisors, and other authorized representatives of the Company, to reasonably cooperate in connection with any such examination and to make disclosure to Buyer and its representatives of all requested work papers, studies, evaluations and facts regarding the condition of the Company, and of the business of the Company, all at Buyer’s cost and expense. All such examinations and investigations shall be conducted during normal business hours and without unreasonably interfering with the operations of the Company or any of its Affiliates. Notwithstanding the foregoing, Seller and its Affiliates shall not be required to disclose any information where disclosure would jeopardize any attorney-client privilege or contravene any law, rule or regulation.

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     5.2 Operation of Business. Except for the discharge of liabilities and distribution of capital incident to the Company’s winding up activities and except as otherwise provided or disclosed herein, Seller will cause the Company, from the date of this Agreement until the Closing hereunder:

          (a) To maintain the status quo of the Company and not incur or make any commitment or incur any expenditures other than in the ordinary course of business;

          (b) To maintain the Invested Assets of the Company in securities of substantially the same quality, liquidity and duration as the Invested Assets as of the 2007 Statement Date;

          (c) Not to change or amend the Articles of Incorporation or Bylaws of the Company or to appoint or elect any person as a director or officer who is not serving as such on the date hereof;

          (d) Not to issue or sell, or to grant options, warrants or rights to purchase or subscribe to, or enter into any arrangement or contract with respect to the issuance or sale of, any of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock, or to make any changes in its capital structure;

          (f) Not to organize any Subsidiary, acquire any capital stock or other equity securities of any other corporation, or acquire any equity or ownership interest in any business, and not to merge with, liquidate into or otherwise combine with any other Person;

          (g) To preserve the corporate existence and business organization of the Company intact;

          (h) To preserve and maintain in full force and effect, and in good standing, all certificates of authority of the Company and all licensure in effect as of the 2007 Statement Date;

          (i) Not to obligate the Company to pay any employee compensation or benefits, or modify any compensation or benefit arrangements in any way that would increase the rights or accelerate the payments as a result of a change of control of the Company;

          (j) Not to incur any indebtedness for borrowed money, nor guarantee any obligation, nor permit or suffer any of its assets to be subject to any Lien;

          (k) Comply in all material respects with all laws, statutes, ordinances, rules and regulations of governmental authorities applicable to Company;

          (l) Perform in all material respects its obligations under all contracts and commitments to which it is a party or by or to which it is bound or subject;

          (m) Not to make any material change in any financial reporting, tax, accounting, actuarial or reserving methods or practices or in the Company’s investment guidelines;

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          (n) Not to incur any liabilities or obligations of any nature that are not fully reserved and provided for in the 2007 Unaudited Financial Statement; or

          (o) Take any other action, or omit to do any act, that individually or in the aggregate would reasonably be likely to result in a Material Adverse Effect.

     5.3 Taxes.

          (a) Tax Returns. With respect to Tax returns that the Company is required to file on or prior to the Closing Date (including, without limitation, all federal, state and local returns for income, sales, use, property, intangible, premium, and franchise Taxes), Seller shall be responsible for preparing and filing such returns, and Seller shall be responsible for making any required Tax payments with respect to such returns. In addition, Seller shall pay any Taxes for the portion of the taxable period through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (“Pre-Closing Tax Period”). The Buyer and the Company shall cooperate with the Seller to the extent reasonably necessary to prepare such Tax returns. The Buyer shall, or shall cause the Company to, file Tax returns (including, without limitation, all federal, state and local returns for income, sales, use, property, intangible, premium, and franchise Taxes) which include, and report the operations from, the Company for the taxable period beginning on the day following the Closing Date and for any taxable period that includes (but does not end on) the Closing Date (a “Straddle Period”). With respect to Straddle Periods, (i) Buyer shall prepare the Tax returns in a manner which is materially consistent with the Company’s past practice, (ii) the Buyer shall provide the Seller with copies of such Tax returns to be filed by the Buyer at least thirty (30) days prior to the due date thereof (giving effect to any extensions thereto), (iii) no Tax return shall be filed without Seller’s prior written consent, and (iv) the amount of any Taxes based on or measured by income or receipts of the Company for the Pre-Closing Tax Period shall be determined based on an interim closing of the books as of the close of business on the Closing Date (but expressly excluding any business conducted or assets acquired by the Company after the Closing Date) and the amount of other Taxes of the Company for Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire Straddle Period (but expressly excluding any Taxes incurred as a result of business conducted or assets acquired by the Company after the Closing Date) multiplied by a fraction the numerator of which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the total number of days in the Straddle Period. If there is any disagreement between the Buyer and the Seller with respect to such Straddle Period Tax returns, the Seller’s determination shall control as long as it is reasonably consistent with the Company’s past practice.

          (b) Conduct of Tax Audits. Seller and Buyer agree to provide prompt notice of, and to cooperate with each other as reasonably necessary in connection with, any official Tax inquiry, Tax determination or Tax-related legal proceeding affecting a Tax liability of the Company (whether before or after the Closing Date) or in connection with a determination of any Tax liability or treatment (including the preparation of any Tax liability or treatment relating to the Company). Seller and Buyer shall make available to each other Party a reasonable amount of time, at no cost to such Party, of its employees and officers, together with documents, correspondence, reports and other materials relating solely to the Company and reasonably bearing on such Tax inquiry, examination, proceeding or determination of Tax liability or

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treatment, provided that Seller and Buyer (or Company after Closing) shall be reimbursed for any reasonable out-of-pocket expenses incurred in assisting another Party hereunder, which reimbursement shall be paid by the Party requesting the assistance within ten (10) Business Days of Seller, Company or Buyer, as applicable, providing the reimbursing Party written notice in reasonable detail of the amount and reason for such expenses (including but not limited to third party invoices, if any). With respect to any suit, action or proceeding (including any Tax audit) which relates to a Pre-Closing Tax Period or a Straddle Period, upon written notice to the Company, Seller shall have the right to control the defense of any such suit, action or proceeding in such manner as it reasonably may deem appropriate and will have authority to effect a compromise or settlement at such time and in such manner as Seller determines is reasonably necessary, provided, before effecting any compromise or settlement, Seller shall consult with the Buyer on the terms of the compromise or settlement.

          (c) Post-Closing Access for Tax Matters. After the Closing, the Seller and Buyer shall provide, and shall cause each of their Affiliates to provide, to the other party and its Affiliates such information (including access to books and records) relating to the Company as the Seller or Buyer may reasonably request in order to permit filing of any Tax return, the determination of any Tax liability or right to refund, and the conduct or defense of any audit, claim, suit, or other proceeding in respect of the Tax obligations of Company. The Buyer and Seller shall cooperate with each other as reasonably necessary in the conduct of any audit, claim, suit, or other proceeding involving the Company for any Tax purpose.

          (d) Post-Closing Tax Matters. If, after the Closing, a Tax audit or other proceeding relating to any Tax period ended prior to the Closing results in a refund of Taxes paid by Seller, then Seller shall be entitled to receive and retain such refund. If, after the Closing, a Tax audit or other proceeding relating to any Tax period ended prior to the Closing results in an assessment, liability or obligation for Taxes, fees, interest or penalties, then Seller shall be obligated to promptly pay and discharge all such assessments, liabilities and obligations and any and all liens, claims or encumbrances arising therefrom.

          (e) Survival of Obligations. Buyer’s and Seller’s agreements under this Section 5.3 shall survive the Closing of this Agreement.

     5.4 Closing Costs. Except as provided in Section 6.3, the Buyer and Seller shall each bear its own costs and expenses in connection with the transactions contemplated hereby, including, but not limited to, the fees for Buyer’s and Seller’s respective attorneys. Buyer shall indemnify Seller and its Affiliates from any claim, loss, damage or expense incurred as a result of any demand for commissions, brokers’ fees or finders’ fees by any Person claiming to have been engaged by Buyer or any of its Affiliates. Seller shall indemnify Buyer and its Affiliates from any claim, loss, damage or expense incurred as a result of any demand for commissions, brokers’ fees or finders’ fees by any Person claiming to have been engaged by Seller or any of its Affiliates.

     5.5 Government Filings. Seller and Buyer shall, as soon as reasonably practicable after execution of this Agreement, and, as provided herein, as a condition to Closing make any and all filings required to be made by them with any and all governmental authorities in connection with the consummation of the transactions contemplated herein. Accordingly, and not in limitation of the preceding sentence, Buyer shall promptly file, after the execution of this

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Agreement, at its expense, an application to acquire control of the Company with the GDOI, and shall provide a copy of the completed application to Seller prior to filing the application with the GDOI. In addition, prior to Closing Seller will continue to timely file all required statutory statements with the GDOI, and after Closing, Buyer will timely file all required statutory statements with the GDOI. Each party shall furnish the other party with any reasonably necessary information, certificates and other documents in a timely manner and shall cooperate with the other party in all ways reasonably necessary to effect any of the filings which are subject to this Section 5.5.

     5.6 Cooperation and Reasonable Efforts. Subject to the terms and conditions hereof, each of the parties shall cooperate with the other and will cause their Affiliates to cooperate to the extent necessary to consummate the transactions contemplated by this Agreement. Each of the parties agrees to use its reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement.

     5.7 Notification of Certain Matters. Each of the parties shall give prompt notice to the other of the occurrence or non-occurrence of any event which would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing and any material failure of any party to comply with or satisfy any covenant, condition or agreement to be complied with our satisfied by it hereunder.

     5.8 Public Announcements. Each party shall notify the other prior to issuing any press release or making any public statement pertaining to this Agreement or the transactions contemplated hereby, and shall not issue any such press release or make any such public statement without obtaining the prior written approval of the other party hereto, except as required by Applicable Law or stock exchange rules, or except as required to be disclosed in filings made with the Securities and Exchange Commission.

     5.9 No Solicitation. Seller and the Company agree that during the term of this Agreement, neither they nor their any of their respective representatives or employees will solicit or respond favorably to any solicitation from, or otherwise enter into negotiations or reach any agreement with, any Person regarding the merger, recapitalization, consolidation, the sale of all or substantially all the assets of the Company, or the sale of any of the Company’s capital stock.

     5.10 Intercompany Accounts; Pooling Agreements. Seller shall use its reasonable efforts to cause all intercompany amounts receivable or payable with respect to the Company (whether or not currently due or payable) to be settled in full without any premium or penalty at or prior to the Closing. All agreements with Affiliates including all reinsurance pooling arrangements shall be terminated without any further liability or obligation thereunder to Company effective at or prior to the Closing.

     5.11 Reinsurance Arrangements. Except as otherwise provided or disclosed in this Agreement, between the date hereof and the Closing Date, Seller will not permit Company to enter into, terminate or breach any pooling, reinsurance, coinsurance, retrocession, underwriting management, or managing general agency agreement or any similar contract unless approved in writing by the Buyer.

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     5.12 Confidentiality of Information and Documents. The Mutual Non-disclosure Agreement, dated October 11, 2007 between Buyer and SunTrust Banks, Inc. (the “Confidentiality Agreement,” attached hereto as Exhibit A) will remain in full force and effect in accordance with its terms and will apply to any information furnished pursuant to this Agreement.

     5.13 Assets of the Company. As of the Closing Date, the assets of the Company shall be of a type, form and quality to permit the Company to receive full credit, without limitation, reduction or restriction, for the fair market value thereof from all applicable regulatory authorities.

     5.14 Records. At or as soon as reasonably practicable after the Closing, Seller will deliver or cause to be delivered to Buyer any Books and Records of the Company of which Buyer does not already have copies.

     5.15 Pre-Closing Dividends or Distributions. Prior to Closing, Seller and the Company shall take all steps necessary to complete a dividend or distribution to Seller of an amount of the Company’s distributable surplus necessary to reduce the Capital and Surplus of the Company to an amount equal to the Purchase Price less $500,000.00.

     5.16 Virginia Workers Compensation Claims. Buyer hereby acknowledges that the workers compensation claims set forth on Schedule 5.16 (the “Virginia WC Claims”) may not be resolved or transferred out of the Company prior to Closing. In the event that the Virginia WC Claims remain liabilities of the Company as of the Closing, Seller and the Company shall enter into a reinsurance agreement substantially in the form attached hereto as Exhibit B (the “Reinsurance Agreement”) pursuant to which the Seller or its Affiliate shall assume all financial liability and administrative obligations for the Virginia WC Claims. Buyer acknowledges and agrees that the transactions contemplated by the Reinsurance Agreement shall not affect the Purchase Price. Buyer further hereby acknowledges and agrees that prior to Closing, Seller and Company may, in their sole discretion, continue to seek regulatory approval for the transfer of the Virginia WC Claims to an Affiliate of the Seller.

     5.17 Reimbursement of Certain Assessments. Buyer acknowledges that prior to Closing the Company and/or Seller may be required to pay certain expenses, fees and assessments related to maintenance of the Company’s ratings, licenses and its continued membership in certain organizations, mandatory reinsurance pools and other similar affiliations which the Company is required to maintain as a result of its licenses, and further, that such ratings, licenses and memberships will continue to be beneficial to the Company and Buyer from and after Closing. Accordingly, Buyer hereby agrees to reimburse the Seller on the Closing Date in cash in an amount equal to the pro-rated portion of the expenses, fees and assessments set forth on Schedule 5.17, calculated according to the remaining post-Closing benefit which will accrue to the Buyer. By way of example, if Seller or Company is required to pay an annual fee of $240.00 on March 1, 2008 to maintain a certain affiliation and the Closing occurs on May 1, 2008, such affiliation shall be deemed at the Closing to have ten (10) remaining months of utility and benefit to the Company and Seller shall reimburse the Buyer in an amount in cash equal to $200.00.

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ARTICLE VI — CONDITIONS TO OBLIGATIONS

     6.1 Conditions to Obligations of Buyer. All obligations of Buyer under this Agreement with respect to the Closing are subject to the fulfillment of each of the following conditions:

          (a) Each and every representation and warranty of Seller contained in this Agreement shall be true and accurate in all material respects at the Closing.

          (b) Seller and the Company shall have performed and complied, in all material respects, with all covenants and conditions required by this Agreement to be performed or complied with prior to or at the Closing.

          (c) No action or proceeding shall have been instituted before any court or governmental agency to restrain or prohibit, or to obtain damages in respect of, this Agreement, or the consummation of the transactions contemplated in this Agreement.

          (d) All authorizations, regulatory clearances or other governmental consents or approvals (including the approval of the GDOI) required in connection with the purchase and sale of the Stock and the consummation of the Closing shall have been duly obtained, made or given and shall be in full force and effect.

          (e) There shall have been no material adverse change in the financial condition or actuarial valuations of the Company since December 31, 2007, except for the discharge of liabilities and distribution of capital incident to the Company’s winding up activities and as otherwise contemplated or permitted by this Agreement.

          (f) Buyer shall have received evidence reasonably satisfactory to Buyer confirming the valid existence and good standing of the certificates of authority of the Company necessary to transact insurance in all of the jurisdictions identified on Schedule 3.19.

          (g) The Buyer shall have received all of the documents listed in Section 7.1.

          (h) The Buyer or an affiliate of Buyer shall have successfully raised capital equal to at least $9,488,696.00 pursuant to a public or private offering of debt or equity securities.

     6.2 Conditions to Obligations of Seller. All of the obligations of the Seller hereunder with respect to the Closing are subject to the fulfillment of each of the following conditions:

          (a) Each and every representation and warranty of Buyer contained in this Agreement shall be true in all material respects at the Closing.

          (b) Buyer shall have performed or complied, in all material respects, with all covenants and conditions required by this Agreement to be performed or complied with by it prior to or at Closing.

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           (c) No action or proceeding shall have been instituted before any court or governmental agency to restrain or prohibit, or to obtain damages in respect of, this Agreement, or the consummation of the transactions contemplated in this Agreement.

          (d) All authorizations, regulatory clearances or other governmental consents or approvals (including the approval of the GDOI) required in connection with the purchase and sale of the Stock and the consummation of the Closing shall have been duly obtained, made or given and shall be in full force and effect.

          (e) The Seller shall have received the Purchase Price and the other deliveries from Buyer set forth in Section 7.2.

     6.3 Termination of Agreement. This Agreement may be terminated at any time prior to the Closing Date:

          (a) by mutual written consent of Seller and Buyer;

          (b) by either Seller or Buyer, by giving written notice to the other party, if a court of competent jurisdiction or other governmental entity shall have issued a nonappealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, except that this right of termination shall not be available to a party that has not complied with its obligations under this Agreement;

          (c) by either Seller or Buyer, by giving written notice to the other party, if the other party has committed a material breach of any representation, warranty, covenant or agreement of this Agreement, and such breach has not been cured or waived in writing within ten (10) Business Days of written notice to the other party;

          (d) by Buyer, by giving written notice to Seller, if the Closing shall not have occurred on or before August 1, 2008 by reason of the failure of any condition precedent contained in Section 6.1 (unless the failure results primarily from a breach by Buyer of any representation, warranty, covenant or agreement of Buyer contained in this Agreement); and

          (e) by Seller, by giving written notice to Buyer, if the Closing shall not have occurred on or before August 1, 2008 by reason of the failure of any condition precedent contained in Section 6.1 (h) or Section 6.2 (unless the failure results primarily from a breach by Seller of any representation, warranty, covenant or agreement of Seller contained in this Agreement).

     In the event that Buyer or Seller terminates this Agreement for any reason other than Seller’s material and uncured breach (as described in Section 6.3(c)), Buyer shall promptly reimburse Seller and the Company for documented out-of-pocket costs and expenses in connection with this Agreement and the transactions contemplated hereby, provided that Buyer’s liability for such costs and expenses under this Section 6.3 shall not exceed Seventy-Five Thousand Dollars ($75,000.00) (“Expense Payment”). In addition, if Buyer terminates this Agreement for any reason other than Seller’s material and uncured breach (as described in Section 6.3(c)), Buyer shall pay Seller liquidated damages in an amount equal to Seventy-Five

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Thousand Dollars ($75,000.00)(the “Termination Fee”). The Parties recognize and agree that the amount of damages resulting from Buyer’s termination of this Agreement for any reason other than Seller’s material and uncured breach (as described in Section 6.3(c)) may be impossible or very difficult to determine and accordingly, the Termination Fee is recognized by the Parties not to be a penalty. If Buyer terminates this Agreement due to Seller’s material and uncured breach, pursuant to Section 6.3(c), Seller shall promptly reimburse Buyer for documented out-of-pocket costs and expenses incurred by Buyer in connection with this Agreement and the transactions contemplated hereby, provided that Seller’s liability for such costs and expenses under this Section 6.3 shall not exceed Seventy-Five Thousand Dollars ($75,000.00). The reimbursement of Buyer’s or Seller’s costs and expenses is in addition to Buyer’s and Seller’s other legal and equitable rights and remedies, none of which shall be diminished by Buyer’s or Seller’s rights to reimbursement hereunder.

     6.4 Effect of Termination. In the event of termination of this Agreement pursuant to Section 6.3, this Agreement shall thereafter become void and have no effect, except for the survival of Sections 5.4 (Expenses), 5.8 (with respect to public announcements as described therein), 5.12 (with respect to confidentiality as described therein) and 6.3 (with respect to reimbursement of expenses); provided, however, that nothing herein shall relieve any party from liability for any breach of any of its representations, warranties, covenants or agreements contained in this Agreement prior to termination of this Agreement.

ARTICLE VII — DELIVERIES AT CLOSING

     7.1 Deliveries by Seller at Closing. At the Closing, Seller will deliver to Buyer the following documents:

          (a) Share certificates representing all of the Stock, duly endorsed for transfer to Buyer or with separate stock transfer powers duly endorsed by Seller for transfer of the Stock to Buyer;

          (b) The original certificates of authority of the Company, together with evidence reasonably satisfactory to Buyer confirming, except as disclosed in Schedule 3.19, the valid existence and good standing of all such certificates of authority of the Company to transact insurance as required by Section 6.1(f);

          (c) The corporate seal (if available), the minute book, and the stock records of the Company;

          (d) Resignations of all officers and members of the Board of Directors of the Company, to be effective as of the Closing;

          (e) A copy of the resolution of Seller’s Board of Directors, certified by Seller’s Secretary as having being duly adopted and being in full force and effect, authorizing Seller’s execution and performance of this Agreement;

          (f) A certificate dated as of the Closing Date, signed by an officer of the Seller, certifying as to the fulfillment of the conditions set forth in Sections 6.1(a) and 6.1(b).

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     7.2 Deliveries by Buyer at Closing. At the Closing, Buyer will deliver to Seller:

          (a) A wire transfer, pursuant to Seller’s instructions provided to Buyer in advance of the Closing, in the amount of the Purchase Price required by Section 2.2 hereof;

          (b) A copy of a resolution of Buyer’s Board of Directors, certified by Buyer’s Secretary as having been duly adopted and being in full force and effect, authorizing Buyer’s execution and performance of this Agreement; and

          (c) A certificate dated as of the Closing Date, signed by an officer of the Buyer, certifying as to the fulfillment of the conditions set forth in Sections 6.2(a) and 6.2(b).

ARTICLE VIII
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS

     Except for the representations and warranties in Section 3.1 (Organization), Section 3.2 (Authorization), Section 3.4 (Capitalization), Section 3.5 (Stock Ownership), Section 3.11 (Financial Statements), Section 3.12 (Reserves), Section 3.16 (Taxes), Section 4.1 (Organization) and Section 4.2 (Authority, Validity and Enforceability), all representations and warranties made by Seller in Article III and Buyer in Article IV of this Agreement shall survive for a period of twelve (12) months after the Closing Date, and all claims for breach of said representations and warranties will be deemed waived unless the Buyer notifies the Seller, or the Seller notifies the Buyer, as the case may be, in writing of the matters constituting the breach prior to the expiration of the date that is twelve (12) months after the Closing Date. The representations and warranties contained in Section 3.1 (Organization), Section 3.2 (Authorization), Section 3.4 (Capitalization), Section 3.5 (Stock Ownership), Section 3.16 (Taxes), Section 4.1 (Organization) and Section 4.2 (Authority, Validity and Enforceability), shall survive the Closing until the expiration of all applicable statutes of limitations. The representations and warranties in Sections 3.11 and 3.12 shall survive for a period of ten years following the Closing Date. The covenants and agreements of the parties to be performed prior to the Closing Date shall not survive the Closing, and neither party may bring a claim for breach of any such covenants or agreements after the Closing. The other covenants and agreements of the parties contained herein shall survive the Closing and shall expire, if at all, in accordance with their respective terms.

ARTICLE IX
INDEMNIFICATION AND OTHER REMEDIES

     9.1 Seller’s Obligation to Indemnify. Subject to the limitations set forth in this Article IX, Seller agrees to indemnify, defend and hold harmless Buyer and the Company (with respect to the Company, after the Closing only) and their respective directors, officers, employees, Affiliates and assigns (the “Buyer Indemnified Parties.” and individually a “Buyer Indemnified Party”) from and against all claims, losses, liabilities, damages, deficiencies, costs or expenses, penalties (including any penalty or sanction by any regulatory body) and reasonable outside attorneys’ fees and disbursements (collectively, “Losses,” and individually a “Loss”), asserted against, imposed upon or incurred by Buyer by reason of or arising out of or in connection with any misrepresentation, breach of or failure to perform any representation,

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warranty, covenant or agreement of Seller in this Agreement; (ii) Seller’s ownership or operation of the Company prior to the Closing, and (iii) costs, fees and other expenses of Seller as set forth in Section 5.4 hereof.

     9.2 Buyer’s and Company’s Obligation to Indemnify. Buyer agrees to indemnify, defend and hold harmless Seller and its directors, officers, employees, Affiliates and assigns (the “Seller Indemnified Parties,” and individually a “Seller Indemnified Party”) from and against all Losses, asserted against, imposed upon or incurred by any Seller Indemnified Party by reason of or arising out of or in connection with any misrepresentation, breach of or failure to perform any representation, warranty, covenant or agreement of Buyer in this Agreement, or by reason of or arising out of or in connection with Buyer’s ownership or operation of the Company following the Closing. The Company agrees to indemnify, defend and hold harmless the Seller Indemnified Parties and each of them from and against all Losses asserted against, imposed upon or incurred by any Seller Indemnified Party by reason of or arising out of or in connection with the Company’s operations following the Closing. In addition to the foregoing, Buyer hereby agrees to indemnify, defend and hold harmless Seller and the Company against the costs, fees and other expenses of Buyer as set forth in Section 5.4 hereof.

     9.3 Limits on Indemnification. Seller’s obligations to indemnify the Buyer Indemnified Parties under this Article IX are limited to One Hundred Million Dollars ($100,000,000). Neither the Seller nor the Buyer shall have any obligation to indemnify an Indemnified Party with respect to any Losses under this Article IX until the aggregate amount of all Losses that such Indemnified Party has suffered, sustained, incurred or paid or is required to pay exceeds Fifty Thousand Dollars ($50,000) (the “Basket”), at which point the indemnifying party shall be obligated to indemnify the Indemnified Party from and against all such Losses.

     9.4 Notice of Asserted Liability. Promptly after receipt by an Indemnified Party hereunder of notice of any demand, claim or circumstances which, with or without the lapse of time, would give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation by a third party (an “Asserted Liability”) that may result in a Loss, such Indemnified Party shall give notice thereof (the “Claims Notice”) to the indemnifying party. The Claims Notice shall describe the Asserted Liability in reasonable detail and shall provide a good-faith, non-binding estimate of the Loss that has been or may be suffered by such Indemnified Party and shall include a statement as to the basis for the indemnification sought. Failure to provide a Claims Notice in a timely manner shall not be deemed a waiver of the Indemnified Party’s right to indemnification other than to the extent that such failure prejudices the defense of the claim by the indemnifying party.

     9.5 Opportunity to Defend. The indemnifying party may elect to compromise or defend, at its own expense and by its own counsel (which counsel shall be reasonably acceptable to the Indemnified Party), any Asserted Liability; provided, however, the indemnifying party may not compromise or settle any Asserted Liability without the consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed) unless (i) any monetary payment required by the terms of such compromise or settlement will be fully discharged, directly or by reason of indemnity hereunder, by the indemnifying party, and (ii) such compromise or settlement involves no other obligations binding upon the Indemnified Party. If the indemnifying party elects to compromise or defend such Asserted Liability, it shall, within 30 days from receipt of the Claims Notice, notify the Indemnified Party of its intent to do so, and

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the Indemnified Party shall cooperate, at the expense of the indemnifying party to the extent such expenses are subject to indemnification hereunder, in the compromise of, or defense against, such Asserted Liability. The Indemnified Party may not settle or compromise any Asserted Liability without the indemnifying party’s consent, which will not be unreasonably withheld or delayed.

     9.6 Procedures for Direct Claims. In the event any Indemnified Party shall have a claim for indemnity against any indemnifying party that does not involve an Asserted Liability, the Indemnified Party shall promptly deliver notice of such claim to the indemnifying party. Such notice referred to in the preceding sentence shall state the relevant facts and include therewith relevant documents and a statement in reasonable detail as to the basis for the indemnification sought. The failure by any Indemnified Party so to notify the indemnifying party shall not be deemed a waiver of the Indemnified Party’s right to indemnification with respect to any claim made pursuant to this Section 9.6.

     9.7 Payment. Any payment pursuant to this Article IX shall be made not later than 30 days after the indemnifying party’s liability for the Loss is deemed final by mutual written agreement of the Buyer and the Seller or by order of an arbitrator or court of competent jurisdiction that is not subject to appeal, reconsideration or review.

     9.8 Exclusive Remedy. The parties hereto expressly acknowledge that, absent fraud or intentional misrepresentation, (a) the provisions of this Article IX shall be the sole and exclusive remedy for monetary damages caused as a result of breaches of the covenants, agreements, warranties and representations contained in this Agreement, and (b) no indemnifying party shall be liable or otherwise responsible to any Indemnified Party or other Person for special, consequential, incidental or punitive damages or for diminution in value or lost profits that arise out of or relate to this Agreement or the performance or breach hereof. Nothing in this Section 9.8 shall be construed as limiting the availability of any remedies at law or equity to which a party may be entitled as a result of fraud or intentional misrepresentation by the other party or its Affiliates.

ARTICLE X — MISCELLANEOUS

     10.1 Notices. Any notices hereunder shall be in writing and shall be deemed to have been given when delivered by hand or by the first Business Day after being sent by overnight courier (such as Federal Express), or on the third Business Day after being deposited in the United States Mail, registered or certified, return receipt requested, postage prepaid, or upon the sender receiving confirmation of receipt if sent by electronic facsimile transmission, addressed or sent, as follows:

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IF TO SELLER:

SunTrust Banks, Inc.
303 Peachtree Street, 7^th Floor
Mail Code 690
Atlanta, GA 30308
Attn: Daniel Baltz
Facsimile: (404) 813-0550

with a copy to:

Morris, Manning & Martin, LLP
3343 Peachtree, N.E., Suite 1600
Atlanta, Georgia 30326
Attn: Brooks W. Binder
Facsimile: (404) 365-9532

IF TO BUYER:

Guarantee Insurance Group, Inc.
401 E. Las Olas Boulevard
Ft. Lauderdale, Florida
Attn: General Counsel
Facsimile: (954) 779-3556

with a copy to:

Locke Lord Bissell & Liddell LLP
300 S. Grand Ave., Suite 800
Los Angeles, CA 90071
Attn: Carey S. Barney
Facsimile: (213) 341-6746

or to such other person, or at such other address or facsimile phone number as a party may from time to time specify by notice in writing to the other party, given in the manner provided in this Section.

     10.2 Severability. The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of any other provision.

     10.3 Assignment. Neither Seller nor Buyer may assign this Agreement or any responsibilities or obligations hereunder without the express prior written consent of the other party. Subject to the foregoing, this Agreement shall inure to the benefit of and shall be binding upon Seller and Buyer and their respective successors and assigns.

     10.4 Entire Agreement; Amendment. This Agreement, together with the Confidentiality Agreement, sets forth the entire understanding of the parties and supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof.

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Each party hereto acknowledges and agrees that no representations, warranties, promises or inducements have been made to such party, except as expressly set forth herein, and that such party is entering into this Agreement without reliance on any written or oral statements or representations, other than those expressly set forth in this Agreement. This Agreement may be modified only by instruments signed by both of the parties hereto.

     10.5 Documents. Each party will execute all documents and take such other actions as the other party may reasonably request in order to consummate the transactions provided for herein and to accomplish the purposes of this Agreement. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

     10.6 Third Parties. Nothing in this Agreement is intended to confer any right or remedy under or by reason of this Agreement on any Person other than the parties hereto and their respective successors and assigns.

     10.7 Governing Law. This Agreement shall be construed and governed exclusively in accordance with the laws of the State of Florida without reference to the choice of law principles thereof. Except as provided in Section 10.8, the parties hereby irrevocably consent to the exclusive personal jurisdiction of and the propriety of venue in the courts of the State of Florida located in Broward County, Florida and of any federal court located therein in connection with any permitted action or proceeding arising out of or relating to this Agreement, any document or instrument delivered pursuant to or in connection with this Agreement, or a breach of this Agreement or any such document or instrument.

     10.8 Arbitration. In the event of any controversy or claim between the parties hereto arising out of or relating to this Agreement, then such controversy or claim shall be submitted to binding arbitration under the American Arbitration Association (the “AAA Rules”). Arbitration shall begin upon the filing by one of the parties of a written demand for arbitration. Such demand shall contain a statement setting forth the nature of the dispute, the amount involved, if any, and the remedy sought. Such demand shall be served upon the other party pursuant to the notice provisions of Section 10.1 hereof. Arbitration shall proceed under the AAA Rules, except as follows:

          (a) One neutral arbiter shall be appointed by the AAA, and such arbiter shall be an active or retired, disinterested executive officer with ten (10) years or more experience as an officer of an insurance or reinsurance company.

          (b) The site for the arbitration hearing shall be Ft. Lauderdale, Florida.

          (c) Except as otherwise specified herein, there shall be no discovery or dispositive motion practice (such as motions for summary judgment or to dismiss or the like) except as may be permitted by the arbiter who shall authorize such discovery as it is shown to be necessary to insure a fair hearing. The arbiter shall not be bound by the rules of evidence or civil procedure, but may consider such writings and oral presentations as reasonable businessmen would use in the conduct of their day-to-day affairs.

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           (d) The decision of the arbiter shall be final and binding on both parties and shall be submitted in writing within thirty (30) days after the conclusion of the arbitration hearing. Judgment upon the award rendered by the arbiter may be entered in any court having jurisdiction thereof.

          (e) The costs of the arbitration proceeding, including the fees of the arbiter and the administrative fees of arbitration, shall be borne equally by the parties unless the arbiter orders otherwise. The arbiter, in its discretion, may also allocate an award of other reasonable out-of-pocket costs of the parties, including reasonable attorneys’ fees, as it deems fair and equitable under the circumstances.

     10.9 Interpretation. The parties are equally responsible for the content of this Agreement. In any claim or dispute which involves the interpretation of an alleged ambiguity, the language herein shall not be more strictly construed against one party (as the drafter) than the other.

Signatures on following page

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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	BUYER:
	GUARANTEE INSURANCE GROUP, INC.
	By:	/s/ Steven M. Mariano
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer
	SELLER:
	SUNTRUST BANK HOLDING COMPANY
	By:	/s/ Raymond D. Fortin
	Name:
	Title:	SVP, Assistant Corp. Secretary
SOLELY FOR SECTION 9.2:
	COMPANY:
	MADISON INSURANCE COMPANY
	By:	/s/ Daniel A. Boltz
	Name:
	Title:	Secretary

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EXHIBIT A

MUTUAL NON-DISCLOSURE AGREEMENT

OCTOBER 11, 2007

MUTUAL NON-DISCLOSURE AGREEMENT

          This NON-DISCLOSURE AGREEMENT (“Agreement”) is made this 11th day of October, 2007, by SunCoast Holdings, Inc., and all of its subsidiaries, affiliates and associations, with its principal place of business at 401 East Las Olas Blvd, Ft. Lauderdale, Florida, referred to hereafter as “Company,” and SunTrust Banks, Inc., and all of its subsidiaries, affiliates and associations, with its principal place of business at 303 Peachtree Street, Suite 700 in Atlanta, GA, referred to hereafter as “SunTrust.”

          WHEREAS, Company wishes to evaluate a potential business opportunity with SunTrust involving SunTrust’s subsidiary Madison Insurance Company (hereinafter, the “Opportunity”) and, in connection therewith, the parties will be exchanging Confidential Information (as hereafter defined); and

          WHEREAS, the parties have agreed to provide certain Confidential Information to each other and desire to protect that Confidential Information and preserve the confidential and proprietary nature of the Confidential Information and the prospective Opportunity. The providing party is referred to in this Agreement as the “Disclosing Party,” while the receiving party is referred to as the “Recipient.”

          NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants, promises and agreements contained herein, including the agreement to provide Confidential Information to each other and to discuss a prospective Opportunity and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Recipient hereby agrees as follows:

I. “Confidential Information” as used in this Agreement shall mean any and all materials, documents and information, whether oral or in written or other tangible medium or form, regarding the Disclosing Party’s business or prospective business opportunities and plans, assets, operations, finances, employees, products and prospective products, and technology including, without limitation, any and all technical and non-technical information, including patent, copyright, trade secret and proprietary information, techniques, sketches, ideas, schematics, concepts, work in process, technology, models, inventions, material data, business methods, business policies, research and/or development, drawings, know-how, processes, apparatus, equipment, algorithms, software programs, source code, object code, software source documents, and formulae related to the current, future and proposed products and services of the party. “Confidential Information” also includes, without limitation, the Disclosing Party’s information concerning research, experimental work, development, design details and specifications, engineering, financial information, procurement requirements, customer and supplier lists, user information, personnel matters, pricing information, business

MUTUAL NON-DISCLOSURE AGREEMENT — PAGE 1

	forecasts, sales and merchandising and marketing plans and information related to the current, future and proposed products and services of the Disclosing Party.
II.	(a) The Recipient acknowledges the competitive value and confidential and proprietary nature of the Disclosing Party’s Confidential Information and the damage that could result to the Disclosing Party if any part of the Confidential Information or the fact that the Disclosing Party and Recipient are talking about a prospective Opportunity and nature of such Opportunity were disclosed to any third party or if the Recipient uses the Disclosing Party’s Confidential Information to directly or indirectly compete with the Disclosing Party or for any other reason. Therefore, the Recipient agrees that neither it nor its Representatives (as hereinafter defined) will, directly or indirectly, (i) use the Disclosing Party’s Confidential Information in any way other than for the purpose of evaluating and proposing a possible business Opportunity with the Disclosing Party and/or (ii) disclose to any person, business or entity all or any part of the Disclosing Party’s Confidential Information, except as herein provided, and/or (iii) disclose to any person, business or entity either the fact that the Disclosing Party’s Confidential Information has been made available or the fact that discussions or negotiations are taking place concerning a possible business Opportunity between the parties or any of the terms, conditions or other facts with respect to any possible Opportunities, including the status thereof; except that each party may make such disclosure if, upon the advice of counsel, such disclosure must be made in order to comply with applicable law, regulation or judicial process.
	(b) The Recipient shall be entitled to disclose the Disclosing Party’s Confidential Information to only those employees, officers, agents and advisers of the Recipient (collectively, “Representatives”) necessary for evaluating the Opportunity, provided that the Recipient advises each such Representative of the obligations contained herein and that by receiving such information the Representatives are agreeing to be bound by this Agreement. The Recipient shall be responsible for any breach of this Agreement by it and/or any Representative and shall indemnify and hold the Disclosing Party harmless from any such breach.
III.	The Recipient understands and agrees for itself and its Representatives that neither the Disclosing Party nor any of its affiliates, agents, advisors or representatives (a) have made or make any representation or warranty, expressed or implied, as to the accuracy or completeness of the Confidential Information or (b) shall have any liability whatsoever to the Recipient or its Representatives relating to or resulting from the use of the Disclosing Party’s Confidential Information or any errors therein or omissions therefrom. The only information that will have any legal effect will be specifically represented in a definitive written agreement and in no event will such definitive written agreement contain any representation as to any projections.

MUTUAL NON-DISCLOSURE AGREEMENT — PAGE 2

IV.	No right or license to use the Disclosing Party’s Confidential Information or other interest therein is hereby granted to the Recipient other than for the purpose of evaluating the Opportunity.
V.	The obligations of secrecy and non-disclosure set forth herein shall not apply to: (a) information which at the time of disclosure to the Recipient is in the public domain; (b) information which after disclosure to the Recipient becomes generally available to the public by publication or otherwise through no fault of the Recipient or any of its Representatives; (c) information which the Recipient or any of its Representative can demonstrate was already in the possession of the Recipient or any such Representative and which was not acquired by the Recipient or any such Representative, as the case may be, directly or indirectly from the Disclosing Party; (d) subject to Paragraph 6 below, information the Recipient is required by court order, injunction, writ, law, rule or regulation to disclose; or (e) information which the Recipient can demonstrate through competent written evidence was independently developed by or for the Recipient without use of or reliance on the Disclosing Party’s Confidential Information.
VI.	In the event that the Recipient and/or its Representatives are requested or required to disclose any of the Disclosing Party’s Confidential Information in an investigatory, legal, regulatory or administrative proceeding, the Recipient shall, unless legally prohibited therefrom, provide the Disclosing Party with prompt written notice thereof so that the Disclosing Party may, in its discretion, seek a protective order or other appropriate remedy. The Recipient agrees to consult and cooperate with the Disclosing Party in seeking a protective order or other appropriate remedy. The Recipient may disclose only that portion of the Confidential Information that it is legally required to disclose.
VII.	The Recipient further agrees that, without the prior written approval of the Disclosing Party, its Representatives who have been provided Confidential Information will not, directly or indirectly for a period of twelve (12) months from the date hereof, solicit for employment any employees of the Disclosing Party with whom they have contact or about whom they learn in connection with their review of the Opportunity. Notwithstanding the foregoing, Recipient’s Representatives may solicit or hire any person: (a) who responds to a public advertisement or otherwise contacts Recipient on his or her own initiative, without any direct or indirect solicitation by Recipient, (b) who has been brought to Recipient’s attention by an agency, search firm or other independent third party, or (c) with whom Recipient initiates discussions regarding employment after such person is no longer an employee of the Disclosing Party.
VIII.	The Recipient shall return to the Disclosing Party upon demand any and all Confidential Information entrusted to it by the Disclosing Party pursuant to this Agreement (including any and all copies, abstracts, compilations or analyses thereof and memoranda related thereto) or shall destroy all such Confidential Information and provide a certificate of destruction to the Disclosing Party signed

MUTUAL NON-DISCLOSURE AGREEMENT — PAGE 3

	by the Recipient. The Recipient further agrees that neither it nor any Representative will copy in whole or in part any such Confidential Information without the written consent of the Disclosing Party, except for the sole use of its Representatives in carrying out their evaluation of a possible business Opportunity with the Disclosing Party.
IX.	The obligation of secrecy and non-disclosure set forth in this Agreement shall remain in effect for a period of one year from the date hereof.
X.	This Agreement and the respective rights and obligations of the parties hereto shall be governed by and determined in accordance with the laws of the State of Florida, without giving effect to its conflict of laws, principles or rules.
XI.	The Recipient agrees that money damages would not be a sufficient remedy for any breach of this Agreement by the Recipient or its Representatives and that in addition to all other remedies which may be available, the Disclosing Party may be entitled to specific performance and injunctive or other equitable relief as a remedy for such breach and the Recipient further agrees to waive and to use its best efforts to cause its Representatives to waive any requirement for securing or posting of any bond in connection with such remedy.
XII.	This Agreement, which includes all attached exhibits referenced herein, constitutes the entire agreement between Company and SunTrust with respect to the subject matter hereof, and supersedes all proposals, oral or written, and all other communications between the parties with respect to such subject matter.
XIII.	Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by law, the parties waive any provision of law which renders any such provision prohibited or unenforceable in any respect.

          IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized officers of the parties as of the day and year written below.

SUNCOAST HOLDINGS, INC.		SUNTRUST BANKS, INC.
By:	/s/ Steven M. Mariano	By:	/s/ Daniel Baltz
Name:	Steven M. Mariano	Name:	Daniel Baltz
Title:	Chief Executive Officer	Title:	Group V.P., Insurance Risk Management
Date:	10-11-07	Date:	10-15-07

MUTUAL NON-DISCLOSURE AGREEMENT — PAGE 4

EXHIBIT B

REINSURANCE AGREEMENT

          This Reinsurance Agreement, effective [                     ], 2008 (the “Effective Date”) is made by and between Madison Insurance Company, a Georgia domestic insurance company (hereinafter called the “Ceding Company”), and Twin Rivers II, Inc., a South Carolina domestic insurance company (hereinafter called the “Reinsurer”).

RECITALS

WHEREAS, Ceding Company is licensed to issue various lines of insurance in certain states and was indirectly owned by Reinsurer’s parent corporation, SunTrust Bank Holding Company, a Florida corporation (“Parent Corporation”) until the closing of the Purchase Agreement described below; and

          WHEREAS, Parent Corporation entered into that certain Stock Purchase Agreement dated March 4, 2008 by and between Guarantee Insurance Group, Inc., a Delaware corporation (the “Purchaser”) and Parent Corporation (the “Purchase Agreement”) pursuant to which Purchaser is acquiring Ceding Company and, as a condition to the Purchase Agreement, the parties shall enter into this Agreement; and

          WHEREAS, Ceding Company desires to reinsure its liability for certain workers compensation claims and Reinsurer hereby agrees to indemnify Ceding Company for a 100% share of the liability of Ceding Company for the Policy Claims.

          NOW, THEREFORE, for good and valuable consideration recognized by the Ceding Company and the Reinsurer and in consideration of the premises and conditions contained herein, it is agreed as follows:

ARTICLE I

DEFINITIONS

          For purposes of this Agreement, capitalized terms used in this Reinsurance Agreement and not defined herein shall have the meaning set forth in the Purchase Agreement.

ARTICLE II

COVERAGE

          A. Ceding Company hereby cedes and Reinsurer hereby agrees to accept 100% share of the liability of the Ceding Company for workers compensation losses arising from the claims set forth on Exhibit A (the “Policy Claims”) as of the Effective Date. The terms, conditions, interpretations, waivers, alterations, and cancellations of all reinsurance coverage provided pursuant to this Agreement shall in all cases be identical with the original policies.

          B. Reinsurer shall establish and maintain proper statutory reserves as required by law and sufficient for the liabilities reinsured hereunder. If the authorities with jurisdiction over Ceding Company’s reserves do not allow Ceding Company full credit for reinsurance under this

Agreement because Reinsurer is not a qualified reinsurer, Reinsurer shall provide security, the form of which shall be determined in Reinsurer’s sole discretion so long as such security allows Ceding Company to receive full credit for the reinsurance and entirely removes any reserve liability for the risk reinsured hereunder from Ceding Company’s statutory balance sheet. Ceding Company undertakes to use and apply any amounts which it may draw upon from such security pursuant to the terms of the agreement establishing such security, and for the following purposes only: (1) to pay Reinsurer’s share or to reimburse Ceding Company for Reinsurer’s share of the liability for which such security is established or (2) to make refund of any amount which is in excess of the actual amount of security or payment required under this Agreement. The trustee or issuer of the security shall have no responsibility whatsoever in connection with the propriety of withdrawals made by Ceding Company or the disposition of funds withdrawn, except to see that withdrawals are made only upon the order of properly authorized representatives.

          C. Reinsurer shall, at all times while the reinsurance under this Agreement is in effect, provide security, as described in this Section, for its obligations under this Agreement or as otherwise agreed to in writing by the parties. The type, standards, form, provisions, conditions, terms, dates and financial institutions relating to such security, and the conditions upon which Reinsurer shall provide such security, shall at all times comply with the insurance laws and regulations of Ceding Company’s domiciliary state, as may be amended or superseded from time to time, relating to security given in connection with allowing Ceding Company, for statutory insurance accounting purposes, to recognize admitted assets or reserve credits or other credits associated with such reinsurance ceded to an unauthorized or unaccredited reinsurer.

               1. Reinsurer at its sole expense shall provide and maintain a Letter of Credit in favor of Ceding Company in an amount which at all times equals or exceeds the amount required by any statute, regulation, or regulatory bulletin necessary for Ceding Company to receive full credit for such reinsurance according to statutory insurance accounting practices and procedures. The form, provisions, conditions, terms and dates, as well as the issuing financial institution, of or relating to the Letter of Credit, and the conditions upon which Reinsurer shall provide such Letter of Credit, shall comply with the insurance laws and regulations of Ceding Company’s domiciliary state, as may be amended or superseded from time to time, relating to such Letters of Credit, including specifically Section 33-7-14 of the Georgia Insurance Code, and any applicable regulations promulgated thereunder, governing the use of Letters of Credit in reinsurance agreements regarding Georgia domestic insurers. The issuing institution shall be an U.S. bank or trust company or a U.S. branch of a foreign bank appearing on the list of approved letter of credit banks published from time to time by the Securities Valuation Office of the National Association of Insurance Commissioners. The terms of the Letter of Credit shall provide at a minimum that: it is not conditioned on the delivery of any other documents or materials; it is irrevocable without the consent of Ceding Company; it is automatically renewable; and its initial term is for a period of not less than one year. Such Letter of Credit may be drawn upon at any time, notwithstanding any other provisions in this Agreement, but shall be utilized, without diminution because of insolvency on the part of the Reinsurer, by Ceding Company or its successors only to pay any other amounts due to Ceding Company under this Agreement.

               2. Such Letter of Credit shall be promptly issued and delivered to Ceding

Company. But in no event shall the Letter of Credit be delivered to Ceding Company later than thirty (30) days after the Effective Date.

          D. Ceding Company shall reasonably cooperate with and, upon request, assist Reinsurer in the defense of a Policy Claim, but the Reinsurer shall responsible for all expenses incurred by the Ceding Company with respect to the defense of any Policy Claim.

          E. Reinsurer shall be subrogated to all rights and claims of Ceding Company.

          F. Reinsurer’s indemnification for liability under this Agreement shall extend to amounts in excess of policy limits, but otherwise within the terms of the policy, and any punitive or exemplary damages.

ARTICLE III

REPORTING REQUIREMENTS

          A. Each party shall use its best efforts to report to the other party, at least ten (10) days in advance of the due date of the other party’s statutory financial statements and any other required reports, such information on the Policy Claims that is in the sole possession of the party as is needed by the other party to complete such statements and reports.

          B. At the request of the Ceding Company, Reinsurer shall send to Ceding Company quarterly periodic accounting reports (the “Quarterly Reports”). If requested, Quarterly Reports shall be due thirty (30) days following the end of any quarter. The Quarterly Report shall comply with any requirements related to Ceding Company’s financial reporting purposes, containing additional quarterly and year-to-date financial information, with respect to the reinsurance, to permit Ceding Company to complete its statutory financial statements and other financial reporting obligations. The information will be provided in an electronic medium acceptable to both parties.

          C. Within 90 days after the termination of this agreement, Reinsurer and Ceding shall prepare a final accounting and settlement of any amounts then outstanding under this Agreement.

          D. Ceding Company shall promptly send to Reinsurer process or other communications received from any person, including any governmental, regulatory, or judicial body, agency, or official that relate to, or that would be likely to affect, the Policy Claims.

ARTICLE IV

TERM AND TERMINATION

          This Agreement shall be effective on the Effective Date, and shall terminate (1) immediately if either party is declared insolvent or is ordered into liquidation, conservatorship or rehabilitation by a court of competent jurisdiction, (2) immediately if all Policy Claims are extinguished, or (3) sixty (60) days after written notice from either party to the other party stating that the defaulting party has materially failed to perform or observe any covenant, condition or agreement to be performed or observed by it hereunder if the defaulting party does not cure the

default within the sixty (60) day notice period.

ARTICLE V

INSOLVENCY

          A. In the event of the insolvency of Ceding Company, the reinsurance shall be payable directly to Ceding Company or its liquidator, receiver, conservator or statutory successor on the basis of the liability of Ceding Company without diminution because of the insolvency of Ceding Company or because the liquidator, receiver, conservator or statutory successor of Ceding Company has failed to pay all or a portion of any claim. All reinsurance made, ceded, renewed or otherwise becoming effective hereunder shall be payable by Reinsurer directly to Ceding Company or to its liquidator, receiver, conservator or statutory successor, and payments made directly to an insured or other creditor shall not diminish Reinsurer’s obligation to Ceding Company’s estate, except where direct payment is required and the payment was made in discharge of that obligation.

          B. The liquidator, receiver, conservator or statutory successor of Ceding Comp shall give written notice to Reinsurer of the pendency of a claim against Ceding Company indicating the claim reinsured, which might involve a possible liability on the part of Reinsurer. Said notice shall be provided within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership. During the pendency of such claim, Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where the claim is to be adjudicated, any defense or defenses that it deems available to Ceding Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by Reinsurer shall be chargeable, subject to court approval, against Ceding Company’s estate as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to Ceding Company solely as a result of the defense undertaken by Reinsurer.

ARTICLE VI

FOLLOW THE FORTUNES

The Reinsurer’s liability shall attach simultaneously with that of the Ceding Company and shall be subject in all respects to the same risks, terms, conditions, interpretations, waivers, the true intent of this Agreement being that the Reinsurer shall, in every case to which this Agreement applies, follow the underwriting fortunes of the Ceding Company. Nothing shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third parties or any persons not parties to this Agreement.

ARTICLE VII

ARBITRATION

          In the event of any controversy or claim between the parties hereto arising out of or relating to this Agreement, then such controversy or claim shall be submitted to binding arbitration under the Center for Public Resources Rules for Non-Administered Arbitration of

Business Disputes (the “CPR Rules”). Arbitration shall begin upon the filing by one of the parties of a written demand for arbitration. Such demand shall contain a statement setting forth the nature of the dispute, the amount involved, if any, and the remedy sought. Such demand shall be served upon the other party pursuant to the notice provisions of Article IIX, Section G hereof. Arbitration shall proceed under the CPR Rules, except as follows:

          A. One neutral arbiter shall be appointed by the Center for Public Resources and such arbiter shall be an active or retired, disinterested executive officer with ten (10) years or more experience as an officer of an insurance or reinsurance company.

          B. The site for the arbitration hearing shall be Orlando, Florida or as mutually agreed by the parties.

          C. Except as otherwise specified herein, there shall be no discovery or dispositive motion practice (such as motions for summary judgment or to dismiss or the like) except as may be permitted by the arbiter who shall authorize such discovery as it is shown to be necessary to insure a fair hearing. The arbiter shall not be bound by the rules of evidence or civil procedure, but may consider such writings and oral presentations as reasonable businessmen would use in the conduct of their day-to-day affairs.

          D. The decision of the arbiter shall be final and binding on both parties and shall be submitted in writing within thirty (30) days after the conclusion of the arbitration hearing. Judgment upon the award rendered by the arbiter may be entered in any court having jurisdiction thereof. In any such action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above court, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the State of Florida. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Without limiting the foregoing, each party agrees that service of process on such party as provided in Article VIII, Section G shall be deemed effective service of process on such party.

          E. The costs of the arbitration proceeding, including the fees of the arbiter, shall be borne equally by the parties unless the arbiter orders otherwise. The arbiter, in its discretion, may also allocate an award of other reasonable out-of-pocket costs of the parties, including reasonable attorneys’ fees, as it deems fair and equitable under the circumstances.

ARTICLE VIII

GENERAL PROVISIONS

          A. This Agreement and the Service Agreement collectively constitute the entire agreement between the parties relating to the Policy Claims and other subjects covered herein, and there are no understandings between the parties other than as expressed in this Agreement.

Any change or modification in any of the terms and conditions of this Agreement is null and void unless made by a written instrument signed by both parties.

          B. The captions and headings throughout this Agreement are for convenience and reference only. The words of the captions and headings will in no way be held or deemed to define, describe, explain, modify, or limit the meaning of any provision, or the scope or intent of the Agreement.

          C. This Agreement shall be construed according to the laws of the State of Florida.

          D. Failure by any party to insist upon compliance with any term or provision of this Agreement at any time or under any set of circumstances will not operate to waive or modify that provision or render it unenforceable at any other time.

          E. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same Agreement.

          F. Each of the parties hereto shall make, do or cause to be done such further acts, and shall execute, acknowledge and deliver such instruments and documents, as the other party may reasonably request or require to effectuate fully the purpose and intent of this Agreement.

          G. Any notice regarding this Agreement shall be deemed sufficiently given if it is in writing and hand delivered or mailed by certified or registered United States mail to the other party at the addresses set forth above or such other address as shall be furnished in accordance with this section.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their duly authorized representatives.

Madison Insurance Company	Twin Rivers II, Inc.
By:	By:
Title:	Title:

DISCLOSURE SCHEDULE
TO THE
STOCK PURCHASE AGREEMENT
BY AND AMONG
SUNTRUST BANK HOLDING COMPANY
AND
GUARANTEE INSURANCE GROUP, INC.

March 4, 2008

          These disclosure schedules (“Disclosure Schedules”) are the Schedules referred to in that certain Stock Purchase Agreement dated of even date herewith (the “Purchase Agreement”) by and among SunTrust Bank Holding Company (the “Seller”) and Guarantee Insurance Group, Inc. (the “Buyer”) and solely for the purposes of Section 9.2 of the Purchase Agreement, Madison Insurance Company (the “Company”). Each section or subsection number referenced in these Disclosure Schedules refers to the section or subsection of the same number in the Purchase Agreement.

          These Disclosures Schedules and the information and disclosures contained in these Disclosure Schedules are intended solely for the purpose of making the disclosures to the Buyer required by the Purchase Agreement and shall not be deemed to expand in any way the scope or effect of any such representations, warranties or covenants, except as otherwise specifically set forth herein. The disclosure of any item or other matter in these Disclosure Schedules should not be construed as a determination by Sellers that such item or other matter is material. Nothing in these Disclosure Schedules constitutes an admission of any liability or obligation of Sellers to any third party, nor an admission to any third party against the interests of Sellers. The disclosure of any item in any one particular Schedule of these Disclosure Schedules shall be deemed to be a disclosure of such item for each other Schedule to the extent such item is disclosed with such specificity that it is reasonably apparent on the face of such disclosure (without investigation or reference to any underlying documentation) that such disclosure is applicable to such other Schedule.

Schedule 1.01(a)

Seller’s Individuals

Deborah Ann Jamison — President & Director
Daniel Alan Baltz — Secretary & Director
Mehboob Vellani — Treasurer
Robert Clarke — Vice President
Gregory Charles Weaver — Vice President
Aaron Seiter — Assistant Secretary
Robert Dewese Lynn, Jr. — Investment Officer
Jorge Arrieta — Director

Schedule 1.01(b)

Buyer’s Individuals

Steve Mariano — President
Ted Bryant — General Counsel

Schedule 3.3

Conflicts

None.

Schedule 3.7

Officers and Directors

Officers
Deborah Ann Jamison — President
Daniel Alan Baltz — Secretary
Mehboob Vellani — Treasurer

Other Officers
Daniel Alan Baltz — Vice President
Robert Clarke — Vice President
Gregory Charles Weaver — Vice President
Aaron Seiter — Assistant Secretary
Robert Dewese Lynn, Jr. — Investment Officer

Directors
Deborah Ann Jamison
Daniel Alan Baltz
Jorge Arrieta

Schedule 3.8

Compliance with Applicable Laws

None.

Schedule 3.9(a)

Contracts

1.	Shared Service Agreement with SunTrust Banks, Inc.
2.	Custodial Agreement with SunTrust Banks, Inc.
3.	Master Repurchase Agreement with SunTrust Banks, Inc.
4.	Tax Sharing Agreement with SunTrust Banks, Inc.
5.	Management Agreement with Marsh Management Services, Inc.

Note: All agreements can and will be cancelled as of the closing date of this agreement.

Schedule 3.9(a)

Reinsurance Contracts

Policy Term	Policy #	Limits
4/1//2000 to 4/1/2001 Reinsurance	GCC0W2892D	Part I & III — 100% of the difference between $500,000 and Statutory Limits; Part II — $500,000 each accident excess of $500,000/$500,000 each employee excess of $500,000/$500,000 aggregate disease excess of $500,000
4/1//2001 to 4/1/2002 Reinsurance	GCC0W2892E	Part I & III — 100% of the difference between $500,000 and Statutory Limits; Part II — $500,000 each accident excess of $500,000/$500,000 each employee excess of $500,000/$500,000 aggregate disease excess of $500,000

Schedule 3.9(b)

Insurance Policies and Settlement Agreements

Policy Term	Policy #	Limits
4/1/2000 to 4/1/2001	WC2000-01	Part I — WC Statutory; Part II — EL 1mm/1mm/1mm — Guaranteed Cost
4/1/2001 to 4/1/2002	WC2001-01	Part I — WC Statutory; Part II — EL 1mm/1mm/1mm — Guaranteed Cost

See also, Schedule 3.9(a)

Schedule 3.13

Ordinary Course of Business

Effective January 31, 2008, Seller made a $3 million contribution to the surplus of the Company in connection with bringing the Company’s capital and surplus into compliance with the requirements of the State of Virginia.

Schedule 3.15

Employment Claims

None.

Schedule 3.17

Personal Property

None.

Schedule 3.18

Open Insurance Policy Claims — Virginia Workers Compensation Claims (12/31/07)

Insured	Claimant	Loss Date	TPA	TPA Claim #
SunTrust Bank	Kathleen Scanlan	11/14/2000	Broadspire	646-000055913-01
			(Crawford &
			Company)
SunTrust Bank	Raymond Strong	7/5/2001	Broadspire	085-000024137-01
			(Crawford &
			Company)

Schedule 3.19

Certificates of Authority

Copies of original certificates (including T-Listing) attached.

Schedule 3.20

Bank Accounts and Deposits

Schedule 3.20 — Bank Accounts and Deposits

				Value			Madison Authorized
Account Type	Bank/institution	Account #		@ 12/31/07		Asset type	Individual(s)	Account Rep.
DDA	SunTrust Bank		8800721774	$	3,014,351.00	Cash position	Mehboob Vellani	N/A
General Investment	SunTrust Bank		I192A	$	2,025,037.00	Municipal bond (Note: We intend to transfer this asset out of Madison prior to closing)	Mehboob Vellani Robert Lynn	N/A
Trust-GA Statutory Deposit	US Bank		584959800	$	400,000.00	Cash position	Daniel Baltz Mehboob Vellani	US Bank, NA Insurance Commissioner Services One West Fourth St., EX_NC_WOFW Winston-Salem, NC 27101 Debby Blackburn (877-877-2143)
Trust-TN Statutory Deposit	Regions Morgan Keegan		2050002029	$	98,991.00	Treasury Bill (Cusip # 912795D99-Maturity 8/24/08)	Daniel Baltz	Regions Bank 315 Deaderick Street Nashville, TN 37237-0502 Mark Cavender (615-736-6755)
Trust-VA Statutory Deposit	SunTrust Bank		7013566	$	400,000.00	Cash position (ST Money Mkt Fund)	Daniel Baltz Mehboob Vellani	SunTrust Bank Endowments & Foundations 919 E. Main St., 7th Fl. Richmond, VA 23219 Brenda Whitener (804-782-7074)
FL Statutory Deposit	Bank of America		1009068974	$	250,000.00	Cash position (FLOIR Money Mkt Fund)	Daniel Baltz	Florida Dept. of Financial Services Janice Medlock (850-413-3328)

Schedule 3.21

Required Consents

1.	Georgia Department of Insurance
2.	US Treasury Department (solely with respect to authority to write surety bonds covering contracts with US government)

Schedule 3.22

Investments for the benefit of Policy Holders

See Schedule 3.20.

Schedule 3.23

Governmental Authority Investigations

None.

Schedule 3.24

Agents and Producers

1.	Ronald Santaniello — GA, VA (active, but intend to cancel at closing).
2.	Lisa-Marie Lopes — GA (active, but intend to cancel at closing).

Schedule 5.16

Virginia Workers Compensation Claims (12/31/07)

See Schedule 3.18.

Schedule 5.17

Reimbursement of Certain Assessments

Invoice
Date	Vendor	Amount		Type	Description
2/8/2007	Commonwealth of Virginia	$	823.00	Misc Fees	Annual Insurance Assessment Fee for Custody of Securities — 2007
5/11/2007	D.C. Department of Insurance, Securities and Banking	$	200.00	Misc Fees	Madison’s request for renewal
5/2/2007	Florida Department of Financial Services	$	1,000.00	Misc Fees	Renewal Certificate of Authority for 2007
1/31/2007	Florida Market Assistance Plan	$	450.00	Misc Fees	2007 FMAP Assessment
5/15/2007	Georgia Department of Insurance	$	500.00	Misc Fees	Madison Form B filing fee
12/12/2007	Government of the District of Columbia	$	1,000.00	Misc Fees	2008 DC Regulatory Trust Annual Assessment
5/9/2007	Maryland Insurance Administration Company Licensing Unit	$	1,500.00	Misc Fees	Renewal application for Madison’s Cert of Authority
2/13/2007	State of GA Office of Insurance & Safety Fire Commissioner	$	700.00	Misc Fees	Annual license fee, statement fee, 1-3 qtr financial statement fees for 2007
3/13/2007	State of Georgia	$	30.00	Misc Fees	2007 Corporation Registration Fee
3/7/2007	U.S. Dept of the Treasury	$	4,710.00	Misc Fees	Annual Renewal Fee, T-Listing
	Total:	$	8,640.00

EX-4.1

Exhibit 4.1

INVESTOR RIGHTS AGREEMENT

     This Investor Rights Agreement (this “Agreement”) is entered into as of July 29, 2004, by and between SunCoast Holdings, Inc., a Delaware corporation (the “Company”), Westwind Holding Company, LLC, a Florida limited liability company (“Investor”), and Steven M. Mariano, a resident of Miami-Dade County, Florida, and the majority stockholder of the Company (the “Majority Stockholder”).

Statement of Purpose

     Contemporaneously with the execution of this Agreement, Investor is purchasing from the Company 195,694 shares (the “Shares”) of the Company’s Series A Common Stock (the “Series A Common Stock”) at a purchase price of $10.22 per Share (the “Purchase Price”). As additional consideration for the purchase of the Shares by Investor, the Company has agreed to grant Investor certain information rights, anti-dilution rights, preemptive rights, co-sale rights and other rights, and Investor has agreed to grant Majority Stockholder certain drag along rights, all on the terms and conditions as more fully set forth herein.

     Now, Therefore, in consideration of the foregoing Statement of Purpose and the mutual promises contained herein, the parties hereto hereby agree as follows:

1. Information Rights. As long as Investor shall own at least one hundred thousand (100,000) shares of Series A Common Stock, Investor shall have the following rights:

     (a) Inspection. Investor shall have the right during normal business hours upon reasonable notice to visit and inspect any of the properties of the Company or any of its subsidiaries and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested; provided, however, that the Company shall not be obligated under this Section 1(a) with respect to a competitor of the Company or any of its subsidiaries or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed.

     (b) Visitation Rights. If any Director of the Company elected by holders of the Series A Common Stock is unable to attend a meeting of the Board of Directors, the Company, upon request, shall allow another representative designated by Investor to attend such meeting of the Board of Directors in a nonvoting capacity, and in connection therewith, the Company shall give such representative copies of all notices, minutes, consents and other materials, financial or otherwise, that the Company provides to its Directors at such meeting.

     (c) Books and Records. The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied (“GAAP”), and will set aside on its books and records all such proper accruals and reserves as shall be required under GAAP; provided, however, that the financial accounting of its subsidiary, Guarantee Insurance Company, or any other insurance company owned by the Company may be reported on a statutory basis of accounting.

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     (d) Audited Financial Statements. No later than one hundred twenty (120) days after the end of each fiscal year of the Company, the Company will furnish to Investor a consolidated balance sheet of the Company, as of the end of such fiscal year, and a statement of income and a statement of cash flows of the Company for such fiscal year, all prepared in accordance with GAAP and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. To the extent requested by Investor, such financial statements shall be accompanied by a report and opinion thereon by independent public accountants selected by the Board of Directors.

     (e) Monthly Financial Reports; Budget/Reports; Notice of Claims. The Company will prepare and present to the Board of Directors for review and approval an annual budget and operating plans for each fiscal year, which shall include a detailed listing of anticipated material capital expenditures. Additionally, the Company shall furnish Investor with (i) copies of such annual budget as approved by the Board of Directors (and as soon as available, any subsequent revisions thereto); (ii) as soon as practicable after the end of the first, second and third fiscal quarter, and in any event within thirty (30) days thereafter, a balance sheet of the Company as of the end of such fiscal quarter and for the current fiscal year to date, including a comparison to budget figures for such period, prepared in accordance with GAAP, with the exception that (x) no notes need be attached to such statements and year-end audit adjustments may not have been made and (y) the financial accounting of its subsidiary, Guarantee Insurance Company, or any other insurance company owned by the Company may be reported on a statutory basis of accounting; and (iii) promptly notify Investor in writing of any claim, dispute or litigation filed or threatened against the Company which could have a material adverse effect on the business, financial condition or prospects of the Company.

2. Anti-Dilution of Investor. Notwithstanding any other rights Investor may have under this Agreement, including without limitation its preemptive rights pursuant to Section 3 below, Investor shall have the following specific rights:

     (a) Issuance of Stock Below the Purchase Price. If at any time or from time to time after the date hereof, the Company issues or sells, or is deemed by the express provisions of this Section 2 to have issued or sold, additional shares of Series A Common Stock, other than to Investor, for an Effective Price (as defined below) less than the Purchase Price, then in connection with any such sale or issuance Investor shall also be issued that number of additional shares of Series A Common Stock determined by subtracting (x) from (y), where (x) is the number of shares of Series A Common Stock owned by Investor at such time and (y) is the product obtained by multiplying the number of shares of Series A Common Stock owned by Investor at such time times a fraction (xx) the numerator of which is the number of shares of Series A Common Stock issued and outstanding immediately prior to such transaction plus the number of shares of Series A Common Stock issued pursuant to such transaction and (yy) the denominator of which shall be the number of shares of Series A Common Stock issued and outstanding immediately prior to such transaction plus the number of shares of Series A Common Stock that the aggregate consideration received by the Company pursuant to the transaction would have purchased at the Purchase Price.

     (b) Determination of Effective Price. For the purpose of making any adjustment required under this Section 2(b), (i) the consideration received by the Company for any issue or

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sale of securities will (a) to the extent it consists of cash be computed at the net amount of cash received by the Company after deduction of any expenses payable by the Company and any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale; (b) to the extent it consists of property other than cash, be computed at the fair market value of that property as reasonably determined in good faith by the Company’s Board of Directors; and (c) if additional shares of Series A Common Stock, Convertible Securities (as defined below) or rights or options to purchase additional shares of Series A Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration that covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Company’s Board of Directors to be allocable to such additional shares of Series A Common Stock or Convertible Securities, and (ii) “Effective Price” means the aggregate consideration received by the Company for the shares of Series A Common Stock as determined above divided by the number of shares of Series A Common Stock issued or sold in connection with such transaction (without regard to the shares of Series A Common Stock issuable to Investor as a result thereof).

     (c) Convertible Securities. For the purpose of the adjustment required under this Section 2, if the Company issues or sells any Convertible Securities, then in each case the Company will be deemed to have issued at the time of the issuance such rights or options or Convertible Securities the maximum number of additional shares of Series A Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such additional shares of Series A Common Stock an amount equal to the total amount of the consideration, if any, received by the Company for such issuance of such rights or options or Convertible Securities, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion thereof. No further adjustments will be made pursuant to this Section 2 as a result of the actual issuance of additional shares of Series A Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. For purposes of this Agreement, the term “Convertible Securities” shall mean any security issued by the Company which by its terms is convertible to shares of Series A Common Stock.

     (d) Inapplicability of Rights. The provisions of this Section 2 shall not apply to (i) the issuance to employees, officers or directors of the Company/of options, rights or warrants to purchase up to two hundred thousand (200,000) shares of Series A Common Stock pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors, and (ii) shares of Series A Common Stock issued to employees, officers or directors of the Company pursuant to the conversion or exercise/of options, rights or warrants to purchase up to two hundred thousand (200,000) shares of Series A Common Stock pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors.

3. Investor Preemptive Rights.

     (a) Generally. Investor shall have a preemptive right to acquire proportional amounts of newly issued shares of any equity securities, including any Convertible Securities, up to Investor’s Pro Rata Share (as defined below) upon the decision of the Board of Directors to issue

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such equity securities. For purposes of this Section 3, “Pro Rata Share” shall mean the ratio of (x) to (y), where (x) is the number of shares of Series A Common Stock held by Investor at such time and (y) is the total number of shares of Series A Common Stock issued and outstanding at such time plus the total number of shares of Series B Common Stock into which all then issued and outstanding shares of Series A Preferred Stock are then convertible.

     (b) Procedures. Upon the decision of the Board of Directors to issue equity securities to which the provisions of this Section 3 apply, the Board of Directors shall provide Investor written notice of its intention to issue such equity securities, describing the type of equity securities and the price and the general terms and conditions upon which the Company proposes to issue such equity securities. Investor shall have ten (10) business days from the date such notice is effective to agree in writing to purchase Investor’s Pro Rata Share of such equity securities for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of equity securities to be purchased (not to exceed Investor’s Pro Rata Share). If Investor elects to exercise its preemptive right to purchase shares of such newly issued equity securities, Investor shall have five (5) business days from the date of its notice to the Company to deliver to the Company by wire transfer the purchase price for such equity securities to be purchased by Investor. If Investor fails to deliver written notice to the Company within such ten (10) business day period or if Investor fails to deliver to the Company the purchase price within such five (5) business day period, then Investor shall forfeit its right to purchase such shares of such newly issued equity securities.

     (c) Limitation Upon Waiver. Subject to, and without limiting Investor’s rights under, Section 2 hereof, shares of any equity securities subject to Investor’s preemptive rights, which shares are not acquired by Investor pursuant to this Section 3, may be issued by the Company to any Persons for a period of one hundred twenty (120) days after being offered in writing to Investor at a consideration set by the Board of Directors that is not lower than the consideration set for the exercise of Investor’s preemptive rights. An offer at a lower consideration or after the expiration of one hundred twenty (120) days shall be subject again to Investor’s preemptive rights as specified in Section 3(a) above.

     (d) Inapplicability of Rights. The preemptive rights established by this Section 3 shall have no application to any of the following:

          (i) equity securities issued by the Company after the date hereof for an aggregate consideration not in excess of Eight Million Dollars ($8,000,000);

          (ii) the issuance of Series B Common Stock of the Company upon conversion of the Series A Preferred Stock of the Company;

          (iii) options, warrants or rights to acquire equity securities issued to employees, officers, directors, consultants, contractors or advisors of the Company or any of its subsidiaries pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors and the issuance of equity securities pursuant to conversion or exercise of such options, warrants or rights;

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          (iv) equity securities issued or issuable upon conversion of any Convertible Securities, provided that the provisions of this Section 3 applied to the original issuance of such Convertible Securities issued after the date hereof and not otherwise excluded under this Section 3(d);

          (v) equity securities issued by the Company for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination;

          (vi) equity securities issued by the Company to stockholders of the Company in connection with any stock split, stock dividend or recapitalization of the Company;

          (vii) equity securities issued by the Company in connection with any issuance of additional shares of Series A Common Stock to Investor pursuant to this Agreement;

          (viii) equity securities issued pursuant to any leasing or loan arrangement, including without limitation any equipment leases, real property leases, loans, debt financing, credit lines, guaranties of indebtedness, cash price reductions or similar transactions or arrangements approved by the Board of Directors;

          (ix) equity securities issued by the Company pursuant to any Public Offering; and

          (x) equity securities issued by the Company in connection with strategic transactions involving the Company and other entities, including without limitation (a) joint ventures, manufacturing, marketing or distribution arrangements or (b) technology transfer or development arrangements; provided, that such strategic transactions and the issuance of such equity securities pursuant thereto have been approved by the Company’s Board of Directors.

4. Investor Co-Sale Rights.

     (a) Generally. With respect to any proposed transfer of shares of any equity security of the Company to which the right of first refusal provisions (the “Right of First Refusal”) set forth in the Company’s Amended and Restated Bylaws (the “Bylaws”) apply, upon the expiration of the Right of First Refusal of the stockholders pursuant to the Bylaws, Investor shall have the right to require the proposed transferee to purchase shares of Series A Common Stock owned by Investor pursuant to this Section 4.

     (b) Exercise. Upon expiration of the stockholders’ Right of First Refusal, the Company shall send written notice to Investor specifying the number of shares that the Company and the non-selling stockholders have not elected to purchase pursuant to the Right of First Refusal and the purchase price and other terms and conditions on which the shares will be sold to the proposed transferee. Investor shall have five (5) days from the date of such notice to notify the Company in writing that Investor elects to require the transferee to purchase shares of Series A Common Stock owned by Investor. In such event, Investor shall have the right to sell to the proposed transferee, upon the same terms and conditions as the selling stockholder after giving effect to any applicable liquidation or other preference and terms and conditions in the Company’s Amended and Restated Certificate of Incorporation, at a minimum, up to that number of shares of Series A Common Stock equal to the product of (i) times (ii), where (i) is a

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fraction (x) the numerator of which is the number of shares of Series A Common Stock owned by Investor as of the date of the selling stockholder’s notice (as such term is used in the Right of First Refusal) and (y) the denominator of which is the total number of shares of equity securities of the Company issued and outstanding as of the date of the selling stockholder’s notice multiplied by (ii) the number of shares of equity securities of the Company proposed to be sold by the selling stockholder (as such term is used in the Bylaws) in the selling stockholder’s notice. The amount of shares of equity securities of the Company to be sold by the selling stockholder shall be reduced to the extent necessary to provide for such participation in such sale by Investor.

     (c) Closing. Contemporaneously with the closing of any proposed transfer pursuant to the Right of First Refusal in which Investor elects to participate pursuant to this Section 4, Investor shall deliver, free and clear of all liens and encumbrances, to the proposed transferee certificates representing shares of Series A Common Stock to be sold along with a stock power duly executed in form sufficient to transfer ownership of such shares on the books and records of the Company, and shall receive in exchange therefore the consideration to be paid or delivered by the proposed transferee in respect of such shares of Series A Common Stock as described in the selling stockholders’ notice, after giving effect to any applicable liquidation or other preference and terms and conditions in the Company’s Amended and Restated Certificate of Incorporation.

5. Additional Rights And Covenants.

     (a) Most-Favored Nation Status. With respect to any equity securities issued by the Company to any person after the date hereof until the Company has issued equity securities after the date hereof, excluding the Shares, for an aggregate consideration of Eight Million Dollars ($8,000,000), in the event the Company issues any such additional equity securities on terms and conditions more favorable to such person than Investor has received from the Company with respect to the Shares, then the Company shall use its best efforts to take any and all action necessary or appropriate in order to amend this Agreement or the Certificate of Incorporation of the Company in order to provide substantially the same or similar terms and conditions to Investor with respect to the Shares. The rights provided to Investor pursuant to this Section 5(a) shall not apply to any issuances of securities or rights to acquire securities specified in Section 3(d) above.

     (b) Guarantees. The Company shall not, without the prior written approval of Investor, guarantee or otherwise agree to satisfy any debts or obligations of any officer or director of the Company.

6. Drag-Along Rights.

     (a) Covenants on Merger. Investor agrees with Majority Stockholder to vote (or grant any proxy to vote) any shares of the capital stock of the Company now or hereafter directly or indirectly owned (of record or beneficially) by Investor: (i) in favor of any proposed merger, consolidation, sale of all or substantially all the Company’s assets or other similar acquisition transaction which is approved by the Board of Directors of the Company and by Majority Stockholder, provided that Investor receives the same form and rate of consideration, after giving effect to any applicable liquidation or other preference and terms and conditions in the

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Company’s Amended and Restated Certificate of Incorporation, and (ii) against any proposed merger, consolidation, sale of all or substantially all the Corporation’s assets or other similar acquisition transaction unless such transaction has been approved by Majority Stockholder.

     (b) Covenants on Sale of Stock. Investor agrees with Majority Stockholder that, in the event Majority Stockholder desires to sell all of the shares of capital stock of the Company owned by Majority Stockholder to a proposed purchaser, Majority Stockholder may require Investor to sell all the shares of capital stock now or hereafter directly or indirectly owned (of record or beneficially) by Investor to such proposed purchaser, provided that Investor receives the same form and rate of consideration as Majority Stockholder, after giving effect to any applicable liquidation or other preference and terms and conditions in the Company’s Amended and Restated Certificate of Incorporation.

     (c) Legend. Investor agrees that all Company share certificates now or hereafter held by Investor that represent shares of capital stock of the Company subject to this Agreement will be stamped or otherwise imprinted with a legend to read as follows:

THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AGREEMENTS AND RESTRICTIONS WITH REGARD TO THE VOTING OF SUCH SHARES AND THEIR TRANSFER, AS PROVIDED IN THE PROVISIONS OF AN INVESTOR RIGHTS AGREEMENT, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE COMPANY.

7. Termination Of Rights. The rights established by this Agreement in Sections 1,2,3, 4, 5, and 6 shall not apply to, and shall terminate upon, the effective date of a public offering pursuant to an effective registration statement filed by the Company (a “Public Offering”).

8. Miscellaneous.

     (a) Adjustments for Stock Splits, Etc. Wherever in this Agreement there is a reference to a specific number of shares of Series A Common Stock of the Company or to the Purchase Price, then, upon the occurrence of any subdivision, combination or stock dividend of such class or series of stock, the specific number of shares and the Purchase Price so referenced in this Agreement shall automatically be proportionally adjusted to reflect the affect on the outstanding shares of such class or series of stock by such subdivision, combination or stock dividend.

     (b) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to the conflicts of laws principles thereof.

     (c) Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Shares from time to time.

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     (d) Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein.

     (e) Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

     (f) Amendment and Waiver. This Agreement may be amended or modified only upon written consent of the parties hereto. The obligations of the Company with respect to Investor and the rights of Investor may be waived only with the written consent of the Investor.

     (g) Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a nationally recognized overnight courier for next day delivery. All communications shall be sent to the Company and Investor at their respective addresses set forth on the signature page hereof or at such other address as the Company or Investor may designate for it by ten (10) days’ advance written notice to the other parties hereto.

     (h) Expenses. The parties shall pay their respective costs and expenses incurred in connection with the negotiation, execution, delivery and performance of the Agreement.

     (i) Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

     (j) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one document.

     (k) Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to refer to the masculine, feminine or neutral, singular or plural, as to the identify of the parties hereto may require.

[Signatures appear on the following page.]

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     In Witness Whereof, the parties hereto have caused this Investor Rights Agreement to be executed by their duly authorized representatives as of the date first set forth above.

COMPANY:		PURCHASER:
Suncoast Holdings, Inc.		Westwind Holding Company, LLC
By:	/s/ Steven M. Mariano	By:	/s/ Michael [Illegible last name]
	Steven M. Mariano		Name:	Michael [Illegible last name]
	President		Title:	President
Address: 5212 Fisher Island Drive		Address: 7560 Commerce Ct                Sarasota FL 34243
	Miami, Florida 33109
MAJORITY STOCKHOLDER:
/s/ Steven M. Mariano
Steven M. Mariano
Address: 5212 Fisher Island Drive
	Miami, Florida 33109

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EX-4.2

Exhibit 4.2

WAIVER

This WAIVER(“Waiver”) is made and entered into as of March 5, 2008 by and among PATRIOT RISK MANAGEMENT, INC., a Delaware corporation (the “Company”), WESTWIND HOLDING COMPANY, LLC, a Florida limited liability company (“Investor”), and STEVEN M. MARIANO, a resident of Miami-Dade County, Florida, and the majority stockholder of the Company (the “Majority Stockholder”), said corporation, limited liability company and individual are referred to herein as the “Parties”.

WHEREAS, Investor owns 215,263 shares of the Company’s Series A Common Stock (the “Series A Common Stock”) and that certain INVESTOR RIGHTS AGREEMENT dated as of July 29, 2004 (the “Rights Agreement”), which grants Investor certain information rights, anti-dilution rights, preemptive rights, co-sale rights and other rights, and Investor grants the Majority Stockholder certain drag-along rights, which rights terminate upon the effective date of a public offering pursuant to an effective registration statement filed by the Company (“Public Offering”); and

WHEREAS, the Company is planning to conduct a Public Offering, and in connection therewith the Investor desires to waive certain rights under the Rights Agreement as set forth herein.

NOW THEREFORE, in consideration of the promises set forth above and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1.	Waiver. (a) Investor hereby irrevocably waives any and all of its rights under Section 2(a) of the Rights Agreement with respect to the issuance by the Company of 169,000 shares of Class A Common Stock at a price of $8.02 per share pursuant to that certain Purchase and Sale Agreement among the Company, Tarheel Insurance Management Company and The Tarheel Group, Inc. dated January 1, 2006.
	(b) Investor hereby irrevocably waives any and all of its rights under Section 2(a) of the Rights Agreement with respect to the issuance by the Company of shares of Class A Common Stock or options to purchase shares of Class A Common Stock at a price of $8.02 per share to officers and directors of the Company.
2.	Effect of Waiver. This Waiver shall be effective from the date above first written (“Effective Date”), provided however, this waiver shall be void and have no effect if the Public Offering is not consummated within 12 months of the Effective Date.
3.	Governing Law. This Waiver shall be governed by and construed in accordance with Section 8(b) of the Rights Agreement.

4. Counterparts. This Waiver may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed as set for the below as of the date first written above.

PATRIOT RISK MANAGEMENT, INC.		WESTWIND HOLDING COMPANY, LLC
By:	/s/ Steven M. Mariano	By:
	Steven M. Mariano	Name:
	President	Title:

Address:	401 E. Las Olas Blvd., Suite 1540	Address:
	Fort Lauderdale, Florida 33301

MAJORITY STOCKHOLDER

/s/ Steven M. Mariano Steven M. Mariano

Address:	401 E. Las Olas Blvd., Suite 1540
	Fort Lauderdale, Florida 33301

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EX-4.3

Exhibit 4.3

1

NON-NEGOTIABLE

FULLY SUBORDINATED SURPLUS NOTE

US$500,000 [DATE]

     FOR VALUE RECEIVED, subject to the terms and conditions hereinafter set forth in this promissory note (the “Note”), GUARANTEE INSURANCE COMPANY, an insurance company organized under the laws of the State of South Carolina and having its principal offices in South Carolina (the “Borrower”), hereby unconditionally promises (subject to the applicable provisions of the South Carolina Insurance Code and the Rules and Regulations of the South Carolina Insurance Department) to pay to            (the “Lender”), by wire transfer to such account in the United States as the holder of this Note may specify to the Borrower in writing, in lawful money of the United States of America (“US Dollars” or “US$”), the principal sum of            payable on the Principal Payment Date (as defined below). The Borrower further promises to pay interest on the unpaid principal balance hereof outstanding from time to time from the date hereof until payment in full hereof at the rates and on the dates determined in accordance with this Note. The Lender is authorized to record the interest rate applicable to the loan evidenced hereby (the “Loan”) and each payment or prepayment of principal hereof in its internal records, and any such notation shall constitute prima facie evidence of the accuracy of the information so recorded.

     Defined Terms. In this Note the following terms have the following meanings:

     “Business Day” means any day other than a Saturday or Sunday or any other day on which commercial banks in Columbia, South Carolina, or New York, New York, are authorized or obligated by law or by local proclamation to close.

     “Interest Payment Date” means, with respect to an Interest Period, the Business Day that immediately follows the last day of such Interest Period and, as applicable, the date of payment or prepayment in full of the Loan.

     “Interest Period” means the period commencing on the date hereof or on the last day of the preceding Interest Period, as the case may be, and ending on the last day of each calendar quarter; provided that no Interest Period shall extend beyond the last Principal Payment Date.

     “Principal Payment Date” means the date which is sixty (60) months from the date hereof.

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     Restrictions on Payment. Notwithstanding anything to the contrary in this Note:

     (a) No part of the principal hereof or interest hereon shall be paid without the prior authorization of such payment by the Director of Insurance of the State of South Carolina unless, after such payment, the total adjusted capital and surplus of the Borrower, as calculated under the rules and regulation prescribed by the National Association of Insurance Commissioners, will exceed 400% of the Authorized Control Level Risk Based Capital stated in the most recently filed Annual Statement of the Borrower.

     (b) No part of the principal hereof or interest hereon shall be paid except out of surplus, excluding capital, and only if the Borrower maintains its reserves and its minimum capital and surplus as required by the South Carolina Insurance Department.

     (c) No part of the principal hereof or interest hereon shall be paid or payable an demand of the holder of this Note or be carried, considered or reported as a legal liability of the Borrower. The entire principal amount hereof and the accrued interest hereon remaining unpaid from time to time shall be carried, considered and reported as a special surplus account in all financial statements published by the Borrower or filed with the Director of Insurance of the State of South Carolina or any other state in which the Borrower shall be qualified to do business.

     Subordination. Repayment of the principal hereof and payment of the interest hereon shall beand is hereby subordinated to the prior payment of, or provision for, all general liabilities of the Borrower and the claims of policyholders and creditors of the Borrower, but shall rank superior to the claim, interest and equity of the shares or shareholders of the Borrower, and such subordination shall be equally applicable in the case of any merger, consolidation, liquidation, rehabilitation, reorganization, dissolution, sale or other disposal of all, or substantially all, of the assets (including the assumption, whether by reinsurance or otherwise, of the major portion of the business of the Borrower in force pursuant to reinsurance agreement or agreements approved by the Director of Insurance of the State of South Carolina) of the Borrower.

     Optional Prepayment. Subject to the Restrictions on Payment and Subordination provisions set forth above, the Borrower may, at any time and from time to time, prepay the Loan, in whole or in part, without premium or penalty but subject to breakage costs as provided in clause (c) of the paragraph entitled Indemnity below, on at least three Business Days’ irrevocable notice to the Lender (effective on receipt), specifying the date and amount of prepayment. If such notice is given, the Borrower shall make such prepayment, and the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid and any breakage costs.

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     Interest Rates and Payment Dates.

     (a) The Loan shall bear interest on the unpaid principal amount thereof at a fixed rate per annum equal to three percent (3.0%), compounded annually, payable in arrears for each Interest Period on the Interest Payment Date for each such Interest Period.

     (b) Any overdue principal of the Loan and (to the extent permitted by applicable law) any overdue interest on the Loan and any other overdue amount payable hereunder shall bear interest from the date of such non-payment until paid in full (after as well as before judgment) at a fixed rate per annum equal to three percent (3.0%), compounded annually, payable in arrears on the last Business Day of each calendar month.

     (c) Interest under any provision of this Note shall be calculated on the basis of a 360-day year for the actual days elapsed.

     Indemnity. The Borrower agrees to indemnify the Lender and to hold the Lender harmless from any loss or expense that the Lender may sustain or incur as a consequence of (a) default by the Borrower in payment of the principal amount of or interest on the Loan, including (but not limited to) any such loss or expense arising from interest or fees payable by the Lender to lenders of funds obtained by it in order to maintain the Loan or (b) default by the Borrower in making any prepayment after the Borrower has given notice thereof in accordance herewith or a prepayment of the Loan on a day that is not the last day of its Interest Period. This covenant shall survive payment of the Loan.

     Payments. All payments of principal of, interest on and all other amounts due under this Note shall be made prior to 12:00 noon (New York time) on the due date and shall be made in US Dollars by wire transfer to such account as the Lender may specify to the Borrower in writing. If any payment hereunder (other than payments of principal of or interest on Loan) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall bepayable at the applicable rate during such extension. If any payment of principal of or interest on the Loan becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Business Day. All payments on this Note shall be applied first to interest and then to principal.

     Expenses. The Borrower agrees to indemnify and hold harmless the holder of this Note from and against any and all liability, claims, costs and expenses in connection with the execution and delivery of this Note and/or the due and proper exercise by the holder hereof of any rights, remedies, powers or privileges authorized hereunder, including (but not limited to) all costs and reasonable attorneys’ fees and disbursements (including allocated costs and expenses of attorneys and paralegals who are employees of the Lender) incurred in any action or

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proceeding to collect this Note, provided that such indemnity does not apply to any losses, claims, liabilities or expenses to the extent they arise from the Lender’s gross negligence or willful misconduct.

     Taxes. The Borrower shall make all payments of interest, principal and other amounts due under this Note free and clear of and without deduction for or on account of any taxes. The Borrower shall pay all taxes for its own account prior to the date on which penalties would be incurred and, if compelled by law to make any deduction, the Borrower shall pay to the Lender such additional amounts as may be necessary to ensure that the Lender receives the full amount that would be due to it if there had not been such deduction. In addition, the Borrower will pay any stamp or other taxes, registration fees or other duties by whomsoever imposed with respect to the preparation, execution, delivery, registration, performance and enforcement of this Note. The Borrower will supply to the Lender evidence satisfactory to the Lender of the Borrower’s payment of each of the aforesaid amounts, and, if any such amount is paid by the Lender, the Borrower hereby indemnifies the Lender therefor, together with any interest, penalties and expenses paid or payable in connection therewith.

     Information. The Borrower shall provide the Lender with such financial and other information concerning its business and operations as the Lender may reasonably request from time to time.

     Representations and Warranties. The Borrower hereby represents and warrants to the Lender that (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of South Carolina, is duly qualified to do business and in good standing in each jurisdiction in which the character of its properties or the transaction of its business makes such qualification necessary and has full corporate power to own its properties, to carry on its business as now being conducted and to execute and deliver this Note; (b) its execution and delivery of this Note and the borrowing evidenced hereby (i) have been duly authorized by all requisite corporate action on its part, (ii) do not require the approval of its stockholders, (iii) will not (A) violate any law or its Certificate of Incorporation or By-Laws, (B) violate any governmental or agency rule or regulation applicable to the Borrower or any order of any court, tribunal or governmental agency binding on it or any of its properties, (C) violate, be in conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any indenture, agreement, license or other instrument or contract to which it is a party or by which it or any of its properties is bound or (D) result in the creation or imposition of any lien of any nature whatsoever on any of its assets and (iv) do not require any license, consent or approval of any governmental agency or regulatory authority, except the South Carolina Insurance Department; and (c) this Note has been duly executed and delivered by the Borrower and is a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of creditors’ rights generally.

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     Events of Default. If any of the following events (each, an “Event of Default”) occurs for any reason whatsoever:

     (a) the Borrower fails to pay any of its obligations hereunder when due;

     (b) the Borrower otherwise defaults in the due performance or observance of any covenant, undertaking, representation or warranty set out in this Note or in any other agreement with the Lender or any of its affiliates and such default continues for fifteen (15) days after the Lender gives written notice to the Borrower;

     (c) any representation, warranty or other statement made in this Note or otherwise in writing by or on behalf of the Borrower in connection with the Loan proves to be or to have been incorrect or misleading in any material respect as of the date at which it was made or deemed to be made;

     (d) the Borrower (i) applies for or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its assets, (ii) admits in writing its inability to pay its debts as they become due, (iii) makes a general assignment for the benefit of creditors, (iv) files a petition seeking to take advantage of any laws relating to bankruptcy, insolvency, reorganization, winding up, composition or adjustment of debts or (v) acquiesces in writing to any petition filed against it in an involuntary case under any such laws; or

     (e) a case or other proceeding is commenced, without the application or consent of the Borrower, in any court of competent jurisdiction seeking the liquidation, reorganization, dissolution, winding up or composition or readjustment of debts of the Borrower, the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower or of all or any substantial part of its assets, or any similar action with respect to the Borrower under any laws relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding continues undismissed, or unstayed and in effect, for a period of sixty (60) consecutive days; or an order for relief in respect of the Borrower is entered in an involuntary case under any such laws;

then, subject to the Restrictions on Payment and Subordination provisions set forth above, (i) upon the occurrence of any Event of Default specified in paragraph (d) or (e) above, all amounts owing under this Note shall immediately become due and payable without any election or action on the Lender’s part, and (ii) upon the occurrence of any other Event of Default, the Lender may, by notice to the Borrower, declare all amounts owing under this Note to be immediately become due and payable, whereupon they shall immediately become due and payable, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. If an Event of Default has occurred and is continuing, the Lender may set-off and apply, at any time in its sole discretion, any amount then owing by the Lender or any

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affiliate of the Lender against any amount then due to the Lender from the Borrower, the details of any such application to be promptly notified to the Borrower.

     Miscellaneous. No failure on the part of the Lender to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Lender of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy of the Lender.

     No modification or waiver of any provision of this Note or consent to any departure from any such provision shall in any event be effective unless it is in writing and signed by the Borrower and the Lender with the prior written approval of the Director of Insurance of the State of South Carolina, and then such modification, waiver ot consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrower in any case shall, of itself, entitle the Borrower to any other or further notice or demand in similar or other circumstances.

     Any provision of this Note that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. No provision of this Note shall require the payment, or permit the collection, of interest in excess of the highest rate permitted by applicable law.

     Except as otherwise expressly provided herein, all notices or other communications to the Borrower or the Lender related to this Note shall be in writing (including facsimile transmissions) and shall be delivered or transmitted by facsimile to the other party at its address set forth below, or at such other address as may hereafter be specified to the other parry in writing:

If to the Borrower:	Guarantee Insurance Company
	1061 521 Corporate Center, Suite 140
	Fort Mill, SC 29715
	Attn: Lucia A. Tompkins, President
	Facsimile No.: (803) 396-5221
If to the Lender:	Westwind Holding Company LLC
	7560 Commerce Court
	Sarasota, FL 34243

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     The Borrower hereby waives any presentment, notice of dishonor, protest or other notice of any kind that is not expressly required by the terms of this Note.

     This Note shall be binding on the Borrower and its successors and assigns and shall inure tothe benefit of the Lender and its successors and assigns; provided, however, that the Borrower may not assign its rights and obligations hereunder without the prior written consent of the Lender. This Note may be transferred only by noting the transfer on the books of the Borrower upon surrender of this Note properly assigned in exchange for a reissued Surplus Note. The reissued Note must be submitted to the Director of Insurance of the State of South Carolina prior to delivery to the transferee and shall include all the terms, conditions, limitations and provisions contained herein.

     No recourse under or upon any obligation, covenant or agreement contained in this Note, or for any claim based thereon or otherwise in respect thereof, shall be had against any shareholder, officer or director, as such, past, present or future, of the Borrower or any successor corporation, either directly or through any trustee, receiver, or any other person; it being expressly understood that this Note is solely a corporate obligation of the Borrower and that any and all personal liability, and any and all rights and claims against every such shareholder, officer or director, as such, are hereby expressly waived and released by the holder hereof by acceptance of this Note and as a part of the consideration for the issuance hereof.

     This Note is issued and delivered in the State of South Carolina, and it shall be governed by, and construed in accordance with, the laws of the State of South Carolina.

     EACH OF THE BORROWER AND, BY ITS ACCEPTANCE OF THIS NOTE, THE HOLDER OF THIS NOTE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.

GUARANTEE INSURANCE COMPANY
By:
	Lucia A. Tompkins
	President

ATTEST:

Lisa Leachman Hirsch
Secretary

EX-4.4

Exhibit 4.4

SUBORDINATED DEBENTURE

THIS SUBORDINATED DEBENTURE, dated this            (the “Debenture”), is entered into by and between SUNCOAST HOLDINGS, INC., a Delaware corporation (the “Borrower”), and            (the“Lender”).

For and in consideration of the mutual agreements as set forth herein, Lender hereby makes a loan to Borrower in the amount set forth in Section 1 below, and Borrower hereby accepts said loan.

This Debenture is subject to the following terms and conditions:

1.	Amount. The loan is in the amount of            (the “Loan”), is made in the form of cash, and is for a three (3) year period from the date hereof (the “Term”). The Loan shall be subject to renewal on these same terms and conditions at the end of the Term.
2.	Interest Rate. The Loan shall bear interest from the date first set forth above for the length of the Term at the rate of three percent (3%) per annum on the unpaid principal balance. Interest shall accrue and be payable in full at the end of the Term.
3.	Modification. No modification may be made with respect to this Debenture without the prior approval of Borrower and Lender.
4.	Subordination. This Debenture is, and shall remain until payment in full, subordinate to (A) that certain debt owed by Borrower to GUARANTEE HOLDINGS, INC. (“GHI”) pursuant to that certain Stock Purchase Agreement dated as of April 28, 2003, as amended June 30, 2003 and August 21, 2003 by and between Borrower and GHI; and (B) any lines of credit in any amounts secured from a financial institution in connection with Borrower’s business operations.
5.	Entire Agreement. This Debenture contains the entire agreement between the above-referenced parties. There are no addenda or other agreements with any party which form a part of this Debenture.
6.	Governing Law. This Debenture shall be interpreted under and governed by the law of the State of Florida, without consideration of its law on conflicts or choice of law.

This Debenture is transferable only by assignment on the books of the Borrower upon surrender of this Debenture properly assigned.

(Signature appears on next page.)

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IN WITNESS WHEREOF, this Debenture has been executed as of the date first above written.

By:

Name (Print):

Title (Print):

SUNCOAST HOLDINGS. INC.
By
	Steven M. Mariano, President

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EX-10.2

Exhibit 10.2

SunCoast Holdings, Inc.

401 E. Las Olas Blvd. Suite 1540	Telephone 954.670.2900
Ft. Lauderdale, FL 33301

November 17, 2006

Ted Bryant
12507 SE 67 St.
Bellevue, WA 98006

Dear Ted:

On behalf of SunCoast Holdings, Inc., I am pleased to offer you the position as the Director of Business Development of SunCoast Holdings, Inc. We believe your skills and abilities are well suited to our current needs, and we look forward to your contributions.

As the Director of Business Development, you will be responsible for all business development matters of the company and its subsidiaries. You will be reporting directly to me.

The following summarizes our understanding of your employment:

1.	HIRE DATE -TBD
2.	COMPENSATION — This is a full-time position with a bi-weekly salary of $6,923.07, which is the equivalent of $180,000 per year. You will receive an increase in salary to $200,000 per year which will be effective on January 1 , 2008
3.	INCENTIVE BONUS PLAN — You will be awarded an Incentive Bonus not less than $12,500. The award will be paid by the end of the First quarter of the following year. Subsequent incentives will be determined under our incentive bonus plan whereby your award will be determined by goals and expectations as approved the Board of Directors. These awards range between 0% — 50% of base pay and are determined on goals that are financial in nature.
4.	SIGN ON BONUS — You will be awarded a $7,500 sign on bonus which will be payable at start date.
5.	STOCK OPTIONS — This position is eligible for stock option grants. Stock Option grants are subject Board approval and all provisions of the SunCoast Holdings, Inc. Stock Option Plan. You will receive 5,000 stock options at signing. Subsequent grants are subject to board approval usually done every February Board meeting.
6.	BENEFITS — You will be eligible for participation in employee benefit plans offered by the Company. Benefits will be effective the first day of the month following 30 days of employment.
7.	VACATION — Senior management and executives are provided four weeks of vacation, prorated based on date of hire, with additional weeks in accordance with the anniversary dates in the vacation policy.
8.	MOVING EXPENSES — Since it is difficult to estimate the costs of moving you and your family to Fort Lauderdale, FL, we agree to pay for all reasonable moving and relocation expenses. These expenses will include, but not be limited to, moving your tangible personal property, travel expenses for you and your family, temporary housing for a period not to exceed three months, and other miscellaneous personal expenses brought

SunCoast Holdings, Inc.

401 E. Las Olas Blvd. Suite 1540	Telephone 954.670.2900
Ft. Lauderdale, FL 33301

to or caused by your move to Florida. In all instances, the expenses will be reasonable and will be incurred only after obtaining prior approval by SunCoast Holdings, Inc.

9. Severance- 1 year severance.

We are excited that you have selected SunCoast Holdings, Inc. and look forward to having you on our team.

Sincerely,

Steven M. Mariano

Chairman and CEO

Please signify your acceptance and understanding of the above terms by signing below. You understand that you are free to resign at any time with or without cause and without prior notice. SunCoast also reserves the same right to terminate employment at anytime with or without cause and without prior notice except as may be required by law. This offer of employment does not constitute an agreement or contract for employment for any specified period or definite duration. You understand that no representative of SunCoast, other than an authorized officer, has the authority to make any assurances to the contrary. You further understand that any such assurances must be in writing and signed by an authorized officer.

  Signature Date

EX-10.4

EXHIBIT 10.4

401 E. Las Olas Blvd., Ste. 1540 Ft. Lauderdale, FL 33301 • Phone (954) 670-2900

August 1, 2007

Timothy J. Ermatinger
41 NW 128^th Ave.
Plantation, FL 33325

On behalf of SunCoast Holdings, Inc., I am pleased to offer you the position of President and Chief Operating Officer of Patriot Risk Management, Inc., a subsidiary of SunCoast Holdings, Inc.

The following summarizes our understanding of your employment as of August 1, 2007:

1.	Effective Date of Transition – August 1, 2007. You will report to the Board of Directors of Patriot Rick Management.
2.	Compensation – This is an exempt full-time position with an annual salary of $205,000 per year.
3.	Stock Options – Your current stock options remain unchanged and unaffected. You may be eligible for additional option grants going forward.
4.	Bonus Plan – Your eligibility in the company bonus plan remains unchanged.
5.	Benefits – You will continue to be eligible for participation in employee benefit plans offered by the Company. Benefits are already in effect.
6.	Vacation – You current vacation grant of three weeks remains unchanged.
7.	Severance Agreement – 1-year severance subject to agreement.

Continued best wishes in your new assignment. Should you have questions, feel free to contact me directly at 954-670-2901.

Sincerely,

Steven M. Mariano
President and Chief Executive Officer, SunCoast Holdings, Inc.

Please signify your acceptance and understanding of the above terms by signing below. You understand that you are free to resign at any time with our without cause and without prior notice. SunCoast also reserves the same right to terminate employment at anytime with or without cause and without prior notice except as may be required by law. This offer of employment does not constitute an agreement or contract for employment for any specified period of definite duration. You understand that no representative of SunCoast, other than an authorized officer, has the authority to make any assurances to the contrary. You further understand than any such assurances must be in writing and signed by an authorized officer.

Signature Date

EX-10.6

Exhibit 10.6

EXECUTIVE
EMPLOYMENT AGREEMENT

     This Executive Employment Agreement (“Agreement”) is entered into as of February 11, 2008 (the “Effective Date”), by and between SunCoast Holdings, 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 Michael Grandstaff (“Executive”).

     WHEREAS, the Company wishes to assure itself of the services or continued services of Executive for the period provided in this Agreement; and

     WHEREAS, Executive is willing to serve (or continue to serve) in the employ of the Company on a full-time basis for said period.

     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 as the Senior Vice President and Chief Financial Officer of the Company, on the terms and conditions herein set forth. Executive shall have such duties, responsibilities and authority as is commensurate with his position and 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 the Board itself. During said period, 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 for a period of 36 full calendar months thereafter (the “Initial Term”) provided that such 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 shall have given notice to the other party that such party does not desire to extend the term of this Agreement, such notice to be given at least 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”). The date of expiration of the Employment Term shall be referred to herein as the “Termination Date.”

3. Extent of Services. During the term hereof, 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, unless the Company otherwise consents; 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. 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. The foregoing shall not be deemed to prevent Executive from participating in any charitable or not-for-profit organization to a reasonable extent, provided however that Executive does not receive any salary or other remuneration from such charity or not-for-profit organization. Executive agrees to comply 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 term of this Agreement, the Company shall pay Executive an annual salary of not less than $350,000 (“Annual Salary”), payable in accordance with the Company’s regular payroll procedures. During each year that this Agreement is in effect, the Company will review possible increases in Executive’s salary at least annually, with any such increases subject to the determination of the Board or the Compensation Committee of the Board.
(b)	Bonus. Executive shall be eligible to receive an annual bonus in an amount as may be determined by the Board, pursuant to a bonus plan which may then be in effect or otherwise. Executive’s target bonus for any fiscal year of the Company shall be up to 50% of Executive’s Annual Salary, subject to the attainment of such goals as the Board or Compensation Committee shall establish.
(c)	Business Expenses. 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. The Company shall pay up to $60,000 toward the initiation fee for Executive to become a member of one private country club, golf club, tennis club or similar club or association for business use selected by Executive and approved by the Compensation Committee of the Board, which approval shall not be unreasonably withheld or delayed. The Company will also provide Executive with a gross-up payment so that such initiation fee payment (and any gross-up payment) do not result in Executive incurring any net expense 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. Fees and expenses under

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this Section 4(d) are subject to an annual budget to be prepared by Executive and approved by the Compensation Committee. If Executive’s employment with the Company terminates within one year after the Effective Date for any reason other then death, disability, resignation of Executive for Good Reason (as defined below) or termination without cause (as defined below), any amount paid by the Company for the initiation fee referenced above shall be reimbursed by the Executive to the Company.

(e)	Vacation. 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)	Relocation Expenses. The Company shall reimburse Executive for all reasonable moving expenses incurred or paid by Executive in relocating his current residence to Florida, including the brokerage commission on the sale of Executive’s Michigan residence, subject to Executive providing reasonable substantiation and documentation as specified by the Company. The Company will provide Executive with a gross-up payment if necessary so that such reimbursements (and any gross-up payment) do not result in Executive incurring any net expense for taxes associated with the reimbursement of moving expenses. In addition, the Company shall reimburse Executive’s temporary living expenses in Ft. Lauderdale through June 30, 2008 (or such earlier date as Executive has obtained a new residence in Florida).
(g)	Automobile Allowance. During the Employment Term, the Company shall pay or provide Executive an automobile allowance of $1,000 per month in accordance with policies established by the Company from time to time.
(h)	Stock Options. Upon the successful completion of the Company’s initial public offering as currently planned, and subject to Board approval, Executive shall be eligible to receive a grant of stock options to purchase 100,000 shares with an exercise price equal to the initial public offering price, upon such terms as may be set forth in the stock option plan and an accompanying stock option agreement pursuant to which such options will be granted, with such terms to include a three year vesting, 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). If the Company’s initial public offering is not completed as planned, (i) Executive shall be eligible to receive, subject to Board approval, a stock option grant that represents the approximate equivalent equity interest in the Company based on the then current capital structure of the Company, and (ii) the Company shall repurchase the shares issued to Executive upon exercise of such options at a price per share equal to the Company’s most recent annual independent valuation of its share price, provided that if the purchase price exceeds $100,000, the Company may pay the purchase price over a 5 year period, with interest thereon at the minimum applicable federal rate under Section 7872 of the Internal Revenue Code of 1986, as amended (the “Code”), and further provided that any payment of the purchase price is subject to the

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	Company’s determination that making such payment, to the extent that the proceeds to make such payment first need to paid to the Company as a dividend from the Company’s insurance company subsidiary or subsidiaries, will not materially impair such subsidiaries’ statutory policyholders’ surplus.
(i)	Other Benefits. Executive shall be entitled to participate in all medical and other employee plans of the Company, if any, on the same basis as other executives of the Company, subject in all cases to the respective terms of such plans.

5. Termination.

(a)	Death. This Agreement and Executive’s employment hereunder shall terminate immediately upon Executive’s death. In such event, the Company shall be obligated to pay only Executive’s salary to the date of Executive’s death and any earned but unpaid bonus with respect to any calendar year ended prior to the date of termination.
(b)	Incapacity. To the extent permitted by law, if Executive is absent from his employment for reasons of illness or other physical or mental incapacity which renders Executive unable to perform the essential functions of his position, with or without reasonable accommodation, for more than an aggregate of 90 days, whether or not consecutive, in any period of twelve consecutive months, then upon at least 60 days’ prior written notice to Executive, if such is consistent with applicable law, 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:

(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; 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 30 days after receiving such notice;

(B)

willful misconduct by Executive which in the reasonable determination of the Board has caused or is likely to cause material injury to the reputation or business of the Company;

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(C)	any act of fraud, material misappropriation or other dishonesty by Executive; or
(D)	Executive’s conviction of a felony.

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.

(ii) Termination Without Cause.

(A)	Notwithstanding anything contained herein to the contrary, the Company also may terminate this Agreement and Executive’s employment hereunder for reason other than death, incapacity or cause upon no less than 60 days’ prior written notice to Executive. In the event that the Company terminates this Agreement pursuant to the provisions of this Section 5(c)(ii), Executive shall be entitled to receive a severance payment equal to 100% of Executive’s Annual Salary at the time of termination (the “Severance Payment”). Subject to Section 10 hereof, the Severance Payment shall be payable in a series of 12 monthly installments commencing on the first day of the month following the date of termination. If for any reason any court determines that any of the restrictions contained in Section 8 hereof are not enforceable, the Company shall have no obligation to pay the Severance Payment or any remaining installment thereof to Executive. The Company agrees that it will not petition any court to determine that any of the restrictions contained in Section 8 hereof are not enforceable in order to avoid the obligation to pay the Severance Payments referenced above.
(B)	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 Payment hereunder.
(C)	Notwithstanding anything herein to the contrary, the payment of any Severance Payments 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 a form and manner satisfactory to the Company and Executive.

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(D)	Executive will not be entitled to receive Severance Payments under this Section 5(c)(ii) in the event that this Agreement is terminated 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.
(E)	In the event of termination by the Company without 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.

(d)

Termination by Executive Without Good Reason. Executive may terminate this Agreement and his employment hereunder for any reason whatsoever, upon no less than 120 days’ prior written notice to the Company. In the event that Executive terminates this Agreement pursuant to the provisions of this Section 5(d) without “Good Reason” as hereinafter defined, 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.

(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 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 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 30 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 30 days after receiving such notice.

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

6

the Company is terminated by the Company without Cause or Executive resigns for Good Reason, then Executive shall be entitled to terminate this Agreement and employment hereunder and receive from the Company a payment equal to 200% of the amount of the Severance Payment specified in Section 5(c)(ii) or 5(e) of this Agreement (the “Change in Control Compensation”). Subject to Section 10 hereof, the Change in Control Compensation shall be payable in 12 monthly installments commencing on the first day of the month following the date of termination. If for any reason any court determines that any of the restrictions contained in Section 8 hereof are not enforceable, the Company shall have no obligation to pay the Change in Control Compensation or any remaining installment thereof to Executive. The Company agrees that it will not petition any court to determine that any of the restrictions contained in Section 8 hereof are not enforceable in order to avoid the obligation to pay the Change of Control Compensation referenced above.

(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 51% 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
(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.

7

(c)

Nonduplication of Benefits. If Executive receives any Change in Control Compensation under this Section 6, he or she shall not be entitled to receive any Severance Payments 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 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 a form and manner satisfactory to the Company and Executive.

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 section 280G(b) of the Code, 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.

(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 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

8

	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 Termination Date, and for 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

9

	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 of any of the terms and conditions of this Section 8 to be performed by him, then the Company 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 to enjoin Executive 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 may elect to invoke.
(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.

10

9.

Indemnification. The Company shall provide Executive (including Executive’s heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, 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.

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 Section 5(c)(ii), 5(e) and 6(a) of this Agreement need not be delayed under this Section 10(b) to the extent those payments would comply with the requirements of 1.409A-l(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 during the year of Executive’s date of termination.
(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)	Installment Payments. For purposes of Code section 409A, the right to a series of payments under this Agreement shall be treated as a right to a series of separate

11

	payments so that each payment hereunder is designated as 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 4(c) 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.
(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:

SunCoast Holdings, Inc.
401 East Las Olas Boulevard, Suite 1540
Fort Lauderdale, Florida 33301

If to Executive:

To the last mailing address on file with the Company.

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(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 (as hereinafter defined), 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 arbitration in Fort Lauderdale, Florida in accordance with the then applicable rules of the American Arbitration Association. The prevailing party may be awarded in such arbitration its reasonable 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 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 contain 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.

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(j) 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.

SUNCOAST HOLDINGS, INC.   a Delaware corporation
By:	/s/ Steven M. Mariano
	Title: President
EXECUTIVE
	/s/ [ILLEGIBLE]

14

EX-10.7

EXHIBIT 10.7

SUNCOAST HOLDINGS, INC.
2005 STOCK OPTION PLAN

TABLE OF CONTENTS

	Page
ARTICLE I – PURPOSE		1
ARTICLE II – DEFINITIONS		1
2.01 Definitions		1
ARTICLE III – ADMINISTRATION/ELIGIBILITY		4
3.01 Committee Duties		4
3.02 Delegation of Duties		4
3.03 Participation		4
3.04 Conditions of Participation		5
3.05 Eligibility		6
3.06 Limitations on Committee		6
ARTICLE IV – STOCK SUBJECT TO PLAN		6
4.01 Number of Shares		6
4.02 Unfulfilled Awards		6
4.03 Adjustment in Capitalization		6
4.04 Limitations on Number of Shares Issuable to an Eligible Employee or Director		6
ARTICLE V – OPTIONS		7
5.01 Grant of Options		7
5.02 Option Price		7
5.03 Exercise of Options		7
5.04 Incentive Stock Options		7
5.05 Payment for Options		8
5.06 Restrictions on Option Exercise and Transferability		8
5.07 Restrictions on Reload/Repricing		8
ARTICLE VI – TERMINATION OF SERVICE/LIMITS ON EXERCISABILITY/BUYOUTS		8
6.01 Effect of Termination of Service on Awards		8
6.02 Other Limits on Exercisability		10
6.03 Buy Out of Article 6 Awards		10
ARTICLE VII – MERGER, CONSOLIDATION OR SIMILAR EVENT		10
7.01 Definition of Business Combination		10

i

TABLE OF CONTENTS
(continued)

	Page
7.02 Effect of Business Combination on Options		11
7.03 Application of Section 280G of the Code		11
ARTICLE VIII – AMENDMENT, MODIFICATION AND TERMINATION OF PLAN		12
ARTICLE IX – MISCELLANEOUS		12
9.01 Assignability		12
9.02 Beneficiary Designation		12
9.03 No Guarantee of Continuing Service		13
9.04 Tax Withholding		13
9.05 Indemnification		14
9.06 No Limitation on Compensation		14
9.07 Requirements of Law		14
9.08 Term of Plan		14
9.09 Governing Law		14
9.10 No Impact on Benefits		14

 ii

SUNCOAST HOLDINGS, INC.
2005 STOCK OPTION PLAN ARTICLE I – PURPOSE

This Plan is intended to foster and promote the long-term financial success of SunCoast Holdings, Inc. and its Subsidiaries (the “SunCoast Group”); to reward performance and to increase shareholder value by providing Participants appropriate incentives and rewards; to enable the SunCoast Group to attract and retain the services of outstanding individuals upon whose judgment, interest and dedication the successful conduct of the SunCoast Group’s businesses are largely dependent; to encourage Participants’ ownership interest in SunCoast Holdings, Inc.; and to align the interests of management and directors with that of the SunCoast Holdings, Inc.’s shareholders.

ARTICLE II – DEFINITIONS

2.01 Definitions. When used in this Plan, the following terms will have the meanings given to them in this Article unless another meaning is expressly provided elsewhere in this document or clearly required by the context. When applying these definitions and any other word, term or phrase used in this document, the form of any word, term or phrase will include any and all of its other forms.

Act. The Securities Exchange Act of 1934, as amended.

Annual Meeting. The annual meeting of the Company’s shareholders.

Award. Any Incentive Stock Option or Nonqualified Stock Option.

Award Agreement. The written or electronic agreement or other instrument or document that [1] describes the terms and conditions of each Award and the manner in which it will be settled if earned and [2] evidences an Award granted by the Committee and is signed or otherwise authenticated by both the Company and the Participant. If there is any conflict between the terms of this Plan and the terms of the Award Agreement, the terms of the Plan will prevail.

Beneficiary. The individual a Participant designates to receive (or to exercise) or is otherwise entitled to receive (or to exercise) in accordance with Section 9.02 any Plan benefits (or rights) that are unpaid (or unexercised) when the Participant dies. A Beneficiary may be designated or determined only by following the procedures described in Section 9.02 and neither the Company nor the Committee is required or permitted to infer a Beneficiary from any other source.

Board. The Company’s board of directors.

Business Combination. A transaction of the type described in Section 7.01.

Cause. For purposes of this Plan and unless otherwise specified in the Award Agreement, with respect to any Participant who is an Employee:

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[1] Any act of fraud, intentional misrepresentation, embezzlement, misappropriation or conversion of any SunCoast Group member’s asset or business opportunity;

[2] Conviction of, or entering into a plea of nolo contendere to, a felony;

[3] Intentional, repeated or continuing violation of any of the applicable SunCoast Group member’s policies or procedures that occurs or continues after notice to the Participant that he or she has violated such policy or procedure; or

[4] Any material breach of a written covenant or agreement with a SunCoast Group member, including the terms of this Plan or any material breach of fiduciary duty to SunCoast Group member.

Code. The Internal Revenue Code of 1986, as in effect on the Effective Date or as amended or superseded after the Effective Date, and any applicable regulations and rulings issued under the Code.

Committee.

[1] In the case of Awards to Directors, the entire Board; or

[2] In the case of all other Awards, the Board’s compensation committee. The Committee will be comprised of at least three individuals.

Company. SunCoast Holdings, Inc., a corporation organized under the laws of Delaware, and all successors to it.

Director. Each member of the Board or of the board of directors of any Subsidiary.

Disability. A disability as defined in Section 22(e)(3) of the Code.

Effective Date. The earlier of [1] the date this Plan is approved by the Board or [2] the date this Plan is approved by the Company’s shareholders.

Eligible Employee. Any Employee who is employed in an executive position, as determined by the Committee, by a SunCoast Group member.

Employee. Any individual who is a common law employee of a SunCoast Group member. A worker who is classified as other than a common law employee by an Employer but who is subsequently reclassified as a common law employee of such Employer for any reason and on any basis will be treated as a common law employee only from the date of that reclassification and will not retroactively be reclassified as an Employee for any purpose of this Plan.

Employer. Each member of the SunCoast Group.

Exercise Price. The price, if any, at which a Participant may exercise an Award.

Fair Market Value. The value of one share of Stock on any relevant date, determined as follows:

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[1] If the shares of Stock are traded on an established securities market (including the NASDAQ National Market System), the reported “closing price” on the relevant date, if it is a trading day; otherwise on the immediately preceding trading day; or

[2] If the shares of Stock are not traded on an established securities market, the fair market value, as determined by the Committee in good faith under a reasonable valuation method, as of the valuation date coinciding with or, if none, most recently preceding the relevant date provided that it is no more than 12 months before the relevant date. Such fair market value determination shall be made in a manner consistent with the rules prescribed under Section 409A of the Code, and, with respect to Incentive Stock Options, consistent with rules prescribed under Section 422 of the Code.

Grant Date. The date specified as the grant date in the Award Agreement.

Incentive Stock Option. Any Option granted under Article V that, on the Grant Date, meets the applicable requirements of Section 422 of the Code and is not subsequently modified in a manner that results in the grant of a new stock option that does not meet the applicable requirements of Section 422 of the Code.

Nonqualified Stock Option. Any Option granted under Article V that is not an Incentive Stock Option.

Option. The right granted under Article V to purchase a share of Stock at a stated price for a specified period of time. An Option may be either [1] an Incentive Stock Option or [2] a Nonqualified Stock Option.

Participant. Any Employee or Director to whom the Committee grants an Award. Designation of an Eligible Employee to receive an Award in any year will not require the Committee to designate that person to receive an Award in any other year or, once designated, to receive the same type or amount of Award granted to the Participant in any other year. The Committee will consider the factors it deems pertinent to selecting Eligible Employees and in determining the type and amount of their respective Awards.

Plan. SunCoast Holdings, Inc. 2005 Stock Option Plan.

Plan Year. The Company’s fiscal year.

Retirement or Retire. In the case of:

[1] An Employee, Termination of Service (without Cause) after attainment of age 55; and

[2] In the case of Directors, their departure from the Board for any reason other than Disability or death.

Stock. The class A common stock of the Company, which contains substantially similar rights (disregarding any difference in voting rights) to the class of common stock of the Company having the greatest aggregate value of common stock issued and outstanding of the Company.

- 3 -

Subsidiary. Any corporation, partnership or other form of unincorporated entity of which the Company owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock, if the entity is a corporation; or of the capital or profits interest, if the entity is a partnership or another form of unincorporated entity.

Termination of Service (or references to a Participant’s Service being Terminated). As applicable, [1] termination of the employee-employer relationship between a Participant and the Company and all Subsidiaries for any reason, [2] with respect to an Employee of a Subsidiary, a severance or diminution of the ownership relationship between the Company and that entity after which that entity is no longer a Subsidiary and after which that person is not an Employee or [3] cessation of a Director’s service on the Board (and the boards of directors of all Subsidiaries) for any reason. However, with respect to any Award that is not an Incentive Stock Option and unless the Committee specifies otherwise either in the Award Agreement or subsequently, a Termination of Service will not have occurred solely because an Employee becomes a consultant to a SunCoast Group member unless that consultant is providing bona fide services to such SunCoast Group member. Also, with respect to any Award (including an Incentive Stock Option), a Termination of Service will not have occurred while the Employee is absent from active employment for a period of not more than three months (or, if longer, the period during which reemployment rights are protected by law, contact or written agreement, including the Award Agreement, between the Participant and the Employer) due to illness, military service or other leave of absence approved by the Employer.

ARTICLE III – ADMINISTRATION/ELIGIBILITY

3.01 Committee Duties.

[1] The Committee is granted all powers appropriate and necessary to administer the Plan. Consistent with the Plan’s purpose, the Committee may adopt, amend and rescind rules and regulations relating to the Plan, to the extent appropriate to protect the Company’s interests, and has complete discretion to make all other decisions necessary or advisable for the administration and interpretation of the Plan. Any action by the Committee will be final, binding and conclusive for all purposes and upon all Participants.

[2] The Committee (or the Board, as appropriate) also may amend the Plan and Award Agreements without any additional consideration to affected Participants to the extent necessary to avoid penalties arising under Section 409A of the Code, even if those amendments reduce, restrict or eliminate rights granted under the Plan or Award Agreement (or both) before those amendments.

3.02 Delegation of Duties. In its sole discretion, the Committee may delegate to any individual or entity (including Employees) that it deems appropriate any of its duties other than those described in Section 3.03[1] and [2].

3.03 Participation.

[1] Consistent with the terms of the Plan, the Committee will:

[a] Decide which Employees and Directors may become Participants;

- 4 -

[b] Decide which Participants will be granted Awards;

[c] Identify the type of Awards to be granted to each Participant;

[d] Specify the terms and conditions imposed on any Awards granted;

[e] Develop the procedures through which an Award may be exercised;

[f] Specify the circumstances under which the Company may cancel an Award or reacquire any Award or shares of Stock acquired through the Plan; and

[g] Impose any other terms and conditions the Committee believes are appropriate and necessary to implement the purpose of this Plan.

[2] The Committee may establish different terms and conditions:

[a] For each type of Award;

[b] For Participants receiving the same type of Award; and

[c] For the same Participant for each Award the Participant receives, whether or not those Awards are granted at different times.

[3] The Committee (or its delegate) will prepare and deliver an Award Agreement to each affected Participant with respect to each Award. The Award Agreement will describe:

[a] The type of Award and when and how it may be exercised;

[b] The effect of exercising an Award;

[c] Any Exercise Price associated with the Award;

[d] Any conditions that must be met before the Award may be exercised;

[e] When and how the Award may be exercised; and

[f] Any other applicable terms and conditions affecting the Award.

3.04 Conditions of Participation. By accepting an Award, each Participant agrees:

[1] To be bound by the terms of the Award Agreement and the Plan; and

[2] That the Committee (or the Board) may amend the Plan and the Award Agreements without any additional consideration to the extent necessary to avoid penalties arising under Section 409A of the Code, even if those amendments reduce, restrict or eliminate rights granted under the Plan or Award Agreement (or both) before those amendments.

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3.05 Eligibility. Participation in the Plan is limited to Eligible Employees and Directors. Only Eligible Employees and Directors may receive an Award under the Plan. An Employee’s status as an Eligible Employee or an individual’s status as a Director does not guarantee that any Award will be made to such Employee or individual.

3.06 Limitations on Committee. Notwithstanding anything in this Article III, the Committee shall not have the authority to reduce the Exercise Price for Options other than as provided in Section 4.03 of the Plan.

ARTICLE IV – STOCK SUBJECT TO PLAN

4.01 Number of Shares.

[1] Subject to Section 4.03, the number of shares of Stock subject to Awards under the Plan is the greater of 350,000 shares of Stock or the number of shares of Stock that represents 8% of the fair market value of the Company as of the Effective Date (rounded to the nearest whole number of shares).

[2] The shares of Stock to be delivered under the Plan may consist, in whole or in part, of treasury Stock or authorized but unissued Stock not reserved for any other purpose.

4.02 Unfulfilled Awards. Any Stock subject to an Award that, for any reason, is forfeited, cancelled, terminated, relinquished, exchanged or otherwise settled without the issuance of Stock or without payment of cash equal to the difference between the Award’s Fair Market Value and its Exercise Price may again be granted under the Plan and, in the discretion of the Committee, may be subject to a subsequent Award.

4.03 Adjustment in Capitalization. If, after the Effective Date, there is a Stock dividend or Stock split, recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to shareholders, exchange of shares, or other similar corporate change affecting Stock, the Committee will appropriately adjust the number of Awards that may or will be granted to Participants in any Plan Year, the aggregate number of shares of Stock available for Awards under Section 4.01 or subject to outstanding Awards (as well as any share-based limits imposed under this Plan) the respective Exercise Prices and/or limitations applicable to outstanding or subsequently granted Awards and any other affected factor, limit or term applying to Awards. Any decision of the Committee under this section will be final and binding on all Participants and Beneficiaries.

4.04 Limitations on Number of Shares Issuable to an Eligible Employee or Director. The aggregate number of shares of Stock with respect to which Awards may be issued under this Plan to any Eligible Employee or Director in any calendar year will not exceed 25,000 (adjusted as provided in Section 4.03) during the Plan Year granted; however, such limit may be increased for any Plan Year only to the extent permitted by the Board.

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ARTICLE V – OPTIONS

5.01 Grant of Options.

[1] The Committee may grant Options to Eligible Employees at any time during the term of this Plan. Options granted to Eligible Employees in their respective roles as Employees may be either [a] Incentive Stock Options or [b] Nonqualified Stock Options.

[2] The Committee may grant Nonqualified Stock Options to each Director in his or her role as Director at any time, subject to any terms and conditions imposed by the Committee on the Grant Date.

5.02 Option Price. Except as provided in Section 5.04[2], each Option will bear an Exercise Price that is not less than the Fair Market Value of a share of Stock on the Grant Date.

5.03 Exercise of Options. Options awarded to a Participant under Section 5.01 may be exercised at the times and subject to the restrictions and conditions (including a vesting schedule) that the Committee specifies in the Award Agreement and to the terms of the Plan. However:

[1] An Option may not be exercised for a fraction of a share, (instead, fractional shares will be settled in cash);

[2] The Committee may prohibit a Participant from exercising Options for fewer than the minimum number of shares specified by the Committee in the Award Agreement but only if this prohibition does not prevent a Participant from acquiring the full number of shares of Stock for which Options are then exercisable; and

[3] Unless the Committee specifies otherwise in the Award Agreement, no Option may be exercised more than 10 years after its Grant Date.

5.04 Incentive Stock Options. Notwithstanding anything in the Plan to the contrary:

[1] The aggregate Fair Market Value of the Stock (determined as of the Grant Date) with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all option plans of the SunCoast Group) will not exceed $100,000 [or the amount specified in Section 422(d) of the Code], determined under rules issued under Section 422 of the Code;

[2] Each Incentive Stock Option granted to a Participant who owns [as defined in Section 424(d) of the Code] stock possessing more than 10 percent of the total combined voting power of all classes of stock or the combined voting power of any Subsidiary, determined under rules issued under Section 422 of the Code, will bear an Exercise Price that is at least 110 percent of the Fair Market Value of a share of Stock on the Grant Date;

[3] No Incentive Stock Option may be granted to any individual who is not an Eligible Employee on the Grant Date;

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[4] No Incentive Stock Option may be exercised more than 10 years after it is granted (five years if the Participant owns [as defined in Section 424(d) of the Code] stock possessing more than 10 percent of the total combined voting power of all classes of stock or the combined voting power of any Subsidiary), determined under rules issued under Section 422 of the Code; and

[5] The maximum number of shares of Stock that may be granted through Incentive Stock Options during the term of the Plan will not be larger than the greater of 350,000 or the number of shares of Stock representing 8% of the fair market value of the Company as of the Effective Date (rounded to the nearest whole number of shares), subject to any adjustment under Section 4.03.

5.05 Payment for Options. The Committee will develop procedures through which a Participant may pay an Option’s Exercise Price, including a cashless exercise or tendering shares of Stock the Participant already has owned for at least six months, either by actual delivery of the previously owned shares of Stock or by attestation, valued at their Fair Market Value on the exercise date, as partial or full payment of the Exercise Price.

5.06 Restrictions on Option Exercise and Transferability. The Board or the Committee may impose restrictions on the exercise of any Options and/or any transfer of shares of Stock acquired through an Option to the extent necessary to comply with restrictions related to applicable federal securities laws, the requirements of any national securities exchange or system on which Stock is then listed or traded, or any applicable blue sky or state securities laws (collectively, “Securities Laws”); however, any such restrictions imposed by the Board or the Committee may apply only for the minimum period deemed necessary to comply with such Securities Laws.

5.07 Restrictions on Reload/Repricing. Regardless of any other provision of this Plan:

[1] Neither the Company nor the Committee may “reprice” (as defined under rules issued by the exchange on which the Stock then is traded or, if the Stock is not then traded on an exchange, as defined under rules issued by the New York Stock Exchange) any Award without the prior approval of the shareholders; and

[2] No Participant will be entitled (and no Committee discretion may be exercised to extend to any Participant) to an automatic grant of additional Options in connection with any exercise of an Option.

ARTICLE VI – TERMINATION OF SERVICE/LIMITS ON
EXERCISABILITY/BUYOUTS

6.01 Effect of Termination of Service on Awards. Unless otherwise specified in the Award Agreement and subject to Sections 5.06, 6.02 and 6.03, all Awards will be exercisable or forfeited upon a Termination of Service as provided in this Section:

[1] Death. If a Participant’s Service Terminates because of death, all of such Participant’s exercisable Options may be exercised by the Participant’s Beneficiary anytime before the earlier of the expiration date specified in the Award Agreement or two

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(2) years after the Participant’s death. All of a Participant’s Awards that are vested and unexercised shall terminate as of the end of the two-year period following the Participant’s death.

[2] Disability. If a Participant’s Service Terminates because of Disability, all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or two (2) years after the Participant’s Service Terminates. All of a Participant’s vested and unexercised Awards shall terminate as of the end of the two-year period following the Participant’s Termination of Service because of Disability.

[3] Retirement. If a Participant’s Service Terminates because of Retirement, all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or two (2) years after the Participant Retires. All of a Participant’s vested and unexercised Awards shall terminate as of the end of the two-year period following the Participant’s Retirement.

[4] Voluntary Termination of Service By Participant. If a Participant who is an Employee voluntarily Terminates Service, [a] all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or 30 days after the Participant’s voluntary Termination of Service, [b] all of such Participant’s Awards that are not vested or exercisable on the date the Participant voluntarily Terminates Service will be forfeited as of the date the Participant’s Service is Terminated, and [c] all of such Participant’s Awards that are vested and unexercised shall terminate as of the end of the 30-day period following such Participant’s Termination of Service.

[5] Involuntary Termination of Service Without Cause. If the Service of a Participant who is an Employee is Terminated involuntarily without Cause, [a] all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or 30 days after the Participant’s Service is involuntarily Terminated without Cause and [b] all of such Participant’s Awards that are not vested or exercisable on the date the Participant’s Service is involuntarily Terminated without Cause will be forfeited as of the date the Participant’s Service is involuntarily Terminated without Cause, and [c] all of such Participant’s Awards that are vested and unexercised shall terminate as of the end of the 30-day period following such Participant’s involuntary Termination of Service without Cause.

[6] Involuntary Termination of Service With Cause. If the Service of a Participant who is an Employee is Terminated involuntarily for Cause, [a] all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or 30 days after the Participant’s

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Service is involuntarily Terminated for Cause, [b] all of such Participant’s Awards that are not vested or exercisable on the date the Participant’s Service is involuntarily Terminated for Cause will be forfeited as of the date the Participant’s Service is involuntarily Terminated for Cause, and [c] all of such Participant’s Awards that are vested and unexercised shall terminate as of the end of the 30-day period following such Participant’s involuntary Termination of Service for Cause.

6.02 Other Limits on Exercisability. Regardless of any other provision of the Plan, all unexercised Awards granted to a Participant will be forfeited if that Participant, before his or her Termination of Service or after Termination of Service but while any Award remains exercisable:

[1] Without the Committee’s written consent, which may be withheld for any reason or for no reason, serves (or agrees to serve) as an officer, director or employee of any proprietorship, partnership or corporation or becomes the owner of a business or a member of a partnership that competes with any portion of a SunCoast Group member’s business or renders any service (including business consulting) to entities that compete with any portion of a SunCoast Group member’s business;

[2] Refuses or fails to consult with, supply information to, or otherwise cooperate with, the Company after having been requested to do so; or

[3] Deliberately engages in any action that the Committee concludes harms a SunCoast Group member.

6.03 Buy Out of Article 6 Awards. At any time, the Committee, in its sole discretion and without the consent of the Participant, may cancel any or all outstanding Options (“Article VI Awards”) held by that Participant by providing to that Participant written notice (“Buy Out Notice”) of its intention to exercise the rights reserved in this Section. If a Buy Out Notice is given, the Company also will pay to each affected Participant the difference between [1] the Fair Market Value of each (or portion of each) Article VI Awards to be cancelled and [2] the Exercise Price associated with each cancelled Article VI Award. However, unless otherwise specified in the Award Agreement, no payment will be made with respect to any Article VI award that is not exercisable when cancelled under this Section. The Company will complete any buy out made under this Section as soon as administratively possible after the date of the Buy Out Notice. At the Committee’s option, payment of the buy out amount may be made in cash, in whole shares of Stock or partly in cash and partly in shares of Stock. The number of whole shares of Stock, if any, included in the buy out amount will be determined by dividing the amount of the payment to be made in shares of Stock by the Fair Market Value as of the date of the Buy Out Notice.

ARTICLE VII – MERGER, CONSOLIDATION OR SIMILAR EVENT

7.01 Definition of Business Combination.

[1] During any 24-consecutive-calendar-month period ending after the Effective Date, there is a change in the majority of the Board, provided, however, that any new director whose nomination for election by the Company’s shareholders was approved, or who was appointed or elected to the Board, by the vote of two-thirds of the directors then still in office and who were in office at the beginning of the 24-consecutive-calendar-month

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period will be disregarded in determining if there has been a change in the majority of the Board; or

[2] Any transaction (or series of related transactions) that results in the merger or consolidation of the Company or the exchange of stock for the securities of another entity (other than a Subsidiary) that has acquired the Company’s assets or which is in control [as defined in Section 368(c) of the Code] of an entity that has acquired the Company’s assets but only if [a] immediately after the transaction (or the end of a series of related transitions) the persons who owned a majority of the voting power of the Company immediately before the transaction (or the beginning of a series of related transactions) own less than a majority of the voting power of the Company and [b] the terms of the transaction (or series of related transactions) are binding on all holders of Stock (except to the extent that dissenting shareholders are entitled to relief under applicable law); or

[3] Within any 12-consecutive-calendar-month period ending after the Effective Date, any unrelated entity or person acquires directly or indirectly the assets of a SunCoast Group member having a total gross fair market value of at least 50% of the book value of the Company’s assets.

7.02 Effect of Business Combination on Options. If the Company undergoes a Business Combination, except as otherwise provided in Article VI, all Options that are then outstanding may become fully vested and exercisable for the remainder of their term (whether or not otherwise exercisable by the terms of the Award Agreement), but only to the extent permitted by the Board through unanimous consent of the Board’s members.

7.03 Application of Section 280G of the Code. Except as otherwise provided in the Award Agreement or any other written agreement between the Participant and a SunCoast Group member then in effect, if the sum (or value) due under Section 7.02 that is characterizable as parachute payments, when combined with other parachute payments attributable to the same event (whether or not that event is a Business Combination), constitute “excess parachute payments” as defined in Section 280G(b)(1) of the Code, the entity responsible for making those payments or its successor or successors (collectively, “Payor”) will reduce the Participant’s benefits under this Plan by the smaller of [1] the value of the sum or the value of the payments due under Sections 7.02 or [2] the amount necessary to ensure that the Participant’s total “parachute payment” as defined in Section 280G(b)(2)(A) of the Code under this and all other agreements will be $1.00 less than the amount that otherwise would generate an excise tax under Section 4999 of the Code. If the reduction described in the preceding sentence applies, within 10 business days of the effective date of the event generating the payments, the Payor will apprise the Participant of the amount of the reduction (“Notice of Reduction”). Within 10 business days of receiving that information, the Participant may specify how (and against which benefit or payment source, including benefits and payment sources other than this Plan) the reduction is to be applied (“Notice of Allocation”). The Payor will be required to implement these directions within 10 business days of receiving the Notice of Allocation. If the Payor has not received a Notice of Allocation from the Participant within 10 business days of the date of the Notice of Reduction or if the allocation provided in the Notice of Allocation is not sufficient to fully implement the reduction described in this section, the Payor will apply the reduction described in this section proportionately based on the amounts otherwise payable under Sections 7.02 or, if a

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Notice of Allocation has been returned that does not sufficiently implement the reduction described in this section, on the basis of the reductions specified in the Notice of Allocation.

ARTICLE VIII – AMENDMENT, MODIFICATION AND TERMINATION OF PLAN

The Board or the Committee may terminate, suspend or amend the Plan at any time without shareholder approval except to the extent that shareholder approval is required to satisfy applicable requirements imposed by [1] Rule 16b-3 under the Act, or any successor rule or regulation, [2] applicable requirements of the Code or [3] any securities exchange, market or other quotation system on or through which the Company’s securities are listed or traded. Also, no Plan amendment may [4] cause the Plan to fail to meet requirements imposed by Rule 16b-3, to the extent applicable or [5] without the consent of the affected Participant, (except as specifically provided otherwise in the Plan or the Award Agreement), adversely affect any Award granted before the amendment, modification or termination. However, nothing in this Section, the Plan or any Award Agreement will restrict the Committee’s right to exercise the discretion retained in Section 6.03 or the Committee’s or the Board’s right to amend the Plan and any Award Agreements without any additional consideration to affected Employees to the extent necessary to avoid penalties arising under Section 409A of the Code, even if those amendments reduce, restrict or eliminate rights granted under the Plan or Award Agreement (or both) before those amendments.

ARTICLE IX – MISCELLANEOUS

9.01 Assignability. Except as provided in this section, an Award may not be transferred except by will or applicable laws of descent and distribution and, during the Participant’s lifetime, may be exercised only by the Participant or the Participant’s guardian or legal representative. However, with the Committee’s written consent (which may be withheld for any reason or for no reason), a Participant or a specified group of Participants may transfer Awards (other than Incentive Stock Options) to a revocable inter vivos trust, of which the Participant is the settlor, or may transfer Awards (other than Incentive Stock Options) to any member of the Participant’s immediate family, any trust, whether revocable or irrevocable, established solely for the benefit of the Participant’s immediate family, or any partnership or limited liability company whose only partners or members are members of the Participant’s immediate family (“Permissible Transferees”). Any Award transferred to a Permissible Transferee will continue to be subject to all of the terms and conditions that applied to the Award before the transfer and to any other rules prescribed by the Committee. A Permissible Transferee may subsequently transfer an Award but only to another Permissible Transferee and only after complying with the terms of this Section as if the Permissible Transferee was a Participant.

9.02 Beneficiary Designation. Each Participant may name a Beneficiary or Beneficiaries (who may be named contingently or successively) to receive or to exercise any vested Award that is unpaid or unexercised at the Participant’s death. Each designation made will revoke all earlier designations made by the same Participant, must be made on a form prescribed by the Committee and will be effective only when filed in writing with the Committee. If a Participant has not made an effective Beneficiary designation, the deceased Participant’s Beneficiary will be his or her surviving spouse or, if there is no surviving spouse, the deceased Participant’s estate.

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9.03 No Guarantee of Continuing Service. Nothing in the Plan may be construed as:

[1] Interfering with or limiting the right of any SunCoast Group member to Terminate any Participant’s employment at any time;

[2] Conferring on any Participant any right to continue as an Eligible Employee or Director;

[3] Guaranteeing that any Employee will be selected to be an Eligible Employee or a Participant; or

[4] Guaranteeing that any Eligible Employee or Participant will receive any future Awards.

9.04 Tax Withholding. The Company will withhold from other amounts owed to a Participant, or require the Participant to remit to the Company, an amount sufficient to satisfy federal, state and local withholding tax requirements on any Award, exercise or cancellation of an Award or purchase of shares of Stock. If these amounts are not to be withheld from other payments due to the Participant (or if there are no other payments due to the Participant), the Company will defer payment of cash or issuance of shares of Stock until the earlier of:

[1] Thirty days after the settlement date; or

[2] The date the Participant remits the required amount.

If the Participant has not remitted the required amount within 30 days of the settlement date, the Company will permanently withhold from the value of the Awards to be distributed the minimum amount required to be withheld to comply with applicable federal, state and local income, wage and employment taxes and distribute the balance to the Participant.

In its discretion, the Committee may allow a Participant to elect, subject to conditions the Committee establishes, to reimburse the Company for this withholding obligation through one or more of the following methods:

[3] By having shares of Stock otherwise issuable under the Plan withheld by the Company (but only to the extent of the minimum amount that must be withheld to comply with applicable state, federal and local income, employment and wage tax laws);

[4] By delivering, including by attestation, to the Company previously acquired shares of Stock that the Participant has owned for at least six months;

[5] By remitting cash to the Company; or

[6] By remitting a personal check immediately payable to the Company.

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9.05 Indemnification. Each individual who is or was a member of the Committee or of the Board will be indemnified and held harmless by the Company against and from (and the Company shall pay to such individual within 30 days of the imposition or incurrence of) any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be made a party or in which he or she may be involved by reason of any action taken or not taken under the Plan as a Committee or Board member and against and from any and all amounts paid, with the Company’s approval, by him or her in settlement of any matter related to or arising from the Plan as a Committee or Board member; or paid by him or her in satisfaction of any judgment in any action, suit or proceeding relating to or arising from the Plan against him or her as a Committee or Board member. The right of indemnification described in this section is not exclusive and is independent of any other rights of indemnification to which the individual may be entitled under the Company’s organizational documents, by contract, as a matter of law, or otherwise.

9.06 No Limitation on Compensation. Nothing in the Plan is to be construed to limit the right of the Company to establish other plans or to pay compensation to its employees or Directors in cash or property, in a manner not expressly authorized by the Plan.

9.07 Requirements of Law. The grant of Awards and the issuance of shares of Stock will be subject to all applicable laws, rules and regulations and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system. Also, no shares of Stock will be issued under the Plan unless the Company is satisfied that the issuance of those shares of Stock will comply with applicable federal and state securities laws. Certificates for shares of Stock delivered under the Plan may be subject to any stock transfer orders and other restrictions that the Committee believes to be advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or other recognized market or quotation system upon which the Stock is then listed or traded, or any other applicable federal or state securities law. The Committee may cause a legend or legends to be placed on any certificates issued under the Plan to make appropriate reference to restrictions within the scope of this section.

9.08 Term of Plan. Subject to Article VIII, the Plan will continue until the tenth anniversary of the date it is adopted by the Board or approved by the Company’s shareholders, whichever is earliest.

9.09 Governing Law. The Plan and all related agreements will be construed in accordance with and governed by the laws (other than laws governing conflicts of laws) of the United States and of the State of Delaware.

9.10 No Impact on Benefits. Plan Awards are incentives designed to promote the objectives described in Article I. Also, Awards are not compensation for purposes of calculating a Participant’s rights under any employee benefit plan or other agreement that does not specifically require the inclusion of Awards in calculating benefits.

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IN WITNESS WHEREOF, this Plan is executed as of this ___day of                     , 2005.

SUNCOAST HOLDINGS, INC.

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EX-10.9

Exhibit 10.9

SUNCOAST HOLDINGS, INC.
2006 STOCK OPTION PLAN

TABLE OF CONTENTS

	Page
ARTICLE I — PURPOSE		1
ARTICLE II — DEFINITIONS		1
2.01 Definitions		1
ARTICLE III — ADMINISTRATION/ELIGIBILITY		4
3.01 Committee Duties		4
3.02 Delegation of Duties		5
3.03 Participation		5
3.04 Conditions of Participation		6
3.05 Eligibility		6
3.06 Limitations on Committee		6
ARTICLE IV — STOCK SUBJECT TO PLAN		6
4.01 Number of Shares		6
4.02 Unfulfilled Awards		6
4.03 Adjustment in Capitalization		6
4.04 Limitations on Number of Shares Issuable to an Eligible Employee or Director		7
ARTICLE V — OPTIONS		7
5.01 Grant of Options		7
5.02 Option Price		7
5.03 Exercise of Options		7
5.04 Incentive Stock Options		8
5.05 Payment for Options		8
5.06 Restrictions on Option Exercise and Transferability		8
5.07 Restrictions on Reload/Repricing		9
ARTICLE VI — TERMINATION OF SERVICE/LIMITS ON EXERCISABILITY/BUYOUTS		9
6.01 Effect of Termination of Service on Awards		9
6.02 Other Limits on Exercisability		10
6.03 Buy Out of Article 6 Awards		11
ARTICLE VII — MERGER, CONSOLIDATION OR SIMILAR EVENT		11
7.01 Definition of Business Combination		11

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TABLE OF CONTENTS
(continued)

	Page
7.02 Effect of Business Combination on Options		12
7.03 Application of Section 280G of the Code		12
ARTICLE VIII — AMENDMENT, MODIFICATION AND TERMINATION OF PLAN		12
ARTICLE IX — MISCELLANEOUS		13
9.01 Assignability		13
9.02 Beneficiary Designation		13
9.03 No Guarantee of Continuing Service		13
9.04 Tax Withholding		14
9.05 Indemnification		14
9.06 No Limitation on Compensation		15
9.07 Requirements of Law		15
9.08 Term of Plan		15
9.09 Governing Law		15
9.10 No Impact on Benefits		15

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SUNCOAST HOLDINGS, INC.

2006 STOCK OPTION PLAN

ARTICLE I — PURPOSE

This Plan is intended to foster and promote the long-term financial success of SunCoast Holdings, Inc. and its Subsidiaries (the “SunCoast Group”); to reward performance and to increase shareholder value by providing Participants appropriate incentives and rewards; to enable the SunCoast Group to attract and retain the services of outstanding individuals upon whose judgment, interest and dedication the successful conduct of the SunCoast Group’s businesses are largely dependent; to encourage Participants’ ownership interest in SunCoast Holdings, Inc.; and to align the interests of management and directors with that of the SunCoast Holdings, Inc.’s shareholders.

ARTICLE II — DEFINITIONS

2.01 Definitions. When used in this Plan, the following terms will have the meanings given to them in this Article unless another meaning is expressly provided elsewhere in this document or clearly required by the context. When applying these definitions and any other word, term or phrase used in this document, the form of any word, term or phrase will include any and all of its other forms.

Act. The Securities Exchange Act of 1934, as amended.

Annual Meeting. The annual meeting of the Company’s shareholders.

Award. Any Incentive Stock Option or Nonqualified Stock Option.

Award Agreement. The written or electronic agreement or other instrument or document that [1] describes the terms and conditions of each Award and the manner in which it will be settled if earned and [2] evidences an Award granted by the Committee and is signed or otherwise authenticated by both the Company and the Participant. If there is any conflict between the terms of this Plan and the terms of the Award Agreement, the terms of the Plan will prevail.

Beneficiary. The individual a Participant designates to receive (or to exercise) or is otherwise entitled to receive (or to exercise) in accordance with Section 9.02 any Plan benefits (or rights) that are unpaid (or unexercised) when the Participant dies. A Beneficiary may be designated or determined only by following the procedures described in Section 9.02 and neither the Company nor the Committee is required or permitted to infer a Beneficiary from any other source.

Board. The Company’s board of directors.

Business Combination. A transaction of the type described in Section 7.01.

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Cause. For purposes of this Plan and unless otherwise specified in the Award Agreement, with respect to any Participant who is an Employee:

[1] Any act of fraud, intentional misrepresentation, embezzlement, misappropriation or conversion of any SunCoast Group member’s asset or business opportunity;

[2] Conviction of, or entering into a plea of nolo contendere to, a felony;

[3] Intentional, repeated or continuing violation of any of the applicable SunCoast Group member’s policies or procedures that occurs or continues after notice to the Participant that he or she has violated such policy or procedure; or

[4] Any material breach of a written covenant or agreement with a SunCoast Group member, including the terms of this Plan or any material breach of fiduciary duty to SunCoast Group member.

Code. The Internal Revenue Code of 1986, as in effect on the Effective Date or as amended or superseded after the Effective Date, and any applicable regulations and rulings issued under the Code.

Committee.

[1] In the case of Awards to Directors, the entire Board; or

[2] In the case of all other Awards, the Board’s compensation committee. The Committee will be comprised of at least three individuals.

Company. SunCoast Holdings, Inc., a corporation organized under the laws of Delaware, and all successors to it.

Director. Each member of the Board or of the board of directors of any Subsidiary.

Disability. A disability as defined in Section 22(e)(3) of the Code.

Effective Date. The earlier of [1] the date this Plan is approved by the Board or [2] the date this Plan is approved by the Company’s shareholders.

Eligible Employee. Any Employee who is employed in an executive position, as determined by the Committee, by a SunCoast Group member.

Employee. Any individual who is a common law employee of a SunCoast Group member. A worker who is classified as other than a common law employee by an Employer but who is subsequently reclassified as a common law employee of such Employer for any reason and on any basis will be treated as a common law employee only from the date of that reclassification and will not retroactively be reclassified as an Employee for any purpose of this Plan.

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Employer. Each member of the SunCoast Group.

Exercise Price. The price, if any, at which a Participant may exercise an Award.

Fair Market Value. The value of one share of Stock on any relevant date, determined as follows:

[1] If the shares of Stock are traded on an established securities market (including the NASDAQ National Market System), the reported “closing price” on the relevant date, if it is a trading day; otherwise on the immediately preceding trading day; or

[2] If the shares of Stock are not traded on an established securities market, the fair market value, as determined by the Committee in good faith under a reasonable valuation method, as of the valuation date coinciding with or, if none, most recently preceding the relevant date provided that it is no more than 12 months before the relevant date. Such fair market value determination shall be made in a manner consistent with the rules prescribed under Section 409A of the Code, and, with respect to Incentive Stock Options, consistent with rules prescribed under Section 422 of the Code.

Grant Date. The date specified as the grant date in the Award Agreement.

Incentive Stock Option. Any Option granted under Article V that, on the Grant Date, meets the applicable requirements of Section 422 of the Code and is not subsequently modified in a manner that results in the grant of a new stock option that does not meet the applicable requirements of Section 422 of the Code.

Nonqualified Stock Option. Any Option granted under Article V that is not an Incentive Stock Option.

Option. The right granted under Article V to purchase a share of Stock at a stated price for a specified period of time. An Option may be either [1] an Incentive Stock Option or [2] a Nonqualified Stock Option.

Participant. Any Employee or Director to whom the Committee grants an Award. Designation of an Eligible Employee to receive an Award in any year will not require the Committee to designate that person to receive an Award in any other year or, once designated, to receive the same type or amount of Award granted to the Participant in any other year. The Committee will consider the factors it deems pertinent to selecting Eligible Employees and in determining the type and amount of their respective Awards.

Plan. SunCoast Holdings, Inc. 2006 Stock Option Plan.

Plan Year. The Company’s fiscal year.

Retirement or Retire. In the case of:

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[1] An Employee, Termination of Service (without Cause) after attainment of age 55; and

[2] in the case of Directors, their departure from the Board for any reason other than Disability or death.

Stock. The class A common stock of the Company, which contains substantially similar rights (disregarding any difference in voting rights) to the class of common stock of the Company having the greatest aggregate value of common stock issued and outstanding of the Company.

Subsidiary. Any corporation, partnership or other form of unincorporated entity of which the Company owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock, if the entity is a corporation; or of the capital or profits interest, if the entity is a partnership or another form of unincorporated entity.

Termination of Service (or references to a Participant’s Service being Terminated). As applicable, [1] termination of the employee-employer relationship between a Participant and the Company and all Subsidiaries for any reason, [2] with respect to an Employee of a Subsidiary, a severance or diminution of the ownership relationship between the Company and that entity after which that entity is no longer a Subsidiary and after which that person is not an Employee or [3] cessation of a Director’s service on the Board (and the boards of directors of all Subsidiaries) for any reason. However, with respect to any Award that is not an Incentive Stock Option and unless the Committee specifies otherwise either in the Award Agreement or subsequently, a Termination of Service will not have occurred solely because an Employee becomes a consultant to a SunCoast Group member unless that consultant is providing bona fide services to such SunCoast Group member. Also, with respect to any Award (including an Incentive Stock Option), a Termination of Service will not have occurred while the Employee is absent from active employment for a period of not more than three months (or, if longer, the period during which reemployment rights are protected by law, contact or written agreement, including the Award Agreement, between the Participant and the Employer) due to illness, military service or other leave of absence approved by the Employer.

ARTICLE III — ADMINISTRATION/ELIGIBILITY

3.01 Committee Duties.

[1] The Committee is granted all powers appropriate and necessary to administer the Plan. Consistent with the Plan’s purpose, the Committee may adopt, amend and rescind rules and regulations relating to the Plan, to the extent appropriate to protect the Company’s interests, and has complete discretion to make all other decisions necessary or advisable for the administration and interpretation of the Plan. Any action by the Committee will be final, binding and conclusive for all purposes and upon all Participants.

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[2] The Committee (or the Board, as appropriate) also may amend the Plan and Award Agreements without any additional consideration to affected Participants to the extent necessary to avoid penalties arising under Section 409A of the Code, even if those amendments reduce, restrict or eliminate rights granted under the Plan or Award Agreement (or both) before those amendments.

3.02 Delegation of Duties. In its sole discretion, the Committee may delegate to any individual or entity (including Employees) that it deems appropriate any of its duties other than those described in Section 3.03[1] and [2].

3.03 Participation.

[1] Consistent with the terms of the Plan, the Committee will:

[a] Decide which Employees and Directors may become Participants;

[b] Decide which Participants will be granted Awards;

[c] Identify the type of Awards to be granted to each Participant;

[d] Specify the terms and conditions imposed on any Awards granted;

[e] Develop the procedures through which an Award may be exercised;

[f] Specify the circumstances under which the Company may cancel an Award or reacquire any Award or shares of Stock acquired through the Plan; and

[g] Impose any other terms and conditions the Committee believes are appropriate and necessary to implement the purpose of this Plan.

[2] The Committee may establish different terms and conditions:

[a] For each type of Award;

[b] For Participants receiving the same type of Award; and

[c] For the same Participant for each Award the Participant receives, whether or not those Awards are granted at different times.

[3] The Committee (or its delegate) will prepare.and deliver an Award Agreement to each affected Participant with respect to each Award. The Award Agreement will describe:

[a] The type of Award and when and how it may be exercised;

[b] The effect of exercising an Award;

[c] Any Exercise Price associated with the Award;

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[d] Any conditions that must be met before the Award may be exercised;

[e] When and how the Award may be exercised; and

[f] Any other applicable terms and conditions affecting the Award.

3.04 Conditions of Participation. By accepting an Award, each Participant agrees:

[1] To be bound by the terms of the Award Agreement and the Plan; and

[2] That the Committee (or the Board) may amend the Plan and the Award Agreements without any additional consideration to the extent necessary to avoid penalties arising under Section 409A of the Code, even if those amendments reduce, restrict or eliminate rights granted under the Plan or Award Agreement (or both) before those amendments.

3.05 Eligibility. Participation in the Plan is limited to Eligible Employees and Directors. Only Eligible Employees and Directors may receive an Award under the Plan. An Employee’s status as an Eligible Employee or an individual’s status as a Director does not guarantee that any Award will be made to such Employee or individual.

3.06 Limitations on Committee. Notwithstanding anything in this Article III, the Committee shall not have the authority to reduce the Exercise Price for Options other than as provided in Section 4.03 of the Plan.

ARTICLE IV — STOCK SUBJECT TO PLAN

4.01 Number of Shares.

[1] Subject to Section 4.03, the number of shares of Stock subject to Awards under the Plan is the greater of 350,000 shares of Stock or the number of shares of Stock that represents 8% of the fair market value of the Company as of the Effective Date (rounded to the nearest whole number of shares).

[2] The shares of Stock to be delivered under the Plan may consist, in whole or in part, of treasury Stock or authorized but unissued Stock not reserved for any other purpose.

4.02 Unfulfilled Awards. Any Stock subject to an Award that, for any reason, is forfeited, cancelled, terminated, relinquished, exchanged or otherwise settled without the issuance of Stock or without payment of cash equal to the difference between the Award’s Fair Market Value and its Exercise Price may again be granted under the Plan and, in the discretion of the Committee, may be subject to a subsequent Award.

4.03 Adjustment in Capitalization. If, after the Effective Date, there is a Stock dividend or Stock split, recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to shareholders,

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exchange of shares, or other similar corporate change affecting Stock, the Committee will appropriately adjust the number of Awards that may or will be granted to Participants in any Plan Year, the aggregate number of shares of Stock available for Awards under Section 4.01 or subject to outstanding Awards (as well as any share-based limits imposed under this Plan) the respective Exercise Prices and/or limitations applicable to outstanding or subsequently granted Awards and any other affected factor, limit or term applying to Awards. Any decision of the Committee under this section will be final and binding on all Participants and Beneficiaries.

4.04 Limitations on Number of Shares Issuable to an Eligible Employee or Director. The aggregate number of shares of Stock with respect to which Awards may be issued under this Plan to any Eligible Employee or Director in any calendar year will not exceed 25,000 (adjusted as provided in Section 4.03) during the Plan Year granted; however, such limit may be increased for any Plan Year only to the extent permitted by the Board.

ARTICLE V — OPTIONS

5.01 Grant of Options.

[1] The Committee may grant Options to Eligible Employees at any time during the term of this Plan. Options granted to Eligible Employees in their respective roles as Employees may be either [a] Incentive Stock Options or [b] Nonqualified Stock Options.

[2] The Committee may grant Nonqualified Stock Options to each Director in his or her role as Director at any time, subject to any terms and conditions imposed by the Committee on the Grant Date.

5.02 Option Price. Except as provided in Section 5.04[2], each Option will bear an Exercise Price that is not less than the Fair Market Value of a share of Stock on the Grant Date.

5.03 Exercise of Options. Options awarded to a Participant under Section 5.01 may be exercised at the times and subject to the restrictions and conditions (including a vesting schedule) that the Committee specifies in the Award Agreement and to the terms of the Plan. However:

[1] An Option may not be exercised for a fraction of a share, (instead, fractional shares will be settled in cash);

[2] The Committee may prohibit a Participant from exercising Options for fewer than the minimum number of shares specified by the Committee in the Award Agreement but only if this prohibition does not prevent a Participant from acquiring the full number of shares of Stock for which Options are then exercisable; and

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[3] Unless the Committee specifies otherwise in the Award Agreement, no Option may be exercised more than 10 years after its Grant Date.

5.04 Incentive Stock Options. Notwithstanding anything in the Plan to the contrary:

[1] The aggregate Fair Market Value of the Stock (determined as of the Grant Date) with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all option plans of the SunCoast Group) will not exceed $100,000 [or the amount specified in Section 422(d) of the Code], determined under rules issued under Section 422 of the Code;

[2] Each Incentive Stock Option granted to a Participant who owns [as defined in Section 424(d) of the Code] stock possessing more than 10 percent of the total combined voting power of all classes of stock or the combined voting power of any Subsidiary, determined under rules issued under Section 422 of the Code, will bear an Exercise Price that is at least 110 percent of the Fair Market Value of a share of Stock on the Grant Date;

[3] No Incentive Stock Option may be granted to any individual who is not an Eligible Employee on the Grant Date;

[4] No Incentive Stock Option may be exercised more than 10 years after it is granted (five years if the Participant owns [as defined in Section 424(d) of the Code] stock possessing more than 10 percent of the total combined voting power of all classes of stock or the combined voting power of any Subsidiary), determined under rules issued under Section 422 of the Code; and

[5] The maximum number of shares of Stock that may be granted through Incentive Stock Options during the term of the Plan will not be larger than the greater of 350,000 or the number of shares of Stock representing 8% of the fair market value of the Company as of the Effective Date (rounded to the nearest whole number of shares), subject to any adjustment under Section 4.03.

5.05 Payment for Options. The Committee will develop procedures through which a Participant may pay an Option’s Exercise Price, including a cashless exercise or tendering shares of Stock the Participant already has owned for at least six months, either by actual delivery of the previously owned shares of Stock or by attestation, valued at their Fair Market Value on the exercise date, as partial or full payment of the Exercise Price.

5.06 Restrictions on Option Exercise and Transferability. The Board or the Committee may impose restrictions on the exercise of any Options and/or any transfer of shares of Stock acquired through an Option to the extent necessary to comply with restrictions related to applicable federal securities laws, the requirements of any national securities exchange or system on which Stock is then listed or traded, or any applicable blue sky or state securities laws (collectively, “Securities Laws”); however,

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any such restrictions imposed by the Board or the Committee may apply only for the minimum period deemed necessary to comply with such Securities Laws.

5.07 Restrictions on Reload/Repricing. Regardless of any other provision of this Plan:

[1] Neither the Company nor the Committee may “reprice” (as defined under rules issued by the exchange on which the Stock then is traded or, if the Stock is not then traded on an exchange, as defined under rules issued by the New York Stock Exchange) any Award without the prior approval of the shareholders; and

[2] No Participant will be entitled (and no Committee discretion may be exercised to extend to any Participant) to an automatic grant of additional Options in connection with any exercise of an Option.

ARTICLE VI — TERMINATION OF SERVICE/LIMITS ON
EXERCISABILITY/BUYOUTS

6.01 Effect of Termination of Service on Awards. Unless otherwise specified in the Award Agreement and subject to Sections 5.06, 6.02 and 6.03, all Awards will be exercisable or forfeited upon a Termination of Service as provided in this Section:

[1] Death. If a Participant’s Service Terminates because of death, all of such Participant’s exercisable Options may be exercised by the Participant’s Beneficiary anytime before the earlier of the expiration date specified in the Award Agreement or two (2) years after the Participant’s death. All of a Participant’s Awards that are vested and unexercised shall terminate as of the end of the two-year period following the Participant’s death.

[2] Disability. If a Participant’s Service Terminates because of Disability, all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or two (2) years after the Participant’s Service Terminates. All of a Participant’s vested and unexercised Awards shall terminate as of the end of the two-year period following the Participant’s Termination of Service because of Disability.

[3] Retirement. If a Participant’s Service Terminates because of Retirement, all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or two (2) years after the Participant Retires. All of a Participant’s vested and unexercised Awards shall terminate as of the end of the two-year period following the Participant’s Retirement.

[4] Voluntary Termination of Service By Participant. If a Participant who is an Employee voluntarily Terminates Service, [a] all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the

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Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or 30 days after the Participant’s voluntary Termination of Service, [b] all of such Participant’s Awards that are not vested or exercisable on the date the Participant voluntarily Terminates Service will be forfeited as of the date the Participant’s Service is Terminated, and [c] all of such Participant’s Awards that are vested and unexercised shall terminate as of the end of the 30-day period following such Participant’s Termination of Service.

[5] Involuntary Termination of Service Without Cause. If the Service of a Participant who is an Employee is Terminated involuntarily without Cause, [a] all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or 30 days after the Participant’s Service is involuntarily Terminated without Cause and [b] all of such Participant’s Awards that are not vested or exercisable on the date the Participant’s Service is involuntarily Terminated without Cause will be forfeited as of the date the Participant’s Service is involuntarily Terminated without Cause, and [c] all of such Participant’s Awards that are vested and unexercised shall terminate as of the end of the 30-day period following such Participant’s involuntary Termination of Service without Cause.

[6] Involuntary Termination of Service With Cause. If the Service of a Participant who is an Employee is Terminated involuntarily for Cause, [a] all of such Participant’s exercisable Options may be exercised by the Participant (or, in the case of the Participant’s death, the Participant’s Beneficiary) anytime before the earlier of the expiration date specified in the Award Agreement or 30 days after the Participant’s Service is involuntarily Terminated for Cause, [b] all of such Participant’s Awards that are not vested or exercisable on the date the Participant’s Service is involuntarily Terminated for Cause will be forfeited as of the date the Participant’s Service is involuntarily Terminated for Cause, and [c] all of such Participant’s Awards that are vested and unexercised shall terminate as of the end of the 30-day period following such Participant’s involuntary Termination of Service for Cause.

6.02 Other Limits on Exercisability. Regardless of any other provision of the Plan, all unexercised Awards granted to a Participant will be forfeited if that Participant, before his or her Termination of Service or after Termination of Service but while any Award remains exercisable:

[1] Without the Committee’s written consent, which may be withheld for any reason or for no reason, serves (or agrees to serve) as an officer, director or employee of any proprietorship, partnership or corporation or becomes the owner of a business or a member of a partnership that competes with any portion of a SunCoast Group member’s business or renders any service (including business consulting) to entities that compete with any portion of a SunCoast Group member’s business;

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[2] Refuses or fails to consult with, supply information to, or otherwise cooperate with, the Company after having been requested to do so; or

[3] Deliberately engages in any action that the Committee concludes harms a SunCoast Group member.

6.03 Buy Out of Article 6 Awards. At any time, the Committee, in its sole discretion and without the consent of the Participant, may cancel any or all outstanding Options (“Article VI Awards”) held by that Participant by providing to that Participant written notice (“Buy Out Notice”) of its intention to exercise the rights reserved in this Section. If a Buy Out Notice is given, the Company also will pay to each affected Participant the difference between [1] the Fair Market Value of each (or portion of each) Article VI Awards to be cancelled and [2] the Exercise Price associated with each cancelled Article VI Award. However, unless otherwise specified in the Award Agreement, no payment will be made with respect to any Article VI award that is not exercisable when cancelled under this Section. The Company will complete any buy out made under this Section as soon as administratively possible after the date of the Buy Out Notice. At the Committee’s option, payment of the buy out amount may be made in cash, in whole shares of Stock or partly in cash and partly in shares of Stock. The number of whole shares of Stock, if any, included in the buy out amount will be determined by dividing the amount of the payment to be made in shares of Stock by the Fair Market Value as of the date of the Buy Out Notice.

ARTICLE VII — MERGER, CONSOLIDATION OR SIMILAR EVENT

7.01 Definition of Business Combination.

[1] During any 24-consecutive-calendar-month period ending after the Effective Date, there is a change in the majority of the Board, provided, however, that any new director whose nomination for election by the Company’s shareholders was approved, or who was appointed or elected to the Board, by the vote of two-thirds of the directors then still in office and who were in office at the beginning of the 24-consecutive-calendar-month period will be disregarded in determining if there has been a change in the majority of the Board; or

[2] Any transaction (or series of related transactions) that results in the merger or consolidation of the Company or the exchange of stock for the securities of another entity (other than a Subsidiary) that has acquired the Company’s assets or which is in control [as defined in Section 368(c) of the Code] of an entity that has acquired the Company’s assets but only if [a] immediately after the transaction (or the end of a series of related transitions) the persons who owned a majority of the voting power of the Company immediately before the transaction (or the beginning of a series of related transactions) own less than a majority of the voting power of the Company and [b] the terms of the transaction (or series of related transactions) are binding on all holders of Stock (except to the extent that dissenting shareholders are entitled to relief under applicable law); or

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[3] Within any 12-consecutive-calendar-month period ending after the Effective Date, any unrelated entity or person acquires directly or indirectly the assets of a SunCoast Group member having a total gross fair market value of at least 50% of the book value of the Company’s assets.

7.02 Effect of Business Combination on Options. If the Company undergoes a Business Combination, except as otherwise provided in Article VI, all Options that are then outstanding may become fully vested and exercisable for the remainder of their term (whether or not otherwise exercisable by the terms of the Award Agreement), but only to the extent permitted by the Board through unanimous consent of the Board’s members.

7.03 Application of Section 280G of the Code. Except as otherwise provided in the Award Agreement or any other written agreement between the Participant and a SunCoast Group member then in effect, if the sum (or value) due under Section 7.02 that is characterizable as parachute payments, when combined with other parachute payments attributable to the same event (whether or not that event is a Business Combination), constitute “excess parachute payments” as defined in Section 280G(b)(1) of the Code, the entity responsible for making those payments or its successor or successors (collectively, “Payor”) will reduce the Participant’s benefits under this Plan by the smaller of [1] the value of the sum or the value of the payments due under Sections 7.02 or [2] the amount necessary to ensure that the Participant’s total “parachute payment” as defined in Section 280G(b)(2)(A) of the Code under this and all other agreements will be $1.00 less than the amount that otherwise would generate an excise tax under Section 4999 of the Code. If the reduction described in the preceding sentence applies, within 10 business days of the effective date of the event generating the payments, the Payor will apprise the Participant of the amount of the reduction (“Notice of Reduction”). Within 10 business days of receiving that information, the Participant may specify how (and against which benefit or payment source, including benefits and payment sources other than this Plan) the reduction is to be applied (“Notice of Allocation”). The Payor will be required to implement these directions within 10 business days of receiving the Notice of Allocation. If the Payor has not received a Notice of Allocation from the Participant within 10 business days of the date of the Notice of Reduction or if the allocation provided in the Notice of Allocation is not sufficient to fully implement the reduction described in this section, the Payor will apply the reduction described in this section proportionately based on the amounts otherwise payable under Sections 7.02 or, if a Notice of Allocation has been returned that does not sufficiently implement the reduction described in this section, on the basis of the reductions specified in the Notice of Allocation.

ARTICLE VIII — AMENDMENT, MODIFICATION AND TERMINATION OF PLAN

The Board or the Committee may terminate, suspend or amend the Plan at any time without shareholder approval except to the extent that shareholder approval is required to satisfy applicable requirements imposed by [1] Rule 16b-3 under the Act, or any successor rule or regulation, [2] applicable requirements of the Code or [3] any securities exchange, market or other quotation system on or through which the Company’s securities are listed or traded. Also, no Plan amendment may [4] cause the

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Plan to fail to meet requirements imposed by Rule 16b-3, to the extent applicable or [5] without the consent of the affected Participant, (except as specifically provided otherwise in the Plan or the Award Agreement), adversely affect any Award granted before the amendment, modification or termination. However, nothing in this Section, the Plan or any Award Agreement will restrict the Committee’s right to exercise the discretion retained in Section 6.03 or the Committee’s or the Board’s right to amend the Plan and any Award Agreements without any additional consideration to affected Employees to the extent necessary to avoid penalties arising under Section 409A of the Code, even if those amendments reduce, restrict or eliminate rights granted under the Plan or Award Agreement (or both) before those amendments.

ARTICLE IX — MISCELLANEOUS

9.01 Assignability. Except as provided in this section, an Award may not be transferred except by will or applicable laws of descent and distribution and, during the Participant’s lifetime, may be exercised only by the Participant or the Participant’s guardian or legal representative. However, with the Committee’s written consent (which may be withheld for any reason or for no reason), a Participant or a specified group of Participants may transfer Awards (other than Incentive Stock Options) to a revocable inter vivos trust, of which the Participant is the settlor, or may transfer Awards (other than Incentive Stock Options) to any member of the Participant’s immediate family, any trust, whether revocable or irrevocable, established solely for the benefit of the Participant’s immediate family, or any partnership or limited liability company whose only partners or members are members of the Participant’s immediate family (“Permissible Transferees”). Any Award transferred to a Permissible Transferee will continue to be subject to all of the terms and conditions that applied to the Award before the transfer and to any other rules prescribed by the Committee. A Permissible Transferee may subsequently transfer an Award but only to another Permissible Transferee and only after complying with the terms of this Section as if the Permissible Transferee was a Participant.

9.02 Beneficiary Designation. Each Participant may name a Beneficiary or Beneficiaries (who may be named contingently or successively) to receive or to exercise any vested Award that is unpaid or unexercised at the Participant’s death. Each designation made will revoke all earlier designations made by the same Participant, must be made on a form prescribed by the Committee and will be effective only when filed in writing with the Committee. If a Participant has not made an effective Beneficiary designation, the deceased Participant’s Beneficiary will be his or her surviving spouse or, if there is no surviving spouse, the deceased Participant’s estate.

9.03 No Guarantee of Continuing Service. Nothing in the Plan may be construed as:

[1] Interfering with or limiting the right of any SunCoast Group member to Terminate any Participant’s employment at any time;

[2] Conferring on any Participant any right to continue as an Eligible Employee or Director;

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[3] Guaranteeing that any Employee will be selected to be an Eligible Employee or a Participant; or

[4] Guaranteeing that any Eligible Employee or Participant will receive any future Awards.

9.04 Tax Withholding. The Company will withhold from other amounts owed to a Participant, or require the Participant to remit to the Company, an amount sufficient to satisfy federal, state and local withholding tax requirements on any Award, exercise or cancellation of an Award or purchase of shares of Stock. If these amounts are not to be withheld from other payments due to the Participant (or if there are no other payments due to the Participant), the Company will defer payment of cash or issuance of shares of Stock until the earlier of:

[1] Thirty days after the settlement date; or

[2] The date the Participant remits the required amount.

If the Participant has not remitted the required amount within 30 days of the settlement date, the Company will permanently withhold from the value of the Awards to be distributed the minimum amount required to be withheld to comply with applicable federal, state and local income, wage and employment taxes and distribute the balance to the Participant.

In its discretion, the Committee may allow a Participant to elect, subject to conditions the Committee establishes, to reimburse the Company for this withholding obligation through one or more of the following methods:

[3] By having shares of Stock otherwise issuable under the Plan withheld by the Company (but only to the extent of the minimum amount that must be withheld to comply with applicable state, federal and local income, employment and wage tax laws);

[4] By delivering, including by attestation, to the Company previously acquired shares of Stock that the Participant has owned for at least six months;

[5] By remitting cash to the Company; or

[6] By remitting a personal check immediately payable to the Company.

9.05 Indemnification. Each individual who is or was a member of the Committee or of the Board will be indemnified and held harmless by the Company against and from (and the Company shall pay to such individual within 30 days of the imposition or incurrence of) any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit or proceeding to which he or she may be made a party or in which he or she may be involved by reason of any action taken or not taken under the Plan as a Committee or Board member and against and from any and all amounts paid, with the Company’s

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approval, by him or her in settlement of any matter related to or arising from the Plan as a Committee or Board member; or paid by him or her in satisfaction of any judgment in any action, suit or proceeding relating to or arising from the Plan against him or her as a Committee or Board member. The right of indemnification described in this section is not exclusive and is independent of any other rights of indemnification to which the individual may be entitled under the Company’s organizational documents, by contract, as a matter of law, or otherwise.

9.06 No Limitation on Compensation. Nothing in the Plan is to be construed to limit the right of the Company to establish other plans or to pay compensation to its employees or Directors in cash or property, in a manner not expressly authorized by the Plan.

9.07 Requirements of Law. The grant of Awards and the issuance of shares of Stock will be subject to all applicable laws, rules and regulations and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system. Also, no shares of Stock will be issued under the Plan unless the Company is satisfied that the issuance of those shares of Stock will comply with applicable federal and state securities laws. Certificates for shares of Stock delivered under the Plan may be subject to any stock transfer orders and other restrictions that the Committee believes to be advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or other recognized market or quotation system upon which the Stock is then listed or traded, or any other applicable federal or state securities law. The Committee may cause a legend or legends to be placed on any certificates issued under the Plan to make appropriate reference to restrictions within the scope of this section.

9.08 Term of Plan. Subject to Article VIII, the Plan will continue until the tenth anniversary of the date it is adopted by the Board or approved by the Company’s shareholders, whichever is earliest.

9.09 Governing Law. The Plan and all related agreements will be construed in accordance with and governed by the laws (other than laws governing conflicts of laws) of the United States and of the State of Delaware.

9.10 No Impact on Benefits. Plan Awards are incentives designed to promote the objectives described in Article I. Also, Awards are not compensation for purposes of calculating a Participant’s rights under any employee benefit plan or other agreement that does not specifically require the inclusion of Awards in calculating benefits.

- 15 -

IN WITNESS WHEREOF, this Plan is executed as of this 23^rd day of February, 2006.

SUNCOAST HOLDlNGS, INC.
 

/s/  Steven M. Mariano  

Steven M. Mariano  

Chairman & CEO 

- 16 -

EX-10.13

Exhibit 10.13

BORROWER NAME AND ADDRESS	LENDER NAME AND ADDRESS	LOAN DESCRIPTION
Sun Coast Holdings, Inc., Brandywine Insurance	Brooks CreditCorporation
Holdings, Inc., and Patriot Risk services, Inc.	10050 Grandview Dr., Ste. #600	Number 5137
401 East Las Olas Blvd. Suite 1540	Overland Part, KS 66210	Amount 8,652,000.00
Ft. Laudrerdale, FL 33301		Date 03-30-2006

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 $5,652,000.00. 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: BOC Borrower’s Assistance Plan

$750,000.000
BCC fees and DB Indemnity $252,000
National Capital Advisors $150,000

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.
o	E.	Minimum Currant 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 3/30/2006

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 COMPLETEE 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 beginning on page 1 through the bottom of page 2 this Agreement. Borrower also acknowledges receipt of a copy of this Agreement.

BORROWER:

SonCoast Holdings, Inc., Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.
Entity Name

/S/ Steven M. Mariano CEO		(Seal)	/S/ Steven (illegible)		(Seal)
Signature	Date		Signature (illegible)	Date
Steven (illegible)
/S/ Steven Mariano		(Seal)			(Seal)
Signature	Date		Signature	Date
Steven Mariano
LENDER
Brooke Credit Corporation
Entity Name
		(Seal)
Signature	Date
Michael Lowry,Presidant

COMMERCIAL LOAN AGREEMENT, to be used with form Comm- NOTE EXPERTS @ 1999,2001 Bankers Systems, Inc., St. Cloud MN. (illegible) NOT TO BE USED FOR LOANS SUBJECTS TO CONSUMER LENDING LAWS

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 onthe 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 ail material respects and fairly represent Borrower’s financial condition.

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 Borrower provides 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 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 ail 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 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 ate 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. Expenses include, but are not limited to, reasonable attorneys¹ 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. FL: Attorneys’ fees will be 10 percent of the principal sum due or a larger amount as the court judges as reasonable and just. GA: Attorneys’ fees will be 15 percent of the principal and interest owing.

GENERAL PROVISIONS. This Agreement is governed by the laws of the jurisdiction where Lender Is located, the United States of America 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.

page 2 of 21

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 March 30, 2006 (the “Agreement”), by and among SUNCOAST HOLDINGS, INC., a Delaware corporation (“SH”), BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation (“BIH”) and PATRIOT RISK SERVICES, INC., a Delaware corporation (“PRS”) (SH, BIH and PRS collectively and jointly and severally referred to as “Borrower”), and BROOKE CREDIT CORPORATION, a Kansas 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 $3,000,000 to Guarantee Insurance Company, a South Carolina domiciled insurance company (“GIC”); (ii) to enable Borrower to provide future capital in the amount of $2,300,000 to GIC and/or to finance Borrower’s future expansion activities; (iii) to enable Borrower to retire a promissory note payable to The Thomson Corporation in the amount of $2,200,000; (iv) $750,000 to enable Borrower to purchase a Borrower’s Assistance Plan from and in favor of CJD & Associates, L.L.C. d/b/a Brooke Brokerage, a Kansas limited liability company (“Brooke”), pursuant to such documentation as Brooke may require in its sole and absolute discretion; (v) $252,000 for the payment of all loan, origination and other transaction-related fees that are payable by Borrower to Lender, which fees shall in part be used to purchase a financial guaranty policy from DB Indemnity (“DB”) in favor of Lender; and (vi) $150,000 for the payment of consulting and advisory services to National Capital Advisors, (vii) 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 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 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 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.

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     (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 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. RECEIPT AND DISBURSEMENT BANK; AUTOMATIC DEBIT OF LOAN PAYMENTS. Borrower shall at all times, so long as any indebtedness exists from Borrower to Lender, maintain an account at                      (hereinafter “Lender Approved Bank”) in Account #                      as Borrower’s primary depository and remittance bank account (for the purposes of this Agreement, “Borrower’s Depository Account”). Borrower shall not close, transfer, change or restrict Lender’s authorization to debit loan payments from Borrower’s Depository Account at the Lender Approved Bank without Lender’s prior written approval (which approval shall not be unreasonably withheld).

     (a) Borrower hereby agrees with Lender that all payments for, with respect to, or upon the indebtedness of Borrower to Lender shall be automatically deducted from Borrower’s Depository Account each month by Lender in accordance with Lender’s and the Lender Approved Bank’s standard auto-debit policies and procedures, all at the sole cost of Borrower. All such auto-debit loan payments shall be taken from the Borrower’s Depository Account as set forth above. Borrower shall execute and deliver to Lender and the Lender Approved Bank all documents and authorizations required to authorize Lender to debit such Borrower Depository Account for loan payments and other amounts due and payable to Lender at the time of deduction. Such authorization shall be in form and content acceptable to Lender in its sole and absolute discretion and shall not be revoked or changed by Borrower without Lender’s written consent (which consent shall not be unreasonably withheld).

     (b) Borrower hereby grants Lender a lien on, and first priority security interest in, Borrower’s Depository Account and all proceeds at any time therein to secure all of Borrower’s obligations, liabilities and indebtedness to Lender, and Borrower further agrees to promptly execute and deliver to Lender and to take such action as Lender may from time to time require to evidence such lien and first priority security interest and to instruct the Bank that upon the occurrence of an Event of Default, the Lender Approved Bank shall deny Borrower any further access to such Borrower’s Depository Account and transfer all monies therein on a daily basis to such account or accounts of Lender as Lender may require in its sole and absolute discretion, all as may be permitted by applicable law and by the Loan Documents.

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     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 form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, 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, whether tangible or intangible, and all of Borrower’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 Borrower’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, 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

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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 SH’s right, title and interest in BIH and Patriot Risk Management, Inc., a Delaware corporation (“PRM”) whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to SH in its capacity as the sole stockholder of BIH and PRM;

     (c) All of BIH’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 BIH 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 Borrower for the lease of office space;

     (e) All deposit accounts, disbursement accounts, accounts receivable, commission receivables, economic interest of Borrower, all chattel paper, contract 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

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     (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 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 employment agreements with Steven M. Mariano or Paul V.H. Halter III 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

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more of the ownership and/or profit interest in SH or 51% or more of the voting control of SH; or, (ii) SH’s direct or indirect ownership and/or profit interest in BIH, GIC, PRS and/or PRM, 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 South Carolina 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 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;

     (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 and/or Paul V.H. Halter, III die, are legally incapacitated, resign or are removed as executive officers of Borrower or GIC, and Mr. Mariano and/or Paul V.H. Halter, III are not replaced within 180 days of such resignation or removal by individuals

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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):

     (a) For a period of five (5) years after Borrower’s default and failure to cure, Borrower, and The Tarheel Group, Inc., Tarheel Insurance Management Company, Foundation Insurance Company, Malvern Investment Group, LLC, Six Point Holdings, LLC, 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, Steve M. Mariano and Paul V.H. Halter, III.

     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, South Carolina 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

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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 or Paul V.H. Halter III, 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.

     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 SH, BIH and PRS 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

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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.

     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 Kansas 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 Kansas or except to the extent that the laws of a jurisdiction other than the State of Kansas 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 Phillips County, Kansas or a U.S. District Court having jurisdiction over Phillips County, Kansas. 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.

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     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.

     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.

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     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 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:
Brooke Credit Corporation	SunCoast Holdings, Inc./
10950 Grandview Dr., Ste. 600	Brandywine Insurance Holdings, Inc./
Overland Park, KS 66210	Patriot Risk Services, Inc.
	401 East Las Olas Blvd.
	Fort 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.

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     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, SH 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 December 31, 2006, GIC shall maintain policyholders’ surplus in excess of $13,500,000 as computed and measured on a GAAP basis. Commencing on January 1, 2007 and extending through 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, 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 SH, 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 Lender’s authorized designee to attend such meetings so long as Lender or its designee provides Borrower with notice of its intention to attend such meetings within a reasonable time prior to the meeting and such notice includes Lender’s or its designee’s reason for wanting to attend; 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

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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) GIC or Borrower having received any notification regarding concern or action from the South Carolina 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;

     (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.

     (i) 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.”

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     (ii) 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.”

     (iii) 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.”

     31. NOTICE. The following provision is inserted in this Agreement for purposes of complying with K.S.A. Section 16-118(b):

     THIS AGREEMENT AND THE “LOAN DOCUMENTS” AS DEFINED HEREIN COLLECTIVELY CONSTITUTE THE WRITTEN CREDIT AGREEMENT WHICH IS THE COMPLETE AND FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN LENDER AND BORROWER WITH REGARD TO THE EXTENSION OF CREDIT, FORBEARANCE AND/OR FINANCIAL ACCOMMODATION REFERRED TO HEREIN AS THE SAME EXIST TODAY AND SUCH WRITTEN CREDIT AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL CREDIT AGREEMENT BETWEEN LENDER AND BORROWER. THE PARTIES AGREE THAT ALL NONSTANDARD TERMS OF THE CREDIT AGREEMENT BETWEEN LENDER AND BORROWER WITH RESPECT TO THE EXTENSION OF CREDIT, FORBEARANCE AND/OR FINANCIAL ACCOMMODATION PROVIDED FOR HEREIN AND ALL PRIOR ORAL CREDIT AGREEMENTS AND CONTEMPORANEOUS ORAL CREDIT AGREEMENTS BETWEEN THEM WITH RESPECT TO THE EXTENSION OF CREDIT REFERRED TO HEREIN ARE SUFFICIENTLY SET FORTH HEREIN AND IN THE OTHER “LOAN DOCUMENTS,” WITHOUT EXCEPTION. BY SIGNING AND DELIVERING THIS AGREEMENT, BORROWER AND LENDER AFFIRM THAT NO UNWRITTEN ORAL CREDIT AGREEMENT BETWEEN BORROWER AND LENDER WITH REGARD TO THE AFORESAID EXTENSION OF CREDIT, FORBEARANCE AND/OR OTHER FINANCIAL ACCOMMODATION EXISTS.

     Nonstandard terms of credit agreement:

     None.

Initials:

Lender SH BIH PRS

[Remainder of page intentionally left blank; Signature page immediately follows]

15

     IN WITNESS WHEREOF, the parties have executed and delivered this Addendum to Commercial Loan Agreement as of the 30^th of March, 2006.

BORROWER:		LENDER:
SUNCOAST HOLDINGS, INC.		BROOKE CREDIT CORPORATION
a Delaware corporation		a Kansas corporation
By:	/s/ Steven M. Mariano	By:	/s/ Michael S. Lowry
Name:	Steven M. Mariano	Name:	Michael S. Lowry
Title:	President and Chief Executive Officer	Title:	President
BRANDYWINE INSURANCE
HOLDINGS, 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/ Steven M. Mariano
Name:	Steven M. Mariano
Title:	President and Chief Executive Officer

16

AGREEMENT NOT TO SOLICIT

The undersigned individuals agree to and are 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.

Steven M. Mariano
The Tarheel Group, Inc.		Malvern Investment Group, LLC
By:	/s/ Steven M. Mariano	By:	/s/ Steven M. Mariano
Its:		Its:
Tarheel Insurance Management Company		Six Point Holdings, LLC
By:	/s/ Steven M. Mariano	By:	/s/ Steven M. Mariano
Its:		Its:
Foundation Insurance Company
By:	/s/ Steven M. Mariano
Its:

17

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:
	SunCoast Holdings, Inc.:

Balance Sheet (monthly)

Income Statement (monthly)

Cash Flow (quarterly)

Brandywine Insurance Holdings, Inc.:

Balance Sheet (monthly)

Income Statement (monthly)

Cash Flow (quarterly)

Guarantee Insurance Company:

Quarterly Statutory Financial Reports including Balance Sheet, Income Statement, Cash Flow

Statement, and Loss Development Exhibits, including IRIS Ratios and Risk Based Capital

Annual Actuarial Reserve Report

Annual Statutory Financial Report including IRIS Ratios and Risk Based Capital

Monthly Written, Earned, Incurred Summary

18

Patriot Risk Services, Inc.:

Quarterly Statutory Financial Reports including Balance Sheet, Income Statement, Cash Flow

Statement, and Loss Development Exhibits, including IRIS Ratios and Risk Based Capital

Annual Actuarial Reserve Report

Annual Statutory Financial Report including IRIS Ratios and Risk Based Capital

Monthly Written, Earned, Incurred Summary

19

CONSENT

in relation to

ADDENDUM TO COMMERCIAL LOAN AGREEMENT

Dated as of March 30, 2006

     THIS CONSENT (“Consent”) dated as of August 2^nd , 2007 is entered into by and among SUNCOAST HOLDINGS, INC., a Delaware corporation (“SH”), BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation (“BIH”) and PATRIOT RISK SERVICES, INC., a Delaware corporation (“PRS”) (SH, BIH and PRS collectively and jointly and severally referred to as “Borrower”), and BROOKE CREDIT CORPORATION, a Kansas corporation (“Lender”).

1. Preliminary Statements

     A. Reference is made to the Addendum to Commercial Loan Agreement dated as of March 30, 2006 among the Borrower and Lender (“Agreement”).

     B. The Agreement provides, including in paragraphs 8(b) (j) and 30(g), that Borrower will maintain an employment agreement with Paul V.H. Halter III and that he will not resign, be removed or be replaced as an executive officer of Borrower or Guarantee Insurance Company (“GUARANTEE”) without consent of Lender, In addition, the resignation or removal of Paul V.H. Halter would trigger a default if he 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.

     C. Paul V.H. Halter III has resigned from all duties with Borrower and GUARANTEE and Borrower intends for Steve Mariano to take over the duties of and replace Paul V.H. Halter III as President and Chief Operating Officer of GUARANTEE.

     D. The Agreement provides in several places, including sections 8(e) and 30(g) and (h), that GUARANTEE’S State of domicile is South Carolina and that material changes to GUARANTEE’S business operations are subject to consent of Lender.

     E. GUARANTEE wants to change its state of domicile from South Carolina to Florida.

     F. As part of the Agreement, Lender holds a security interest in Borrowers assets including as set forth in section Seven and in the related Loan Documents.

     G. Among other security, Lender is secured by all of BIH’s right, title and interest in GUARANTEE whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to BIH in its capacity as the sole stockholder of GUARANTEE.

     H. Borrower intends to expand the areas in which it does business to Kansas, Arizona, Pennsylvania, and Illinois.

     I. The underwriting guidelines set forth as an attachment to the Agreement limited the areas in which the Borrower could do business at the time of loan closing.

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     J. At the time of loan closing the Borrower was not authorized to conduct business in Kansas, Arizona, Pennsylvania, or Illinois.

     NOW, THEREFORE, in consideration of the premises set forth above, and other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Exception to the Management Exception

     The Borrower and the Lender hereby agree that from the date hereof, the Borrower is authorized to replace Paul V.H. Halter III as President and Chief Operating Officer of GUARANTEE with Steve Mariano, who is already employed by GUARANTEE, until such time as Lender authorizes any other management change.

2. Exception to the State of Domicile Exception

(a) The Borrower and the Lender hereby agree that from the date hereof, GUARANTEE’s redomestication to the state of Florida is authorized provided all necessary regulatory and other approvals are obtained and further provided all of Lender’s security interest as defined in the Loan Documents remains enforceable;

(b) Borrower will execute all documents necessary to ensure Lender’s security interest continues to be perfected and maintains is priority position, including signing new UCC’s and exchanging stock certificates;

(c) All sections of the Agreement and the Loan Documents which reference South Carolina shall be changed to Florida. The address for all future notices to the Borrower pursuant to section 27 of the Agreement will be 401 East Las Olas Boulevard, Suite 1540 Fort Lauderdale, FL 33301. This change is made until such time as Lender authorizes another change of domiciliary state.

3. Exception to the Geographic Territory Exception

     The Borrower and the Lender hereby agree that from the date hereof, the Borrower is authorized to expand the geographic territory in which it conducts business to include the states of Kansas, Arizona, Pennsylvania, and Illinois and only the states of Kansas, Arizona, Pennsylvania, and Illinois, provided all necessary regulatory and other approvals are obtained and further provided Lender’s security interest as defined in the Loan Documents remains enforceable. This change is made until such time as Lender authorizes expansion to an additional state or states.

4. Conditions Precedent

     This Consent shall become effective as of the date hereof and upon execution of this Consent by SH, BIH, PRS and Lender.

5. Reference to and Effect on the Agreement

     A. Except as specifically provided herein, the Agreement, the other Related Loan Documents and all other documents, instruments, and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.

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     B. Except as specifically provided herein, the execution, delivery, and effectiveness of this Consent shall not operate as a waiver of any right, power, or remedy of the Lender under the Agreement, the Related Loan Documents, or any other document, instrument, or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein.

6. Governing Law

     THIS CONSENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF KANSAS.

7. Execution in Counterparts

     This Consent may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of this Consent by facsimile shall be effective as delivery of a manually executed counterpart of this Consent.

8. Headings

     Section headings in this Consent are included herein for convenience of reference only and shall not constitute a part of this Consent for any other purpose.

IN WITNESS WHEREOF, the parties hereto have caused this Consent to be executed by their respective officers thereunto duly authorized as of the date first written above.

LENDER:		BORROWER:
BROOKE CREDIT CORPORATION		SUNCOAST HOLDINGS, INC.,
a Kansas corporation		a Delaware Corporation
/s/ [ILLEGIBLE]		/s/ Steven M. Mariano
By:		By:	Steven M. Mariano
Its:		Its:	President
BRANDYWINE INSURANCE		PATRIOT RISK SERVICES, INC.,
HOLDINGS, INC.,		a Delaware corporation
a Delaware corporation
/s/ Steven M. Mariano		/s/ Josie Graves
By:	Steven M. Mariano	By:	Josie Graves
Its:	President	Its:	President

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EX-10.14

Exhibit 10.14

SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc., and Patriot Risk Services, Inc.	Brooke Credit Corporation 10950 Grandview Dr. Ste. #600 Overland Park, KS 66210	Loan Number 5137
401 East Las Olas Blvd. Suite 1540		Date 03-30-2006
Ft. Lauderdale, FL 33301		Maturity Date 04-15-2016
		Loan Amount $8,652,000.00
		Renewal Of ___________________
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 eight million six hundred fifty two thousand and no/100 Dollars $8,652,000.00

x Single Advance: I will receive all of this principal sum on 03-30-2006. No additional advances are contemplated under this note.

¨ 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                                                                                                                              

¨ 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 _________________________.

¨ 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 03-30-2006 at the rate of 12.000% per year until 03-31-2006.

x Variable Rate: This rate may then change as stated below.

x Index Rate: The future rate will be 4.500 percent above the following index rate: Prime Rate, as published in The Wall Street Journal.

¨ No Index: The future rate will not be subject to any internal or external index. It will be entirely in your control.

x Frequency and Timing: The rate on this note may change as often as every day beginning 03-31-2006. A change in the interest rate will take effect_______________________.

¨ 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:

x The amount of each scheduled payment will change.         ¨  The amount of the final payment will change.

¨                                                                                                                                                                                                  .

ACCRUAL METHOD: Interest will be calculated on a 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:

x on the same fixed or variable rate basis in effect before maturity (as indicated above).

¨ at a rate equal to                                                                                                                                                                         .

x 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.

¨ ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which ¨ are ¨ are not included in the principal amount above: __________________________________________________________________________________________________________.

PAYMENTS: I agree to pay this note as follows:

120 monthly payments of $ 124,835.82 beginning 05-15-2006. This is a variable rate loan and the payment amounts may change.

ADDITIONAL TERMS:
[1] See Commercial Loan Agreement and Addendum thereto dated March 30, 2006.
[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 date of Note, 8% during the second twelve [12] months following date at Note [that is, months 13 through 24], and 6% during the third twelve [12] months following date of Note [that is, months 25 through 36]. This prepayment premium shall not apply after the thirty-sixth month following the date of Note.
[5] See Addendum A dated March 30, 2006 attached hereto and incorporated herein by this reference.

x     SECURITY: This note is separately secured by (describe separate document by type and date): Security Agreement and Stock Pledge Agreements related hereto, each dated March 30, 2006. [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 March 30, 2006 __________________________________________________
	SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I have received a copy on today’s date.
Signature for Lender	SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc., Patriot Risk Services, Inc.
/s/ Michael S. Lowry	/s/ Steven M. Mariano
Michael S. Lowry, President	Steven M. Mariano, CEO and President of SunCoast Holdings, Inc.
	/s/ Steven M. Mariano
	Steven M. Mariano, CEO and President of Brandywine Insurance Holdings, Inc.
	/s/ Steven M. Mariano
	Steven M. Mariano, CEO and President of Patriot Risk Services Inc.
UNIVERSAL NOTE

    ^© 1984, 1991 Bankers Systems, Inc., St. Cloud, MN Form UN 2/4/2002 (page 1 of 2)

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 in which you are located 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 I 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 an this loon will be calculated using the interest rate and accrual method stated on page 1 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 page 1) applies, the term “maturity” means the date at the last scheduled payment indicated on page 1 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 nondeposit 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

REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a residence that is personal property, the existance of a default and your remedies for such a default will be determined by applicable law, by the terms of any separate insument 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) I fail to make a payment on time or in the amount due; (2) I fail to keep the property insured, if required; (3) I fail to pay, or keep any promise, on any debt or agreement I have with you; (4) any other creditor of mine attempts to collect any debt I owe him through court proceedings; (5) I die, am declared insolvent (either because my liabilities exceed my assets or I am unable to pa my debts as they become due); (6) I make any written statement or provide any financial information that is untrue or inaccurate at the time it was provided; (7) I do or fail to do something which causes you to believe that you will have difficulty collecting the amount I owe you; (8) any collateral securing this note is used in a manner or for a purpose which threatens confiscation by a legal authority; (9) I change my name or assume an additional name without first notifying you before making such a change; (10) I fail to plant, cultivate and harvest crops in due season if I am a producer of crops; (11) any loan proceeds are used for a purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.

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 [principle accrued unpaid Interest and other accured 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 any one 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’E 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 artorney’s fees and cost you Incur to collect this debt as awarded by any court exercising jurisdiction under the Bankruptcy Codo.

     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 defences I have based an notice of dishonor or impairment of collateral

OBLIGATIONS INDEPENDENT: I understand that I must pay this note even 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 extention 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, at 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 tha 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 page 1. 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 page 1 of this agreement or to any other address that you have designated.

DATE OF	PRINCIPAL	BormnwErrs INIITIALSS	PRINCIPAL	PRINCIPAL	INTEREST		INTEREST	INTEREST
TRANSACTION	ADVANCE	(elegal)	PAYMENTS	BALANCE	RATE		PAYMENTS	PAID
							(elegal)
	$		$	$		%	$
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ADDENDUM A TO PROMISSORY NOTE

     This Addendum to Promissory Note is made to and a part of the Promissory Note, dated March 30, 2006 (the “Note”), signed and delivered by SUNCOAST HOLDINGS, INC., a Delaware corporation (“SH”), BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation (“BIH”) and PATRIOT RISK SERVICES, INC., a Delaware corporation (“PRS”) (SH, BIH and PRS collectively and jointly and severally referred to as “Borrower”), to Brooke Credit Corporation, a Kansas corporation (“Lender”).

     The Promissory Note paragraph on page 2 entitled “DEFAULT” is hereby deleted in its entirety and is replaced by the following:

     DEFAULT: Borrower shall 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.

[Remainder of page intentionally left blank; Signature page immediately follows]

     IN WITNESS WHEREOF, the parties have executed and delivered this Addendum to Promissory Note as of the 30^th of March, 2006.

BORROWER:		LENDER:
SUNCOAST HOLDINGS, INC.		BROOKE CREDIT
CORPORATION a Delaware corporation		a Kansas corporation
By:	/s/ Steven M. Mariano	By:
Name: Steven M. Mariano		Name: Michael S. Lowry
Title: President and Chief Executive Officer		Title: President
BRANDYWINE INSURANCE
HOLDINGS, 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/ Steven M. Mariano
Name: Steven M.Mariano
Title: President and Chief Executive Officer

EX-10.15

Exhibit 10.15

DEBTOR NAME AND ADDRESS	SECURED PARTY NAME AND ADDRESS
SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc.	Brooks Credit Corporation
and Patriot Risk Services, Inc,	10950 Grandview Dr., Ste. #600
401 East Las Olas Blvd, Suite 1540	Overland Park, KS 66210
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 03-30-2006

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 required 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, 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 Extension of Security Agreement
	See also Addendum A dated March 30, 2008, attachad 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 pages 1 and 2 of this Agreement and acknowledges receipt of a copy of this Agreement.

DEBTOR	SECURED PARTY
Sunlose holding Inc, Brandwine Insurance Holdings, Inc. and Patriot Risk Services, Inc.	Brooke Credit Corporation
/s/ Steven M. Mariano	/s/ Micheal Lowry
Steven M. Mariano, CEO & President of SunCoast Holding, Inc	Micheal Lowry
	President

/s/ Steven M. Mariano

Steven M. Mariano, CEO & President of Brandwine Insurance Holdings, Inc. and Risk Services Inc.

(ILLEGIBLE)

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 in which Secured Party is located. In the event of a dispute, the exclusive forum, venue, and place of jurisdiction will be the state in which Secured Party is located, 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 page 1 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 page 1. 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.

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 page 1 of this Agreement. Debtor will keep the Property in good repair and use the Property only for purposes specified on page 1. 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.

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.

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 will be in default if:

(1)	Debtor (or Borrower, if not the same) fails to make a payment in full when due;
(2)	Debtor fails to perform any condition or keep any covenant on this or any debt or agreement Debtor has with Secured Party;
(3)	a default occurs under the terms of any instrument or agreement evidencing or pertaining to the Secured Debts;
(4)	anything else happens that either causes Secured Party to reasonably believe that Secured Party will have difficulty in collecting the Secured Debts or significantly impairs the value of the Property.

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.

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.

ADDENDUM A TO

COMMERCIAL SECURITY AGREEMENT

     This Addendum to Commercial Security Agreement is made to and a part of the Commercial Security Agreement, dated March 30, 2006 (the “Commercial Security Agreement”), signed and delivered by SUNCOAST HOLDINGS, INC., a Delaware corporation (“SH”), BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation (“BIH”) and PATRIOT RISK SERVICES, INC., a Delaware corporation (“PRS”) (SH, BIH and PRS collectively and jointly and severally referred to as “Debtor”), to Brooke Credit Corporation, a Kansas corporation (“Secured Party”).

     The Commercial Security Agreement paragraph on page 2 entitled “DEFAULT” is hereby deleted in its entirety and is replaced by the following:

     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.

[Remainder of page intentionally left blank; Signature page immediately follows]

     IN WITNESS WHEREOF, the parties have executed and delivered this Addendum to Commercial Security Agreement as of the 30^th of March, 2006.

DEBTOR:		SECURED PARTY:
SUNCOAST HOLDINGS, INC.		BROOKE CREDIT CORPORATION
a Delaware corporation		a Kansas corporation
By:	/s/ Steven M. Mariano	By:	/s/ Michael S. Lowry
Name: Steven M. Mariano		Name: Michael S. Lowry
Title: President and Chief Executive Officer		Title: President
BRANDYWINE INSURANCE
HOLDINGS, 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/ Steven M. Mariano
Name: Steven M. Mariano
Title: President and Chief Executive Officer

EX-10.16

Exhibit 10.16

SunCoast Holdings, Inc,. Brandywine Insurance Holding, Inc.	Brooke Credit Corporation	EXTENSION OF SECURITY
and Patriot Risk Services, Inc.	10950 Grandview Dr., Ste. #600	AGREEMENT DATED:
401 East Las Olas Blvd., Suite 1540	Overland Park, KS 66210	03.30.2006
Ft. Lauderdale, FL 33301
DEBTOR’S NAME AND ADDRESS	SECURED PARTY’S NAME AND ADDRESS

     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 SunCoast Holdings, Inc. (“SH”), Brandywine Insurance Holdings, Inc. (“BIH”) and Patriot Risk Services, Inc. (“PRS”) 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 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 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 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, whether tangible or intangible, and all of Borrower’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 Borrower’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 SH’s right, title and interest in BIH and Patriot Risk Management, Inc., a Delaware corporation (“PRM”) whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to SH in its capacity as the sole stockholder of BIH and PRM; (c) All of BIH’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 BIH 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 Borrower for the lease of office space; (e) All deposit accounts, disbursement accounts, accounts receivable, commission receivables, economic interest of Borrower, all Chattel paper, contract 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 Lendor 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, accession, replacement and substitutions to or for any of the foregoing and any proceeds and products of the above-described property.

SEE PAGE 2 OF EXTENSION TO SECURITY AGREEMENT FOR ADDITIONAL TERMS.

     By signing below, Debtor acknowledges that this document describes additional collateral which is subject to all terms and conditions of the security Agreement referred to above.

Authorized Signature(s) of Secured Party - sign below only if filling this document.
		SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc.
	Debtor	/s/ Steven M. Mariano
		Steven M. Mariano, CEO & President of SunCoast Holdings, Inc.	(TITLE)
	Debtor	/s/ Steven M. Mariano
		Steven M. Mariano, CEO & President of Brandywine Insurance Holdings, Inc.	(TITLE)
	Debtor	/s/ Steven M. Mariano
		Steven M. Mariano, CEO & President of Patriot Risk Services, Inc.	(TITLE)

1984, 1990 Bankers Systems, Inc., St. Cloud, MN 60301 (1-800-397-2341)Form SA-E 3/7/90 (page 1 of 1)

     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 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.

Page 2 to Extension of Security Agreement

EX-10.17

Exhibit 10.17

STOCK PLEDGE AGREEMENT

     This Stock Pledge Agreement (this “Agreement”) is made effective as of the 30th day of March, 2006 (the “Effective Date”) by and between Brandywine Insurance Holdings, Inc., a Delaware corporation (“Pledgor”) and Brooke Credit Corporation, a Kansas corporation (“Pledgee”).

RECITALS

     A. Pledgor owns 100% of the issued and outstanding capital stock of Guarantee Insurance Company, a South Carolina domiciled insurance company (“GIC”) (the “Shares”).

     B. Pledgee has agreed to make a loan to Pledgor, SunCoast Holdings, Inc., a Delaware corporation, and Patriot Risk Services, Inc., a Delaware corporation (collectively, the “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 $8,652,000 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.”

     C. Pledgor 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 GIC in which Pledgor at any time has 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 Pledgor of all of its 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 Pledgor of any provision of this Agreement, (iii) the nonperformance or breach

by either of the Borrowers of any provision of any of the Loan Documents, or (iv) the failure of the Pledged Shares to constitute at least 100% of the capital stock of GIC.

2. Pledge.

     (a) As security for the payment and performance of the Obligations, Pledgor hereby pledges to Pledgee the Pledged Shares and grants Pledgee a first priority lien and security interest therein. Upon the execution of this Agreement, Pledgor shall deliver to Pledgee the original certificate(s) representing the Pledged Shares, together with duly executed forms of assignment sufficient to transfer title thereto to Pledgee.

     (b) If, while this Agreement is in effect, Pledgor becomes entitled to receive or receives 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 with any merger, recapitalization, reorganization, or reclassification or otherwise), Pledgor 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 Pledgee, 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 Kansas, 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 Pledgor 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 Pledgor for money damages.

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     (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 Pledgor to the extent of any surplus proceeds.

     4. Transfers and Other Liens. Pledgor hereby represents and warrants to Pledgee that Pledgor has good and valid title to the Shares, free and clear of all liens, security interests and encumbrances (other than under this Agreement), and that, so long as the Obligations are outstanding, the Pledged Shares shall constitute not less than 100% of the issued and outstanding capital stock of GIC. Pledgor hereby agrees that Pledgor 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.

     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 surrender the Pledged Shares to Pledgor together with all forms of assignment.

6. Voting Rights and Distributions.

     (a) So long as no Event of Default occurs, Pledgor 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 Pledgor to exercise the voting rights or receive and retain distributions that it 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, Pledgor shall execute the Proxy attached as Exhibit A hereto, which is fully incorporated herein, upon the execution of this Agreement. Pledgor 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

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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. Pledgor agrees that at any time and from time to time upon the written request of Pledgee, Pledgor 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. Pledgor hereby authorizes 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 Pledgor and Pledgee.

     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. Pledgor shall not assign its 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 Kansas 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; Telefacsimile 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 telefacsimile 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

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telefacsimile 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. PLEDGOR AND PLEDGEE HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL 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, PLEDGOR 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.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.

PLEDGOR: Brandywine Insurance Holdings, Inc.
By:	/s/ Steven M. Mariano
Name:	Steven M. Mariano
Title:	President and Chief Executive Officer
PLEDGEE: Brooke Credit Corporation
By:	/s/ Michael S. Lowry
Name:	Michael S. Lowry
Title:	President

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EX-10.18

Exhibit 10.18

IRREVOCABLE PROXY

     The undersigned, on behalf of Brandywine Insurance Holdings, Inc., a Delaware corporation (“BIH”) and sole shareholder of Guarantee Insurance Company, a South Carolina domiciled insurance company (“GIC”), pursuant to and subject to Brooke Credit Corporation, a Kansas corporation (“BCC”) securing a loan to BIH, SunCoast Holdings, Inc., a Delaware corporation (“SH”), and Patriot Risk Services, Inc., a Delaware corporation (“PRS”), which loan is to be used in part to capitalize GIC, hereby nominates and appoints BCC 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 GIC standing in the name of BIH as of the date hereof or hereafter (the “Shares”) at any meetings of the shareholders of GIC upon the uncured default of SH, BIH and PRS on the aforementioned loan and subject to the terms and conditions of the Stock Pledge Agreement by and between BIH and BCC 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 GIC 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 South Carolina to support an irrevocable proxy. BIH hereby ratifies and confirms all that the Appointee of this Irrevocable Proxy may lawfully do or cause to be done by virtue of this Irrevocable Proxy. BIH acknowledges and agrees 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.

     BIH further acknowledges and agrees 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 South Carolina, without giving effect to any conflict of laws principles therein.

     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:                                         

EX-10.19

Exhibit 10.19

IRREVOCABLE PROXY

     The undersigned, on behalf of SunCoast Holdings, Inc., a Delaware corporation (“SH”) and sole shareholder of Brandywine Insurance Holdings, Inc., a Delaware corporation (“BIH”) and Patriot Risk Management, Inc., a Delaware corporation (“PRM”, and collectively with BIH, the “Companies”), pursuant to and subject to Brooke Credit Corporation, a Kansas corporation (“BCC”) securing a loan to SH, BIH and Patriot Risk Services, Inc., a Delaware corporation (“PRS”), which loan is to be used in part to capitalize Guarantee Insurance Company, a South Carolina domiciled insurance company, hereby nominates and appoints BCC 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 the Companies standing in the name of SH as of the date hereof or hereafter (the “Shares”) at any meetings of the shareholders of the Companies upon the uncured default of SH, BIH and PRS on the aforementioned loan and subject to the terms and conditions of the Stock Pledge Agreement by and between SH and BCC 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 the Companies 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. SH hereby ratifies and confirms all that the Appointee of this Irrevocable Proxy may lawfully do or cause to be done by virtue of this Irrevocable Proxy. SH acknowledges and agrees 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.

     SH further acknowledges and agrees 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.

     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:                     

EX-10.20

Exhibit 10.20

GUARANTY

Overland Park	,	Kansas
(City)		(State)

March 30, 2006

     For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce Brooke Credit 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 SunCoast Holdings Inc., Brandywine Insurance Holdings, Inc., and Patriot Risk Services, Inc. (herein 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 and Commercial Promissory Note of even date herewith by and among Borrowers 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, or shall be or become insolvent (however defined) or 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 limited to a principal amount of $ unlimited (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 excessof 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.

     This guaranty includes the additional provisions on page 2, all of which are made a part hereof.

     This guaranty is þ unsecured; o secured by a mortgage or security agreement dated ________________; o secured by ______________________________________________________________.

     IN WITNESS WHEREOF, this guaranty has been duly executed by the Undersigned the day and year first above written.

 

Steven M. Mariano, Individually 

“Undersigned” shall refer to all persons who sign this guaranty, severally and jointly. 

^© Bankers Systems, Inc., St. Cloud, MN 56301 FORM M-24D 5/20/2002 (For Corporate Guarantor use M-250) (page 1 of 2)

ADDITIONAL PROVISIONS

     6. 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 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.

     7. 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.

     8. 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.

     9. 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.

     10. 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.

     11. 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.

     12. 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.

     13. 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 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 in which it is executed. The Undersigned waives notice of Lender’s acceptance hereof.

^© Bankers Systems, Inc., St. Cloud, MN 56301 FORM M-240 5/20/2002 (For Corporate Guarantor use M-250) (page 2 of 2)

ADDENDUM A TO GUARANTY

     This Addendum to Guaranty is made to and a part of the Guaranty, dated March 30, 2006 (the “Guaranty”), given by Steven M. Mariano, Individually (“Guarantor”), to Brooke Credit Corporation, a Kansas corporation (“Lender”).

     The Guaranty is amended to add the following new paragraphs 14 and 15:

14. 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. Furthermore, if and at such time as SunCoast Holdings, Inc., on a consolidated basis with any and all subsidiary companies, increases its stockholders’ GAAP equity to $9,000,000, the terms of his guaranty (including the limitation set forth in the first sentence of this paragraph 14) shall only apply in the event of fraud, willful misconduct, and/or material breach by Borrower of any of the representations and warranties contained in the Commercial Loan Agreement executed by Borrowers of even date herewith. Guarantor acknowledges and agrees that nothing set forth in this paragraph shall be construed as a waiver by Lender of any financial covenant or requirement set forth in any Loan Document as such is defined in the Commercial Loan Agreement.

     IN WITNESS WHEREOF, the parties have executed and delivered this Addendum to Guaranty as of the 30^th of March, 2006.

GUARANTOR: Steven M. Mariano	LENDER: BROOKE CREDIT CORPORATION a Kansas corporation
	By:
		Name:	Michael S. Lowry
		Title:	President

Brooke/SunCoast
Guaranty V1

EX-10.21

Exhibit 10.21

AMENDMENT TO COMMERCIAL LOAN AGREEMENT
(INCLUDING JOINDER OF ADDITIONAL BORROWERS)

     THIS AMENDMENT dated as of September 27, 2007 is made to and a part of the Commercial Loan Agreement and Addendum thereto (the “CLA Addendum”) dated March 30, 2006 (the “Loan Agreement”) by and between BROOKE CREDIT CORPORATION (“LENDER”) and SUNCOAST HOLDINGS, INC., a Delaware corporation (“SH”), BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation (“BIH”), and PATRIOT RISK SERVICES, INC., a Delaware corporation (“PRS”).

     WHEREAS, SH, BIH and PRS have collectively executed the Loan Agreement and related “Loan Documents” (as defined in the Loan Agreement) dated March 30, 2006, including, but not limited to, a Commercial Promissory Note (the “Original Note”), Guaranty of Steven M. Mariano (the “Guaranty”), Commercial Security Agreement (the “Security Agreement”) and Stock Pledge Agreement (the “Pledge Agreement”), together with a Consent dated August 2, 2007;

     WHEREAS, the Loan Agreement and other Loan Documents (i) name the Borrower as SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc. and Patriot Risk Services, Inc. and (ii) refer to a principal loan amount of $8,652,000.00;

     WHEREAS, the parties desire to (i) join SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc. as additional borrowers (hereinafter the “Additional Borrowers” and, together with SH, BIH and PRS, the “Borrower”) and (ii) have Lender make an incremental $5,768,000.00 term loan to the Borrower and thereby increase the principal amount of the loan outstanding under the Loan Documents from $8,033,172.47 to $13,801,172.47; and

     WHEREAS, it is also the intention of the parties (i) to confirm and continue the security interests originally granted to Lender by SH, BIH and PRS and (ii) for additional security interests to be granted by the Additional Borrowers to Lender.

     NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the sufficiency and receipt of which are acknowledged, it is agreed as follows:

     1. Capitalized terms used but not defined herein are used with the meanings assigned to them in the Loan Documents.

     2. The term “Borrower”, as defined in the Loan Agreement and each other Loan Document, is hereby amended to mean and include “SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc., SunCoast Capital, Inc., Patriot Risk Services, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.”, and each reference in the Loan Agreement and the other Loan Documents shall be deemed a reference to each of the foregoing entities individually and collectively and jointly and severally.

     3. Borrower hereby acknowledges receipt on the date hereof of $5,768,000.00, representing the proceeds of the incremental term loan referred to above (such incremental term loan being evidenced by a Commercial Promissory Note dated the date hereof and executed by Borrower (the “New Note”)). Borrower represents, warrants and agrees that all such proceeds shall be used solely for the following purposes: (i) $5,000,000.00 for a capital injection from SH to GIC; (ii) $500,000.00 to enable Borrower to purchase a Borrower’s Assistance Plan from and in favor of Brooke Capital Advisors, Inc., a Delaware corporation (“BCA”), pursuant to such documentation as BCA may require in its sole and absolute discretion; (iii) $168,000.00 for the payment of all loan, origination and other transaction-related fees that are payable by Borrower to Lender; and (iv) $100,000 to National Capital Advisors for the payment of consulting fees.

     4. The sections of the Loan Agreement entitled “Borrower Name and Address,” “Loan Description,” “Loan Structure,” “Fees” and “Loan Proceeds” are hereby deemed to be amended to incorporate by reference the terms of the incremental term loan, the New Note and the use of proceeds thereof as set forth in this Amendment and the New Note, and the “Borrower’s Name and Address” section of the Original Note is hereby deemed to be amended to include the names of SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.

     5. Paragraph 11 of the CLA Addendum is amended and restated in its entirety to read as follows:

     “11. PREPAYMENT PREMIUM. Any promissory note(s) executed by Borrower which evidence the Loan(s) 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% from March 30, 2006 through March 29, 2007, 8% from March 30, 2007 through March 29, 2008, and 6% from March 30, 2008 through March 29, 2009. This prepayment premium shall not apply after March 30, 2009.”

     6. Paragraph 8(g) of the CLA Addendum is amended to add the following at the end of the clause after the words “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.”

     7. The enumerated events constituting a “Default” as set forth in the Original Note, the New Note, the Security Agreement and the New Security Agreements (as defined below) shall be superseded and replaced by the enumerated “Events of Default” set forth in paragraph 8 of the CLA Addendum, except for clause (4) of said Notes stating “any other creditor of mine

2

attempts to collect any debt I owe him through court proceedings”, which Default provision shall remain in effect and not be superseded.

     8. Each of SunCoast Capital, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc., as Additional Borrowers, shall as of the date hereof, together with SH, BIH and PRS, become party to the Loan Agreement, the Original Note, the New Note, the new Commercial Security Agreements dated the date hereof (the “New Security Agreements”) and the other Loan Documents (to the extent applicable) as “Borrower”, with the same effect as if each such Additional Borrower had originally executed each such Loan Document. Further, each such Additional Borrower hereby agrees that from the date hereof until payment in full of the principal of and interest on the Loans made under the Loan Documents and the performance of all of its other obligations thereunder, it (i) shall assume, perform, comply with and be bound by each of the covenants, obligations, conditions and other provisions of the Loan Agreement and other Loan Documents applicable to “Borrower” thereunder, including, but not limited to, the joint and several obligation to pay amounts owing on the Original Note, and (ii) hereby grants to Lender a security interest in its property as described in the New Security Agreements to secure the payment and performance of the Loans and all of such Additional Borrower’s other obligations and liabilities to Lender. Without limiting the generality of the foregoing, each Additional Borrower hereby represents and warrants that (a) it has received a true and correct copy of the Loan Documents as in effect on the date hereof, (b) the representations and warranties of Borrower contained in the Loan Documents are hereby made by such Additional Borrower as the date hereof and are true and correct, (c) the Loan Agreement, the Original Note, the New Note, the New Security Agreements and the other Loan Documents constitute the legal, valid and binding obligations of such Additional Borrower enforceable (jointly and severally) against such Additional Borrower in accordance with their respective terms. Each Borrower entity hereby represents and warrants that no Default or Event of Default under the Loan Documents has occurred and is continuing.

     9. This Amendment may be affixed to each and every Loan Document as evidence of the amendment thereof in accordance with the above terms; provided, that failure to so affix this Amendment shall not affect the validity or enforceability thereof.

     10. Unless specifically amended hereby, all provisions, terms and conditions in the Loan Agreement and the other Loan Documents shall otherwise remain unaltered and in full force and effect, and the respective terms, conditions and covenants thereof are hereby ratified and confirmed in all respects as originally executed. Upon effectiveness of this Amendment, all references to the Loan Agreement or other Loan Documents shall be a reference to the Loan Agreement and Loan Documents as amended hereby, and all references in the Loan Documents to “commercial promissory note,” “promissory note” or “note” shall be deemed to refer to each and every promissory note at any time issued by any Borrower entity to Lender, including the Original Note and the New Note, as from time to time further amended or replaced.

     11. This Amendment shall be construed and governed by the laws of the State of Kansas, except to the extent that the laws of a jurisdiction other than the State of Kansas are required to govern any enforcement or foreclosure action with respect to any of the Collateral.

3

     12. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

[signature pages follow]

4

     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

BORROWER:		LENDER:
SUNCOAST HOLDINGS, INC.,		BROOKE CREDIT CORPORATION,
a Delaware corporation		a Delaware corporation
By:	/s/ Steven M. Mariano	By:	/s/ Michael S. Lowry
Name:	Steven M. Mariano	Name:	Michael S. Lowry
Title:	President and Chief Executive Officer	Title:	President & CEO
BRANDYWINE INSURANCE
HOLDINGS, INC.,
a Delaware corporation
By:	/s/ Steven M. Mariano
Name:	Steven M. Mariano
Title:	President and Chief Executive Officer
SUNCOAST CAPITAL, INC.,
a Delaware corporation
By:	/s/ Steven M. Mariano
Name:	Steven M. Mariano
Title:	President and Chief Executive Officer
PATRIOT RISK MANAGEMENT, INC.,
a Delaware corporation
By:	/s/ Steven M. Mariano
Name:	Steven M. Mariano
Title:	Chairman & EVP
PATRIOT RISK SERVICES, INC.,
a Delaware corporation
By:	/s/ Steven M. Mariano
Name:	Steven M. Mariano
Title:	Chairman & EVP

5

PATRIOT RISK MANAGEMENT OF FLORIDA, INC.
a Delaware corporation
By:	/s/ Steven M. Mariano
Name:	Steven M. Mariano
Title:	Chairman & EVP

6

CONSENT OF GUARANTOR

The undersigned, as guarantor of all debt and obligations of Borrower to Lender under the Guaranty, hereby acknowledges and consents to the above-referenced Amendment.

/s/ Steven M. Mariano

Steven M.Mariano, individually

7

EX-10.22

Exhibit 10.22

SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc., SunCoast Capital, Inc., Patriot Risk Services, Inc., Patriot Risk Management, Inc. and Patriot Risk Management of Florida, Inc.	Brooke Credit Corporation 10950 Grandview Dr., Ste. #600 Overland Park, KS 66210	Loan Number 6530
401 East Las Olas Blvd.		Date 09-27-2007
Ft. Lauderdale, FL 33301		Maturity Date 04-15-2016
		Loan Amount $5,768,000.00
		Renewal Of ___________________
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 seven hundred sixty eight thousand and no/100 Dollars $5,768,000.00.

x Single Advance: I will receive all of this principal sum on 09-27-2007. No additional advances are contemplated under this note.

¨ 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                                                                                                                              

¨ 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 to all other conditions and expires on _________________________.

¨ 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 09-27-2007 at the rate of 12.250% per year until 09-28-2007.

x Variable Rate: This rate may then change as stated below.

x Index Rate: The future rate will be 4.500 percent above the following index rate: Prime Rate, as published in The Wall Street Journal.

¨ No Index: The future rate will not be subject to any internal or external index. It will be entirely in your control.

x Frequency and Timing: The rate on this note may change as often as every day beginning 09-28-2007. A change in the interest rate will take effect On the following day.

¨ 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:

x The amount of each scheduled payment will change.         ¨  The amount of the final payment will change.

¨                                                                                                                                                                                                  .

ACCRUAL METHOD: Interest will be calculated on a 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:

x on the same fixed or variable rate basis in effect before maturity (as indicated above).

¨ at a rate equal to                                                                                                                                                                         .

x LATE CHARGE: If a payment is made more than 10 days after it is due, I agree to pay a late charge of 5.000% of the payment amount.

¨ ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which ¨ are ¨ are not included in the principal amount above:__________________________________________________________.

PAYMENTS: I agree to pay this note as follows:

102 monthly payments of $91,857.07 beginning 11-15-2007. This is a variable rate loan and the payment amounts may change.

ADDITIONAL TERMS:
(1) See Commercial Loan Agreement and Addendum thereto dated March 30, 2006, as modified by a Consent dated August 2, 2007 and Amendment dated September 27, 2007 (the “Amendment”).
(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 8% from the date hereof through March 29, 2008 and 6% from March 30, 2008 through March 29, 2009. No prepayment premium shall apply after March 30, 2009.

x     SECURITY: This note is separately secured by (describe separate document by type and date): Security Agreement and Pledge Agreements dated March 30, 2006 and Security Agreements dated September 27, 2007.	PURPOSE: The purpose of this loan is set forth in the Amendment referred to above
	SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I have received a copy on today’s date.
(This section is for your internal use. Failure to list a separate security document does not mean the agreement will not secure this note.)
Signature for Lender	SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc., SunCoast Capital, Inc., Patriot
	See Attached Signature Page
/s/ Michael Lowry
Michael Lowry, President and CEO
UNIVERSAL NOTE

    ^©1984, 1991 BankersSystems, Inc., St. Cloud, MN Form UN-FL 3/4/2002 (page 1 of 2)

BORROWER:		LENDER:
SUNCOAST HOLDINGS, INC.		BROOKE CREDIT CORPORATION
a Delaware corporation		a Delaware corporation
By:	/s/ Steven M. Mariano	By:	/s/ Michael S. Lowry
Name: Steven M. Mariano		Name: Michael S. Lowry
Title: President and Chief Executive Officer		Title: President & CEO
BRANDYWINE INSURANCE
HOLDINGS, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
Name: Steven M. Mariano
Title: President and Chief Executive Officer
SUNCOAST CAPITAL, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
Name: Steven M. Mariano
Title: President and Chief Executive Officer
PATRIOT RISK MANAGEMENT, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
Name: Steven M. Mariano
Title: Chairman & EVP
PATRIOT RISK SERVICES, INC.
a Delaware corporation
By:	/s/ Steven M. Mariano
Name: Steven M. Mariano
Title: Chairman & EVP
PATRIOT RISK MANAGEMENT OF FLORIDA, INC., a Delaware corporation
By:	/s/ Steven M. Mariano
Name: Steven M. Mariano
Title: Chairman & EVP

EX-10.23

Exhibit 10.23

DEBTOR NAME AND ADDRESS	SECURED PARTY NAME AND ADDRESS
	Brooke Credit Corporation
	10950 Grandview Dr., Ste. #600
	Overland Park, KS 66210
Type: o individual o partnership þ corporation o
State of organization/registration (if applicable) DE
o if checked, refer to addendum for additional Debtors and signatures.

COMMERCIAL SECURITY AGREEMENT

The date of this Commercial Security Agreement (Agreement) is 09-27-2007.

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) o Debtor þ SunCoast Holdings, Inc., Brandywine Insurance Holdings, Inc., SunCoast Capital, Inc., Patriot Risk Services, Inc., Patriot Risk Management, Inc., and Patriot Risk Management of Florida, Inc. (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 or 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 to 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, 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 Extension of Security Agreement

     USE OF PROPERTY. The Property will be used for o personal þ business o agricultural o                      purposes.

SIGNATURES. Debtor agrees to the terms on pages 1 and 2 of this Agreement and acknowledges receipt of a copy of this Agreement.

DEBTOR	SECURED PARTY
	Brooke Credit Corporation
	/s/ Micheal Lowry
	Micheal Lowry
	President and CEO

    ^© 2000 Bankers Systems, Inc., St. Cloud, MN Form SA-BUS 7/24/2001 (page 1 of 2)

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 Debtors 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 in which Secured Party is located. In the event of a dispute, the exclusive forum, venue, and place of jurisdiction will be the state in which Secured Party is located, unless otherwise required by law. If any provision of this Agreements 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 page 1 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 page 1. 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 mates 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 in 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.

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 page 1 of this Agreement. Debtor will keep the Property in good repair and use the Property only for purposes specified on page 1. 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 chatted paper or instruments.

If the Property includes accounts, Debtor will not settle any account for less than the full value, dispose of the account 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 the 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. 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 issued 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.

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 will be in default If:

(1)	Debtor (or Borrower, if not the same) fails to make a payment in full when due;
(2)	Debtor fails to perform any condition or keep any covenant on this or any debt or agreement Debtor has with Secured Party;
(3)	a default occurs under the terms of any instrument or agreement evidencing or pertaining to the Secured Debts;
(4)	anything else happens that either causes Secured Party to reasonably believe that Secured Party will have difficulty in collecting the Secured Debts or significantly impairs the value of the Property.

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.

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.

^© Bankers Systems, Inc., St. Cloud, MN Form SA-BUS 7/24/2001

(page 2 of 2)

EX-10.24

Exhibit 10.24

	Brooke Credit Corporation	EXTENSION OF SECURITY
	10950 Grandview Dr.,Ste. #600	AGREEMENT DATED:
	Overland Park, KS 66210	09-27-2007
DEBTOR’S NAME AND ADDRESS	SECURED PARTY’S NAME AND ADDRESS

     For value received, the Debtor hereby grants the Secured Party a security interest in the following additional collateral:

(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 accounts; (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, 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.;

(b) All of SunCoast Holdings, Inc.’s (“SH”) right, title and interest in Brandywine Insurance Holdings, Inc. (“BIH”) and Patriot Risk Management, Inc., a Delaware corporation (“PRM”), whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to SH in its capacity as the sole stockholder of BIH and PRM;

(c) 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;

(d) 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 procoss of Debtor, whether now in existence or owned or hereafter coming into existence or acquired, wherever located, and all returned goods, and repossessions end replacements thereof;

(e) All commissions, policy fees, service fees, underwriting fees, claims fees, administrative and processing fees, fronting fees, risk menagemant and loss/cost control fees, investment income, management fees (including without limitation, case and captive management fees), premium finance revenues, reinsurance brokerage commissions end all other revenue collectively, “Revenue” payable to Debtor and any assignment thereof;

(f) 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;

(g) Any property, tangible or intangible, in which Debtor grants Secured Party a security interest in any other Loan Document;

(h) 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 Revanue less amounts due Insurance Entities) derived directly or indirectly therefrom; and

(i) 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.

     By signing below, Debtor acknowledges that this document describes additional collateral which Is subject to all terms and conditions of the Security Agreement referred to above.

Authorized Signature(s) of Secured Party — sign below only If filing this document.

Debtor
	TITLE
Debtor
	TITLE
Debtor
	TITLE

© 1984. 1990 BANKERS SYSTEMS, INC., ST. CLOUD, MN 56301 (1-800-397-2341) FORM SA-E 3/7/90

EX-10.25

Exhibit 10.25

2^nd AMENDMENT TO COMMERCIAL LOAN AGREEMENT

THIS 2^nd AMENDMENT dated as of November 16^th 2007 is made to and a part of the Commercial Loan Agreement and Addendum thereto (the “CLA Addendum”) dated March 30, 2006 (collectively the “Loan Agreement”) by and between BROOKE CREDIT CORPORATION ("LENDER") and SUNCOAST HOLDINGS, INC., a Delaware corporation (“SH”), BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation (“BIH”), and PATRIOT RISK SERVICES, INC., a Delaware corporation (“PRS”) and the Amendment to Commercial Loan Agreement dated as of September 27 (“1^st Amendment”), 2007 by and between Lender, SH, BIH, PRS, SUNCOAST CAPITAL, INC. (“SCI”), PATRIOT RISK MANAGEMENT, INC. (“PRM”), and PATRIOT RISK MANAGEMENT OF FLORIDA, INC. (“PRMF”) (SH, BIH PRS, SCI, PRM and PRMF collectively referred to hereinafter as “Borrower”).

WHEREAS, SH, BIH and PRS have collectively executed the Loan Agreement and related “Loan Documents” (as defined in the Loan Agreement) dated March 30, 2006, including, but not limited to, a Commercial Promissory Note (the “Original Note”), Guaranty of Steven M. Mariano (the “Guaranty”), Commercial Security Agreement (the “Security Agreement”) and Stock Pledge Agreement (the “Pledge Agreement”), together with a Consent dated August 2, 2007;

WHEREAS, Borrower has executed the 1^st Amendment and related subsequent Loan Documents including, but not limited to, a Commercial Promissory Note (the “Second Note”);

WHEREAS, the 1^st Amendment and related Loan Documents currently list a principal loan balance of $5,768,000.00;

WHEREAS, the 1^st Amendment and related Loan Documents currently list the distribution of the proceeds from the Second Note as:

$5,000,000.00	to Borrower — capital injection in Guarantee Insurance Company
$   100,000.00	to National Capital Advisors
$   500,000.00	to BCA — Purchase Borrower’s Assistance Plan
$   168,000.00	to BCC (or “Lender”) — Loan Fees (Including DBI Premium)

WHEREAS, the $100,000 fees to National Capital Advisors above were listed on the Loan Documents in error; and

WHEREAS, Borrower and Lender wish to restate the principal loan balance listed on the Second Note as $5,665,000.00 and to correct the corresponding distributions.

^© Brooke Credit Corporation all rights reserved

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FOR GOOD AND VALUABLE CONSIDERATION the sufficiency and receipt of which are acknowledged, it is agreed as follows:

     The Agreement and Loan Documents are amended as follows:

1.	The principal loan amount of the Second Note is restated as $5,665,000.00.
2.	The disbursements are restated to be:

$5,000,000.00	to Borrower — capital injection in Guarantee Insurance Company
$   500,000.00	to BCA — Purchase Borrower’s Assistance Plan
$   165,000.00	to BCC (or “Lender”) — Loan Fees (Including DBI Premium)

3.	Borrower hereby ratifies and adopts the 2nd Amendment and agrees that the 2nd Amendment and Loan Documents are enforceable against Borrower in accordance with the above terms.
4.	Borrower further agrees that this 2nd Amendment may be affixed to each and every Loan Document as evidence of the 2nd Amendment thereof in accordance with the above terms.

Unless specifically amended hereby, all provisions, terms and conditions shall remain as set forth in the Agreement and Loan Documents.

THIS AMENDMENT is executed on this 16^th day of November, 2007.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

BORROWER:		LENDER:
SUNCOAST HOLDINGS, INC.		BROOKE CREDIT CORPORATION
a Delaware corporation		a Delaware corporation
By:		By:
	Name: Steven M. Mariano		Name: Michael S. Lowry
	Title: President and Chief Executive Officer		Title: President & CEO

BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

^© Brooke Credit Corporation all rights reserved

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SUNCOAST CAPITAL, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

PATRIOT RISK MANAGEMENT, INC., a Delaware corporation
By:
	Name:	Timothy J. Ermatinger
	Title:	Chief Executive Officer

PATRIOT RISK SERVICES, INC., a Delaware corporation
By:
	Name:	Timothy J. Ermatinger
	Title:	Chief Executive Officer

PATRIOT RISK MANAGEMENT OF FLORIDA, INC., a Delaware corporation
By:
	Name:	Timothy J. Ermatinger
	Title:	Chief Executive Officer

^© Brooke Credit Corporation all rights reserved

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EX-10.26

Exhibit 10.26

3^rd AMENDMENT TO COMMERCIAL LOAN AGREEMENT

          THIS 3^rd AMENDMENT dated as of February 19, 2008 is made to and a part of the Commercial Loan Agreement and Addendum thereto (me “CLA Addendum”) dated March 30, 2006 (collectively the “Loan Agreement”) by and between BROOKE CREDIT CORPORATION (“LENDER”) and SUNCOAST HOLDINGS, INC., a Delaware corporation (“SH”), BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation (“BIH”), and PATRIOT RISK SERVICES, INC., a Delaware corporation (“PRS”), the Amendment to Commercial Loan Agreement dated as of September 27, 2007 (“1^st Amendment”) by and between Lender, SH, BIH, PRS, SUNCOAST CAPITAL, INC. (“SCI”), PATRIOT RISK MANAGEMENT, INC. (“PRM”), and PATRIOT RISK MANAGEMENT OF FLORIDA, INC. (“PRMF”) (SH, BIH, PRS, SCI, PRM and PRMF collectively referred to hereinafter as “Borrower”), and the 2^nd Amendment to Commercial Loan Agreement dated as of November 16, 2007 (2^nd Amendment) by and between Lender and Borrower.

          WHEREAS, SH, BIH and PRS have collectively executed the Loan Agreement and related “Loan Documents” (as defined in the Loan Agreement) dated March 30, 2006, including, but not limited to, a Commercial Promissory Note (the “Original Note”), Guaranty of Steven M. Mariano (the “Guaranty”), Commercial Security Agreement (the “First Security Agreement”), Stock Pledge Agreement (the “Pledge Agreement”), and Irrevocable Proxy together with a Consent dated August 2, 2007;

          WHEREAS, Borrower has executed the l^st Amendment, the 2^nd Amendment and related subsequent Loan Documents including, but not limited to, a Commercial Security Agreement (the “Second Security Agreement” together with all other loan related documents the “Loan Documents”);

          WHEREAS, Borrower and Lender have agreed to amend the Loan Documents to add language specific to Florida insurance law; and

          WHEREAS, Borrower is contemplating raising new capital by means of a public offering of common stock (the “Proposed Offering”) and in connection with the Proposed Offering desires to change SH’s name to Patriot Risk Management, Inc., change BIH’s name to Guarantee Insurance Group, Inc. and change the name of Patriot Risk Management, Inc. “PRM”) to PRS Holdings, Inc (the “Name Changes”).

FOR GOOD AND VALUABLE CONSIDERATION the sufficiency and receipt of which are acknowledged, it is agreed as follows:

The Agreement and Loan Documents are amended as follows:

1. The Loan Agreement is hereby amended by amending and restating the following paragraph in its entirety within the Agreement as follows:

^© Brooke Credit Corporation the (Illegible) Capital Corp. all rights reserved

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7. COLLATERAL. As used in this Agreement, the terms “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 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 the property of Guarantee Insurance Company (“GIC”)), whether tangible or intangible, and all of Borrower’s interest in property and fixtures (except 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 the accounts of GIC), including without limitation, the Borrower’s Depository Account and the Escrow 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, 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 SH’s right, title and interest in BH and PRM whether evidenced by stock certificates or otherwise, together with all dividends and other income, payments and distributions of any kind payable to SH in its capacity as the sole stockholder of BIH and PRM;

(c) All of BIH’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 BIH in its capacity as the sole stockholder of GIC. Lender acknowledges that regulatory approval from

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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 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

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(j) All additions, attachments, parts, repairs, accessories_, accessions, replacements and substitutions to or for any of the forgoing 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.

2. The Stock Pledge Agreement is hereby amended to add the following new paragraph to the Stock Pledge Agreement in the appropriate numeric order:

16. Florida Regulatory Approval. Notwithstanding anything herein to the contrary, Pledgee acknowledges and agrees that Pledgee shall not be entitled to vote the Pledged Shares, assert ownership, or transfer ownership of the Pledged Shares, until it has complied with any applicable Florida laws, including without limitation filing a Form A and having it approved by the Florida Office of Insurance Regulation to the extent applicable.

3. The Irrevocable Proxy is hereby amended to add the following new paragraph:

This Irrevocable Proxy is governed by the laws of the State of Florida, without giving effect to any conflict of laws principles therein. Notwithstanding anything herein to the contrary, the undersigned acknowledges and agrees that Appointee shall not be entitled to vote the Shares, assert ownership thereof, or transfer ownership of the Shares, until it has complied with any applicable Florida laws, including without limitation filing a Form A and having it approved by the Florida Office of Insurance Regulation to the extent applicable.

4.	The Borrower and the Lender hereby agree that, SH may change it’s name to Patriot Risk Management, Inc., BIH may change it’s name to Guarantee Insurance Group, Inc. and PRM may change it’s name to PRS Group, Inc and Borrower will execute all documents necessary to ensure Lender’s security interest continues to be perfected and maintains is priority position, including signing new UCC’s and exchanging stock certificates if necessary.
5.	Borrower hereby ratifies and adopts this 3rd Amendment and agrees that the 3rd Amendment and Loan Documents are enforceable against Borrower in accordance with the above terms.
6.	Borrower further agrees that this 3rd Amendment may be affixed to each and every Loan Document as evidence of the 3rd Amendment thereof in accordance with the above terms.

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7.	Unless specifically amended hereby, all provisions, terms and conditions in the Stock Pledge Agreement shall otherwise remain unaltered and in full force and effect, and the respective terms, conditions and covenants thereof are hereby ratified and confirmed in all respects as originally executed. Upon effectiveness of this Agreement, all references to the Stock Pledge Agreement shall be a reference to the Stock Pledge Agreement as amended hereby.
8.	This Agreement shall be construed and governed by the laws of the State of Kansas, except to the extent that the laws of a jurisdiction other than the State of Kansas are required to govern any enforcement or foreclosure action with respect to any of the Pledged Shares.
9.	This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

Unless specifically amended hereby, all provisions, terms and conditions shall remain as set forth in the Agreement and Loan Documents.

THIS AMENDMENT is executed on this 19^th day of February, 2008.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

BORROWER:			LENDER:
SUNCOAST HOLDINGS, INC.			BROOKE CREDIT CORPORATION
a Delaware corporation			a Delaware corporation
By:			By:
	Name:	Steven M. Mariano		Name:	Michael S. Lowry
	Title:	President and Chief Executive Officer		Title:	President & CEO

BRANDYWINE INSURANCE HOLDINGS, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

SUNCOAST CAPITAL, INC., a Delaware corporation
By:
	Name:	Steven M. Mariano
	Title:	President and Chief Executive Officer

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PATRIOT RISK MANAGEMENT, INC., a Delaware corporation
By:
	Name:	Timothy J. Ermatinger
	Title:	Chief Executive Officer

PATRIOT RISK SERVICES, INC., a Delaware corporation
By:
	Name:	Timothy J. Ermatinger
	Title:	Chief Executive Officer

PATRIOT RISK MANAGEMENT OF FLORIDA, INC., a Delaware corporation
By:
	Name:	Timothy J. Ermatinger
	Title:	Chief Executive Officer

CONSENT OF GUARANTOR(S)

The undersigned, as guarantor of all debt and obligations of Borrower to Lender under the Guaranty, hereby acknowledges and consents to the above - referenced Amendment.

 

Steven M. Mariano, individually 

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EX-10.28

Exhibit 10.28

WORKERS’ COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT
GIC-001/2007

(hereinafter referred to as the “Agreement” )

between

GUARANTEE INSURANCE COMPANY, NAIC #11398,
FORT LAUDERDALE, FLORIA
(hereinafter referred to as the “Reinsured”)

and

NATIONAL INDEMNITY INSURANCE COMPANY
(hereinafter referred to as the “Reinsurer”)

ARTICLE I — BUSINESS COVERED

All statutory benefits payable under Part One Section A Limit and Part Two Section B Limit of a standard Workers’ Compensation Policy.

This Agreement is to indemnify the Reinsured as set forth herein in respect of the net excess liability which may accrue to the Reinsured under all policies, Agreements, binders and other evidences of insurance or reinsurance, whether oral or written (hereinafter called “policies”), classified by the Reinsured as Alternative Market Workers’ Compensation in force at and becoming effective on and after the inception date of this Agreement, including renewals.

ARTICLE II — EXCLUSIONS

This Agreement excludes all Ultimate Net Loss arising from the following and further amplified by Schedule 1 NCCI Class Code identifications:

1.	Assumed reinsurance, except one hundred percent (100%) of business ceded by fronting insurance companies.
2.	Liability of the Reinsured arising by Agreement, operation of law or otherwise from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guarantee funds, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligation or an insurer or its successors or assigns which has been declared by any competent authority to be insolvent or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.
3.	Business excluded by the attached Exhibit A, Nuclear Incident Exclusion Clause - Liability-Reinsurance — U.S.A., No. 08-31-1.
4.	Pools, associations and syndicates, except that losses from assigned risk plans or similar plans are not excluded.

4 xs 1 2007
Contract Wording
July 24, 2007D

Page 1 of 15

5.	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 Act of 2002 (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 Agreement, this Agreement 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 agreement 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 there from.
	In the event any portion of this exclusion is found to be invalid or unenforceable, the remainder shall remain in full force and effect.
6.	Financial guarantee and insolvency.
7.	War Risks as defined and excluded by the North American War Exclusion Clause (Reinsurance) BRMA 56A.
8.	Risks with known occupational disease exposures per NCCI D & E codes.
9.	Operations requiring coverage under the Defense Base Act, Admiralty Act or any other Federal act including but not limited to the Jones Act, FELA or USL&H, except where incidental. (“incidental” to be defined as less than 10% of an individual insurer’s premium).
10.	Commercial airline crews.
11.	Risks involving known exposure to the following substances: Dioxin, Polychlorinated biphenyls (PCB’s) and Asbestos.
12.	Mining either above or below ground.
13.	Construction of bridges, tunnel or dams.
14.	Fire fighters and police officers.
15.	Railroads, except scenic railways, and access lines and industrial aid owner operations when written as an incidental part of an insured’s overall operations.
16.	No known wrecking or demolition of buildings of structures in excess of three stories.
17.	Manufacturing, packing, handling, shipping, storage or loading into containers of explosives, substances intended for use as an explosive, ammunitions, fuses, arms, magnesium, propellant charges, detonating devices, fireworks, nitroglycerine, celluloid, or pyroxylin; however, this exclusion shall not apply to the incidental packing, handling, or storage of same in connection with the sale or transportation by owner operators of such substance;
18.	Trucking hauling explosives or ammunition (local or long distance hauling) — all employees.

4 xs 1 2007
Contract Wording
July 24, 2007D

Page 2 of 15

19.	Manufacturing, packing, handling, shipping or storage of natural or artificial fuel gasses, 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.
20.	Gas or oil burner installation NOC.
21.	Gasoline Service Stations tank installations.
22.	Blasting of rock.
23.	Sewer construction all operations.
24.	Gas main, steam main, or water main construction or connection construction.
25.	Boat manufacturing F classes.
26.	Banks and trust company employees of contracting agencies in bank service: guards, patrol, messengers or armored car crews.
27.	Detective agency.
28.	Patrol agency only in regard to armed guard services.
29.	Insolvency Fund.

ARTICLE III — PERIOD AND CANCELLATION

This Agreement shall be effective on a risks attaching basis for inforce new and renewal policies of the Reinsured attaching on or after 12:01 a.m., Local Standard Time, May 1, 2007 through July 31, 2008, both days inclusive. Polices limited to 12 months plus odd time, not to exceed 18 months in total. For policies in force prior to May 1, 2007, this contract only applies to losses occurring on or subsequent to May 1, 2007. The Reinsurer shall be liable for its share of the liability under all policies or portions thereof in force as of the date of termination of this Agreement, up to the natural expiration or prior termination date of said policies, not to exceed 12 months plus odd time, not exceeding 18 months in all.

ARTICLE IV — AMOUNT OF COVER

The Reinsurer shall not be liable for any loss hereunder until the ultimate net loss of the reinsured of the Reinsurer on Part Once Section A losses of a Standard Workers Compensation policy exceeds $1,000,000 inclusive of underlying deductibles where applicable, and then the Reinsurer shall be liable for 100% of the amount of the ultimate net loss sustained by the reinsured on any one loss occurrence in excess of $1,000,000, but the Reinsurer’s liability shall not exceed 100% of $4,000,000 any one occurrence.

Furthermore in respect to losses Reinsured shall be liable for under Section B Part Two limit of a Standard Workers Compensation viz. Employer’s Liability only, the Reinsurer will be liable for 100% of difference between $1,000,000 ultimate net loss any one loss occurrence sustained by the Reinsured and $100,000 bodily injury per occurrence, $500,000 policy limit bodily injury per disease and $100,000 bodily injury by disease per employee.

ARTICLE V — TERRITORY

Risks principally domiciled in the United States, Puerto Rico and US territories and possessions.

ARTICLE VI — DEFINITIONS

The term “Occurrence” shall mean any one accident, disaster or casualty or series of accidents, disaster or casualties arising out of one event.

Occupational disease and cumulative trauma when from a sudden and accidental event of 48 hours or less. For the purpose of this contract “Sudden and Accidental” shall mean that the first and last

4 xs 1 2007
Contract Wording
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Page 3 of 15

exposure to the causative agent to each and every individual contributing to the loss shall fall within a single and continuous 48 hour period.

“Gross Net Written Premium” shall mean manual premium adjusted for experience modification, State/NCCI Safety Credit, premium discount, deductible credits, expense constants and policy fees, less returns and cancellations.

“Loss in excess of policy limits” shall mean 90% of any amount paid or payable by the Reinsured in excess of its policy limits, but otherwise within the terms of its policy, as a result of an action against it by its insured’s assignee to recover damages the insured is legally obligated to pay to a third party claimant because of the Reinsured’s alleged or actual negligence or bad faith in rejecting a settlement within policy limits, or in discharging its duty to defend or prepare the defense in the trial of an action against its insured, or in discharging its duty to prepare or prosecute an appeal consequent upon such an action.

“Extra contractual obligations” shall mean 90% of any punitive, exemplary, compensatory or consequential damages, other than loss in excess of policy limits, paid or payable by the Reinsured as a result of an action against it by its negligence or bad faith on the part of the Reinsured in handling a claim under a policy subject to the Agreement. An extra contractual obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the policy.

Notwithstanding anything stated herein, the Agreement shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Reinsured as a result of any fraudulent and/or criminal act by any officer or director of the Reinsured acting individually or collectively or in collusion with any individual or corporation or any organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

“Loss adjustment expense” as used herein shall mean expenses allocable to the investigation, defense and/or settlement of specific claims, including litigation expenses and post-judgment interest, but not including any legal expenses and cost incurred by the Reinsured in connection with coverage questions and legal actions connected thereto, office expenses or salaries of the Reinsured’s regular employees.

ARTICLE VII-ULTIMATE NET LOSS

The term “Ultimate Net Loss” as used in this Agreement shall mean the actual gross loss sustained by the Reinsured, including structured settlements with claimants or outside insurers, such loss to include all expenses incurred by the Reinsured in connection with the settlement of losses, resistance to or negotiations concerning losses; excluding, however, any part of the office expenses of the Reinsured and salaries of employees other than salary charges for staff adjuster, fieldsmen, or other employees while actually engaged in the settlement of the losses.

Salvages and recoveries, whether recovered or received prior or subsequent to loss settlement under this Agreement, but not including amounts recoverable under all facultative reinsurances, shall be applied as if recovered or received prior to the aforesaid settlement and shall be first deducted from the actual loss sustained to arrive at the amount of Ultimate Net Loss. Nothing, however, in this Article shall be construed to mean losses are not recoverable hereunder until the Ultimate Net Loss to the Reinsured has been ascertained.

ARTICLE VIII- RATE AND PREMIUM

The Reinsured shall pay a deposit premium of $4,200,000 in four equal installments in advance within 30 days of each of the following:

May 1, 2007	$	1,050,000
August 1, 2007	$	1,050,000
November 1, 2007	$	1,050,000
February 1, 2008	$	1,050,000

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There will be a minimum premium of $3,360,000.

Reinsurance premiums are calculated as follows:

Section A: 6.7% applying to both Gross Net Written Premium Income for business incepting during the period and Gross Unearned Premium Income on inforce policies at inception.

Section B: 1.7% applying to both Gross Net Written Premium Income for business incepting during the period and Gross Unearned Premium Income on inforce policies at inception.

Within 90 days after the expiration of this agreement and each subsequent twelve months thereafter, the Reinsured shall provide a report to the Reinsurer setting forth the premium due hereunder computed in accordance with the adjustable rate, and if the premium so computed is greater than the previously paid minimum and deposit premiums and adjustments, the balance shall be remitted by the Reinsured with this report.

ARTICLE IX — REINSTATEMENT PREMIUM-SECTION A ONLY

In the event of the whole or any portion of the liability under Section A of this Contract, being exhausted by loss, the amount so exhausted shall be automatically reinstated from the time of the occurrence of the loss; and the Reinsured agrees to pay to the Reinsurer for each amount so reinstated an additional premium.

(a)	For the first $4,000,000 reinstated, the product of the percentage of the face amount of this Contract so reinstated calculated at a rate of twenty five percent of the composite reinsurance rate.
(b)	For the second $4,000,000 reinstated, the percentage of the face amount of this Contract so reinstated calculated at a rate of fifty percent of the composite reinsurance rate.
(c)	The third $4,000,000 reinstated will be at no charge.

Nevertheless, the Reinsurer’s liability hereunder shall never exceed $4,000,000 for any one occurrence and $16,000,000 for all losses during the term of this contract.

Reinstatement additional premium is to include interest calculated at the one year US Treasury bill rate for time between inception of reinsurance agreement and dates of additional premium calculations. Reinstatement calculations are to be based on no lesser than then the full treaty composite Deposit Premium ($4,200,000) or adjustable composite reinsurance premium. Reinstatements are automatic without the consent of either party.

ARTICLE X — MAXIMUM AMOUNT OF RECOVERY-SECTION B ONLY

In respect to Section B the maximum amount of recovery is $3,000,000 for the contract period.

ARTICLE XI-PROFIT COMMISSION

Anytime after 24 months from expiration and prior to 72 months from expiration the company may request payment of a 25% profit commission on the basis of a loss commutation with full release of all current and future liabilities of the Reinsurer under the terms of the agreement.

The profit commission will be calculated on the basis of gross ceded reinsurance premium earned less incurred losses including mutually agreed incurred but not reported losses.

ARTICLE XII — LOSS NOTICES AND SETTLEMENTS

The Reinsured shall advise the Reinsurer of all events that in its opinion may result in a claim under this Agreement for which the Reinsured has reserves in excess of fifty percent (50%) of its retention under this Agreement, and of all subsequent developments thereto that may affect the position of the Reinsurer. Inadvertent omission or oversight in dispatching advice of notice shall not affect the liability of the Reinsurer; however, this exception shall not apply with respect to conditions as provided for in the Sunset Article of this Agreement.

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Subject always to the terms and conditions of this Agreement, the reinsurance provided under this Agreement shall be subject to the written terms, limits, and conditions of the original policies that represent, as set forth in Article I, the Business Covered and to all interpretations, modifications, waivers, and alterations thereon. All loss settlements made by the Reinsured, whether under the original policy terms and conditions or by way of compromise, excluding ex gratia payments, shall be binding upon the Reinsurer, and the Reinsurer shall allow or pay, as the case may be, its proportion of each such settlement in accordance with the terms of this Agreement. It is the true intent of this Agreement the Reinsurer will follow settlements of the Reinsured in all respects.

The Reinsured will advise the Reinsurer promptly of all losses and any subsequent developments pertaining thereto, which may in its opinion develop into losses involving reinsurance hereunder and/or incurred amount penetrates 50% of retention. Inadvertent omission or oversight in dispatching such advises shall in no way affect the liability of the Reinsurer under this Agreement, but the Reinsured shall inform the Reinsurer of such omission or oversight upon discovery.

ARTICLE XIII — CLAIMS AND MONETARY CRITERIA

The Reinsured shall promptly advise the Reinsurer in full detail of all bodily injury claims or losses involving any of the following:

A)	Any claim or loss reserved at 50% or more of the Reinsured’s retention under this Agreement.
B)	Any claim involving any of the following injuries:

1)	Fatality.
2)	Spinal Cord Injuries (e.g., quadriplegia, paraplegia).
3)	Brain Damage (e.g., seizure, coma or physical/mental impairment).
4)	Severe burns injuries resulting in disfigurement or scarring.
5)	Total or partial blindness in one or both eyes.
6)	Major organ, (e.g., heart, lungs).
7)	Amputation of a limb or multiple fractures.
8)	Environmentally related damage or injury (e.g., pollution, waste site or common cause claims, such as Agent Orange, asbestos or DES).
9)	Occupational disease or other disability relating to working conditions or job related factors.

ARTICLE XIIV — TAXES CLAUSE

In consideration of the terms under which this Agreement is issued, the Reinsured undertakes not to claim any deduction of the premium hereon 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.

ARTICLE XV — CURRENCY

All retentions and limits hereunder are expressed in United States Dollars, and all premium and loss payments shall be made in United States Currency.

ARTICLE XVI — ACCESS TO RECORDS

The Reinsurer or its duly authorized representative shall have the right at any reasonable time upon five (5) working days prior notice during or at any time after the expiration of this Agreement, and as frequently as deemed necessary by the Reinsurer, to visit the office of the Reinsured (or of any affiliate or representative of the Reinsured involved with the Business Covered under this Agreement) to inspect, examine, audit, and verify any of the policy or claim files, accounts, documents, books reports, or work papers (“records”) relating to the business reinsured under this Agreement whether or not those records are co-mingled with any unrelated business records. Reinsurer or its representative shall have the right to make copies, at its own expense, or extracts of any records related specifically to the Business Covered under this agreement only.

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ARTICLE XVII — OFFSET

All amounts due either the Reinsured or the Reinsurer, whether by reason of reinsurance premium Ultimate Net Loss, or any other amount due under this Agreement shall be subject to the right of recoupment and offset and upon the exercise of the same, only the net balance shall be due. All claims for amounts of reinsurance premium, Ultimate Net Loss, or any other amount due under this Agreement, whether or not fixed in amount at the time of the insolvency of any party to this Agreement, arising from coverage placed in effect under this Agreement prior to the insolvency of any party to this Agreement shall be deemed pre-liquidation debts and subject to this Article. In the event of insolvency of the Reinsured, offset shall be in accordance with applicable law.

ARTICLE XVIII — ARBITRATION

As a condition precedent to any right of action hereunder, any dispute arising out of the interpretation, performance or breach of this Agreement, 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 or registered mail, return receipt requested.

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.

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.

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.

Within 45 days after notice of appointment of all arbitrators, the panel shall meet and determine timely periods for briefs, discovery periods and schedules for hearings.

The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Unless the panel agrees otherwise, arbitration shall take place in South Carolina, but the venue may be changed when deemed by the panel to be in the best interest of the arbitration proceeding. Insofar as the arbitration panel looks to substantive law, it shall consider the law of the State of South Carolina. The decision of any two arbitrators when rendered in writing shall be final and binding. The panel is empowered to grant interim relief, as it may deem appropriate.

The panel shall make its decision considering the custom and practice of the applicable insurance and reinsurance business within 60 days following the termination of the hearings. Judgment upon the award may be entered in any court having jurisdiction thereof.

If more than one reinsurer is involved in arbitration where there are common questions of law or fact and a possibility of conflicting awards or inconsistent results, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting the one party; provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint defenses or claims, nor be construed as changing the liability of the reinsurers under the terms of this Agreement from several to joint (if applicable).

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. The remaining 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.

ARTICLE XIX — INSOLVENCY

In the event of the insolvency of the Reinsured or the Reinsurer (the “Insolvent Party”), premiums and losses shall be payable directly to the Insolvent Party or its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Insolvent Party without diminution because of the insolvency of

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the Insolvent Party. The liquidator, receiver, conservator or statutory successor of the Insolvent Party shall give written notice to the other party hereto of the pendency of a claim against the Insolvent Party, indicating the Policy reinsured which claim would involve a possible liability on the part of the other party hereto within reasonable time after such claim is filed in the conservation, liquidation, or receivership proceedings, and that during the pendency of such claim the other party hereto 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 Insolvent Party or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the other party shall be chargeable, subject to he approval of the court, against the Insolvent Party as part of the expense of conservation, liquidation or receivership to the extent of a pro rata share of the benefit which may accrue to the Insolvent Party solely as a result of the defense undertaken by the other party.

ARTICLE XX — INSOLVENCY FUND EXCLUSION

It is agreed that this Agreement excludes all liability of the Reinsured 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, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligations of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

ARTICLE XXI — ERRORS AND OMISSIONS

Except for the conditions as provided for in the Sunset Article of this Agreement, any isolated and inadvertent administrative act, neglect, delay, omission, or error by either party to this Agreement, will not be held to relieve either party to this Agreement from any liability that would attach to it under this Agreement if that act, neglect, delay, omission, or error had not been made, providing that such act, neglect, delay, omission, or error is not prejudicial to the other party and is rectified immediately upon discovery without prejudice to the other party.

ARTICLE XXII — SUNSET CLAUSE

Notwithstanding the provisions of the Errors and Omissions Article of this Agreement, coverage hereunder shall apply only to Event(s) notified by Reinsured to Reinsurer, with full particulars, within eighty four (84) months from the commencement of the Term of this Agreement. Notice of an Event shall include:

1.	The approximate time and location of the Event.
2.	The date of loss as established under this Agreement.
3.	The names of any original insureds that have been identified by Reinsured, at the time of notice, as being involved in the Event.
4.	The current indemnity, medical and expense reserves delineated by original insured.
5.	The total payments made by the Reinsured, delineated by original insured.

ARTICLE XXIII — MANDATORY COMMUTATION CLAUSE

Not later than eighty-four (84) months after the commencement of the Term of this Agreement, Reinsured shall advise Reinsurer of the amount of all Ultimate Net Loss for all claims from Business Covered from any Event, both reported and unreported, both paid and not finally settled, that is the subject of this Agreement Reinsured and Reinsurer or their respective representatives shall, within sixty (60) days thereafter by mutual agreement, determine and capitalize (i.e. reduce to a net present value) the total of such Ultimate Net Loss for each Event.

If the mutually agreed capitalized value of the Ultimate Net Loss for any Event is in excess of Reinsured’s retention for that Event, Reinsurer shall pay Reinsured the amount, subject to the coverage provided under this Agreement, of capitalized Ultimate Net Loss in excess of Reinsured’s retention for that Event less any amounts of Ultimate Loss previously paid by Reinsurer to Reinsured for that Event.

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If mutual agreement cannot be reached, then any difference shall be settled by an appraisal made by a panel of three actuaries, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an actuary within thirty (30) days of a written request from the other party to appoint an actuary, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of a third actuary within thirty (30) days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.

All the actuaries shall be regularly engaged in the valuation of Workers’ Compensation claims and shall be Fellows of the Casualty Actuarial Society or Members of the American Academy of Actuaries. None of the actuaries shall be under the control of either party to this Agreement.

Each party shall submit its case to its chosen actuary within thirty (30) days of the appointment of the third actuary. The decision in writing of any two appointed actuaries, when filed with the parties hereto, shall be final and binding on all parties participating in the appraisal and judgment may be entered hereon in any court of competent jurisdiction.

The expense of the actuaries and of their appraisal shall be equally divided between the Reinsured and the Reinsurer. The appraisal shall take place in New York City unless some other place is mutually agreed upon by Reinsured and Reinsurer.

Payment by Reinsurer of the amount of capitalized Ultimate Net Loss in excess of Reinsured’s retention for any Event less any amounts of Ultimate Net Loss previously paid by Reinsurer to Reinsured for that Event, whether determined by mutual agreement or by the appraisal procedure set forth above, shall constitute a complete and final release of Reinsurer of all claims by Reinsured for Ultimate Net Loss, both reported and unreported, paid and incurred, for that Event. If the capitalized Ultimate Net Loss for any Event is determined to be below the retention, whether by mutual agreement or the appraisal procedure set forth above, such determination shall constitute a complete and final release of Reinsurer for all claims by Reinsured for Ultimate Net Loss, both reported and unreported, paid and incurred, for that Event.

ARTICLE XXIV — NET RETAINED LINES

This Agreement applies only to that portion of any insurance or reinsurance which the Reinsured and/or its agents retains net for its own account, inclusive of underlying insurance or reinsurance. In calculating the amount of any loss hereunder, and also in computing the amount or amounts in excess of which this Agreement attaches, only loss or losses in respect of that portion of any insurance or reinsurance which the Reinsured retains net for its own account, inclusive of underlying insurance or reinsurance, shall be included.

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 Reinsured to collect from any other reinsurers, whether specific or general, any amount which may have become due from them, whether such inability arise from the insolvency of such other reinsurers or otherwise.

ARTICLE XXV — SALVAGE AND SUBROGATION

Reinsurer shall be credited with subrogation (i.e. reimbursement obtained or recoveries made by Reinsured, less the actual cost, excluding salaries of officers and employees of the Reinsured and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recoveries) on any claims or settlements involving this Agreement. Subrogation and salvage shall always be used to reimburse the excess Reinsurers in the reverse order of their priority according to their participation in the Ultimate Net Loss before being used in any way to reimburse Reinsured for its portion of the Ultimate Net Loss under its retention. Reinsured will reasonably enforce its rights to subrogation and salvage and will reasonably prosecute all claims arising out of those rights. In the event Reinsured shall refuse or neglect to enforce its rights to salvage or subrogation, Reinsurer is authorized and empowered to bring any appropriate action in the name of Reinsured or its policyholder or otherwise to enforce those rights and Reinsured shall cooperate fully with Reinsurer enforcing those rights. Reinsured and Reinsurer shall share in the cost and expense of any unsuccessful subrogation efforts in the same proportion that Reinsured and Reinsurer shared the Ultimate Net Loss giving rise to those subrogation efforts.

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ARTICLE XXVI — TERMINATION DURING LOSS

Should the liability of the Reinsurer under this Agreement terminate while a loss giving rise to a claim hereunder is in progress, the Reinsurer shall be liable as if the whole loss had occurred during the term of this Agreement.

ARTICLE XXVII — ENTIRE AGREEMENT

The entire agreement between the Reinsured and the Reinsurer is contained in this Agreement, including the Reinsuring agreements, exclusions and conditions.

ARTICLE XXVIII—CHANGE IN ADMINSTRATIVE PRACTICES

The Reinsured undertakes not to introduce any change in its established acceptance and underwriting policy in respect of the business covered hereunder without prior approval of the Reinsurers.

ARTICLE XXIX—NON—WAIVER

The failure of the Reinsured 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 XXX—SPECIAL CONDITION

Classes related to roofing and long-haul trucking shall have a maximum combined subject premium of the lesser of 15% of total GNWPI or $10,000,000 unless specifically agreed by Reinsurer.

ARTICLE XXXI—INTERMEDIARY CLAUSE

Patriot Re International, Inc., 400 Northampton St., Easton, PA 18042 is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications (including, but not limited to, notices, statements, premium reports, return salvages and loss settlements) relating hereto shall be transmitted to the Company or the Reinsurer through Patriot Re International, Inc. Payments of Premium and Losses will be on a direct settlement basis between Company and Reinsurer.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this 8^th day of Nov, 2007.

Signed in Fort Lauderdale, Florida
This 8th day of Nov, 2007
ATTEST:	GUARANTEE INSURANCE COMPANY
	By:	/s/ [ILLEGIBLE]
	Title:	President
	Reference:
And signed in Stanford, CT
This 19th day of Dec, 2007
ATTEST:	NATIONAL INDEMNITY COMPANY
	By:	/s/ Peter [Illegible]
	Title:	ACTUARY
	Reference:

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EXHIBIT A
(Nuclear Risk Exclusion)

This Agreement does not apply to “Ultimate Net Loss” 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;

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 nay 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.

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“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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SCHEDULE 1 2007

SPECIFIC BUSINESS OPERATIONS 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 those with known operations to be excluded — They are not meant to be all inclusive.They DO NOT include State specific codes which must be identified through the Scopes Manual.

Reinsurance Description of Operations to be Excluded	Related Class Codes & Descriptions
Airline and Aircraft Operations-Commerical Airline Crews	7403   - Aircraft or Helicopter Air Carrier - Ground Crews
	7405   - Aircraft or Helicopter Air Carrier - Flying Crews
	7409* - Aircraft or Helicopter: Aerial Application
	7420* - Aircraft or Helicopter: Public Exhibition
	7421   - Aircraft or Helicopter: Transportation - Crew
	7422* - Aircraft or Helicopter: NOC, not Helicopters
	7423   - Aircraft or Helicopter Operation: Commuter
	7425* - Aircraft Operation - Helicopters NOC
	7431* - Aircraft or Helicopter - Commuter - Crew
	9088* - Rocket or missile testing or Launching
Asbestos Operations	1852   - Asbestos Goods Manufacturing
	5472   - Asbestos Removal Operation: Contractor
	5473   - Asbestos Removal Operation: Contractor NOC
Banks & Trust Companies: Employees of Contracting	7720   - With this specific language (CR)
Agencies in Bank Service: Guards, Patrols, Messengers
or Armored Car Crews
Blasting Rock	6217   - Blasting Rock - Specialist Contractor (CR)
Boat Building and Ship Building
	6854* - Ship Building - Iron or Steel - NOC
	All related “F” Classes Separately Identified**
	6843* - Ship Building Iron or Steel
	6872* - Ship Repair or Marine Railway
	6882* - Ship Repair Conversion
	8709* - Stevedoring: Talliers, Inspectors
	7016* - Vessels NOC - Program 1
	7024* - Vessels NOC - Program 2 State Act
	7038* - Boat Livery - Boats under 15 Tons - Program 1
	7046* - Vessels - Not Self-Propelled - Program 1
	7047* - Vessels - NOC - Program 2 USL Act
	7050* - Boat Livery - Boats under 15 Tons-Program 2 USL Act
	7090* - Boat Livery-Boats under 15 Tons-Program 2 State Act
	7098* - Vessels - Not Self-Propelled-Program 2 State Act
	7099* - Vessels - Not Self-Propelled-Program 2 USL Act

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Reinsurance Description of Operations to be Excluded	Related Class Codes & Descriptions
	7309* - Stevedoring NOC
	7313* - Ore or Coal Dock Operation
	7317* - Stevedoring by Hand or Truck
	7323* - Stevedoring Explosive Materials
	7327* - Stevedoring Containerized Freight
	7333* - Dredging - All Types - Program 1
	7335* - Dredging - All Types - Program 2 State Act
	7337* - Dredging - All Types - Program 2 USL Act
	7350* - Freight Handling & Stevedoring
Construction, operation, repair or maintenance of:	2702 - Dam or Lock Construction (CR)
Bridges	5037* - Painting Metal Structure Over Two Stories
Dams or Locks	5040* - Iron or Steel Erection - Frame Structures
Dikes or Revetments	5059* - Iron or Steel; Erection - Frame Structures
Subways	Less Than Two Stories
Sub-Aqueous Works Under Pressure	5222* - Concrete Const. In Connection w/Bridges
Tunnels	5403 - Construction: Wooden Bridges (Desc)
	6003 - Wood Bridge Construction (Desc)
	6005 - Dike or Revetment Construction (CR)
	6017 - Dam or Lock Construction: Concrete Work
	6018 - Dam or Lock Construction: Earthmoving
	6251* - Tunneling - Not Pneumatic
	6252* - Shaft Sinking
	6260* - Tunneling - Pneumatic
	7133 - Subway Operation (Desc)
	7538* - Electric Light or Power Line Construction
	7540* - Electric Light or Power Co-op;REA Project only
	9019 - Bridge or Vehicular Tunnel Operation
Demolition or Wrecking of:	5022 - Wrecking Bldgs or Structures - Masonry (CR)
Bridges	5057* - Wrecking Bldgs/Structures - Iron or Steel (CR)
Buildings	5213 - Wrecking Bldgs or Structures - Concrete (CR)
Maritime Structures	5403 - Wrecking Bldgs or Structures - Wooden (CR)
Demolition or Wrecking of:	6003 - Wrecking of Piers or Wharfs (Desc)
Vessels	7394*, 7395* & 7398* - Marine Wrecking (CR)
Detective or Patrol Agencies	7720 - Detective or Patrol Agencies (CR). Not applicable
	to unarmed patrol personnel.
Firefighters	7704 - Firefighters
Gas Main, Steam Main or Water Main Construction	6319 - Gas Main or Connection Construction
Or Connection Construction	6206* - Oil or Gas Well-Cementing
	7515* - All Oil or Gas Pipeline Operation
Manufacturing, transportation, packing, handling,	3574 - Arms Mfg-Small & Cartridge Mfg (CR)
shipping, storage or loading into containers:	3632 - Projectile or Shell Mfg (CR)
Explosives (incl substance intended for use as)	4771* - Explosives or Ammunition Manufacturing
Ammunitions, fuses or arms	4777 - Explosives Distributors
Propellant charges	7228 - Hauling Explosives or Ammo - Local (CR)
Detonating devices	7229 - Hauling Explosives or Ammo - Long Dist (CR)

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Reinsurance Description of Operations to be Excluded	Related Class Codes & Descriptions
Fireworks	7360 - Packing/Handling/Shipping Expl or Ammo (CR)
Celluloid, magnesium, nitroglycerine or pyroxylin
Mfg, packing, handling, shipping or storage of:	4635* - Oxygen or Hydrogen Manufacturing
Natural or artificial fuel gases	4740 - Oil Refining - Petroleum
Butane or propane	8350 - Gasoline Dealer
Gasoline or liquefied petroleum gas (LPG)
Mining of All Types Including:	1005* - Coal Mining - Surface
Underground	1016 - Coal Mining NOC
Surface	1164* - Mining NOC - Not Coal - Underground
Quarrying	1165 - Mining NOC - Not Coal - Surface
	1624 - Quarry NOC
	1654 - Quarry - Cement Rock-Surface
	1655 - Quarry - Limestone - Surface (CR)
	1710 - Stone Crushing - Included by SIC
	1741* - Flint or Spar Grinding
	1803* - Stone Cutting or Polishing NOC
	4000 - Sand or Gravel Digging - Included by SIC
Oil or Gas Burner Installation	3724 - Oil or Gas Burner Installation-Commercial (CR)
	3726* - Boiler Installation or Repair
	5183 - Oil or Gas Burner Installation - Domestic (CR)
Police Officers	7720 - Police Officers
Railroads	6702, 6703 & 6704 - RR Construction - State & Federal
Except-scenic railways and access lines	7133 - Railroad Operations NOC
industrial aid owner operations if incidental	7151, 7152 & 7153 - RR Operations - State & Federal
	7382 - Scheduled RR Operations (CR)
	7855 - RR Construction: Laying or Relaying of Tracks
	8734, 8737, 8738 - Sales for RR ops - State & Fed
	8805, 8814 & 8815 - Clerical for RR ops - State &Fed
Sewer Construction — All Operations	6306 - Sewer Construction
	3620 - Pressure Vessel Manufacturing (Desc)
Tank Installation: Gasoline Service Stations	3724 - Tank Installation - Gas Stations (CR)

4 xs 1 2007
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July 24, 2007D

Page 15 of 15

EX-10.29

Exhibit 10.29

WORKERS’ COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT
GIC-002/2007

(hereinafter referred to as the “Agreement” )

between

GUARANTEE INSURANCE COMPANY, NAIC #11398,
FORT LAUDERDALE, FLORIDA
(hereinafter referred to as the “Reinsured”)

and

THE SUBSCRIBING REINSURERS SPECIFIED
IN THE INTERESTS AND LIABILITIES AGREEMENT
ATTACHED TO THIS AGREEMENT
(hereinafter referred to as the “Reinsurer”)

ARTICLE I — BUSINESS COVERED

All statutory benefits payable under Part One Section A Limit and Part Two Section B Limit of a Standard Workers’ Compensation Policy.

This Agreement is to indemnify the Reinsured as set forth herein in respect of the net excess liability which may accrue to the Reinsured under all policies, Agreements, binders and other evidences of insurance or reinsurance, whether oral or written (hereinafter called “policies”), classified by the Reinsured as Traditional Workers’ Compensation becoming effective on and after the inception date of this Agreement, including renewals.

ARTICLE II — EXCLUSIONS

This Agreement excludes all Ultimate Net Loss arising from the following and further amplified by Schedule 1 NCCI Class Code identifications:

1.	Assumed reinsurance, except one hundred percent (100%) of business ceded by fronting insurance companies.
2.	Liability of the Reinsured arising by Agreement, operation of law or otherwise from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guarantee funds, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligation or an insurer or its successors or assigns which has been declared by any competent authority to be insolvent or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.
3.	Business excluded by the attached Exhibit A, Nuclear Incident Exclusion Clause — Liability- Reinsurance — U.S.A., No, 08-31-1.
4.	Pools, associations and syndicates, except that losses from assigned risk plans or similar plans are not excluded.
5.	Full Terrorism as per attached.
6.	Financial guarantee and insolvency.
7.	War Risks as defined and excluded by the North American War Exclusion Clause (Reinsurance) BRMA 56A.

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8.	Risks with known occupational disease exposures per NCCI D & E codes.
9.	Operations requiring coverage under the Defense Base Act, Admiralty Act or any other Federal act including but not limited to the Jones Act, FELA are totally excluded. USL&H is excluded except where incidental. (“incidental” to be defined as less than 10% of an individual insured’s payroll.)
10.	Aircraft owned or leased by the insured.
11.	Risks involving known exposure to the following substances: Dioxin, Polychlorinated biphenyls (PCB’s) and Asbestos.
12.	Mining either above or below ground.
13.	Construction of bridges, tunnel or dams.
14.	Fire fighters and police officers.
15.	Railroads, except scenic railways, and access lines and industrial aid owner operations when written as an incidental part of an insured’s overall operations.
16.	No known wrecking or demolition of buildings of structures in excess of three stories.
17.	Manufacturing, packing, handling, shipping, storage or loading into containers of explosives, substances intended for use as an explosive, ammunitions, fuses, arms, magnesium, propellant charges, detonating devices, fireworks, nitroglycerine, celluloid, or pyroxylin; however, this exclusion shall not apply to the incidental packing, handling, or storage of same in connection with the sale or transportation by owner operators of such substance;
18.	Trucking hauling explosives or ammunition (local or long distance hauling) — all employees.
19.	Manufacturing, packing, handling, shipping or storage of natural or artificial fuel gasses, 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.
20.	Gas or oil burner installation NOC.
21.	Gasoline Service Stations tank installations.
22.	Blasting of rock.
23.	Sewer construction all operations.
24.	Gas main, steam main, or water main construction or connection construction.
25.	Boat manufacturing F classes.
26.	Banks and trust company employees of contracting agencies in bank service: guards, patrol, messengers or armored car crews.
27.	Detective agency.
28.	Patrol agency only in regard to armed guard services.
29.	Alternative Market business including PEO’s.

Should the Company be involved on a risk excluded by the foregoing exclusions either by an existing insured extending its operations or by an inadvertent acceptance by an agent or otherwise, this Contract will attach in respect of such risk, but only until discovery by the Underwriting Department of the Company and for not exceeding the greater of 30 days thereafter or time required by state statute and/or regulation to retire from such risks, unless specifically agreed by the Reinsure.

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ARTICLE III — PERIOD AND CANCELLATION

This Agreement shall be effective on a risks attaching basis for new and renewal policies of the Reinsured attaching on or after 12:01 a.m., Local Standard Time, July 1, 2007 through June 30, 2008, both days inclusive. Polices limited to 12 months plus odd time, not to exceed 18 months in total.

The Reinsurer shall be liable for its share of the liability under all policies or portions thereof in force as of the date of termination of this Agreement, up to the natural expiration or prior termination date of said policies, not to exceed 12 months plus odd time, not exceeding 18 months in all.

ARTICLE IV — AMOUNT OF COVER

No claim will be made hereunder unless the Reinsured has first sustained, by reason of any one loss occurrence, an ultimate net loss in excess of $1,000,000 as respects workers compensation business, Part One, Section A. Then the Reinsurer shall be liable for 100% occurrence in excess of $1,000,000, but the Reinsurer’s liability shall not exceed 100% of $4,000,000 any one occurrence.”

In respect to Section B, Part Two limit of Standard Workers Compensation policy viz Employer’s Liability only, the Reinsurer shall not be liable for any loss hereunder until the Ultimate Net Loss of the Reinsured exceeds $750,000 inclusive of underlying deductibles where applicable, and then the Reinsurer shall be liable for 100% of the amount of the Ultimate Net Loss sustained by the Reinsured on any one loss occurrence in excess of $750,000, but the Reinsurers liability shall not exceed 100% of $1,250,000 any one occurrence and $4,250,000 any one occurrence for risks domiciled in New York only.

ARTICLE V — TERRITORY

Risks principally domiciled in the United States, Puerto Rico and US territories and possessions.

ARTICLE VI — DEFINITIONS

The term “Occurrence” shall mean any one accident, disaster or casualty or series of accidents, disasters or casualties arising out of one event.

Occupational disease and cumulative trauma when from a sudden and accidental event of 48 hours or less. For the purpose of this contract “Sudden and Accidental” shall mean that the first and last exposure to the causative agent to each and every individual contributing to the loss shall fall within a single and continuous 48 hour period.

Gross Written Premium shall mean manual premium adjusted for experience modification, State/NCCI Safety Credit, premium discount, deductible credits, expense constants and policy fees, less returns and cancellations.

“Loss in excess of policy limits” shall mean 90% of any amount paid or payable by the Reinsured in excess of its policy limits, but otherwise within the terms of its policy, as a result of an action against it by its insured’s assignee to recover damages the insured is legally obligated to pay to a third party claimant because of the Reinsured’s alleged or actual negligence or bad faith in rejecting a settlement within policy limits, or in discharging its duty to defend or prepare the defense in the trial of an action against its insured, or in discharging its duty to prepare or prosecute an appeal consequent upon such an action.

“Extra contractual obligations” shall mean 90% of any punitive, exemplary, compensatory or consequential damages, other than loss in excess of policy limits, paid or payable by the Reinsured as a result of an action against it by its negligence or bad faith on the part of the Reinsured in handling a claim under a policy subject to the Agreement. An extra contractual obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the policy.

Notwithstanding anything stated herein, the Agreement shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Reinsured as a result of any fraudulent and/or criminal act by any officer or director of the Reinsured acting individually or collectively or in collusion with any

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individual or corporation or any organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

“Loss adjustment expense” as used herein shall mean expenses allocable to the investigation, defense and/or settlement of specific claims, including litigation expenses and post-judgment interest, but not including any legal expenses and cost incurred by the Reinsured in connection with coverage questions and legal actions connected thereto, office expenses or salaries of the Reinsured’s regular employees.

ARTICLE VII — ULTIMATE NET LOSS

The term “Ultimate Net Loss” as used in this Agreement shall mean the actual gross loss sustained by the Reinsured, including structured settlements with claimants or outside insurers, such loss to include all expenses incurred by the Reinsured in connection with the settlement of losses, resistance to or negotiations concerning losses; excluding, however, any part of the office expenses of the Reinsured and salaries of employees other than salary charges for staff adjuster, fieldsmen, or other employees while actually engaged in the settlement of the losses.

Salvages and recoveries, whether recovered or received prior or subsequent to loss settlement under this Agreement, but not including amounts recoverable under all facultative reinsurances, shall be applied as if recovered or received prior to the aforesaid settlement and shall be first deducted from the actual loss sustained to arrive at the amount of Ultimate Net Loss. Nothing, however, in this Article shall be construed to mean losses are not recoverable hereunder until the Ultimate Net Loss to the Reinsured has been ascertained.

ARTICLE VIII — RATE AND PREMIUM

The Reinsured shall pay a deposit premium of $1,624,500 in four equal installments based on a rate of 4.75% of Gross Net Written Premium income as follows:

July 1, 2007	$	406,125
October 1, 2007	$	406,125
January 1, 2008	$	406,125
April 1, 2008	$	406,125

Within 90 days after the expiration of this agreement and each subsequent twelve months thereafter, the Reinsured shall provide a report to the Reinsurer setting forth the premium due hereunder computed in accordance with the adjustable rate, and if the premium so computed is greater than the previously paid deposit premiums and adjustments, the balance shall be remitted by the Reinsured with this report. The contract shall have a minimum premium of $1,444,020. If adjusted premium is less than the deposit premium, the Reinsurer shall return the difference between the deposit premium and the adjusted premium, subject to the aforementioned minimum premium.

ARTICLE IX — REINSTATEMENTS

Free and unlimited.

ARTICLE X — NOTICE OF LOSS AND LOSS SETTLEMENTS

1.

The Reinsured shall advise the Reinsurers promptly of all losses which, in the opinion of the Reinsured, may result in a claim hereunder and of all subsequent developments thereto which, in the opinion of the Reinsured, may materially affect the position of the Reinsurers. Inadvertent omission or oversight in giving such notices shall in no way affect the liability of the Reinsurers, However, the Reinsuers shall be informed of such omission or oversight promptly upon its discovery.

2.

Such advises outlined in paragraph 1 shall include any loss for which the reserve is 50% or more of the Reinsured’s retention and, irrespective of the reserve or any question on liability or coverage, any loss falling within the following categories:

a. Fatalities

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b. Bodily injuries involving:

i.	Brain injuries resulting in impairment of physical functions.
ii.	Spinal injuries resulting in partial or total paralysis of upper or lower extremities;
iii.	Amputations or permanent loss of use of upper or lower extremities;
iv.	Severe burn cases;
v.	All other injuries likely to result in a permanent disability rating of 50% or more.

3.

The Reinsurers agree to abide by the loss settlements of the Reinsured, provided that retroactive extension of Policy terms or coverages made by the Reinsured will be covered under this Agreement only if made as a result of a court decision against the Reinsured, or the existence of a clear legal precedent in the form of a court decision against other companies affording the same or similar coverages.

4.

When so requested, the Reinsured will afford the Reinsurers an opportunity to be associated with the Company, at the expense of the Reinsurers, in the defense of any claim or suit or proceeding involving this reinsurance and the Reinsured will cooperate in every respect in the defense of such claim, suit or proceeding.

ARTICLE XI — TAXES

In consideration of the terms under which this Agreement is issued, the Reinsured undertakes not to claim any deduction of the premium hereon 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.

ARTICLE XII — CURRENCY

All retentions and limits hereunder are expressed in United States Dollars, and all premium and loss payments shall be made in United States currency.

ARTICLE XIII — ACCESS TO RECORDS

The Reinsurer or its duly authorized representative shall have the right at any reasonable time upon five (5) working days prior notice during or at any time after the expiration of this Agreement, and as frequently as deemed necessary by the Reinsurer, to visit the office of the Reinsured (or of any affiliate or representative of the Reinsured involved with the Business Covered under this Agreement) to inspect, examine, audit, and verify any of the policy or claim files, accounts, documents, books, reports, or work papers (“records”) relating to the business reinsured under this Agreement whether or not those records are co-mingled with any unrelated business records. Reinsurer or its representative shall have the right to make copies, at its own expense, or extracts of any records related specifically to the Business Covered under this Agreement only.

ARTICLE XIV — OFFSET CLAUSE

All amounts due either the Reinsured or the Reinsurer, whether by reason of reinsurance premium, Ultimate Net Loss, or any other amount due under this Agreement shall be subject to the right of recoupment and offset and upon the exercise of the same, only the net balance shall be due. All claims for amounts of reinsurance premium, Ultimate Net Loss, or any other amount due under this Agreement, whether or not fixed in amount at the time of the insolvency of any party to this Agreement, arising from coverage placed in effect under this Agreement prior to the insolvency of any party to this Agreement shall be deemed pre-liquidation debts and subject to this Article. In the event of insolvency of the Reinsured, offset shall be in accordance with applicable law.

ARTICLE XV — ARBITRATION

As a condition precedent to any right of action hereunder, any dispute arising out of the interpretation, performance or breach of this Agreement, including the formation or validity thereof, shall be submitted for

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decision to a panel of three arbitrators. Notice requesting arbitration will be in writing and sent certified or registered mail, return receipt requested.

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.

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.

Al1 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.

Within 45 days after notice of appointment of all arbitrators, the panel shall meet and determine timely periods for briefs, discovery periods and schedules for hearings.

The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Unless the panel agrees otherwise, arbitration shall take place in South Carolina, but the venue may be changed when deemed by the panel to be in the best interest of the arbitration proceeding. Insofar as the arbitration panel looks to substantive law, it shall consider the law of the State of South Carolina. The decision of any two arbitrators when rendered in writing shall be final and binding. The panel is empowered to grant interim relief, as it may deem appropriate.

The panel shall make its decision considering the custom and practice of the applicable insurance and reinsurance business within 60 days following the termination of the hearings. Judgment upon the award may be entered in any court having jurisdiction thereof.

If more than one reinsurer is involved in arbitration where there are common questions of law or fact and a possibility of conflicting awards or inconsistent results, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting the one party; provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint defenses or claims, nor be construed as changing the liability of the reinsurers under the terms of this Agreement from several to joint (if applicable).

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. The remaining 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.

ARTICLE XVI — INSOLVENCY

In the event of the insolvency of the Reinsured or the Reinsurer (the “Insolvent Party”), premiums and losses shall be payable directly to the Insolvent Party or its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Insolvent Party without diminution because of the insolvency of the Insolvent Party. The liquidator, receiver, conservator or statutory successor of the Insolvent Party shall give written notice to the other party hereto of the pendency of a claim against the Insolvent Party, indicating the Policy reinsured which claim would involve a possible liability on the part of the other party hereto within reasonable time after such claim is filed in the conservation, liquidation, or receivership proceedings, and that during the pendency of such claim the other party hereto 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 Insolvent Party or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the other party shall be chargeable, subject to he approval of the court, against the Insolvent Party as part of the expense of conservation, liquidation or receivership to the extent of a pro rata share of the benefit which may accrue to the Insolvent Party solely as a result of the defense undertaken by the other party.

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ARTICLE XVII — INSOLVENCY FUND EXCLUSION

It is agreed that this Agreement excludes all liability of the Reinsured 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, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligations of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

ARTICLE XVIII — ERRORS AND OMISSIONS

Except for the conditions as provided for in the Sunset Article of this Agreement, any isolated and inadvertent administrative act, neglect, delay, omission, or error by either party to this Agreement, will not be held to relieve either party to this Agreement from any liability that would attach to it under this Agreement if that act, neglect, delay, omission, or error had not been made, providing that such act, neglect, delay, omission, or error is not prejudicial to the other party and is rectified immediately upon discovery without prejudice to the other party.

ARTICLE XIX — SUNSET CLAUSE

Notwithstanding the provisions of the Errors and Omissions Article of this Agreement, coverage hereunder shall apply only to Event(s) notified by Reinsured to Reinsurer, with full particulars, within eighty four (84) months from the commencement of the Term of this Agreement Notice of an Event shall include:

1.	The approximate time and location of the Event.
2.	The date of loss as established under this Agreement.
3.	The names of any original insureds that have been identified by Reinsured, at the time of notice, as being involved in the Event.
4.	The current indemnity, medical and expense reserves delineated by original insured.
5.	The total payments made by the Reinsured, delineated by original insured.

ARTICLE XX— MANDATORY COMMUTATION CLAUSE

Not later than eighty-four (84) months after the commencement of the Term of this Agreement, Reinsured shall advise Reinsurer of the amount of all Ultimate Net Loss for all claims from Business Covered from any Event, both reported and unreported, both paid and not finally settled, that is the subject of this Agreement. Reinsured and Reinsurer or their respective representatives shall, within sixty (60) days thereafter by mutual agreement, determine and capitalize (i.e. reduce to a net present value) the total of such Ultimate Net Loss for each Event.

If the mutually agreed capitalized value of the Ultimate Net Loss for any Event is in excess of Reinsured’s retention for that Event, Reinsurer shall pay Reinsured the amount, subject to the coverage provided under this Agreement, of capitalized Ultimate Net Loss in excess of Reinsured’s retention for that Event less any amounts of Ultimate Loss previously paid by Reinsurer to Reinsured for that Event.

If mutual agreement cannot be reached, then any difference shall be settled by an appraisal made by a panel of three actuaries, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an actuary within thirty (30) days of a written request from the other party to appoint an actuary, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of a third actuary within thirty (30) days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.

All the actuaries shall be regularly engaged in the valuation of Workers’ Compensation claims and shall be Fellows of the Casualty Actuarial Society or Members of the American Academy of Actuaries. None of the actuaries shall be under the control of either party to this Agreement.

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Each party shall submit its case to its chosen actuary within thirty (30) days of the appointment of the third actuary. The decision in writing of any two appointed actuaries, when filed with the parties hereto, shall be final and binding on all parties participating in the appraisal and judgment may be entered hereon in any court of competent jurisdiction.

The expense of the actuaries and of their appraisal shall be equally divided between the Reinsured and the Reinsurer. The appraisal shall take place in New York City unless some other place is mutually agreed upon by Reinsured and Reinsurer.

Payment by Reinsurer of the amount of capitalized Ultimate Net Loss in excess of Reinsured’s retention for any Event less any amounts of Ultimate Net Loss previously paid by Reinsurer to Reinsured for that Event, whether determined by mutual agreement or by the appraisal procedure set forth above, shall constitute a complete and final release of Reinsurer of all claims by Reinsured for Ultimate Net Loss, both reported and unreported, paid and incurred, for that Event. If the capitalized Ultimate Net Loss for any Event is determined to be below the retention, whether by mutual agreement or the appraisal procedure set forth above, such determination shall constitute a complete and final release of Reinsurer for all claims by Reinsured for Ultimate Net Loss, both reported and unreported, paid and incurred, for that Event.

ARTICLE XXI — NET RETAINED LINES

This Agreement applies only to that portion of any insurance or reinsurance which the Reinsured and/or its agents retains net for its own account, inclusive of underlying insurance or reinsurance. In calculating the amount of any loss hereunder, and also in computing the amount or amounts in excess of which this Agreement attaches, only loss or losses in respect of that portion of any insurance or reinsurance which the Reinsured retains net for its own account, inclusive of underlying insurance or reinsurance, shall be included.

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 Reinsured to collect from any other reinsurers, whether specific or general, any amount which may have become due from them, whether such inability arise from the insolvency of such other reinsurers or otherwise.

ARTICLE XXII — SUBROGATION

Reinsurer shall be credited with subrogation (i.e. reimbursement obtained or recoveries made by Reinsured, less the actual cost, excluding salaries of officers and employees of the Reinsured and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recoveries) on any claims or settlements involving this Agreement. Subrogation and salvage shall always be used to reimburse the excess Reinsurers in the reverse order of their priority according to their participation in the Ultimate Net Loss before being used in any way to reimburse Reinsured for its portion of the Ultimate Net Loss under its retention. Reinsured will reasonably enforce its rights to subrogation and salvage and will reasonably prosecute all claims arising out of those rights. In the event Reinsured shall refuse or neglect to enforce its rights to salvage or subrogation, Reinsurer is authorized and empowered to bring any appropriate action in the name of Reinsured or its policyholder or otherwise to enforce those rights and Reinsured shall cooperate fully with Reinsurer enforcing those rights. Reinsured and Reinsurer shall share in the cost and expense of any unsuccessful subrogation efforts in the same proportion that Reinsured and Reinsurer shared the Ultimate Net Loss giving rise to those subrogation efforts.

ARTICLE XXIII—TERMINATION DURING LOSS

Should the liability of the Reinsurer under this Agreement terminate while a loss giving rises to a claim hereunder is in progress, the Reinsurer shall be liable as if the whole loss had occurred during the currency of this Agreement.

ARTICLE XXIV — ENTIRE AGREEMENT CLAUSE

The entire agreement between the Reinsured and the Reinsurer is contained in this Agreement, including the Reinsuring agreements, exclusions and conditions.

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ARTICLE XXV —EXCLUSIVE BENEFITS OF THE PARTIES

This Contract is solely between the Reinsured and the Reinsurer, upon who only are conferred all the rights and benefits hereof. In no instance shall any person or entity other than the Reinsured and the Reinsurer as identified in this Contract have any legally enforceable rights or benefits hereunder.

ARTICLE XXVI —LATE PAYMENT CLAUSE

A.

It is understood and agreed that the provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties of this Contract.

B.

In the event any premium, loss or other payment due either party is not received by the Intermediary named in the Intermediary Article (hereinafter referred to as the “Intermediary”) by the payment due date, the party to whom payment is due may, by notifying the Intermediary 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 which have expired since the due date or the last monthly calculation, whichever the lesser; times
2.	1/365th of 1.5% penalty; times
3.	The amount past due, including accrued interest.

	It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.
C.	The establishment of the due date shall, for purposed of the Article, be determined as follows:

1.	As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 45 days after the date of transmittal by the Intermediary of the initial billing for each such payment.
2.	Any claim or loss payment due the Reinsured hereunder shall be deemed due ten business days following receipt by the applicable Subscribing Reinsurer constituting at least 66 2/3% of the interests and liabilities of all Subscribing Reinsurers participating under this Contract, who are active as of the due date; it being understood that said date shall not be later than 75 days from the date of transmittal by the Intermediary of the initial billing for each such payment.
3.	As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 of paragraph C above, the due date shall be deemed as 10 business days following receipt of written notification that the provisions of this Article have been invoked.

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

D.

Nothing herein shall be construed as limited or prohibiting 1) a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit; or 2) either party from contesting the validity of any payment, or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, than any interest penalties due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

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E.	As provided under this Article, it is understood and agreed that the Reinsured shall furnish the Reinsurer with usual and customary claim information and nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from requesting additional information that it may deem necessary.
F.	As respects subparagraph 2 of paragraph C above, a Subscribing Reinsurer shall be deemed not to be active when it 1) ceases assuming new or renewal reinsurance business; 2) is declared insolvent, or put in liquidation, conservatorship or rehabilitation by a competent regulatory authority or court; 3) has a reduction in its statutory surplus of 50% or more from its statutory surplus as of the effective date of this Contract.
G.	Interest penalties arising out of the application of this Article that are $100 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of a 12-month period.

ARTICLE XXVII-INTERMEDIARY CLAUSE

Patriot Re International, Inc., 400 Northampton St., Easton, PA 18042 is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications (including, but not limited to, notices, statements, premiums, return salvages and loss settlements) relating hereto shall be transmitted to the Company or the Reinsurer through Patriot Re International, Inc.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this ___ day of                      , 200___.

GUARANTEE INSURANCE COMPANY
By:	/s/ [ILLEGIBLE]
	Name of Officer
Title:	President

MIDWEST EMPLOYERS CASUALTY COMPANY
By:	/s/ [ILLEGIBLE]
	Name of Officer
Title:	Reinsurance Underwriting Manager

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E.	As provided under this article, it is understood and agreed that the Reinsured shall furnish the Reinsurer with usual and customary claim information and nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from requesting additional information that it may deem necessary.
F.	As respects subparagraph 2 of paragraph C above, a Subscribing Reinsurer shall be deemed not to be active when it 1) ceases assuming new or renewal reinsurance business; 2) is declared insolvent, or put in liquidation, conservatorship or rehabilitation by a competent regulatory authority or court; 3) has a reduction in its statutory surplus of 50% or more from its statutory surplus as of the effective date of this Contract.
G.	Interest penalties arising out of the application of this Article that are $ 100 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of a 12-month period.

ARTICLE XXVII — INTERMEDIARY CLAUSE

Patriot Re International, Inc., 400 Northampton St., Easton, PA 18042 is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications (including, but not limited to, notices, statements, premiums, return salvages and loss settlements) relating hereto shall be transmitted to the Company or the Reinsurer through Patriot Re International, Inc.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this ___ day of                     , 200_____.

GUARANTEE INSURANCE COMPANY
By:	/s/ [ILLEGIBLE]
	Name of Officer
Title:	President

MIDWEST EMPLOYERS CASUALTY COMPANY
By:
	/s/ [ILLEGIBLE]      Name of Officer
Title:	Reinsurance Underwriting Manager

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EXHIBT A
(Nuclear Risk Exclusion)

This Agreement does not apply to “Ultimate Net Loss” 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;

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 nay 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.

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“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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Terrorism Exclusion

Notwithstanding any provision to the contrary within this reinsurance or any endorsement thereto it is agreed that this reinsurance excludes loss, damage, cost or expense of whatsoever nature directly or indirectly caused by, resulting from or in connection with any act of terrorism regardless of any other cause or even contributing concurrently or in any other sequence to the loss.

For the purpose of this endorsement an act of terrorism means and act, including but not limited to the use of force or violence and/or the threat thereof (or the use or release of any biological or chemical material or weapons that may harm or endanger any person, property, animals or the environment) of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization(s) or government(s), committed for political, religious, ideological or similar purposes including the intention to influence any government and/or to put the public, or any section of the public, in fear.

This endorsement also excludes loss, damage, cost or expense of whatsoever nature directly or indirectly caused by resulting from or in connection with any action taken in controlling, preventing, suppressing or in any way relating to any act of terrorism.

In the even of any portion of this endorsement is found to be invalid or unenforceable, the remainder shall remain in the full force and effect.

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Special Acceptance

It is hereby understood and agreed that the following risk is covered as a Special Acceptance:

Arkansas Houseworks      Policy #GWGC10001309

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SCHEDULE 1                               2007

SPECIFIC BUSINESS OPERATIONS 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 those with known operations to be excluded — They are not meant to be all inclusive. They DO NOT include State specific codes which must be identified through the Scopes Manual.

Reinsurance Description of Operations to be Excluded	Related Class Codes & Descriptions
Airline and Aircraft Operations-Commerical Airline Crews	7403 — Aircraft or Helicopter Air Carrier — Ground Crew
	7405 — Aircraft or Helicopter Air Carrier — Flying Crew
	7409* — Aircraft or Helicopter: Aerial Application
	7420* — Aircraft or Helicopter: Public Exhibition
	7421 — Aircraft or Helicopter: Transportation — Crew
	7422* — Aircraft or Helicopter: NOC, not Helicopters
	7423 — Aircraft or Helicopter Operation: Commuter
	7425* — Aircraft Operation — Helicopters NOC
	7431* — Aircraft or Helicopter — Commuter — Crew
	9088* — Rocket or missile testing or Launching
Asbestos Operations	1852 — Asbestos Goods Manufacturing
	5472 — Asbestos Removal Operation: Contractor
	5473 — Asbestos Removal Operation: Contractor NOC
Banks & Trust Companies: Employees of Contracting	7720 — With this specific language (CR)
Agencies in Bank Service: Guards, Patrols, Messengers or Armored Car Crews
Blasting Rock	6217 — Blasting Rock — Specialist Contractor (CR)
Boat Building and Ship Building
	6854* — Ship Building — Iron or Steel — NOC
	All related “F” Classes Separately Identified**
	6843* — Ship Building Iron or Steel
	6872* — Ship Repair or Marine Railway
	6882* — Ship Repair Conversion
	8709* — Stevedoring: Talliers, Inspectors
	7016* — Vessels NOC — Program 1
	7024* — Vessels NOC — Program 2 State Act
	7038* — Boat Livery — Boats under 15 Tons-Program 1
	7046* — Vessels — Not Self-Propelled — Program 1
	7047* — Vessels — NOC — Program 2 USL Act
	7050* — Boat Livery — Boats under 15 Tons-Program 2
	USL Act
	7090* — Boat Livery-Boats under 15 Tons-Program 2
	State Act
	7098* — Vessels — Not Self-Propelled-Program 2 State Act
	7099* — Vessels-Not Self-Propelled-Program 2 USL Act

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Reinsurance Description of Operations to be Excluded	Related Class Codes & Descriptions
	7309* — Stevedoring NOC
	7313* — Ore or Coal Dock Operation
	7317* — Stevedoring by Hand or Truck
	7323* — Stevedoring Explosive Materials
	7327* — Stevedoring Containerized Freight
	7333* — Dredging — All Types — Program 1
	7335* — Dredging — All Types — Program 2 State Act
	7337*— Dredging —All Types —Program 2 USL Act
	7350* — Freight Handling & Stevedoring
Construction, operation, repair or maintenance of:	2702 — Dam or Lock Construction (CR)
Bridges	5037* — Painting Metal Structure Over Two Stories
Dams or Locks	5040* — Iron or Steel Erection — Frame Structures
Dikes or Revetments	5059* — Iron or Steel; Erection — Frame Structures
Subways	Less Than Two Stories
Sub-Aqueous Works Under Pressure	5222* — Concrete Const. In Connection w/Bridges
Tunnels	5403 — Construction: Wooden Bridges (Desc)
	6003 — Wood Bridge Construction (Desc)
	6005 — Dike or Revetment Construction (CR)
	6017 — Dam or Lock Construction: Concrete Work
	6018 — Dam or Lock Construction: Earthmoving
	6251 * — Tunneling — Not Pneumatic
	6252* — Shaft Sinking
	6260* — Tunneling — Pneumatic
	7133 — Subway Operation (Desc)
	7538* — Electric Light or Power Line Construction
	7540* — Electric Light or Power Co-op;REA Project only
	9019 — Bridge or Vehicular Tunnel Operation
Demolition or Wrecking of:	5022 — Wrecking Bldgs or Structures — Masonry (CR)
Bridges	5057* — Wrecking Bldgs/Structures — Iron or Steel (CR)
Buildings	5213 — Wrecking Bldgs or Structures — Concrete (CR)
Maritime Structures	5403 — Wrecking Bldgs or Structures — Wooden (CR)
Demolition or Wrecking of:	6003 — Wrecking of Piers or Wharfs (Desc)
Vessels	7394*, 7395* & 7398* — Marine Wrecking (CR)
Detective or Patrol Agencies	7720 — Detective or Patrol Agencies (CR). Not applicable to unarmed patrol personnel.
Firefighters	7704 — Firefighters
Gas Main, Steam Main or Water Main Construction	6319 — Gas Main or Connection Construction
Or Connection Construction	6206* — Oil or Gas Well-Cementing
	7515* — All Oil or Gas Pipeline Operation
Manufacturing, transportation, packing, handling,	3574 — Arms Mfg-Small & Cartridge Mfg (CR)
shipping, storage or loading into containers:	3632 — Projectile or Shell Mfg (CR)
Explosives (incl substance intended for use as)	4771 * — Explosives or Ammunition Manufacturing
Ammunitions, fuses or arms	4777 — Explosives Distributors
Propellant charges	7228 — Hauling Explosives or Ammo — Local (CR)
Detonating devices	7229 — Hauling Explosives or Ammo — Long Dist (CR)

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Reinsurance Description of Operations to be Excluded	Related Class Codes & Descriptions
Fireworks	7360 — Packing/Handling/Shipping Expl or Ammo (CR)
Celluloid, magnesium, nitroglycerine or pyroxylin
Mfg, packing, handling, shipping or storage of:	4635* — Oxygen or Hydrogen Manufacturing
Natural or artificial fuel gases	4740 — Oil Refining — Petroleum
Butane or propane	8350 — Gasoline Dealer
Gasoline or liquefied petroleum gas (LPG)
Mining of All Types Including:	1005* — Coal Mining — Surface
Underground	1016 — Coal Mining NOC
Surface	1164* — Mining NOC — Not Coal — Underground
Quarrying	1165 — Mining NOC — Not Coal — Surface
	1624 —Quarry NOC
	1654 — Quarry — Cement Rock-Surface
	1655 — Quarry — Limestone — Surface (CR)
	1710 — Stone Crushing — Included by SIC
	1741 * — Flint or Spar Grinding
	1803* — Stone Cutting or Polishing NOC
	4000 — Sand or Gravel Digging — Included by SIC
Oil or Gas Burner Installation	3724 — Oil or Gas Burner Installation-Commercial (CR)
	3726* — Boiler Installation or Repair
	5183 — Oil or Gas Burner Installation — Domestic (CR)
Police Officers	7720 — Police Officers
Railroads	6702, 6703 & 6704 — RR Construction — State & Federal
Except — scenic railways and access lines	7133 — Railroad Operations NOC
industrial aid owner operations if incidental	7151, 7152 & 7153 — RR Operations — State & Federal
	7382 — Scheduled RR Operations (CR)
	7855 — RR Construction: Laying or Relaying of Tracks
	8734, 8737, 8738 — Sales for RR ops — State & Fed
	8805, 8814 &8815 — Clerical for RR ops — State & Fed
Sewer Construction — All Operations	6306 — Sewer Construction
	3620 — Pressure Vessel Manufacturing (Desc)
Tank Installation: Gasoline Service Stations	3724 — Tank Installation — Gas Stations (CR)

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EX-10.30

Exhibit 10.30

WORKERS’ COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT
GIC-003/2007
(hereinafter referred to as the “Agreement”)

between

GUARANTEE INSURANCE COMPANY, NAIC #11398,
FORT MILL, SOUTH CAROLINA
(hereinafter referred to as the “Reinsured”)

and

THE SUBSCRIBING REINSURERS SPECIFIED
IN THE INTERESTS AND LIABILITIES AGREEMENT
ATTACHED TO THIS AGREEMENT
(hereinafter referred to as the “Reinsurer”)

ARTICLE I — BUSINESS COVERED

All statutory benefits payable under a standard Workers’ Compensation Policy in respect to all business insured by the Reinsured unless specifically excluded by the terms of this Agreement.

This Agreement is to indemnify the Reinsured as set forth herein in respect of the net excess liability which may accrue to the Reinsured under all policies, Agreements, binders and other evidences of insurance or reinsurance, whether oral or written (hereinafter called “policies”), classified by the Reinsured as Workers’ Compensation in force at and becoming effective on and after the inception date of this Agreement, including renewals.

ARTICLE II — EXCLUSIONS

This Agreement excludes all Ultimate Net Loss arising from the following:

1.	Assumed Reinsurance, except business fronted by insurance companies for licensing purposes.
2.	Business excluded by the attached Nuclear Incident Exclusion Clause – Liability – Reinsurance – U.S.A., No. 08-31-1.
3.	Pools, associations and syndicates.
4.	Terrorism NMA 2929.
5.	Insolvency Funds Exclusion — It is agreed that this agreement excludes all liability of the Reinsured arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency Fund” including any guaranty fund, insolvency fund, plan pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee, or other obligation of an insured, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.
6.	Financial guarantee and insolvency.

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7.	Occupational Disease/Cumulative Trauma except when from a “Sudden and Accidental” event of 48 hours or less. For the purpose of this Contract, “Sudden and Accidental” shall mean that the first and last exposure to the causative agent to each and every individual contributing to the loss shall fall within a single and continuous 48 hour period.
8.	Commercial airline crews.
9.	Operations requiring coverage under the Defense Base Act, Admiralty Act or any other Federal act including but not limed to the Jones Act, FELA, or USL&H, except where incidental, (“incidental” to be defined as less than 10% of an individual insurer’s premium).
10.	Risks involving known exposure to the following substances: Dioxin. Polychlorinated biphenyl (PCB’s), Asbestos.
11.	Underground mining.
12.	Construction of bridges, tunnels or dams.
13.	Employers Liability.
14.	Losses in Excess of Policy Limits.
15.	All business classified as NCCI — Hazard Group IV as of 1/1/06.
16.	Fire fighters and police officers.
17.	Railroads, except scenic railways, and access lines and industrial aid owner operations when written as an incidental part of an insured’s overall operations.
18.	No known wrecking or demolition of buildings of structures in excess of three stories.
19.	Manufacturing, packing, handling, shipping, or storage of explosives, substances intended for use as an explosive, ammunitions, fuses, arms, magnesium, propellant charges, detonating devices, fireworks, nitroglycerine, celluloid, or pyroxylin; however, this exclusion shall not apply to the incidental packing, handling, or storage of same in connection with the sale or transportation by owner operators of such substances.
20.	Trucking hauling explosive or ammunition (local or long distance hauling) — all employees.
21.	Manufacturing, packing, handling, shipping or storage of natural or artificial fuel gasses, 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.	Tank installation gasoline service stations.
24.	Blasting of rock.
25.	Sewer construction all operations.
26.	Gas main, steam main, or water main construction or connection construction.

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27.	Boat manufacturing F classes.
28.	Banks and trust company employees of contracting agencies in bank service: guards, patrol, messengers and armored car crews.
29.	Detective agency.
30.	Patrol agency only in regard to armed guard services.
31.	Losses arising directly or indirectly from Earthquake with the exception of risks written in the State of Missouri.
32.	Professional sports teams.
33.	Work and navigation of any commercial vessel.
34.	All mining or quarrying operations.
35.	Chemical/petrochemical manufacturers of highly toxic materials.
36.	Blasting or excavating operations over 25 feet in depth.
37.	Tunnel or subway construction.
38.	Marine wrecking, including repair, cleaning, or demolition of commercial vessels or barges.
39.	Underground, offshore or submarine operation including underground mining.
40.	Construction and/or maintenance of cofferdams.
41.	Stevedoring.
42.	Assigned risks.
43.	Losses arising from nuclear, biological, chemical and radiological events.

ARTICLE III — PERIOD AND CANCELLATION

This Contract shall take effect 12:01 a.m. Local Standard Time at place of loss, January 1, 2007 and ending 12:01 a.m., Local Standard Time at place of loss, January 1, 2008 and shall apply to all losses occurring during that period in respect of in force, new renewal and anniversary business.

ARTICLE IV — AMOUNT OF COVER

The Reinsured shall retain and be liable for the first USD 5,000,000 of Ultimate Net Loss (regardless of the number of policies or number of insureds under which such loss is payable) arising out of each Loss Occurrence. The Reinsurer shall then be liable for the amount by which such Ultimate Net Loss exceeds the Reinsured’s retention, but the liability of the Reinsurer shall not exceed USD 5,000,000 as respects any one Loss Occurrence, nor shall the Reinsurer’s aggregate liability exceed USD 10,000,000.

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ARTICLE V — TERRITORY

Worldwide in respect to business domiciled in the United States, Puerto Rico and U.S. territories and possessions.

ARTICLE VI — DEFINITIONS

• The term “Occurrence” shall mean any one accident, disaster or casualty or series of accidents, disasters or casualties arising out of one event.

• Gross Net Earned Premium — manual premium adjusted for experience modification. State/NCCI Safety Credit, premium discount, expense discount, expense constants and policy fees, less returns and cancellations.

• “Extra contractual obligations” shall mean 90% of any punitive, exemplary, compensatory or consequential damages, other than loss in excess of policy limits, paid or payable by the Reinsured as a result of an action against it by its negligence or bad faith on the part of the Reinsured in handling a claim under a policy subject to the Agreement. An extra contractual obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the policy.

• Notwithstanding anything stated herein, the Agreement shall not apply to any extra contractual obligation incurred by the Reinsured as a result of any fraudulent and/or criminal act by any officer or director of the Reinsured acting individually or collectively or in collusion with any individual or corporation or any organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

• “Loss adjustment expense” as used herein shall mean expenses allocable to the investigation, defense and/or settlement of specific claims, including litigation expenses and post-judgment interest, but not including any legal expenses and cost incurred by the Reinsured in connection with coverage, questions and legal actions connected thereto, office expenses or salaries of the Reinsured’s regular employees.

ARTICLE VII — ULTIMATE NET LOSS

The term “Ultimate Net Loss” as used in this Agreement shall mean the actual gross loss sustained by the Reinsured, including extra contractual obligations, structured settlements with claimants or outside insurers, such loss to include all expenses incurred by the Reinsured in connection with the settlement of losses; resistance to or negotiations concerning losses; excluding, however, any part of the office expenses of the Reinsured and salaries of employees other than salary charges for staff adjuster, fieldsmen, or other employees while actually engaged in the settlement of the losses.

Salvages and recoveries, whether recovered or received prior or subsequent to loss settlement under this Agreement, but not including amounts recoverable under all facultative reinsurances, shall be applied as if recovered or received prior to the aforesaid settlement and shall be first deducted from the actual loss sustained to arrive at the amount of Ultimate Net Loss. Nothing, however, in this Article shall be construed to mean losses are not recoverable hereunder until the Ultimate Net Loss to the Reinsured has been ascertained.

ARTICLE VIII — RATE AND PREMIUM

As premium for the reinsurance provided hereunder, the Reinsured shall pay the Reinsurer 1.06% of its Subject Earned Manual Premium for the term of this Contract, subject to a minimum premium of USD 685,000.

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The Reinsured shall pay the Reinsurer a deposit premium of USD 740,000 in four equal installments of USD 185,000 within 30 days of the January 1, 2007, April 1, 2007, July 1, 2007 and October 1, 2007.

Within 45 days after the expiration of this Agreement, the Reinsured shall calculate and report to the Reinsurer the adjusted premium, based on the Reinsured’s Subject Earned Manual Premium for the term of this Agreement computed in accordance with the first paragraph, and any additional premium due the Reinsurer or return premium due the Reinsured shall remitted promptly.

ARTICLE IX — REINSTATEMENT

Each claim hereon reduces the amount of indemnity under this Agreement from the time of occurrence of the loss but such amount is hereby reinstated from the time of occurrence of the loss in consideration of the payment by the type in original - “Reinsured” of an additional premium calculated by applying to the Premium hereon, the percentage of the face amount of this Contract so reinstated. Nevertheless, the Reinsurer’s liability hereunder shall never exceed USD 5,000,000 for any one loss occurrence and USD 10,000,000 for all loss occurrences during the term of this Agreement.

If the loss settlement is made prior to the adjustment of premium the reinstatement premium shall be calculated provisionally on the deposit premium subject to adjustment when the reinsurance premium hereon is finally established.

ARTICLE X — REPORTS

The Reinsured shall advise the Reinsurer of all events that in its opinion may result in a claim under this Agreement for which the Reinsured has reserves in excess of fifty percent (50%) of its retention under this Agreement, and of all subsequent developments thereto that may affect the position of the Reinsurer. Inadvertent omission or oversight in dispatching advice of notice shall not affect the liability of the Reinsurer; however, this exception shall not apply with respect to conditions as provided for in the Sunset Article of this Agreement.

Subject always to the terms and conditions of this Agreement, the reinsurance provided under this Agreement shall be subject to the written terms, limits, and conditions of the original policies that represent, as set forth in Article 1, the Business Covered and to all interpretations, modifications, waivers, and alterations thereon. All loss settlements made by the Reinsured, whether under the original policy terms and conditions or by way of compromise, excluding ex gratia payments, shall be binding upon the Reinsurer, and the Reinsurer shall allow or pay, as the case may be, its proportion of each such settlement in accordance with the terms of this Agreement. It is the true intent of this Agreement the Reinsurer will follow settlements of the Reinsured in all respects.

The Reinsured will advise the Reinsurer promptly of all losses and any subsequent developments pertaining thereto, which may in its opinion develop into losses involving reinsurance hereunder and/or incurred amount penetrates 50% of retention. Inadvertent omission or oversight in dispatching such advises shall in no way affect the liability of the Reinsurer under this Agreement, but the Reinsured shall inform the Reinsurer of such omission or oversight upon discovery.

ARTICLE XI — CLAIMS AND MONETARY CRITERIA

The Reinsured shall promptly advise the Reinsurer in full detail (per suggested Claims Reserve Worksheet) of all bodily injury claims or losses involving any of the following:

A)	Any claim or loss reserved at 50% or more of the Reinsured’s retention under this Agreement.
B)	Any claim involving any of the following injuries:

1)	Fatality.
2)	Spinal Cord Injuries (e.g., quardriplegia, paraplegia).

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3)	Brain Damage (e.g., seizure, coma or physical/mental impairment).
4)	Severe burns injuries resulting in disfigurement or scarring.
5)	Total or partial blindness in one or both eyes.
6)	Major organ, (e.g. heart, lungs).
7)	Amputation of a limb or multiple fractures.
8)	Environmentally related damage or injury (e.g., pollution, waste site or common cause claims, such as Agent Orange, asbestos or DES).
9)	Occupational disease or other disability relating to working conditions or job related factors.

ARTICLE XII — TAXES

In consideration of the terms under which this Agreement is issued, the Reinsured undertakes not to claim any deduction of the premium hereon 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.

ARTICLE XIII — FEDERAL EXCISE TAX

(Applicable to those reinsurers, excepting Underwriters at Lloyd’s London and other reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America.)

A)	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 Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.
B)	In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

ARTICLE XIV — CURRENCY

All retentions and limits hereunder are expressed in United States Dollars, and all premium and loss payments shall be made in United States Currency.

ARTICLE XV — INSPECTION OF RECORDS

The Reinsurer or its duly authorized representative shall have the right at any reasonable time upon five (5) working days prior notice during or at any time after the expiration of this Agreement, and as frequently as deemed necessary by the Reinsurer, to visit the office of the Reinsured (or of any affiliate or representative of the Reinsured involved with the Business Covered under this Agreement) to inspect, examine, audit, and verify any of the policy or claim files, accounts, documents, books reports, or work papers (“records”) relating to the business reinsured under this Agreement whether or not those records are co-mingled with any unrelated business records. Reinsurer or its representative shall have the right to make copies, at its own expense, or extracts of any records related specifically to the Business Covered under this agreement only.

ARTICLE XVI — OFFSET CLAUSE

All amounts due either the Reinsured or the Reinsurer, whether by reason of reinsurance premium, Ultimate Net Loss, or any other amount due under this Agreement shall be subject to the right of recoupment and offset and upon the exercise of the same, only the net balance shall be due. All claims for amounts of reinsurance premium, Ultimate Net Loss, or any other amount due under this Agreement, whether or not fixed in amount at the time of the insolvency of any party to this Agreement, arising from coverage placed in effect under this Agreement prior to the insolvency of any party to this Agreement shall be deemed pre-liquidation debts and subject to this Article. In the event of insolvency of the Reinsured, offset shall be in accordance with applicable law.

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ARTICLE XVII — ARBITRATION (BRMA6C)

As a condition precedent to any right of action hereunder, any dispute or difference between the Reinsured and any Reinsurer relating to the interpretation or performance of this Contract, including is formation or validity, or any transaction under this Contract, whether arising before or after termination, shall be submitted to arbitration.

If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this clause provided that communication shall be made by the Reinsured to each of the reinsurers constituting the one party, and provided, however, that nothing therein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Reinsurer under the terms of this Contract from several to joint.

Upon written request of any party, each party shall choose an arbitrator and the two chosen shall select a third arbitrator. If either party refuses or neglects to appoint an arbitrator within thirty (30) days after receipt of the written request for arbitration, the requesting party may appoint a second Arbitrator. If the two arbitrators fail to agree on the selection of a third arbitrator within thirty (30) days of their appointment, the Reinsured shall petition the American Arbitration Association to appoint the third arbitrator. If the American Arbitration Association fails to appoint the third arbitrator within thirty (30) days after it has been requested to do so, either party may request a justice of a Court of general jurisdiction of the state in which the arbitration is to be held to appoint the third arbitrator. All arbitrators shall be active or retired officers of insurance or reinsurance companies, or Lloyd’s London Underwriters, and disinterested in the outcome of the arbitration. Each party shall submit its case to the arbitrators within thirty (30) days of the appointment of the third arbitrator. The parties hereby waive all objections to the method of selection of the arbitrators, it being the intention of both sides that all the arbitrators be chosen from those submitted by the parties.

The parties hereby waive all objections to the method of selection of the arbitrators, it being the intention of both sides that all the arbitrators be chosen from those submitted by the parties.

The Arbitrators shall have the power to determine all procedural rules for the holding of the arbitration including but not limited to inspection of documents, examination of witnesses and any other matter relating to the conduct of the arbitration. The arbitrators shall interpret this Contract as an honorable engagement and not as merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law. The arbitrators may award interest and costs. Each party shall bear the expense of its own arbitrator and shall share equally with the other party the expenses of the third arbitrator and of the arbitration. The decision in writing of the majority of the arbitrators shall be final and binding upon both parties. Judgment may be entered upon the final decision of the arbitrators in any court having jurisdiction.

The arbitration shall take place in the city where the Reinsured’s principal office is located, unless otherwise mutually agreed between the Reinsured and the Reinsurer.

This article shall remain in full force and the effect in the event any other provision of this Contract shall be found invalid or non-binding.

ARTICLE XVIII — INSOLVENCY

In the event of the insolvency of the Reinsured or the Reinsurer (the “Insolvent Party”), premiums and losses shall be payable directly to the Insolvent Party or its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Insolvent Party without diminution because of the insolvency of the Insolvent Party. The liquidator, receiver, conservator or statutory successor of the Insolvent Party shall give written notice to the other party hereto of the pendency of a claim against the Insolvent Party, indicating the Policy reinsured which claim would involve a possible liability on the part of the other party hereto within reasonable time after such claim is filed in the conservation, liquidation, or receivership

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proceedings, and that during the pendency of such claim the other party hereto 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 Insolvent Party or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the other party shall be chargeable, subject to he approval of the court, against the Insolvent Party as part of the expense of conservation, liquidation or receivership to the extent of a pro rata share of the benefit which may accrue to the Insolvent Party solely as a result of the defense undertaken by the other party.

ARTICLE XIX — INSOLVENCY FUND EXCLUSION

It is agreed that this Agreement excludes all liability of the Reinsured 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, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligations of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

ARTICLE XX — ERRORS AND OMISSIONS

Except for the conditions as provided for in the Sunset Article of this Agreement, any isolated and inadvertent administrative act, neglect, delay, omission, or error by either party to this Agreement, will not be held to relieve either party to this Agreement from any liability that would attach to it under this Agreement if that act, neglect, delay, omission, or error had not been made, providing that such act, neglect, delay, omission, or error is not prejudicial to the other party and is rectified immediately upon discovery without prejudice to the other party.

ARTICLE XXI — SERVICE OF SUIT

(This Article only applies to reinsurers domiciled outside of the United States and/or not approved, qualified, authorized or accredited in any state, territory, or district of the United States having jurisdiction over the Reinsured.)

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Reinsured, will submit, first, to arbitration as provided for above and, failing that, to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in arbitration or, if appropriate, any court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in arbitration or, if appropriate, 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. It is further agreed that service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York, 10019 (hereinafter, “agent for service of process”) and that in any suit instituted, the Reinsurer will abide by the final decision of such court or of any appellate court in the event of an appeal.

The above-named firm is authorized and directed to accept service of process on behalf of the Reinsurer in any such suit and/or upon the request of the Reinsured to give a written undertaking to the Reinsured that they will enter a general appearance upon the Reinsurer’s behalf in the event such a suit shall be instituted.

Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefore, the Reinsurer hereon 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 who may be served any lawful process in any action, suit or proceeding

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instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Agreement, hereby designates the above-named as the person to who the said officer is authorized to mail such process or a true copy thereof.

ARTICLE XXII — SUNSET CLAUSE

Notwithstanding the provisions of the Errors and Omissions Article of this Agreement, coverage hereunder shall apply only to Event(s) notified by Reinsured to Reinsurer, with full particulars, within twelve (12) months from the expiry of this Agreement. However this notification period shall be increased to eighty four (84) months from the commencement of the Term of this Agreement should the Reinsured decline to commute this Agreement at twelve (12) months from expiry. Notice of and Event shall include;

1.	The approximate time and location of the Event.
2.	The date of loss as established under this Agreement.
3.	The names of any original insureds that have been identified by Reinsured, at the time of notice, as being involved in the Event.
4.	The current indemnity, medical and expense reserves delineated by original insured.
5.	The total payments made by the Reinsured, delineated by original insured.

ARTICLE XXIII — MANDATORY COMMUTATION CLAUSE

This Agreement shall be subject to Mandatory loss free, complete and Final Commutation at twelve (12) months from the expiry of this Agreement. However, in the event that the Reinsured does not wish to Commute at twelve (12) months from expiry, Reinsurers hereon agree not to enforce the above Commutation but only in return for payment of an additional premium of 40% (.424%) of the developed reinsurance premium, subject to a minimum of USD 296,000 net. If this option is taken up, Mandatory Commutation shall apply not later than eighty-four (84) months after the commencement of the Term of this Agreement. At which time the Reinsured shall advise Reinsurer of the amount of all Ultimate Net Loss for all claims from Business Covered from any Event, both reported and unreported, both paid and not finally settled, that is the subject of this Agreement. Reinsured and Reinsurer or their respective representatives shall, within sixty (60) days thereafter by mutual agreement, determine and capitalize (i.e. reduce to a net present value) the total of such Ultimate Net Loss for each Event.

If the mutually agreed capitalized value of the Ultimate Net Loss for any Event is in excess of Reinsured’s retention for that Event, Reinsurer shall pay Reinsured the amount, subject to the coverage provided under this Agreement, of capitalized Ultimate Net Loss in excess of Reinsured’s retention for that Event less any amounts of Ultimate Loss previously paid by Reinsurer to Reinsured for that Event.

If mutual agreement cannot be reached, then any difference shall be settled by an appraisal made by a panel of three actuaries, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an actuary within thirty (30) days of a written request from the other party to appoint an actuary, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of a third actuary within thirty (30) days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.

All the actuaries shall be regularly engaged in the valuation of Workers’ Compensation claims and shall be Fellows of the Casualty Actuarial Society or Members of the American Academy of Actuaries. None of the actuaries shall be under the control of either party to this Agreement.

Each party shall submit its case to its chosen actuary within thirty (30) days of the appointment of the third actuary. The decision in writing of any two appointed actuaries, when filed with the parties hereto, shall be final and binding on all parties participating in the appraisal and judgment may be entered hereon in any court of competent jurisdiction.

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The expense of the actuaries and of their appraisal shall be equally divided between the Reinsured and the Reinsurer. The appraisal shall take place in New York City unless some other place is mutually agreed upon by Reinsured and Reinsurer.

Payment by Reinsurer of the amount of capitalized Ultimate Net Loss in excess of Reinsured’s retention for any Event less any amounts of Ultimate Net Loss previously paid by Reinsurer to Reinsured for that Event, whether determined by mutual agreement or by the appraisal procedure set forth above, shall constitute a complete and final release of Reinsurer of all claims by Reinsured for Ultimate Net Loss, both reported and unreported, paid and incurred, for that Event. If the capitalized Ultimate Net Loss for any Event is determined to be below the retention, whether by mutual agreement or the appraisal procedure set forth above, such determination shall constitute a complete and final release of Reinsurer for all claims by Reinsured for Ultimate Net Loss, both reported and unreported, paid and incurred, for that Event.

ARTICLE XXIV — UNAUTHORIZED REINSURANCE (BRMA551)

(Applies only to a Reinsurer who does not qualify for full credit with any insurance regulatory authority having jurisdiction over the Reinsured’s reserves.)

As regards polices or bonds issued by the Reinsured coming within the scope of this Contract, the Reinsured agrees that when it shall file with the insurance regulatory authority or set up on it books reserves for losses covered hereunder which it shall be required by law to set up, it will forward to the Reinsurer a statement showing the proportion of such reserves which is applicable to the Reinsurer. The Reinsurer hereby agrees that it will apply for and secure delivery to the Reinsured of a clean, irrevocable and unconditional Letter of Credit, issued by a bank, and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Reinsured’s reserves in an mount equal to the Reinsurer’s proportion of reserves in respect of known outstanding losses that have been reported to the Reinsurer and allocated loss adjustment expense relating thereto, and losses and allocated loss adjustment expense paid by the Reinsured by not recovered from the Reinsurer, as shown in the statement prepared by the Reinsured (hereinafter referred to as “Reinsurer’s Obligations”). Under no circumstances shall any amount relating to reserves in respect of incurred but not reported losses by included in the amount of the Letter of Credit.

The Letter of Credit 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 thirty (30) days prior to any expiration date the issuing bank shall notify the Reinsured by certified or registered mail that the issuing bank elects not to consider the Letter of Credit extended for any additional period.

The Reinsurer and Reinsured agree that the Letters of Credit provided by the Reinsurer pursuant to the provision of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Reinsured or any successor, by operation of law, of the Reinsured including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Reinsured for the following purposes, unless otherwise provide for in a separate Trust Agreement:

(a)	to reimburse the Reinsured for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and which has not been otherwise paid;
(b)	to make refund of nay sum which is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract;
(c)	to fund an account with the Reinsured for the Reinsurer’s Obligations, plus reserves for incurred but not reported losses. Such cash deposit shall be held in an interest bearing account separate from the Reinsured’s other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer.

In the event the amount drawn by the Reinsured on any Letter of Credit is in excess of the actual amount required for (a) or (c), the Reinsured 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 Reinsured or the Reinsurer.

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The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Reinsured or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representative of the Reinsured.

At annual intervals, or more frequently as agreed but never more frequently than quarterly, the Reinsured shall prepare a specific statement of the Reinsurer’s Obligations, for the sole purpose of amending the Letter of Credit, in the following manner.

(a)	If the statement shows that the Reinsurer’s Obligations exceed the balance of credit as of the statement date, the Reinsurer shall, within thirty (30) days after receipt of notice of such excess, secure delivery to the Reinsured of an amendment to the Letter of Credit increasing the amount of credit by the amount of such difference.
(b)	If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of credit as of the statement date, the Reinsured shall, within thirty (30) days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the Letter of Credit reducing the amount of credit available by the amount of such excess credit.

ARTICLE XXV – NET RETAINED LINES

This Agreement applies only to that portion of any insurance or reinsurance which the Reinsured and/or its agents retains net for its own account, inclusive of underlying insurance or reinsurance. In calculating the amount of any loss hereunder, and also in computing the amount or amounts in excess of which this Agreement attaches, only loss or losses in respect of that portion of any insurance or reinsurance which the Reinsured retains net for its own account, inclusive of underlying insurance or reinsurance, shall be included.

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 Reinsured to collect from any other reinsurers, whether specific or general, any amount which may have become due from them, whether such inability arise from the insolvency of such other reinsurers or otherwise.

ARTICLE XXVI – SUBROGATION

Reinsurer shall be credited with subrogation (i.e. reimbursement obtained or recoveries made by Reinsured, less the actual cost, excluding salaries of officers and employees of the Reinsured and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recoveries) on any claims or settlements involving this Agreement. Subrogation and salvage shall always be used to reimburse the excess Reinsurers in the reverse order of their priority according to their participation in the Ultimate Net Loss before being used in any way to reimburse Reinsured for its portion of the Ultimate Net Loss under its retention. Reinsured will reasonably enforce its rights to subrogation and salvage and will reasonably prosecute all claims arising out of those rights. In the event Reinsured shall refuse or neglect to enforce its rights to salvage or subrogation, Reinsurer is authorized and empowered to bring any appropriate action in the name of Reinsured or its policyholder or otherwise to enforce those rights and Reinsured shall cooperate fully with Reinsurer enforcing those rights. Reinsured and Reinsurer shall share in the cost and expense of any unsuccessful subrogation efforts in the same proportion that Reinsured and Reinsurer shared the Ultimate Net Loss giving rise to those subrogation efforts.

ARTICLE XXVII – INTERMEDIARY

Patriot Re International, Inc. 400 Northampton St., Easton, PA 18042, is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications (including, but not limited to, notices, statements, premiums, return salvages and loss settlements) relating hereto shall be transmitted to the Reinsured or the Reinsurer through Patriot Re International, Inc., of 400 Northampton

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Street, Easton, PA 18042. Payments by the Reinsured to the Intermediary shall constitute payment to the Reinsurer to the extent of such payments. Payments by the Reinsurer to the intermediary shall constitute payment to the Reinsured only to the extent that such payments are actually received by the Reinsured.

ARTICLE XXIII – ENTIRE AGREEMENT CLAUSE

The entire agreement between the Reinsured and the Reinsurer is contained in this Agreement, including the Reinsuring agreements, exclusions and conditions.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this 07 day of June, 2007.

GUARANTEE INSURANCE COMPANY		REINSURERS LISTED IN INTERESTS AND LIABILITIES AGREEMENT:
By:	/s/ Steven M. Mariano
	Steven M. Mariano
Title:	CEO

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EXHIBIT A
(Nuclear Risk Exclusion)

This Agreement does not apply to “Ultimate Net Loss” 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;

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 nay 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;

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“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 used 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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INTERESTS AND LIABILITIES AGREEMENT

Workers Compensation Excess of Loss Contract
$5,000,000 excess $5,000,000
(hereinafter referred to as the “Contract”)
between

Guarantee Insurance Company
(hereinafter referred to as the “Company”)
and
Max Re Ltd
(hereinafter referred to as the “Subscribing Reinsurer”)

Under the terms of the Contract, which is attached to this Agreement, the Subscribing Reinsurer agrees to participate in a 50% share of the interests and liabilities of the Reinsurer(s) described in the Contract. The participation of the Subscribing Reinsurer shall be several and not joint with any other Reinsurers participation in the Contract

This Agreement shall become effective at 12.01 a.m., Local Standard Time, at the place of loss, January 1^st, 2007 and ending at 12.01 a.m., Local Standard Time, at the place of loss, January 1^st, 2008 with respect to losses occurring on in force, new, renewal and anniversary business occurring during that period in accordance with the provision of the attached Agreement.

Signed in duplicate

In Hamilton, Bermuda this 14^th day of September, 2007

Max Re, Ltd

By	/s/ David Kla [Illegible]
Title	Sup. BOD RSF # 14711

Signed in duplicate

In Fort Lauderdale, FL this ___ day of                     ,   ___

Guarantee Insurance Company

By	/s/ Steven M. Mariano
Title	CEO

N076241

INTERESTS AND LIABILITIES AGREEMENT

It is hereby agreed by and between

GUARANTEE INSURANCE COMPANY
FORT MILL, SOUTH CAROLINA
(hereinafter referred to as the “Reinsured”)

Various Lloyd’s Underwriters
(hereinafter referred to as the “Reinsurer”)

The Reinsurer shall have a 30.55% part of 50.00% share of the Interests and Liabilities of the “Reinsurer” as set forth in the attached Agreement entitled:

WORKERS COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT

Effective: January 1st, 2007

This Agreement shall become effective at 12.01 a.m., Local Standard Time, at the place of loss, January l^st 2007 and ending at 12.01 a.m., Local Standard Time, at the place of loss, January 1^st 2008 with respect to losses occurring on in force, new, renewal and anniversary business occurring during that period in accordance with the provisions of the attached Agreement.

The share of the Reinsurer in the interests and liabilities with respect to said Agreement shall be separate and apart from the share of the other Reinsurers and the interests and liabilities of the Reinsurer shall not be joint with those of the other Reinsurers and the Reinsurers shall in no event participate in the interests and liabilities of the other Reinsurers. This Agreement contains a binding arbitration provision which may be enforced by the parties.

(SEAL)

SIGNING SCHEDULE
ATTACHING TO AND FORMING PART OF THE
WORKERS COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT NO. N076241
EFFECTIVE: LOCAL STANDARD TIME, JANUARY 1, 2007
In the name of
GUARANTEE INSURANCE COMPANY

BUREAU REFERENCE	61472 29/01/07	BROKER NUMBER 0518
PROPORTION %	SYNDICATE	UNDERWRITER’S REFERENCE
11.11	435	96959200
8.33	4472	1149080107FL
11.11	2987	BA442S07A000
TOTAL LINE 30.55	No. OF SYNDICATES 3

THE LIST OF UNDERWRITING MEMBERS
OF LLOYDS IS IN RESPECT OF 2007
YEAR OF ACCOUNT

BUREAU USE ONLY
USE3 44   7894

Page 1 of 1

IN WITNESS WHEREOF, the parties hereto by their respective duly authorised officers have executed this Agreement in duplicate as of the date under mentioned at:

this      day of          2007

For and on behalf of: THE REINSURED

and at London, England,

this     day of          2007

For and on behalf of: VARIOUS.......... UNDERWRITERS.
(as per Schedule attached)

(SEAL)

Page 2 of 10

N076241

INTERESTS AND LIABILITIES AGREEMENT

It is hereby agreed by and between

GUARANTEE INSURANCE COMPANY
FORT MILL, SOUTH CAROLINA
(hereinafter referred to as the “Reinsured”)

Aspen Insurance UK Ltd
(hereinafter referred to as the “Reinsurer”)

The Reinsurer shall have a 19.45% part of 50.00% share of the Interests and Liabilities of the “Reinsurer” as set forth in the attached Agreement entitled:

WORKERS COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT

Effective: January 1st, 2007

This Agreement shall become effective at 12.01 a.m., Local Standard Time, at the place of loss, January 1^st 2007 and ending at 12.01 a.m., Local Standard Time, at the place of loss, January 1^st 2008 with respect to losses occurring on in force, new, renewal and anniversary business occurring during that period in accordance with the provisions of the attached Agreement.

The share of the Reinsurer in the interests and liabilities with respect to said Agreement shall be separate and apart from the share of the other Reinsurers and the interests and liabilities of the Reinsurer shall not be joint with those of the other Reinsurers and the Reinsurers shall in no event participate in the interests and liabilities of the other Reinsurers. This Agreement contains a binding arbitration provision which may be enforced by the parties.

(SEAL)

IN WITNESS WHEREOF, the parties hereto by their respective duly authorised officers have executed this Agreement in duplicate as of the date under mentioned at:

this     day of          2007

For and on behalf of: THE REINSURED

and at London, England,

this     day of          2007

For and on behalf of: VARIOUS......... UNDERWRITERS.
(as per Schedule attached)

(SEAL)

Page 2 of 10

BUREAU REFERENCE	0701290003576
PROPORTION       CODE	MEMBER COMPANY AND REFERENCE
%
19.4500000          A8408	ASPEN INSURANCE UK LIMITED U07433507A0Q

(SEAL)

    19.4500000 %     TOTAL Page 1 of 1

0|0|03

(

We, the Reinsurers, hereby severally agree to reinsure the Reinsured in the manner and proportions set forth in this reinsurance contract.

The subscribing Reinsurers’ obligations under this contract are several and not joint and are limited solely to the extent of their individual signed subscriptions. The subscribing Reinsurers are not responsible for the subscription of any co-subscribing Reinsurer who for any reason does not satisfy all or part of its obligations.

In witness whereof the name of the Managing Director of Ins-sure Services Limited is subscribed on behalf of each of the Reinsurers in accordance with the provisions of the Services Agreement that each of the Reinsurers has with London Processing Centre Limited (a wholly owned subsidiary of Ins-sure Services Limited).

(SIGNATURE)         Managing Director

This wording is not valid unless it bears the signature of the Managing Director of Ins-sure Services Limited.

	Arthur J. Gallagher (UK) Limited
		Gallagher Global Risks

Page 1 of 1

Patriot Re International Inc	17th December 2007
400 Northampton Street
Eastern
Pennsylvania 18042
U.S.A.

ADDENDUM NO. 1 TO COVER NOTE NO. N076241

TYPE:	Excess of Loss Reinsurance - $5m xs $5m Layer
REINSURED:*	Guarantee Insurance Company
ORIGINAL PERIOD:	12 months at 1st January 2007

In accordance with your instructions, coverage evidenced by Cover Note No: N076241 has been amended as set out herein.

It is hereby noted and agreed by Reinsurers hereon, that this contract of Reinsurance is extended to expire 1^st July 2008 and will therefore cover losses occurring during the period commencing 12.01 am LST at the place of loss 1^st January 2007 and ending 12.01 am LST at the place of loss, 1^st July 2008.

In consideration of the aforementioned extension, an Additional Deposit Premium of USD 477,000 is due payable 50% at 1^st January 2008 and 50% 1^st April 2008, and is subject to adjustment at existing terms and conditions.

The early Commutation provision as contained herein will now apply, if invoked, at 12 months from the revised expiry date.

Information

Estimated Subject Gross Net Earned Premium Income for the extended period (i.e. 1^st Jan 2008 to 1^st July 2008 inclusive) is USD 45,000,000.

All other terms, clauses and conditions shall remain unaltered.

Please examine this Addendum carefully and advise us immediately if it is incorrect or does not meet with your requirements. You are reminded that the Duty of Disclosure applicable to this contract is equally applicable to any Addendum.

For and on behalf of
Arthur J. Gallagher (UK) Ltd.

Authorised Signatory	Authorised Signatory

ADDENDUM NO. 1 TO GIC-003/2007

Workers Compensation Excess of Loss Contract
(hereinafter referred to as the “Contract”)
between

Guarantee Insurance Company
(hereinafter referred to as the “Company”)
and
Max Re Ltd
(hereinafter referred to as the “Reinsurer”)

Limit	$5,000,000 xs $5,000,000 Layer
Contract Period	Losses occurring 12 months at January 1, 2007 - 12.01 am Local Standard Time

It is hereby noted and agreed by Reinsurers hereon, that this contract of Reinsurance is extended to expire July 1, 2008 and will therefore cover losses occurring during the period commencing 12.01 am Local Standard Time at the place of loss January 1, 2007 and ending 12.01 am Local Standard Time at the place of loss, July 1, 2008

In consideration of the aforementioned extension, an Additional Deposit Premium of $477,000 is due and payable 50% at January 1, 2008 and 50% at April 1, 2008, and is subject to adjustment at existing terms and conditions

The early Commutation provision as contained herein will now apply, if invoked, at 12 months from the revised expiry date.

All other terms, clauses and conditions shall remain unaltered.

Signed in duplicate

In Hamilton, Bermuda this 18^th day of January, 2008

Max Re, Ltd

By	/s/ John [Illegible]
Title	SVP EVP Ret # 14711

Signed in duplicate

In Fort Lauderdale, Florida this _____ day of                                         , 2008

Guarantee Insurance Company

By

Title

EX-10.31

Exhibit 10.31

WORKERS’ COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT

(hereinafter referred to as the “Agreement”)

between

GUARANTEE INSURANCE COMPANY
FORT MILL, SOUTH CAROLINA
(hereinafter referred to as the “Reinsured”)

and

THE SUBSCRIBING REINSURERS SPECIFIED
IN THE INTERESTS AND LIABILITIES AGREEMENT
ATTACHED TO THIS AGREEMENT
(hereinafter referred to as the “Reinsurer”)

ARTICLE I — BUSINESS COVERED

All statutory benefits payable under a standard Workers’ Compensation Policy in respect to all business insured by the Reinsured unless specifically excluded by the terms of this Agreement.

This Agreement is to indemnify the Reinsured as set forth herein in respect of the net excess liability which may accrue to the Reinsured under all policies, Agreements, binders and other evidences of insurance or reinsurance, whether oral or written (hereinafter called “policies”), classified by the Reinsured as Workers’ Compensation in force at and becoming effective on and after the inception date of this Agreement, including renewals.

ARTICLE II — EXCLUSIONS

This Agreement excludes all Ultimate Net Loss arising from the following:

1.	Assumed Reinsurance, except business fronted by insurance companies for licensing purposes.
2.	Business excluded by the attached Nuclear Incident Exclusion Clause — Liability — Reinsurance — U.S.A., No. 08-31-1.
3.	Pools, associations and syndicates.
4.	War and Terrorism NMA 2929.
5.	Insolvency Funds Exclusion — It is agreed that this agreement excludes all liability Of the Reinsured arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency Fund” including any guaranty fund, insolvency fund, plan pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the

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	Reinsured of part or all of any claim, debt, charge, fee, or other obligation of an insured, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.
6.	Financial guarantee and insolvency.
7.	Occupational Disease/Cumulative Trauma except when from a “Sudden and Accidental” event of 48 hours or less. For the purpose of this Contract, “Sudden and Accidental” shall mean that the first and last exposure to the causative agent to each and every individual contributing to the loss shall fall within a single and continuous 48 hour period.
8.	Commercial airline crews.
9.	Operations requiring coverage under the Defense Base Act, Admiralty Act or any other Federal act including but not limed to the Jones Act, FELA, or USL&H, except where incidental. (“incidental” to be defined as less than 10% of an individual insurer’s premium).
10.	Risks involving known exposure to the following substances: Dioxin, Polychlorinated biphenyl (PCB’s), Asbestos.
11.	Underground mining.
12.	Construction of bridges, tunnels or dams.
13.	Employers Liability.
14.	Losses in Excess of Policy Limits.
15.	All business classified as NCCI — Hazard Group IV as of 1/1/06.
16.	Fire fighters and police officers.
17.	Railroads, except scenic railways, and access lines and industrial aid owner operations when written as an incidental part of an insured’s overall operations.
18.	No known wrecking or demolition of buildings of structures in excess of three stories.
19.	Manufacturing, packing, handling, shipping, or storage of explosives, substances intended for use as an explosive, ammunitions, fuses, arms, magnesium, propellant charges, detonating devices, fireworks, nitroglycerine, celluloid, or pyroxylin; however, this exclusion shall not apply to the incidental packing, handling, or storage of same in connection with the sale or transportation by owner operators of such substances.
20.	Trucking hauling explosive or ammunition (local or long distance hauling) — all employees.

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21.	Manufacturing, packing, handling, shipping or storage of natural or artificial fuel gasses, 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.	Tank installation gasoline service stations.
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, patrol, messengers and armored car crews.
29.	Detective agency.
30.	Patrol agency only in regard to armed guard services.
31.	Losses arising directly or indirectly from Earthquake with the exception of risks written in the State of Missouri.
32.	Professional sports teams.
33.	Work and navigation of any commercial vessel.
34.	All mining or quarrying operations.
35.	Chemical/petrochemical manufacturers of highly toxic materials.
36.	Blasting or excavating operations over 25 feet in depth.
37.	Tunnel or subway construction.
38.	Marine wrecking, including repair, cleaning, or demolition of commercial vessels or barges.
39.	Underground, offshore or submarine operation including underground mining.
40.	Construction and/or maintenance of cofferdams.
41.	Stevedoring.
42.	Assigned risks.

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43. Losses arising from nuclear, biological, chemical and radiological events.

ARTICLE III — PERIOD AND CANCELLATION

This Contract shall take effect 12.01am, Local Standard Time at place of loss, 1^st January 2007 and ending 12.0l am, Local Standard Time at place of loss, l^st January 2008 and shall apply to all losses occurring during that period in respect of in force, new, renewal and anniversary business.

ARTICLE IV — AMOUNT OF COVER

The Reinsured shall retain and be liable for the first USD 10,000,000 of Ultimate Net Loss (regardless of the number of policies or number of insureds under which such loss is payable) arising out of each Loss Occurrence. The Reinsurer shall then be liable for the amount by which such Ultimate Net Loss exceeds the Reinsured’s retention, but the liability of the Reinsurer shall not exceed USD 10,000,000 as respects any one Loss Occurrence, nor shall the Reinsurer’s aggregate liability exceed USD 20,000,000.

ARTICLE V — EXPRESS WARRANTY

It is hereby warranted that the Maximum Any One Life accruing to the Ultimate Net Loss shall be USD 10,000,000

ARTICLE VI — TERRITORY

Worldwide in respect to business principally domiciled in the United States, its territories and possessions.

ARTICLE VII — DEFINITIONS

- The term “Occurrence” shall mean any one accident, disaster or casualty or series of accidents, disaster or casualties arising out of one event.

- Gross Net Earned Premium — manual premium adjusted for experience modification, State/NCCI Safety Credit, premium discount, expense constants and policy fees, less returns and cancellations.

- “Extra contractual obligations” shall mean 90% of any punitive, exemplary, compensatory or consequential damages, other than loss in excess of policy limits, paid or payable by the Reinsured as a result of an action against it by its negligence or bad faith on the part of the Reinsured in handling a claim under a policy subject to the Agreement. An extra contractual obligation shall be deemed to have occurred on the same date as the loss covered or alleged to be covered under the policy.

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- “Loss adjustment expense” as used herein shall mean expenses allocable to the investigation, defense and/or settlement of specific claims, including litigation expenses and post-judgment interest, but not including any legal expenses and cost incurred by the Reinsured in connection with coverage questions and legal actions connected thereto, office expenses or salaries of the Reinsured’s regular employees.

ARTICLE VII — ULTIMATE NET LOSS

The term “Ultimate Net Loss” as used in this Agreement shall mean the actual gross loss sustained by the Reinsured, including extra contractual obligations, structured settlements with claimants or outside insurers, such loss to include all expenses incurred by the Reinsured in connection with the settlement of losses, resistance to or negotiations concerning losses; excluding, however, any part of the office expenses of the Reinsured and salaries of employees other than salary charges for staff adjuster, fieldsmen, or other employees while actually engaged in the settlement of the losses.

Salvages and recoveries, whether recovered or received prior or subsequent to loss settlement under this Agreement, but not including amounts recoverable under all facultative reinsurances, shall be applied as if recovered or received prior to the aforesaid settlement and shall be first deducted from the actual loss sustained to arrive at the amount of Ultimate Net Loss. Nothing, however, in this Article shall be construed to mean losses are not recoverable hereunder until the Ultimate Net Loss to the Reinsured has been ascertained.

ARTICLE VIII — RATE AND PREMIUM

As premium for the reinsurance provided hereunder, the Reinsured shall pay the Reinsurer 1.06% of its Subject Earned Manual Premium for the term of this Contract, subject to a minimum premium of USD 685,000.

The Reinsured shall pay the Reinsurer a deposit premium of USD 740,000 in four equal installments of USD 185,000 within 30 days of the 1^st January 2007, 1^st April 2007, 1^st July 2007 and 1^st October 2007.

Within 45 days after the expiration of this Agreement, the Reinsured shall calculate and report to the Reinsured the adjusted premium, based on the Reinsured’s Subject Earned Manual Premium for the term of this Agreement computed in accordance with the first paragraph, and any additional premium due the Reinsurer or return premium due the Reinsured shall be remitted promptly.

ARTICLE IX — REINSTATEMENT

Each claim hereon reduces the amount of indemnity under this Agreement from the time of occurrence of the loss but such amount is hereby reinstated from the time of occurrence of the loss in consideration of the payment by the Reinsured of an additional premium calculated by applying to the Premium hereon, the percentage of the face amount of this Contract so reinstated. Nevertheless, the Reinsurer’s

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liability hereunder shall never exceed USD 5,000,000 for any one loss occurrence and USD 10,000,000 for all loss occurrences during the term of this Agreement.

If the loss settlement is made prior to the adjustment of premium the reinstatement premium shall be calculated provisionally on the deposit premium subject to adjustment when the reinsurance premium hereon is finally established.

ARTICLE X — REPORTS

The Reinsured shall advise the Reinsurer of all events that in its opinion may result in a claim under this Agreement for which the Reinsured has reserves in excess of fifty percent (50%) of its retention under this Agreement, and of all subsequent developments thereto that may affect the position of the Reinsurer Inadvertent omission or oversight in dispatching advice of notice shall not affect the liability of the Reinsurer however, this exception shall not apply with respect to conditions as provided for in the Sunset Article of this Agreement.

Subject always to the terms and conditions of this Agreement, the reinsurance provided under this Agreement shall be subject to the written terms, limits, and conditions of the original policies that represent, as set forth in Article 1, the Business Covered and to all interpretations, modifications, waivers, and alterations thereon. All loss settlements made by the Reinsured, whether under the original policy terms and conditions or by way of compromise, excluding ex gratia payments, shall be binding upon the Reinsurer, and the Reinsurer shall allow or pay, as the case may be, its proportion of each such settlement in accordance with the terms of this Agreement. It is the true intent of this Agreement the Reinsurer will follow settlements of the Reinsured in all respects.

The Reinsured will advise the Reinsurer promptly of all losses and any subsequent developments pertaining thereto, which may in its opinion develop into losses involving reinsurance hereunder and/or incurred amount penetrates 50% of retention. Inadvertent omission or oversight in dispatching such advises shall in no way affect the liability of the Reinsurer under this Agreement, but the Reinsured shall inform the Reinsurer of such omission or oversight upon discovery.

ARTICLE XI — CLAIMS AND MONETARY CRITERIA

The Reinsured shall promptly advise the Reinsurer in full detail (per suggested Claims Reserve Worksheet) of all bodily injury claims or losses involving any of the following:

A)	Any claim or loss reserved at 50% or more of the Reinsured’s retention under this Agreement.
B)	Any claim involving any of the following injuries:

1)	Fatality.
2)	Spinal Cord Injuries (e.g., quadriplegia, paraplegia).
3)	Brain Damage (e.g., seizure, coma or physical/mental impairment).
4)	Severe burns injuries resulting in disfigurement or scarring.
5)	Total or partial blindness in one or both eyes.

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6)	Major organ, (e.g., heart, lungs).
7)	Amputation of a limb or multiple fractures.
8)	Environmentally related damage or injury (e.g., pollution, waste site or common cause claims, such as Agent Orange, asbestos or DES).
9)	Occupational disease or other disability relating to working conditions or job related factors.

ARTICLE XII — TAXES

In consideration of the terms under which this Agreement is issued, the Reinsured undertakes not to claim any deduction of the premium hereon 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.

ARTICLE XIII — FEDERAL EXCISE TAX

(Applicable to those reinsurers, excepting Underwriters at Lloyd’s London and other reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America.)

A)	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 Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.
B)	In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

ARTICLE XIV — CURRENCY

All retentions and limits hereunder are expressed in United States Dollars, and all premium and loss payments shall be made in United States Currency.

ARTICLE XV — INSPECTION OF RECORDS

The Reinsurer or its duly authorized representative shall have the right at any reasonable time upon five (5) working days prior notice during or at any time after the expiration of this Agreement, and as frequently as deemed necessary by the Reinsurer, to visit the office of the Reinsured (or of any affiliate or representative of the Reinsured involved with the Business Covered under this Agreement) to inspect, examine, audit, and verify any of the policy or claim files, accounts, documents, books reports, or work papers (“records”) relating to the business reinsured under this Agreement whether or not those records are co-mingled with any unrelated business records. Reinsurer or its representative shall have the right to make copies, at its own expense, or extracts of any records related specifically to the Business Covered under this agreement only.

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ARTICLE XVI — OFFSET CLAUSE

All amounts due either the Reinsured or the Reinsurer, whether by reason of reinsurance premium. Ultimate Net Loss, or any other amount due under this Agreement shall be subject to the right of recoupment and offset and upon the exercise of the same, only the net balance shall be due. All claims for amounts of reinsurance premium, Ultimate Net Loss, or any other amount due under this Agreement, whether or not fixed in amount at the time of the insolvency of any party to this Agreement, arising from coverage placed in effect under this Agreement prior to the insolvency of any party to this Agreement shall be deemed pre-liquidation debts and subject to this Article. In the event of insolvency of the Reinsured offset shall be in accordance with applicable law.

ARTICLE XVII — ARBITRATION (BRMA6C)

As a condition precedent to any right of action hereunder, any dispute or difference between the Reinsured and any Reinsurer relating to the interpretation or performance of this Contract, including its formation or validity, or any transaction under this Contract, whether arising before or after termination, shall be submitted to arbitration.

If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this clause provided that communication shall be made by the Reinsured to each of the reinsurers constituting the one party, and provided, however, that nothing therein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the Reinsurer under the terms of this Contract from several to joint.

Upon written request of any party, each party shall choose an arbitrator and the two chosen shall select a third arbitrator. If either party refuses or neglects to appoint an arbitrator within thirty (30) days after receipt of the written request for arbitration, the requesting party may appoint a second Arbitrator. If the two arbitrators fail to agree on the selection of a third arbitrator within thirty (30) days of their appointment, the Reinsured shall petition the American Arbitration Association to appoint the third arbitrator. If the American Arbitration Association fails to appoint the third arbitrator within thirty (30) days after it has been requested to do so, either party may request a justice of a Court of general jurisdiction of the state in which the arbitration is to be held to appoint the third arbitrator. All arbitrators shall be active or retired officers of insurance or reinsurance companies, or Lloyd’s London Underwriters, and disinterested in the outcome of the arbitration. Each party shall submit its case to the arbitrators within thirty (30) days of the appointment of the third arbitrator.

The parties hereby waive all objections to the method of selection of the arbitrators, it being the intention of both sides that all the arbitrators be chosen from those submitted by the parties.

The arbitrators shall have the power to determine all procedural rules for the holding of the arbitration including but not limited to inspection of documents, examination of witnesses and any other matter relating to the conduct of the arbitration. The arbitrators shall interpret this Contract as an honorable engagement and not as merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law. The arbitrators may award interest and costs. Each party shall bear the expense of its own arbitrator and shall share equally with the other party the expenses of

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The arbitrators shall have the power to determine all procedural rules for the holding of the arbitration including but not limited to inspection of documents, examination of witnesses and any other matter relating to the conduct of the arbitration. The arbitrators shall interpret this Contract as an honorable engagement and not as merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law. The arbitrators may award interest and costs. Each party shall bear the expense of its own arbitrator and shall share equally with the other party the expenses of the third arbitrator and of the arbitration. The decision in writing of the majority of the arbitrators shall be final and binding upon both parties. Judgment may be entered upon the final decision of the arbitrators in any court having jurisdiction.

The arbitration shall take place in the city where the Reinsured’s principal office is located, unless otherwise mutually agreed between the Reinsured and the Reinsurer.

This article shall remain in full force and effect in the event any other provision of this Contract shall be found invalid or non-binding.

ARTICLE XIX — INSOLVENCY

In the event of the insolvency of the Reinsured or the Reinsurer (the “Insolvent Party”), premiums and losses shall be payable directly to the Insolvent Party or its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Insolvent Party without diminution because of the insolvency of the Insolvent Party. The liquidator, receiver, conservator or statutory successor of the Insolvent Party shall give written notice to the other party hereto of the pendency of a claim against the Insolvent Party, indicating the Policy reinsured which claim would involve a possible liability on the part of the other party hereto within reasonable time after such claim is filed in the conservation, liquidation, or receivership proceedings, and that during the pendency of such claim the other party hereto 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 Insolvent Party or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the other party shall be chargeable, subject to he approval of the court, against the Insolvent Party as part of the expense of conservation, liquidation or receivership to the extent of a pro rata share of the benefit which may accrue to the Insolvent Party solely as a result of the defense undertaken by the other party.

ARTICLE XX — INSOLVENCY FUND EXCLUSION

It is agreed that this Agreement excludes all liability of the Reinsured 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, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligations of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

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ARTICLE XXI — ERRORS AND OMISSIONS

Except for the conditions as provided for in the Sunset Article of this Agreement, any isolated and inadvertent administrative act, neglect, delay, omission, or error by either party to this Agreement, will not be held to relieve either party to this Agreement from any liability that would attach to it under this Agreement if that act, neglect, delay, omission, or error had not been made, providing that such act, neglect, delay, omission, or error is not prejudicial to the other party and is rectified immediately upon discovery without prejudice to the other party.

ARTICLE XXII — SERVICE OF SUIT

(This Article only applies to reinsurers domiciled outside of the United States and/or not approved, qualified, authorized or accredited in any state, territory, or district of the United States having jurisdiction over the Reinsured.)

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Reinsured, will submit, first, to arbitration as provided for above and, failing that, to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in arbitration or, if appropriate, any court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in arbitration or, if appropriate, 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. It is further agreed that service of process in such suit may be made upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York, 10019 (hereinafter, “agent for service of process”) and that in any suit instituted, the Reinsurer will abide by the final decision of such court or of any appellate court in the event of an appeal.

The above-named firm is authorized and directed to accept service of process on behalf of the Reinsurer in any such suit and/or upon the request of the Reinsured to give a written undertaking to the Reinsured that they will enter a general appearance upon the Reinsurer’s behalf in the event such a suit shall be instituted.

Further, pursuant to any statute of any state, territory or district of the United States Which makes provision therefore, the Reinsurer hereon 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 who may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Agreement, hereby designates the above-named as the person to who the said officer is authorized to mail such process or a true copy thereof.

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ARTICLE XXIII — SUNSET CLAUSE

Notwithstanding the provisions of the Errors and Omissions Article of this Agreement, coverage hereunder shall apply only to Event(s) notified by Reinsured to Reinsurer, with full particulars, within eighty four (84) months from the commencement of the Term of this Agreement. Notice of an Event shall include:

1.	The approximate time and location of the Event.
2.	The date of loss as established under this Agreement.
3.	The names of any original insureds that have been identified by Reinsured, at the time of notice, as being involved in the Event.
4.	The current indemnity, medical and expense reserves delineated by original insured.
5.	The total payments made by the Reinsured, delineated by original insured.

ARTICLE XXIV— MANDATORY COMMUTATION CLAUSE

Not later than eighty-four (84) months after the commencement of the Term of this Agreement. Reinsured shall advise Reinsurer of the amount of all Ultimate Net Loss for all claims from Business Covered from any Event, both reported and unreported, both paid and not finally settled, that is the subject of this Agreement. Reinsured and Reinsurer or their respective representatives shall, within sixty (60) days thereafter by mutual agreement, determine and capitalize (i.e. reduce to a net present value) the total of such Ultimate Net Loss for each Event.

If the mutually agreed capitalized value of the Ultimate Net Loss for any Event is in excess of Reinsured’s retention for that Event, Reinsurer shall pay Reinsured the amount, subject to the coverage provided under this Agreement, of capitalized Ultimate Net Loss in excess of Reinsured’s retention for that Event less any amounts of Ultimate Loss previously paid by Reinsurer to Reinsured for that Event.

If mutual agreement cannot be reached, then any difference shall be settled by an appraisal made by a panel of three actuaries, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an actuary within thirty (30) days of a written request from the other party to appoint an actuary, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of a third actuary within thirty (30) days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.

All the actuaries shall be regularly engaged in the valuation of Workers’ Compensation claims and shall be Fellows of the Casualty Actuarial Society or Members of the American Academy of Actuaries. None of the actuaries shall be under the control of either party to this Agreement.

Each party shall submit its case to its chosen actuary within thirty (30) days of the appointment of the third actuary. The decision in writing of any two appointed actuaries, when filed with the parties hereto, shall be final and binding on all parties participating in the appraisal and judgment may be entered hereon in any court of competent jurisdiction.

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The expense of the actuaries and of their appraisal shall be equally divided between the Reinsured and the Reinsurer. The appraisal shall take place in New York City unless some other place is mutually agreed upon by Reinsured and Reinsurer.

Payment by Reinsurer of the amount of capitalized Ultimate Net Loss in excess of Reinsured’s retention for any Event less any amounts of Ultimate Net Loss previously paid by Reinsurer to Reinsured for that Event, whether determined by mutual agreement or by the appraisal procedure set forth above, shall constitute a complete and final release of Reinsurer of all claims by Reinsured for Ultimate Net Loss, both reported and unreported, paid and incurred, for that Event. If the capitalized Ultimate Net Loss for any Event is determined to be below the retention, whether by mutual agreement or the appraisal procedure set forth above, such determination shall constitute a complete and Final release of Reinsurer for all claims by Reinsured for Ultimate Net Loss, both reported and unreported, paid and incurred, for that Event.

ARTICLE XXV — UNAUTHORIZED REINSURANCE (BRMA55I)

(Applies only to a Reinsurer who does not qualify for full credit with any insurance regulatory authority having jurisdiction over the Reinsured’s reserves.)

As regards policies or bonds issued by the Reinsured coming within the scope of this Contract, the Reinsured agrees that when it shall file with the insurance regulatory authority or set up on its books reserves for losses covered hereunder which it shall be required by law to set up, it will forward to the Reinsurer a statement showing the proportion of such reserves which is applicable to the Reinsurer. The Reinsurer hereby agrees that it will apply for and secure delivery to the Reinsured of a clean, irrevocable and unconditional Letter of Credit, issued by a bank, and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Reinsured’s reserves in an amount equal to the Reinsurer’s proportion of reserves in respect of known outstanding losses that have been reported to the Reinsurer and allocated loss adjustment expense relating thereto, and losses and allocated loss adjustment expense paid by the Reinsured but not recovered from the Reinsurer, as shown in the statement prepared by the Reinsured (hereinafter referred to as “Reinsurer’s Obligations”). Under no circumstances shall any amount relating to reserves in respect of incurred but not reported losses be included in the amount of the Letter of Credit.

The Letter of Credit 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 thirty (30) days prior to any expiration date the issuing bank shall notify the Reinsured by certified or registered mail that the issuing bank elects not to consider the Letter of Credit extended for any additional period.

The Reinsurer and Reinsured agree that the Letters of Credit 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 Reinsured or any successor, by operation of law, of the Reinsured including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Reinsured for the following purposes, unless otherwise provided for in a separate Trust Agreement:

(a) to reimburse the Reinsured for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and which has not been otherwise paid;

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ARTICLE XXVIl — SUBROGATION

Reinsurer shall be credited with subrogation (i.e. reimbursement obtained or recoveries made by Reinsured, less the actual cost, excluding salaries of officers and employees of the Reinsured and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recoveries) on any claims or settlements involving this Agreement. Subrogation and salvage shall always be used to reimburse the excess Reinsurers in the reverse order of their priority according to their participation in the Ultimate Net Loss before being used in any way to reimburse Reinsured for its portion of the Ultimate Net Loss under its retention. Reinsured will reasonably enforce its rights to subrogation and salvage and will reasonably prosecute all claims arising out of those rights. In the event Reinsured shall refuse or neglect to enforce its rights to salvage or subrogation, Reinsurer is authorized and empowered to bring any appropriate action in the name of Reinsured or its policyholder or otherwise to enforce those rights and Reinsured shall cooperate fully with Reinsurer enforcing those rights. Reinsured and Reinsurer shall share in the cost and expense of any unsuccessful subrogation efforts in the same proportion that Reinsured and Reinsurer shared the Ultimate Net Loss giving rise to those subrogation efforts.

ARTICLE XXVIII — INTERMEDIARY

Patriot Re International Inc., of 400 Northampton Street, Easton, Pennsylvania 18042, is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications (including, but not limited to, notices, statements, premiums, return salvages and loss settlements relating hereto shall be transmitted to the Reinsured or the Reinsurer through Patriot Re International Inc., of 400 Northampton Street, Easton, Pennsylvania 18042. Payments by the Reinsured to the Intermediary shall constitute payment to the Reinsurer to the extent of such payments. Payments by the Reinsurer to the Intermediary shall constitute payment to the Reinsured only to the extent that such payments are actually received by the Reinsurerd.

ARTICLE XXIX — ENTIRE AGREEMENT CLAUSE

The entire agreement between the Reinsured and the Reinsurer is contained in this Agreement, including the Reinsuring agreements, exclusions and conditions.

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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this                      day of                     , 2007.

REINSURERS LISTED IN INTERESTS AND LIABILITIES AGREEMENT:

By:
	Name of Officer
Title:

Page 17 of 19

EXHIBT A
(Nuclear Risk Exclusion)

This Agreement does not apply to “Ultimate Net Loss” 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;

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 nay one or more of

Page 18 of 19

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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N076242

INTERESTS AND LIABILITIES AGREEMENT

It is hereby agreed by and between

GUARANTEE INSURANCE COMPANY
FORT MILL, SOUTH CAROLINA
(hereinafter referred to as the “Reinsured”)

Various Lloyd’s Underwriters
(hereinafter referred to as the “Reinsurer”)

The Reinsurer shall have a 75.00% part of 100.00% share of the Interests and Liabilities of the “Reinsurer” as set forth in the attached Agreement entitled:

WORKERS COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT

Effective: January 1^st, 2007

This Agreement shall become effective at 12.01 a.m., Local Standard Time, at the place of loss, January l^st 2007 and ending at 12.01 a.m., Local Standard Time, at the place of loss, January l^st 2008 with respect to losses occurring on in force, new, renewal and anniversary business occurring during that period in accordance with the provisions of the attached Agreement.

The share of the Reinsurer in the interests and liabilities with respect to said Agreement shall be separate and apart from the share of the other Reinsurers and the interests and liabilities of the Reinsurer shall not be joint with those of the other Reinsurers and the Reinsurers shall in no event participate in the interests and liabilities of the other Reinsurers. This Agreement contains a binding arbitration provision which may be enforced by the parties.

(SEAL)

IN WITNESS WHEREOF, the parties hereto by their respective duly authorised officers have executed this Agreement in duplicate as of the date under mentioned at:

this	day of	2007
			For and on behalf of: THE REINSURED

and at London, England,

this day of 2007

For and on behalf of: VARIOUS                      UNDERWRITERS.
(as per Schedule attached)

(SEAL)

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SIGNING SCHEDULE
ATTACHING TO AND FORMING PART OF THE
WORKERS COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT NO. N076242
EFFECTIVE: LOCAL STANDARD TIME, JANUARY 1, 2007
In the name of
GUARANTEE INSURANCE COMPANY

BUREAU REFERENCE 61912 26/01/07 BROKER NUMBER 0518

PROPORTION			UNDERWRITER'S
%	SYNDICATE		REFERENCE
14.29		435	80494453
10.71		4472	1149090107FC
14.29		2987	BA442S07B000
7.14		2003	CH4000126284
7.14		570	W2XQHDU07AXX
7.14		1084	49616V07AA
14.29		1200	1406507AR000
TOTAL LINE	No. OF SYNDICATES
75.00		7

THE LIST OF UNDERWRITING MEMBERS
OF LLOYDS IS IN RESPECT OF 2007
YEAR OF ACCOUNT

Page 1 of 1

N076242

INTERESTS AND LIABILITIES AGREEMENT

It is hereby agreed by and between

GUARANTEE INSURANCE COMPANY
FORT MILL, SOUTH CAROLINA
(hereinafter referred to as the “Reinsured”)

Aspen Insurance UK Ltd
(hereinafter referred to as the “Reinsurer”)

The Reinsurer shall have a 25.00% part of 100.00% share of the Interests and Liabilities of the “Reinsurer” as set forth in the attached Agreement entitled;

WORKERS COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT

Effective: January 1st, 2007

This Agreement shall become effective at 12.01 a.m., Local Standard Time, at the place of loss, January 1^st 2007 and ending at 12.01 a.m., Local Standard Time, at the place of loss, January 1^st 2008 with respect to losses occurring on in force, new, renewal and anniversary business occurring during that period in accordance with the provisions of the attached Agreement.

The share of the Reinsurer in the interests and liabilities with respect to said Agreement shall be separate and apart from the share of the other Reinsurers and the interests and liabilities of the Reinsurer shall not be joint with those of the other Reinsurers and the Reinsurers shall in no event participate in the interests and liabilities of the other Reinsurers. This Agreement contains a binding arbitration provision which may be enforced by the parties.

(SEAL)

IN WITNESS WHEREOF, the parties hereto by their respective duly authorised officers have executed this Agreement in duplicate as of the date under mentioned at:

this	day of	2007
			For and on behalf of: REINSURED

and at London, England,

this                 day of                                       2007

For and on behalf of: VARIOUS                      UNDERWRITERS.

(as per Schedule attached)

(SEAL)

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SIGNING SCHEDULE
ATTACHING TO AND FORMING PART OF THE
WORKERS COMPENSATION EXCESS OF LOSS
REINSURANCE AGREEMENT NO. N076242
EFFECTIVE: LOCAL STANDARD TIME, JANUARY 1, 2007
In the name of
GUARANTEE INSURANCE COMPANY

BUREAU REFERENCE 0701260003747

PROPORTION
%	CODE		MEMBER COMPANY AND REFERENCE
25.0000000		A8408	ASPEN INSURANCE UK LIMITED U07433607A0X
25.0000000		%	TOTAL

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Arthur J. Gallagher (UK) Limited                     

Gallagher Global Risks

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Patriot Re International Inc	17th December 2007
400 Northampton Street
Eastern
Pennsylvania 18042
U.S.A.

ADDENDUM NO. 1 TO COVER NOTE NO. N076242

TYPE:	Excess of Loss Reinsurance — $10m xs $10m Layer
REINSURED:*	Guarantee Insurance Company
ORIGINAL PERIOD:	12 months at 1st January 2007

In accordance with your instructions, coverage evidenced by Cover Note No: N076242 has been amended as set out herein.

It is hereby noted and agreed by Reinsurers hereon, that this contract of Reinsurance is extended to expire 1^st July 2008 and will therefore cover losses occurring during the period commencing 12.01am LST at the place of loss 1^st January 2007 and ending 12.01 am LST at the place of loss, 1^st July 2008.

In consideration of the aforementioned extension, an Additional Deposit Premium of USD 310,500 is due payable 50% at 1^st January 2008 and 50% 1^st April 2008, and is subject to adjustment at existing terms and conditions.

The early Commutation provision as contained herein will now apply, if invoked, at 12 months from the revised expiry date.

Information

Estimated Subject Gross Net Earned Premium Income for the extended period (i.e. 1^st Jan 2008 to 1^st July 2008 inclusive) is USD 45,000,000.

All other terms, clauses and conditions shall remain unaltered.

Please examine this Addendum carefully and advise us immediately if it is incorrect or does not meet with your requirements. You are reminded that the Duty of Disclosure applicable to this contract is equally applicable to any Addendum.

For and on behalf of
Arthur J. Gallagher (UK) Ltd.

Authorised Signatory	Authorised Signatory

EX-10.32

Exhibit 10.32

QUOTA SHARE REINSURANCE AGREEMENT
(hereinafter referred to as the “Agreement”)
GIC-005/2007
between

GUARANTEE INSURANCE COMPANY
(hereinafter referred to as the “Company”)

and

NATIONAL INDEMNITY INSURANCE COMPANY
(hereinafter referred to as the “Reinsurer”)

ARTICLE I-BUSINESS COVERED

All statutory benefits payable under Part One Section A Limit and Part Two Section B Limit of a Standard Workers’ Compensation Policy.

This Agreement is to indemnify the Reinsured as set forth herein in respect of the net excess liability which may accrue to the Reinsured under all policies, Agreements, binders and other evidences of insurance or reinsurance, whether oral or written (hereinafter called “policies”), classified by the Reinsured as Traditional Workers’ Compensation becoming effective on and after the inception date of this Agreement, including renewals.

ARTICLE II -EXCLUSIONS

This Agreement excludes all Ultimate Net Loss arising from the following and further amplified by Schedule 1 NCCI Class Code identifications:

1.	Assumed reinsurance, except one hundred percent (100%) of business ceded by fronting insurance companies.
2.	Liability of the Reinsured arising by Agreement, operation of law or otherwise from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guarantee funds, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligation or an insurer or its successors or assigns which has been declared by any competent authority to be insolvent or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.
3.	Business excluded by the attached Exhibit A, Nuclear Incident Exclusion Clause — Liability- Reinsurance — U.S.A., No, 08-31-1.

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4.

Pools, associations and syndicates, except that losses from assigned risk plans or similar plans are not excluded.

5.

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 Act of 2002 (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 Agreement, this Agreement 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 agreement 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.

6.	Financial guarantee and insolvency.
7.	War Risks as defined and excluded by the North American War Exclusion Clause (Reinsurance) BRMA 56A.
8.	Risks with known occupational disease exposures per NCCI D & E codes.
9.	Operations requiring coverage under the Defense Base Act, Admiralty Act or any other Federal act including but not limited to the Jones Act, FELA or USL&H, except where incidental. (“incidental” to be defined as less than 10% of an individual insurer’s premium).
10.	Commercial airline crews.
11.	Risks involving known exposure to the following substances: Dioxin, Polychlorinated biphenyls (PCB’s) and Asbestos.
12.	Mining either above or below ground.
13.	Construction of bridges, tunnel or dams.

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14.	Fire fighters and police officers.
15.	Railroads, except scenic railways, and access lines and industrial aid owner operations when written as an incidental part of an insured’s overall operations.
16.	No known wrecking or demolition of buildings of structures in excess of three stories.
17.	Manufacturing, packing, handling, shipping, storage or loading into containers of explosives, substances intended for use as an explosive, ammunitions, fuses, arms, magnesium, propellant charges, detonating devices, fireworks, nitroglycerine, celluloid, or pyroxylin; however, this exclusion shall not apply to the incidental packing, handling, or storage of same in connection with the sale or transportation by owner operators of such substance;
18.	Trucking hauling explosives or ammunition (local or long distance hauling) — all employees.
19.	Manufacturing, packing, handling, shipping or storage of natural or artificial fuel gasses, 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.
20.	Gas or oil burner installation NOC.
21.	Gasoline Service Stations tank installations.
22.	Blasting of rock.
23.	Sewer construction all operations.
24.	Gas main, steam main, or water main construction or connection construction.
25.	Boat manufacturing F classes.
26.	Banks and trust company employees of contracting agencies in bank service: guards, patrol, messengers or armored car crews.
27.	Detective agency.
28.	Patrol agency only in regard to armed guard services.
29.	Alternative Market business including PEO’s.
30.	Risks principally domiciled in the states of Georgia, South Carolina and Indiana.

ARTICLE III — PERIOD AND CANCELLATION

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This Agreement shall be effective effective July 1, 2007, for new and renewal policies of the Company attaching on or after 12:01 a.m. Local Standard Time, July 1, 2007 through June 30, 2008, both days inclusive.

Termination on a run-off basis until the natural expiration of all policies subject to this Agreement. Run-off not to exceed 12 months from the termination of this Agreement plus odd time not to exceed 18 months in all.

ARTICLE IV — AMOUNT OF COVER

50% Quota Share of the first $500,000 Ultimate Net Loss each and every Loss Occurrence, inclusive of original deductibles regardless of the number of policies or programs involved. Allocated Loss Adjustment Expense included in Ultimate Net Loss.

ARTICLE V — TERRITORY

Losses arising out of Policies written and issued in the U.S.A., its territories and possessions, excluding losses arising out of policies written and issued in the States of Georgia, South Carolina or Indiana.

ARTICLE VI — CEDING COMMISSION:

Ceding Commission shall be 25% of Gross Subject Written Premium collected by the Company and ceded to Reinsurers.

ARTICLE VII — PREMIUM:

The Company shall cede and pay to the Reinsurer its proportionate share of the Gross Subject Written Premium collected by the Company and ceded to Reinsurers on business subject to this Agreement. When so requested, the Company will afford the Reinsurer an opportunity to be associated with Company, at the expense of the Reinsurer, in the collection of premiums; and the Company and the Reinsurer shall co-operate in every respect in the collection of premiums.

ARTICLE VIII — OTHER REINSURANCE:

The Company shall be permitted to deduct 100% of the cost of excess reinsurance from the Gross Subject Written Premium ceded hereunder. The cost of reinsurance is deemed to be 10% for the duration of this Agreement.

ARTICLE IX — REPORTS AND REMITTANCES:

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.	Gross Subject Written Premium;
2.	Gross Subject Written Premium Collected.
3.	Ceding commission on Gross Subject Written Premium collected and other reinsurance charge allocable to Gross Subject Written Premium collected.
4.	Paid loss and paid Allocated Loss Adjustment Expense;
5.	Outstanding losses and outstanding Allocated Loss Adjustment Expense;

The Company shall remit the positive balance of (2) less (3) less (4), 45 days after the end of each month.

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Negative balances shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company’s report.

ARTICLE X — DEFINITIONS

A.	“Policy” as used in this Agreement shall mean any binder, policy or contract of insurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company.
B.	“Gross Subject Written Premium” is Written Manual Premium adjusted for experience and schedule credit/debit modification, State/NCCI safety credit, and other allowable credits, premium discount, deductible credits, expense constants and policy fees, less returns and cancellations for policies covered by this agreement.
C.	“Loss adjustment expense” as used herein shall mean expenses allocable to the investigation, defense and/or settlement of specific claims, including litigation expenses and post-judgment interest, but not including any legal expense and cost incurred by the Reinsured in connection with coverage questions and legal actions connected thereto, office expense or salaries of the Reinsured’s regular employees.
D.	Except for losses arising from Occupational Disease or Cumulative Trauma (as defined below), “Loss Occurrence” as used in this Agreement shall mean any one accident, disaster, casualty or loss or series of accidents, disasters, casualties or losses arising out of or caused by one event.
	With respect to Occupational Disease or Cumulative Trauma, all losses arising from each employee shall be deemed a separate “Loss Occurrence”. The date of loss for each Loss Occurrence shall be the date when the compensable disability of the employee commences, or if there is no such disability, when the medical treatment commences. All Occupational Disease or Cumulative Trauma losses of one specific kind or class suffered by more than one employee of the same employer shall be added together and deemed a separate Loss Occurrence. The date of loss for each Loss Occurrence shall be the date the first claim is made to the Company. There shall only be one date of loss for all Occupational Disease or Cumulative Trauma losses of one specific kind or class suffered by more than one employee of the same employer, regardless of the number of employees, claims or policies involved.
	“OCCUPATIONAL DISEASE” is any abnormal condition that fulfills all of the following conditions:

1.	It is not traceable to a definite compensable accident occurring during the employee’s past or present employment.
2.	It has been caused by exposure to a disease producing agent or agents present in the workers occupational environment.
3.	It has resulted in disability or death.

“CUMULATIVE TRAUMA” is an injury that fulfills all of the following conditions:

1.	It is not traceable to a definite compensable accident occurring during the employee’s past or present employment.
2.	It has occurred from and has been aggravated by a repetitive employment related activity.
3.	It has resulted in a disability or death. “Loss Occurrence” as used in this Agreement shall mean any one accident, disaster, or casualty or series of accidents, disasters, or casualties arising out of one event.

E. “Collected Premium” Gross Subject Written Premium collected by the Company pursuant to premium payment plans wherein policy premiums are paid to the Company on a less-than-annual

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	basis; however, in no event shall the Reinsurer be liable for policy premiums that are uncollectible from original insureds, regardless of the reason for uncollectibility, and all such uncollectible amounts shall be deemed collected by the Company when due to the Company or its agents, whichever occurs first in time, and accordingly remitted to the Reinsurer.
F.	The term “Insured” means the named insured in any of the Policies.

ARTICLE XI — ULTIMATE NET LOSS

“Ultimate Net Loss” as used in this Agreement shall mean the actual loss paid by the Company or for which the Company becomes liable to pay, such loss to include 90% of any Extra Contractual Obligations amount as defined in the Extra Contractual Obligations Clause, and all Loss Adjustment Expense of the Company including subrogation, salvage, and recovery expenses. Salvages and all recoveries, including recoveries under all reinsurances which inure to the benefit of this Agreement (whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder.

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.

Nothing in the clause shall be construed to mean that losses are not recoverable hereunder until the Company’s Ultimate Net Loss has been ascertained.

ARTICLE XII — LOSS NOTICES AND SETTLEMENTS

The Company will advise the Reinsurer promptly of all losses and any subsequent developments pertaining thereto, which may in its opinion develop into losses involving reinsurance hereunder.

The liability of the Reinsurer shall follow that of the Company’s in every case, except as specifically noted herein, and shall be subject in all respects to all the general and special stipulations, clauses, good faith waivers, and modifications of the Company’s policies. All good faith loss settlements made by the Company, provided they are within the terms of this Agreement, shall be unconditionally binding upon the Reinsurer and the Reinsurer’s share shall be payable upon receipt and verification of reasonable evidence given by the Company.

When so requested, the Company will afford the Reinsurer an opportunity to be associated with Company, at the expense of the Reinsurer, in the defense of any claim of suit or proceeding involving this Reinsurance; and the Company and the Reinsurer shall co-operate in every respect in the defense of such claim or suit or proceeding.

ARTICLE XIII — TAXES

In consideration of the terms under which this Agreement is issued, the Company undertakes not to claim any deduction of the premium hereon 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.

ARTICLE XIV — CURRENCY

All retentions and limits hereunder are expressed in United States Dollars, and all premium and loss payments shall be made in United States Currency.

ARTICLE XV — ACCESS TO RECORDS

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The Reinsurers, or their duly accredited representatives, shall have the right to inspect and copy at its own expense the books and records of the Company at all reasonable times for the purpose of obtaining information concerning this Agreement of the subject matter thereof.

ARTICLE XVI — OFFSET CLAUSE

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.

ARTICLE XVII — ARBITRATION

A.	As a condition precedent to any right of action hereunder, any dispute arising out of the interpretation, performance or breach of this Agreement, 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 or registered mail, return receipt requested.
B.	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.
C.	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.
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.
E.	Within 45 days after notice of appointment of all arbitrators, the panel shall meet and determine timely periods for briefs, discovery periods and schedules for hearings.
F.	The panel shall be relieved of all judicial formality and shall not be bound by the strict rules of procedure and evidence. Unless the panel agrees otherwise, arbitration shall take place in Florida, but the venue may be changed when deemed by the panel to be in the best interest of the arbitration proceeding. Insofar as the arbitration panel looks to substantive law, it shall consider the law of the State of Florida. The decision of any two arbitrators when rendered in writing shall be final and binding. The panel is empowered to grant interim relief, as it may deem appropriate.
G.	The panel shall make its decision considering the custom and practice of the applicable insurance and reinsurance business within 60 days following the termination of the hearings. Judgment upon the award may be entered in any court having jurisdiction thereof.
H.	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. The remaining 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.

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ARTICLE XVIII — INSOLVENCY

In the event of the insolvency of the Company or the Reinsurer (the “Insolvent Party”), premiums and losses shall be payable directly to the Insolvent Party or its liquidator, receiver, conservator or statutory successor on the basis of the liability of the Insolvent Party without diminution because of the insolvency of the Insolvent Party or because the liquidator, receiver, conservator or statutory successor of the Insolvent Party shall give written notice to the other party hereto of the pendency of a claim against the Insolvent Party, indicating the Policy reinsured which claim would involve a possible liability on the part of the other party hereto with a reasonable time after such a claim is filed in the conservation, liquidation, or receivership proceedings, and that during the pendency of such claim the other party hereto may investigate such claim and interpose, as its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to the Insolvent Party or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the other party shall be chargeable, subject to the approval of the court, against the Insolvent Party as part of the expense of conservation, liquidation or receivership to the extent of a pro rata share of the benefit which may accrue to the Insolvent Party solely as a result of the defense undertaken by the other party.

ARTICLE XIX — TERMINATION DURING LOSS

Should the liability of the Reinsurer under this Agreement terminate while a loss giving rise to a claim hereunder is in progress, the Reinsurer shall be liable as if the whole loss had occurred during the term of this Agreement.

ARTICLE XX — ERRORS AND OMISSIONS

Any inadvertent error or omission on the part of either the Company or the Reinsurers shall not relieve the other party from any liability which would have attached hereunder, provided that such error or omission is rectified immediately upon discovery, and shall not impose any greater liability on the Reinsurers than would have attached hereunder if the error or omission had not occurred. This article is not intended to conflict or override the terms and conditions contained in Article XXVIII “Sunset Clause.”

ARTICLE XXI — NET RETAINED LINES

This Agreement applies only to that portion of any insurance or reinsurance which the Company retains net for its own account, inclusive of underlying reinsurance. In calculating the amount of any loss hereunder, only loss or losses in respect of that portion of any insurance or reinsurance which the Company retains net for its own account, inclusive of underlying reinsurance, shall be included.

The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason or the inability of the Company to collect from any other reinsurers, whether specific or general, any amount of which may have become due from them, whether such inability from the insolvency of such other reinsurers or otherwise.

ARTICLE XXII — SALVAGE AND SUBROGATION:

The Reinsurer shall be credited with its proportionate share of salvage and subrogation recoveries (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder.

ARTICLE XXIII — CHANGE IN ADMINISTRATIVE PRACTICES

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The Company undertakes not to introduce any material change in its administrative practices, corporate structure, domicile or established acceptance and underwriting policy in respect of the business covered hereunder without prior approval of the Reinsurers.

ARTICLE XXIV — EXTRA CONTRACTUAL OBLIGATIONS

This contract shall protect the Company within the limits hereof, where the ultimate not loss includes any Extra Contractual Obligations. The term “Extra Contractual Obligations” is defined as those liabilities not covered under any other provision of this Contract and which 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 of prosecution of an appeal consequent upon such action.

The date on which any Extra Contractual Obligation is incurred by the Company shall be deemed, in all circumstances, to be the date of the original disaster and/or casualty.

However, this Article shall not apply where the loss has been incurred due to fraud by a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in the collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

ARTICLE XXV — NON-WAIVER CLAUSE

The failure of the Company or the Reinsurer to insist on compliance with this Agreement 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 XXVI — INSOLVENCY FUND EXCLUSION

It is agreed that this Contract excludes all 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 guarantee fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

ARTICLE XXVII — MANDITORY COMMUTATION CLAUSE

Not later than eighty-four (84) months after the commencement of the Term of this Agreement, Company shall advise Reinsurer of the amount of all Ultimate Net Loss for all claims from Business Covered from any Loss Occurrence, both reported and unreported, both paid and not finally settled, that is the subject of this Agreement. Company and Reinsurer or their respective representatives shall, within sixty (60) days thereafter by mutual agreement, determine and capitalize (i.e. reduce to a net present value) the total of such Ultimate Net Loss for each Loss Occurrence.

Once the mutually agreed capitalized value of the Ultimate Net Loss for each Loss Occurrence is agreed, the Reinsurer shall pay the Company its proportionate share of each Loss Occurrence, subject to the coverage provided under this Agreement.

If mutual agreement cannot be reached, then any difference shall be settled by an appraisal made by a panel of three actuaries, one to be chosen by each party and the third by the two so chosen. If either party refuses

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or neglects to appoint an actuary within thirty (30) days of a written request from the other party to appoint an actuary, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of a third actuary within thirty (30) days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.

All the actuaries shall be regularly engaged in the valuation of Workers’ Compensation claims and shall be Fellows of the Casualty Actuarial Society or Members of the American Academy of Actuaries. None of the actuaries shall be under the control of either party to this Agreement.

Each party shall submit its case to its chosen actuary within thirty (30) days of the appointment of the third actuary. The decision in writing of any two appointed actuaries, when filed with the parties hereto, shall be final and binding on all parties participating in the appraisal and judgment may be entered hereon in any court of competent jurisdiction.

The expense of the actuaries and of their appraisal shall be equally divided between the Company and the Reinsurer. The appraisal shall take place in South Carolina unless some other place is mutually agreed upon by Company and Reinsurer.

Any payment by the Reinsurer under this Article shall constitute a complete release of the Reinsurer for its liability as respect any such Loss Occurrence.

ARTICLE XXVIII — SUNSET CLAUSE

Notwithstanding the provisions of the Errors and Omissions Article of this Agreement, coverage hereunder shall apply only to Loss
Occurence(s) notified by Company to Reinsurer, with full particulars, within eighty four (84) months from the commencement of the Term of this Agreement. Notice of a Loss Occurrence shall include:

1.	The approximate time and location of the Loss Occurrence.
2.	The date of loss as established under this Agreement.
3.	The names of any original insureds that have been identified by Company, at the time of notice, as being involved in the Loss Occurrence.
4.	The current indemnity, medical and expense reserves delineated by original insured.
5.	The total payments made by the Company, delineated by original insured.

ARTICLE XXIX — ENTIRE AGREEMENT CLAUSE

The entire agreement between the Company and the Reinsurer is contained in this Agreement, including the Reinsuring agreements, exclusions and conditions.

ARTICLE XXX — INTERMEDIARY

Patriot Re International, Inc., 400 Northampton St., Easton, PA 18042 is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications (including, but not limited to, notices, statements, premium reports, return salvages and loss settlements) relating hereto shall be transmitted to the Company or the Reinsurer through Patriot Re International, Inc. Payments of Premium and Losses will be on a direct settlement basis between Company and Reinsurer.

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IN WITNESS WHEREOF, the parties hereto have caused this Contract to be signed in duplicate by their duly authorized representative.

Signed in Fort Lauderdale, Florida
This                      day of                      , 2007
ATTEST:	GUARANTEE INSURANCE COMPANY
	By:	/s/
	Title:	President
	Reference:
And signed in Stamford, CT
This 2 day of August , 2007
ATTEST:	NATIONAL INDEMNITY COMPANY
	By:	/s/ Peter [Illegible]
	Title:	ACTUARY
	Reference:	RA-2606

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SCHEDULE 1 2007

SPECIFIC BUSINESS OPERATIONS 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 those with known operations to be excluded — They are not meant to be all inclusive. They DO NOT include State specific codes which must be identified through the Scopes Manual.

Reinsurance Description of Operations to be Excluded Related Class Codes & Descriptions

Airline and Aircraft Operations-Commerical Airline Crews	7403   — Aircraft or Helicopter Air Carrier — Ground Crew
	7405   — Aircraft or Helicopter Air Carrier — Flying Crew
	7409* — Aircraft or Helicopter: Aerial Application
	7420* — Aircraft or Helicopter: Public Exhibition
	7421   — Aircraft or Helicopter: Transportation — Crew
	7422* — Aircraft or Helicopter: NOC, not Helicopters
	7423   — Aircraft or Helicopter Operation: Commuter
	7425* — Aircraft Operation — Helicopters NOC
	7431* — Aircraft or Helicopter — Commuter — Crew
	9088* — Rocket or missile testing or Launching
Asbestos Operations	1852   — Asbestos Goods Manufacturing
	5472   — Asbestos Removal Operation: Contractor
	5473   — Asbestos Removal Operation: Contractor NOC
Banks & Trust Companies: Employees of Contracting Agencies in Bank Service: Guards, Patrols, Messengers or Armored Car Crews	7720   — With this specific language (CR)
Blasting Rock	6217   — Blasting Rock — Specialist Contractor (CR)
Boat Building and Ship Building	6854* — Ship Building — Iron or Steel — NOC

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	All related “F” Classes Separately Identified**
	6843* — Ship Building Iron or Steel
	6872* — Ship Repair or Marine Railway
	6882* — Ship Repair Conversion
	8709* — Stevedoring: Talliers, Inspectors
	7016* — Vessels NOC — Program 1
	7024* — Vessels NOC — Program 2 State Act
	7038* — Boat Livery — Boats under 15 Tons — Program 1
	7046* — Vessels — Not Self-Propelled — Program 1
	7047* — Vessels — NOC — Program 2 USL Act
	7050* — Boat Livery — Boats under 15 Tons-Program 2 USL Act
	7090* — Boat Livery-Boats under 15 Tons-Program 2 State Act
	7098* — Vessels — Not Self-Propelled-Program 2 State Act
	7099* — Vessels-Not Self-Propelled-Program 2 USL Act
	7309* — Stevedoring NOC
	7313* — Ore or Coal Dock Operation
	7317* — Stevedoring by Hand or Truck
	7323* — Stevedoring Explosive Materials
	7327* — Stevedoring Containerized Freight
	7333* — Dredging — All Types — Program 1
	7335* — Dredging — All Types — Program 2 State Act
	7337* — Dredging — All Types — Program 2 USL Act
	7350* — Freight Handling & Stevedoring
Construction, operation, repair or maintenance of:	2702   — Dam or Lock Construction (CR)
Bridges	5037* — Painting Metal Structure Over Two Stories
Dams or Locks	5040* — Iron or Steel Erection — Frame Structures
Dikes or Revetments	5059* — Iron or Steel; Erection — Frame Structures
Subways	Less Than Two Stories
Sub-Aqueous Works Under Pressure	5222* — Concrete Const. In Connection w/Bridges
Tunnels	5403   — Construction: Wooden Bridges (Desc)
	6003   — Wood Bridge Construction (Desc)
	6005   — Dike or Revetment Construction (CR)
	6017   — Dam or Lock Construction: Concrete Work
	6018   — Dam or Lock Construction: Earthmoving
	6251* — Tunneling — Not Pneumatic
	6252* — Shaft Sinking
	6260* — Tunneling — Pneumatic
	7133   — Subway Operation (Desc)
	7538* — Electric Light or Power Line Construction
	7540* — Electric Light or Power Co-op;REA Project only
	9019   — Bridge or Vehicular Tunnel Operation

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Demolition or Wrecking of:	5022   — Wrecking Bldgs or Structures — Masonry (CR)
Bridges	5057* — Wrecking Bldgs/Structures — Iron or Steel (CR)
Buildings	5213   — Wrecking Bldgs or Structures — Concrete (CR)
Maritime Structures	5403   — Wrecking Bldgs or Structures — Wooden (CR)
Demolition or Wrecking of:	6003   — Wrecking of Piers or Wharfs (Desc)
Vessels	7394*, 7395* & 7398* — Marine Wrecking (CR)
Detective or Patrol Agencies	7720   — Detective or Patrol Agencies (CR). Not applicable to unarmed patrol personnel.
Firefighters	7704   — Firefighters
Gas Main, Steam Main or Water Main Construction	6319   — Gas Main or Connection Construction
Or Connection Construction	6206* — Oil or Gas Well-Cementing
	7515* — All Oil or Gas Pipeline Operation
Manufacturing, transportation, packing, handling,	3574   — Arms Mfg-Small & Cartridge Mfg (CR)
shipping, storage or loading into containers:	3632   — Projectile or Shell Mfg (CR)
Explosives (incl substance intended for use as)	4771* — Explosives or Ammunition Manufacturing
Ammunitions, fuses or arms	4777   — Explosives Distributors
Propellant charges	7228   — Hauling Explosives or Ammo — Local (CR)
Detonating devices	7229   — Hauling Explosives or Ammo — Long Dist (CR)
Fireworks	7360   — Packing/Handling/Shipping Expl or Ammo (CR)
Celluloid, magnesium, nitroglycerine or pyroxylin
Mfg, packing, handling, shipping or storage of:	4635* — Oxygen or Hydrogen Manufacturing
Natural or artificial fuel gases	4740   — Oil Refining — Petroleum
Butane or propane	8350   — Gasoline Dealer
Gasoline or liquefied petroleum gas (LPG)
Mining of All Types Including:	1005* — Coal Mining — Surface
Underground	1016   — Coal Mining NOC
Surface	1164* — Mining NOC — Not Coal — Underground
Quarrying	1165   — Mining NOC — Not Coal — Surface
	1624   — Quarry NOC
	1654   — Quarry — Cement Rock-Surface
	1655   — Quarry — Limestone — Surface (CR)
	1710   — Stone Crushing — Included by SIC
	1741* — Flint or Spar Grinding
	1803* — Stone Cutting or Polishing NOC
	4000   — Sand or Gravel Digging — Included by SIC
Oil or Gas Burner Installation	3724   — Oil or Gas Burner Installation-Commercial (CR)
	3726* — Boiler Installation or Repair
	5183   — Oil or Gas Burner Installation — Domestic (CR)
Police Officers	7720   — Police Officers

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Railroads	6702, 6703 & 6704 — RR Construction — State & Federal
Except — scenic railways and access lines	7133 — Railroad Operations NOC
industrial aid owner operations if incidental	7151 , 7152 & 7153 — RR Operations — State & Federal
	7382 — Scheduled RR Operations (CR)
	7855 — RR Construction: Laying or Relaying of Tracks
	8734, 8737, 8738 — Sales for RR ops — State & Fed
	8805, 8814 & 8815 — Clerical for RR ops — State & Fed
Sewer Construction — All Operations	6306 — Sewer Construction
	3620 — Pressure Vessel Manufacturing (Desc)
Tank Installation: Gasoline Service Stations	3724 — Tank Installation — Gas Stations (CR)

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EX-10.33

Exhibit 10.33

COLLATERAL CARRY FORWARD AGREEMENT
FOR OWNER OF SEGREGATED PORTFOLIO
IN CALEDONIAN REINSURANCE SPC

THIS COLLATERAL CARRY FORWARD AGREEMENT, dated as of the 16^th day of August, 2005 (referred to herein as the “Agreement”), is entered into by and between WESTWIND HOLDING COMPANY, LLC, a Florida limited liability corporation (referred to herein as “Shareholder”), PROGRESSIVE EMPLOYER SERVICES III, L.L.C., (referred to herein as the “Insured”), and GUARANTEE INSURANCE COMPANY, a South Carolina corporation (referred to herein as “GIC”).

WITNESSETH:

WHEREAS, the Insured is an affiliate or subsidiary of Shareholder; and

WHEREAS, the Insured is insured for certain workers’ compensation risks by GIC; and

WHEREAS, GIC additionally issues separate insurance policies to the Insured’s staffing accounts; and

WHEREAS, upon full and open discussion with GIC and such other parties as it may have deemed appropriate, Shareholder has chosen to participate in the reinsurance results of the Insured’s business insured with GIC, as a result of which Shareholder opted to establish and invest, pursuant to Cayman Islands law, in Segregated Portfolio 110 (referred to herein as “SP 110”) within CALEDONIAN REINSURANCE SPC, a Cayman Islands corporation (referred to herein as “Caledonian”), into which certain of the Insured’s insured risks will be reinsured. Pursuant to GIC’s reinsurance agreements with Caledonian and GIC’s understanding with Shareholder and the Insured, SP110 will participate in 90% of such reinsurance results, and GIC shall participate in 10% of the reinsurance results, subject to certain aggregate limits; and

WHEREAS, a requirement of said arrangement is that Shareholder or the Insured provide and maintain, on account with GIC, a certain amount of collateral during the time that the GIC policies are in effect, (referred to herein as the “Collateral Account”). The funds required to be maintained in the Collateral Account are to be determined in accordance with that certain initial Participation Agreement entered into by and between Shareholder and SP110 on or about August 16, 2004, as it may be amended, modified or renewed from time to time, (referred to herein as the “Participation Agreement”), as well as the provisions of this Agreement; and

WHEREAS, the Collateral Account may be comprised of cash, letters of credit or other financial instruments as GIC shall determine to be acceptable; and

WHEREAS, it is possible that, at any time while the policy is in effect, the Collateral Account shall have collateral that is more than the amount necessary to secure the Insured’s risks paid

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and incurred during the time while the policies covered by this Agreement are in effect (referred to herein as the “Overage” as further defined below); and

WHEREAS, it is also possible that, at any time while the policy is in effect, GIC may similarly determine that there are not sufficient funds in the Collateral Account during the time while the policies covered by this Agreement are in effect and therefore not sufficient to satisfy its collateral needs (referred to herein as the “Deficit” as further defined below); and

WHEREAS, in the event that GIC determines that there is an Overage, the Insured may carry over the Overage to have it credited and applied to the amount of collateral that GIC requires in the Collateral Account in connection with subsequent insurance coverages granted to the Insured;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Shareholder, the Insured and GIC agree as follows:

Section 1. Premium and Collateral. The Insured has paid or shall pay to GIC the premium, (referred to herein as the “Premium”), relating to the policies issued herewith and of even date herewith (referred to herein as the “the Policies”) for insurance against certain workers’ compensation risks during the policy year commencing August 16, 2005, and concluding August 15, 2006 (referred to herein as the “Current Policy Year”), which Premium is subject to adjustment over the course of the Current Policy Year depending on changes in employee enrollment at the Insured and which Premium is estimated to be $7,960,902.

For both the Prior Policy Year and the Current Policy Year, GIC has required and the Shareholder or the Insured has provided or shall provide maximum cash collateral (the “Cash Collateral”) equal to twenty percent (20%) of the Premium for each Policy Year (referred to herein as the “Overall Aggregate Limit”). The Cash Collateral for the Current Policy Year is estimated to be $1,592,180.00. Shareholder and/or the Insured agree to maintain the Cash Collateral initially in the Collateral Account at the amounts indicated below, subject to replenishment of any Deficits (as hereinafter defined) by the Shareholder and/or the Insured. The Premium has been or shall be paid in cash. The Collateral Account has been or shall be comprised of cash, letters of credit and such other financial instruments or liquid assets as shall be acceptable in kind and amount to GIC. Shareholder and/or the Insured agree to initially fund the Collateral Account as follows:

     A. Claims Under $75,000. The insurance policies for the Current Policy Year to be issued by GIC to the Insured and its affiliates and client companies will contain a $75,000.00 deductible per occurrence (the “Within the Deductible Claims”). Shareholder and/or the Insured shall pay GIC $500,000.00 in collateral to be applied by GIC to the Within the Deductible Claims, (the “Deductible Claims Collateral”), each of which claim shall not total more than $75,000.00. Said $500,000.00 shall be paid to GIC in five (5) equal monthly installments in accordance with the following schedule and amounts:

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August 16, 2005	$	100,000.00
September 16, 2005	$	100,000.00
October 16, 2005	$	100,000.00
November 16, 2005	$	100,000.00
December 16, 2005	$	100,000.00
Total:	$	500,000.00

GIC shall credit the Insured with interest on the Deductible Claims Collateral on a monthly basis (on the first day of each month) based on the Federal Reserve overnight money market rates as quoted in The Wall Street Journal from time to time during the interim that these funds shall be held by GIC.

Every thirty (30) days, GIC shall bill the Insured for claims paid within the deductible during the immediately completed preceding month. Should the Insured fail to pay such billing within the thirty (30) days following the date of GIC’s billing, GIC shall have the right to cancel and terminate the coverage in accordance with the requirements of the state in which Insured is domiciled. Furthermore, GIC will have the right to offset any other funds of the Insured’s, Shareholder’s or SP 110’s, including but limited to collateral, SP 110 profits, or any other funds available to fulfill such obligations as necessary under this Agreement.

The parties agree and acknowledge that the monies discussed in this Section 1(A) shall not constitute part of the Cash Collateral spelled out and required under the Reinsurance Agreement applicable to the current policy issued to the Insured.

     B. Claims $75,000 or Higher. Shareholder or the Insured shall pay SP 110 $200,000.00 in collateral to be applied to any and all claims totaling or exceeding $75,000.01 (the “Excess Claims”), the pro rata portion of which shall have been sent to SP 110 by GIC in accordance with that certain Reinsurance Agreement between Shareholder and GIC, for which portion SP 110 is responsible to GIC in accordance with said Reinsurance Agreement. Shareholder or the Insured shall pay said $200,000.00 to SP 110 in five (5) equal monthly installments in accordance with the following schedule and amounts:

August 16, 2005	$	40,000.00
September 16, 2005	$	40,000.00
October 16, 2005	$	40,000.00
November 16, 2005	$	40,000.00
December 16, 2005	$	40,000.00
Total:	$	200,000.00

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In addition, Shareholder and/or the Insured shall pay GIC, within ten (10) business days of GIC’s notification to them, any Deficit in the Collateral Account resulting from the application of development factors set forth in Section 3(B) of this Agreement.

The parties agree and acknowledge that the $200,000.00 shall constitute part of the Cash Collateral for the Current Policy Year and shall be credited to the Collateral Account immediately upon being paid by Shareholder or the Insured.

Section 2. SP 110. GIC shall cede reinsurance to SP110 as set forth the Reinsurance Agreement entered into by and between GIC and SP 110 in connection herewith.

Section 3.1. Policy Renewal, Overage and Deficit. The Insured has renewed the above-described coverage with GIC and Shareholder is continuing its participation in SP 110. The Insured was previously covered and participated as indicated above during the policy year that commenced August 16, 2004 and concluded August 15, 2005, (the “First Policy Year”). In that regard, Shareholder and/or the Insured were similarly required to maintain a certain level of collateral in the Collateral Account. GIC shall determine the level needed in the Collateral Account for the Current Policy Year utilizing the following guidelines, it being understood and agreed that references below to aggregate limits shall apply only to the Excess Claims and not in the case of the Within the Deductible Claims:

     A. If at any time GIC determines that an Overage exists in the Collateral Account, that Overage shall be carried over, applied and credited to the new amounts that Shareholder or the Insured will be required to deposit in the Collateral Account in connection with the issuance of a new policy or the continuation of an existing policy. If at any time GIC determines that a Deficit exists, Shareholder or the Insured shall, within ten (10) business days of being so notified by GIC, replenish the Collateral Account to the amount of the Deficit. GIC’s determination shall consider the following:

1. Collateral Requirements. The Collateral Account has been established for the purpose of paying the Insured’s quota share of the losses, (the “Insured’s Quota Share Losses”), applicable to the policies which GIC has issued to the Insured”. Subject to an aggregate limit of $1,000,000 per occurrence (the “Per Occurrence Aggregate limit”) and the Insured and/or Shareholder shall be required to fund the Collateral Account to pay the Insured’s Quota Share Losses, for both policy years, which shall equal the sum of the following, multiplied by 90%:

a.	With respect to the First Policy Year, claims and expenses (including, but not limited to, so-called incurred but not reported claims and related expenses) attributable to the policies which GIC has issued to the Insured, up to the Per Occurrence Aggregate Limit or the Overall Aggregate Limit for the First Policy Year, whichever is less.
b.	With respect to the Current Policy Year, claims and expenses (including, but not limited to, so-called incurred but not reported claims and related

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expenses) attributable to the policies which GIC has issued to the Insured that are in excess of $75,000 per occurrence, but less than the Per Occurrence Aggregate Limit, up to the Overall Aggregate Limit for the Current Policy Year, whichever is less.

2. Calculation of “Net Ceded Premium”. “Net Ceded Premium” shall be defined as 90% of the following amounts:

a.

With respect to the First Policy Year, the amount paid as gross premium by the Insured to GIC for the First Policy Year, less the portion thereof attributable to fixed costs (“Fixed Costs), which shall be defined as policy taxes, and GIC’s underwriting, fronting, claims handling, captive and reinsurance fees. As agreed to by the Insured and GIC prior to commencement of the First Policy Year, Fixed Costs for the First Policy Year constitute approximately 37% of gross premium remitted by the Insured to GIC for the First Policy Year.

b.

With respect to the Current Policy Year, the Collateral Account will be credited with the amount paid as gross premium by the Insured to GIC for the Current Policy Year, less the portion thereof attributable to Fixed Costs. As agreed to by the Insured and GIC contemporaneously herewith, Fixed Costs for the Current Policy Year constitute approximately 38% of gross premium to be remitted by the Insured to GIC for the Current Policy Year. Attached hereto and incorporated herein is a premium rating algorithm for the Current Policy Year.

3.

Balance of Collateral Account. The Collateral Account shall be credited with Net Ceded Premium for the First Policy Year, Net Ceded Premium to be paid during the Current Policy Year, and all investment income attributed to SP110. The Collateral Account shall be debited with the amount of any dividends related to SP 110 that have been paid to Shareholder, and with any funds withdrawn to pay the Insured’s Quota Share Losses.

4.

Calculation of “Overage” or Deficit.” If the balance of the Collateral Account for both policy years, plus funds previously withdrawn to pay the Insured’s Quota Share Losses, exceeds the amount of the Insured’s Quota Share Losses attributable to both policy years, the difference thereof shall be defined as an “Overage”. If the balance of the Collateral Account for both policy years, plus funds previously withdrawn to pay the Insured’s Quota Share Losses, is less than the amount of the Insured’s Quota Share Losses attributable to both policy years, the difference thereof shall be defined as a “Deficit”. If a Deficit exists, Shareholder or the Insured shall be required to add to the Collateral Account adequate funds, as determined by GIC in accordance herewith, to eliminate the Deficit. The calculation of whether an Overage

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or a Deficit exists may be made by GIC at any time, and Shareholder and/or the Insured agree to fund the Collateral Account to eliminate any Deficit by funding the Collateral Account within ten (10) business days after receiving such notification from GIC, provided however, that at no time shall the Insured or Shareholder be obligated to make any payment to the Collateral Account if such payment will result in the payment of Cash Collateral in excess of the Overall Aggregate Limit. Likewise, in the event an Overage exists, the Insured shall be entitled to a credit that may be applied against future Cash Collateral requirements of the Insured.

5.

Application of Industry Standards. In all circumstances, incurred losses and claim reserves shall be established and determined in accordance with industry standards. Notwithstanding anything that may be contained herein to the contrary, for purposes of determining the existence of Overages and Deficits as defined by this Agreement, the Insured’s risks, paid and incurred, shall be calculated and determined by taking the incurred losses of the Insured for each policy year to which this Agreement applies, multiplied by the applicable incurred loss development factors promulgated or approved by the National Council on Compensation Insurance, (“NCCI”), for the State of Florida (or the applicable state to which the Insured’s claims relate) for each respective policy year. If NCCI has not promulgated factors for any applicable period, then extrapolated NCCI factors shall be applied.

     B. If, at any time after crediting the Overage to the Collateral Account, the Insured’s loss and/or expense development subsequently deteriorates in cases attributable to past policies, or actual losses or expenses subsequently occur that are attributable to past policies, GIC may withdraw and apply the amount of the Overage and other funds and assets from the current Collateral Account necessary to cover such loss and/or expense deterioration or actual losses and/or expenses. Shareholder and the Insured acknowledge that, in such event, GIC may require Shareholder or the Insured to replenish the Collateral Account to the level it stood before the requisite amount of the Overage and, if applicable, other funds and assets, were withdrawn to cover the past loss and/or expense deterioration or actual losses and/or expenses. Shareholder and the Insured additionally acknowledge that, in the event of a Deficit that cannot be funded by the return of the Overage, GIC may also require Shareholder and/or the Insured to fund the Collateral Account to levels necessary to address the deterioration of losses and expenses. Shareholder and the Insured agree to replenish such amount within the aforementioned ten (10) business days after receiving notification from GIC. At all times, GIC shall make available to Insured and/or Shareholder all related records for Shareholder’s or the Insured’s review. Further, GIC shall provide Shareholder with accountings of the balance of the Collateral Account no less than monthly. Notwithstanding anything contained herein to the contrary, at no time shall the Insured or Shareholder be obligated to replenish any Deficit or pay any funds into the Collateral Account if such payment will result in the payment of Cash Collateral in excess of the Overall Aggregate Limit.

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C. As of six (6) months after the expiration or earlier termination of the policies for the Current Policy Year, and as of every six (6) months thereafter, (the “Evaluation Dates”), GIC shall calculate whether or not an Overage or Deficit exists. Within thirty (30) days after each Evaluation Date, GIC shall provide the Insured and/or Shareholder with a detailed accounting, which shall include a calculation of the amounts held in the Collateral Account and the amount of the Insured’s Quota Share Losses as of the particular Evaluation Date. With respect to the Insured’s Quota Share Losses, the accounting shall include a breakdown that itemizes the reserves, amounts paid, amounts incurred and loss development factors applied. In the event an Overage exists, GIC further agrees to use reasonable best efforts to assist shareholder in obtaining any dividends it is entitled to from Caledonian in connection with SP110’s reinsurance results. To the extent, if any, that Shareholder does not receive within sixty (60) days after each Evaluation Date any SP110 dividends that it is entitled to as a result of the Participation Agreement, GIC agrees that Shareholder or the Insured shall have the right to have such dividends credited to any future sums due to GIC until such dividends are paid.

Section 3.2. Deductible Claims Collateral. As of each Evaluation Date, and in addition to the accounting required above, GIC shall also provide the Insured with an accounting of the then existing balance of the Deductible Claims Collateral, plus earned interest, (the “Deductible Collateral Account”), and a statement reflecting the amount of outstanding reserves within the Insured’s deductible limits of $75,000 per occurrence, (the “Deductible Reserves”). The Deductible Reserves shall be calculated by:

A.	Taking the incurred amount of the Insured’s Quota Share Losses attributable to the Current Policy Year, (the “Developed Loss Amount”), which is already inclusive of increases due to the application of the then applicable NCCI loss development factors for the particular Evaluation Date;
B.	Subtracting the portion of the Developed Loss Amount that is in excess of the Insured’s deductible limits of $75,000 per occurrence; and
C.	Subtracting the amounts previously paid by the Insured to GIC for losses within the Insured’s deductible limits of $75,000 per occurrence.

If the amount in the Deductible Collateral Account exceeds the amount of the Deductible Reserves as of any Evaluation Date, then GIC shall return, release or otherwise credit to the Insured the amount of such excess no later than forty-five (45) days after the Evaluation Date.

Section 4. Indemnification. Shareholder and the Insured acknowledge that, in the insurance business, losses, expenses and reserves established to cover losses are best estimates as to what those losses, expenses and reserves will be or should be. In this regard, Shareholder and the Insured acknowledge that losses, expenses and reserves are final and definite only upon the full and final settlement of the claim to which they pertain. As a result, Shareholder and the Insured agree to jointly or severally indemnify and hold GIC harmless from and against any

7

such estimates and agree to be bound by, and respond with regard to, any additional premium or collateral that GIC, in its best judgment, determines are necessary, as well as the loss, expense or reserve amounts as they turn out to be on final settlement of the claim to which they pertain.

Section 5. Final Settlement. Once a policy has lapsed, run off and reached its end, the parties hereto will, using the calculations referred to above, effect a final settlement with regard to the coverage provided under the particular policy under consideration, as affected by the terms and conditions of the Reinsurance Agreement. Such final settlement shall include a final determination as to whether GIC is owed additional Premium or Cash Collateral, or whether Shareholder is entitled to a dividend from SP 110.

Section 6. Term. This Agreement shall be for a term of one (1) year from August 16, 2005, and shall run concurrently with such insurance and continue until such insurance is run off, cancelled, lapsed or not renewed.

Section 7. Notices. All notices, requests, demands and other communications hereunder must be in writing and shall be deemed to have been duly given when delivered by hand, mailed by first class, certified mail, return receipt requested, postage and certificate fees prepaid, or by overnight mail service, fees prepaid, and addressed as follows:

          A. If to Shareholder or the Insured:

Westwind Holding Company, LLC
7560 Commerce Court
Sarasota, FL 33243
Attn: Steven F. Herrig

          B. If to GIC:

Guarantee Insurance Company
1061 521 Corporate Center Drive
Fort Mill, SC 29715
Attn: Marvin J. Cashion
E.V.P. & Chief Legal Officer

Addresses may be changed by notice in writing signed by the addressee.

Section 8. Miscellaneous. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Florida without consideration of the State’s law on conflicts or choice of laws. Neither this Agreement nor any terms hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Agreement

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embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof and no party hereto has made any representation, warranty or covenant in connection with the matters set forth herein except as expressly stated herein or in any documents referred to herein. All the terms of this Agreement, whether so expressed or not, shall be binding upon the respective personal representatives, successors, heirs and assigns of the parties hereto and shall inure to the benefit of and be enforceable by the parties hereto, their respective representatives, successors, heirs and assigns; provided, however, that this Agreement may not be assigned by any party hereto without the prior written consent of the other, provided however, that the rights of the Insured and Shareholder are freely assignable to each other. In the event that any provision of this Agreement should be held to be void, voidable or unenforceable, the remaining portions hereof shall remain in full force and effect. The headings of this Agreement are for the purpose of reference only and shall not limit or otherwise affect the meaning thereof. This Agreement may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, Shareholder, the Insured and GIC have executed and entered into this Agreement as of the date first above written.

WESTWIND HOLDING COMPANY, LLC:
By:
	Title: CEO
PROGRESSIVE EMPLOYER SERVICESIII, LLC:
By:
	Title: CEO
GUARANTEE INSURANCE COMPANY:
By:
	Title: Chairman

9

EX-10.35

1

Exhibit 10.35

NON-NEGOTIABLE

FULLY SUBORDINATED SURPLUS NOTE

US$500,000 August 13, 2004

     FOR VALUE RECEIVED, subject to the terms and conditions hereinafter set forth in this promissory note (the “Note”), GUARANTEE INSURANCE COMPANY, an insurance company organized under the laws of the State of South Carolina and having its principal offices in South Carolina (the “Borrower”), hereby unconditionally promises (subject to the applicable provisions of the South Carolina Insurance Code and the Rules and Regulations of the South Carolina Insurance Department) to pay to WESTWIND HOLDING COMPANY, LLC (the “Lender”), by wire transfer to such account in the United States as the holder of this Note may specify to the Borrower in writing, in lawful money of the United States of America (“US Dollars” or “US$”), the principal sum of FIVE HUNDRED THOUSAND US DOLLARS (US$500,000), payable on the Principal Payment Date (as defined below). The Borrower further promises to pay interest on the unpaid principal balance hereof outstanding from time to time from the date hereof until payment in full hereof at the rates and on the dates determined in accordance with this Note. The Lender is authorized to record the interest rate applicable to the loan evidenced hereby (the “Loan”) and each payment or prepayment of principal hereof in its internal records, and any such notation shall constitute prima facie evidence of the accuracy of the information so recorded.

     Defined Terms. In this Note the following terms have the following meanings:

     “Business Day” means any day other than a Saturday or Sunday or any other day on which commercial banks in Columbia, South Carolina, or New York, New York, are authorized or obligated by law or by local proclamation to close.

     “Interest Payment Date” means, with respect to an Interest Period, the Business Day that immediately follows the last day of such Interest Period and, as applicable, the date of payment or prepayment in full of the Loan.

     “Interest Period” means the period commencing on the date hereof or on the last day of the preceding Interest Period, as the case may be, and ending on the last day of each calendar quarter; provided that no Interest Period shall extend beyond the last Principal Payment Date.

     “Principal Payment Date” means the date which is sixty (60) months from the date hereof.

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     Restrictions on Payment. Notwithstanding anything to the contrary in this Note:

     (a) No part of the principal hereof or interest hereon shall be paid without the prior authorization of such payment by the Director of Insurance of the State of South Carolina unless, after such payment, the total adjusted capital and surplus of the Borrower, as calculated under the rules and regulation prescribed by the National Association of Insurance Commissioners, will exceed 400% of the Authorized Control Level Risk Based Capital stated in the most recently filed Annual Statement of the Borrower.

     (b) No part of the principal hereof or interest hereon shall be paid except out of surplus, excluding capital, and only if the Borrower maintains its reserves and its minimum capital and surplus as required by the South Carolina Insurance Department.

     (c) No part of the principal hereof or interest hereon shall be paid or payable on demand of the holder of this Note or be carried, considered or reported as a legal liability of the Borrower. The entire principal amount hereof and the accrued interest hereon remaining unpaid from time to time shall be carried, considered and reported as a special surplus account in all financial statements published by the Borrower or filed with the Director of Insurance of the State of South Carolina or any other state in which the Borrower shall be qualified to do business.

     Subordination. Repayment of the principal hereof and payment of the interest hereon shall be and is hereby subordinated to the prior payment of, or provision for, all general liabilities of the Borrower and the claims of policyholders and creditors of the Borrower, but shall rank superior to the claim, interest and equity of the shares or shareholders of the Borrower, and such subordination shall be equally applicable in the case of any merger, consolidation, liquidation, rehabilitation, reorganization, dissolution, sale or other disposal of all, or substantially all, of the assets (including the assumption, whether by reinsurance or otherwise, of the major portion of the business of the Borrower in force pursuant to reinsurance agreement or agreements approved by the Director of Insurance of the State of South Carolina) of the Borrower.

     Optional Prepayment. Subject to the Restrictions on Payment and Subordination provisions set forth above, the Borrower may, at any time and from time to time, prepay the Loan, in whole or in part, without premium or penalty but subject to breakage costs as provided in clause (c) of the paragraph entitled Indemnity below, on at least three Business Days’ irrevocable notice to the Lender (effective on receipt), specifying the date and amount of prepayment. If such notice is given, the Borrower shall make such prepayment, and the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid and any breakage costs.

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     Interest Rates and Payment Dates.

     (a) The Loan shall bear interest on the unpaid principal amount thereof at a fixed rate per annum equal to three percent (3.0%), compounded annually, payable in arrears for each Interest Period on the Interest Payment Date for each such Interest Period.

     (b) Any overdue principal of the Loan and (to the extent permitted by applicable law) any overdue interest on the Loan and any other overdue amount payable hereunder shall bear interest from the date of such non-payment until paid in full (after as well as before judgment) at a fixed rate per annum equal to three percent (3.0%), compounded annually, payable in arrears on the last Business Day of each calendar month.

     (c) Interest under any provision of this Note shall be calculated on the basis of a 360-day year for the actual days elapsed.

     Indemnity. The Borrower agrees to indemnify the Lender and to hold the Lender harmless from any loss or expense that the Lender may sustain or incur as a consequence of (a) default by the Borrower in payment of the principal amount of or interest on the Loan, including (but not limited to) any such loss or expense arising from interest or fees payable by the Lender to lenders of funds obtained by it in order to maintain the Loan or (b) default by the Borrower in making any prepayment after the Borrower has given notice thereof in accordance herewith or a prepayment of the Loan on a day that is not the last day of its Interest Period. This covenant shall survive payment of the Loan.

     Payments. All payments of principal of, interest on and all other amounts due under this Note shall be made prior to 12:00 noon (New York time) on the due date and shall be made in US Dollars by wire transfer to such account as the Lender may specify to the Borrower in writing. If any payment hereunder (other than payments of principal of or interest on Loan) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the applicable rate during such extension. If any payment of principal of or interest on the Loan becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month in which event such payment shall be made on the immediately preceding Business Day. All payments on this Note shall be applied first to interest and then to principal.

     Expenses. The Borrower agrees to indemnify and hold harmless the holder of this Note from and against any and all liability, claims, costs and expenses in connection with the execution and delivery of this Note and/or the due and proper exercise by the holder hereof of any rights, remedies, powers or privileges authorized hereunder, including (but not limited to) all costs and reasonable attorneys’ fees and disbursements (including allocated costs and expenses of attorneys and paralegals who are employees of the Lender) incurred in any action or

4

proceeding to collect this Note, provided that such indemnity does not apply to any losses, claims, liabilities or expenses to the extent they arise from the Lender’s gross negligence or willful misconduct.

     Taxes. The Borrower shall make all payments of interest, principal and other amounts due under this Note free and clear of and without deduction for or on account of any taxes. The Borrower shall pay all taxes for its own account prior to the date on which penalties would be incurred and, if compelled by law to make any deduction, the Borrower shall pay to the Lender such additional amounts as may be necessary to ensure that the Lender receives the full amount that would be due to it if there had not been such deduction. In addition, the Borrower will pay any stamp or other taxes, registration fees or other duties by whomsoever imposed with respect to the preparation, execution, delivery, registration, performance and enforcement of this Note. The Borrower will supply to the Lender evidence satisfactory to the Lender of the Borrower’s payment of each of the aforesaid amounts, and, if any such amount is paid by the Lender, the Borrower hereby indemnifies the Lender therefor, together with any interest, penalties and expenses paid or payable in connection therewith.

     Information. The Borrower shall provide the Lender with such financial and other information concerning its business and operations as the Lender may reasonably request from time to time.

     Representations and Warranties. The Borrower hereby represents and warrants to the Lender that (a) it is a corporation duly organized, validly existing and in good standing under the laws of the State of South Carolina, is duly qualified to do business and in good standing in each jurisdiction in which the character of its properties or the transaction of its business makes such qualification necessary and has full corporate power to own its properties, to carry on its business as now being conducted and to execute and deliver this Note; (b) its execution and delivery of this Note and the borrowing evidenced hereby (i) have been duly authorized by all requisite corporate action on its part, (ii) do not require the approval of its stockholders, (iii) will not (A) violate any law or its Certificate of Incorporation or By-Laws, (B) violate any governmental or agency rule or regulation applicable to the Borrower or any order of any court, tribunal or governmental agency binding on it or any of its properties, (C) violate, be in conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any indenture, agreement, license or other instrument or contract to which it is a party or by which it or any of its properties is bound or (D) result in the creation or imposition of any lien of any nature whatsoever on any of its assets and (iv) do not require any license, consent or approval of any governmental agency or regulatory authority, except the South Carolina Insurance Department; and (c) this Note has been duly executed and delivered by the Borrower and is a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of creditors’ rights generally.

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     Events of Default. If any of the following events (each, an “Event of Default”) occurs for any reason whatsoever:

     (a) the Borrower fails to pay any of its obligations hereunder when due;

     (b) the Borrower otherwise defaults in the due performance or observance of any covenant, undertaking, representation or warranty set out in this Note or in any other agreement with the Lender or any of its affiliates and such default continues for fifteen (15) days after the Lender gives written notice to the Borrower;

     (c) any representation, warranty or other statement made in this Note or otherwise in writing by or on behalf of the Borrower in connection with the Loan proves to be or to have been incorrect or misleading in any material respect as of the date at which it was made or deemed to be made;

     (d) the Borrower (i) applies for or consents to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its assets, (ii) admits in writing its inability to pay its debts as they become due, (iii) makes a general assignment for the benefit of creditors, (iv) files a petition seeking to take advantage of any laws relating to bankruptcy, insolvency, reorganization, winding up, composition or adjustment of debts or (v) acquiesces in writing to any petition filed against it in an involuntary case under any such laws; or

     (e) a case or other proceeding is commenced, without the application or consent of the Borrower, in any court of competent jurisdiction seeking the liquidation, reorganization, dissolution, winding up or composition or readjustment of debts of the Borrower, the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower or of all or any substantial part of its assets, or any similar action with respect to the Borrower under any laws relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding continues undismissed, or unstayed and in effect, for a period of sixty (60) consecutive days; or an order for relief in respect of the Borrower is entered in an involuntary case under any such laws;

then, subject to the Restrictions on Payment and Subordination provisions set forth above, (i) upon the occurrence of any Event of Default specified in paragraph (d) or (e) above, all amounts owing under this Note shall immediately become due and payable without any election or action on the Lender’s part, and (ii) upon the occurrence of any other Event of Default, the Lender may, by notice to the Borrower, declare all amounts owing under this Note to be immediately become due and payable, whereupon they shall immediately become due and payable, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. If an Event of Default has occurred and is continuing, the Lender may set-off and apply, at any time in its sole discretion, any amount then owing by the Lender or any

6

affiliate of the Lender against any amount then due to the Lender from the Borrower, the details of any such application to be promptly notified to the Borrower.

     Miscellaneous. No failure on the part of the Lender to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Lender of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy of the Lender.

     No modification or waiver of any provision of this Note or consent to any departure from any such provision shall in any event be effective unless it is in writing and signed by the Borrower and the Lender with the prior written approval of the Director of Insurance of the State of South Carolina, and then such modification, waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Borrower in any case shall, of itself, entitle the Borrower to any other or further notice or demand in similar or other circumstances.

     Any provision of this Note that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. No provision of this Note shall require the payment, or permit the collection, of interest in excess of the highest rate permitted by applicable law.

     Except as otherwise expressly provided herein, all notices or other communications to the Borrower or the Lender related to this Note shall be in writing (including facsimile transmissions) and shall be delivered or transmitted by facsimile to the other party at its address set forth below, or at such other address as may hereafter be specified to the other party in writing:

If to the Borrower:	Guarantee Insurance Company
	1061 521 Corporate Center, Suite 140
	Fort Mill, SC 29715
	Attn: Lucia A. Tompkins, President
	Facsimile No.: (803) 396-5221
If to the Lender:	Westwind Holding Company LLC
	7560 Commerce Court
	Sarasota, FL 34243

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     The Borrower hereby waives any presentment, notice of dishonor, protest or other notice of any kind that is not expressly required by the terms of this Note.

     This Note shall be binding on the Borrower and its successors and assigns and shall inure to the benefit of the Lender and its successors and assigns; provided, however, that the Borrower may not assign its rights and obligations hereunder without the prior written consent of the Lender. This Note may be transferred only by noting the transfer on the books of the Borrower upon surrender of this Note properly assigned in exchange for a reissued Surplus Note. The reissued Note must be submitted to the Director of Insurance of the State of South Carolina prior to delivery to the transferee and shall include all the terms, conditions, limitations and provisions contained herein.

     No recourse under or upon any obligation, covenant or agreement contained in this Note, or for any claim based thereon or otherwise in respect thereof, shall be had against any shareholder, officer or director, as such, past, present or future, of the Borrower or any successor corporation, either directly or through any trustee, receiver, or any other person; it being expressly understood that this Note is solely a corporate obligation of the Borrower and that any and all personal liability, and any and all rights and claims against every such shareholder, officer or director, as such, are hereby expressly waived and released by the holder hereof by acceptance of this Note and as a part of the consideration for the issuance hereof.

     This Note is issued and delivered in the State of South Carolina, and it shall be governed by, and construed in accordance with, the laws of the State of South Carolina.

     EACH OF THE BORROWER AND, BY ITS ACCEPTANCE OF THIS NOTE, THE HOLDER OF THIS NOTE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS NOTE AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.

GUARANTEE INSURANCE COMPANY
By
	Lucia A. Tompkins
	President

ATTEST:
	Lisa Leachman Hirsch Secretary

8

EX-10.36

Exhibit 10.36

WORKERS COMPENSATION REINSURANGE AGREEMENT

QUOTA SHARE AGREEMENT and
AGGREGATE EXCESS OF LOSS

BETWEEN

GUARANTEE INSURANCE COMPANY,

(hereinafter referred to as the “Company”)

AND

SEGREGATED PORTFOLIO 110,

A SEGREGATED PORTFOLIO OF

CALEDONIAN REINSURANCE SPC

(hereinafter referred to as the “Reinsurer”)

RIAg GURANTEE Ins Co

1

INDEX

ARTICLE		PAGE
1	Business Reinsured		3
2	Term and Cancellation		3
3	Territory		4
4	Definitions		4
5	Liability of Reinsurer		5
6	Funds Withheld		5
7	Accounts, Reports and Remittances		7
8	Salvage and Subrogation		7
9	Offset		8
10	Taxes		8
11	Statistics		8
12	Errors and Omissions		8
13	Amendments		8
14	Access to Records		8
15	Loss Adjustment Expenses		9
16	Loss Reserves		9
17	Commutation		9
18	Arbitration		10
19	Insolvency		10
20	Currency		11
21	Follow the Terms and Conditions		11
22	Service of Suit		11
23	Exclusions		12
24	Insolvency Funds Exclusion		12
25	Loss in Excess of Policy Limits and Extra Contractual Obligations		13
26	Termination		13
27	Cell Limitation and Indemnification		14
28	Assignment		15
29	Entire Agreement		15
Interest and Liabilities Contract			16
Schedule 1, Program Expenses			17

2

ARTICLE 1 — BUSINESS REINSURED

By this Agreement, GUARANTEE INSURANCE COMPANY (the “Company”) obligates itself to cede to Segregated Portfolio 110 (the “Segregated Portfolio”) a segregated portfolio of CALEDONIAN REINSURANCE SPC (hereinafter called “Reinsurer”), and Reinsurer obligates itself to accept, quota share reinsurance of the Company’s net liability under policies, contracts and binders of insurance (as hereinafter defined) attaching during the term of this Agreement on Workers’ Compensation and Employers’ Liability coverage produced by and on behalf of the Company for staffing entities and their clients.

Business which is beyond the terms, conditions or limitations of this Agreement or which is outside the underwriting guidelines as agreed between the Company and Reinsurer may be submitted for special acceptance hereunder, and are subject to being accepted by the parties to this Agreement. Special acceptances will be subject to all the terms, conditions and limitations of this Agreement except as may be modified by the Company when negotiating the special acceptance.

ARTICLE 2 — TERM AND CANCELLATION

A.

This Agreement shall be effective as of August 16, 2005 at 12:01 a.m. local time where Reinsurer is located (the “Effective Date”) and shall be a continuous contract in respect of all new and renewal policies, as defined herein as being subject to this Agreement, written on a risk attaching basis by the Company and effective on or after the Effective Date, and may be cancelled by the Company with ninety (90) days prior written notice by certified or registered mail, return receipt requested, or by overnight courier service, and may be cancelled by Reinsurer as of any anniversary date of the Effective Date with ninety (90) days prior written notice by certified or registered mail, return receipt requested, or by overnight courier service. The date of such cancellation shall hereinafter be referred to as the “Termination Date.”

B.

Upon cancellation of this Agreement, at the Company’s option:

(i)

Reinsurer shall continue to be liable under this Agreement with respect to all loss occurrences on policies in force prior to the Termination Date until the date of the next scheduled anniversary of each policy, its natural expiration, cancellation or non-renewal, whichever shall first occur; provided, however, that in no event shall Reinsurer be liable under this Agreement for any loss with a date of loss occurrence more than twelve (12) months plus odd time after the Termination Date. The Company shall not issue policies for a period longer than twelve months plus odd time, for a total policy period not to exceed (18) months and any period permitted for discovery under the policies reinsured hereunder; or

(ii)

Except for policies with run-off liabilities after the Termination Date, Reinsurer shall have no liability for loss occurrences arising upon or after the Termination Date. Reinsurer shall not receive any reinsurance premiums for any period after the Termination Date.

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ARTICLE 3 — TERRITORY

This Agreement shall cover losses wherever occurring in respect of risks domiciled in the United States of America and is limited to policies issued in jurisdictions in which the Company has authority to write the subject business.

ARTICLE 4 — DEFINITIONS

A.	The term “loss occurrence” shall mean any one disaster, casualty, accident or loss, or series of disasters or casualties or accidents or losses arising out of or caused by one event.
B.	The term “policy” shall mean any binder, policy, bond or contract of insurance issued, accepted or bound by or on behalf of the Company. The term “policies” shall be the plural thereof.
C.	The term “Loss Adjustment Expense” shall mean all costs and expenses allocable to a specific claim that are incurred by the Company in the investigation, appraisal, adjustment, settlement, litigation, defense or appeal of a specific claim, including court costs and costs of supersedes and appeal bonds, and including (i) pre-judgment interest, unless included as part of the award or judgement; (ii) post-judgment interest; and (iii) legal expenses and costs incurred by the Company in connection with coverage questions and legal actions connected thereto. Loss Adjustment Expense does not include unallocated loss adjustment expense. Unallocated loss adjustment expense includes, but is not limited to, salaries and expenses of employees and office and other overhead expenses.
D.	The term “AGP” shall mean adjustable gross premium, which shall be comprised of the original gross premium (defined as premiums applicable to (i) primary policies with statutory limits for Workers’ Compensation coverage and (ii) Employers’ Liability coverage calculated on a 365th basis), which shall be adjustable from time to time concurrently with changes in (i) (a) the insured’s payroll, or (b) the number of the insured’s employees who are eligible for Workers’ Compensation and Employers’ Liability coverages and are listed, by name and Social Security number, on the insured’s payroll; (ii) hazards; (iii) the states or other domestic jurisdictions which are other than those in which the insured conducted operations immediately prior to such changes; or (iv) experience modifications. While the AGP shall be adjustable, the minimum premium payable under this Agreement is US$8,332,960.00.
E.	The term “Original Conditions” shall mean that all reinsurance under this Agreement shall be subject to the same rates, terms, conditions and waivers, and to the same modifications and alterations, as the respective policies of the Company. The Reinsurer shall be credited with its exact proportion of the original premiums received by the Company, prior to its disbursement of any dividends, but after deduction of premiums, if any, ceded by the Company for inuring reinsurance, it being understood that premiums ceded by the Company for other inuring excess of loss reinsurance shall be deducted at the adjusted rate on a written premium basis.

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ARTICLE 5 — LIABILITY OF REINSURER

The Company shall cede to Reinsurer, and Reinsurer shall accept, the following:

A.

As quota share reinsurance, ninety percent (90%) of the ultimate net loss in all policies written under this Agreement after all inuring reinsurance, subject to a maximum limit of ninety percent (90%) of $1,000,000 any one loss occurrence. Notwithstanding anything to the contrary in this Agreement, the maximum aggregate liability of Reinsurer under this subsection shall not exceed ninety percent (90%) eighty-seven and one-half percent (87.5%) of AGP.

B.

As an aggregate excess of loss cover, the ultimate net loss excess of sixty-seven and one-half percent (67.5%) of AGP with respect to the Company’s retention of ten percent (10%) of the primary limits up to $1,000,000 any one loss occurrence. The maximum aggregate liability of Reinsurer under this subparagraph (B) shall not exceed ten percent (10%) of twenty percent (20%) of AGP.

The above notwithstanding, the Company shall maintain a minimum amount of collateral which will not be allowed to be less than US$1,666,592.00.

In the event a loss settlement, verdict, judgment or award is reduced by any process other than by the trial court, resulting in an ultimate saving to Reinsurer, or judgment is reversed outright, the expenses incurred in securing such reduction or reversal shall be prorated between the Company and Reinsurer in the proportion that each benefits from such reduction or reversal, and the expenses incurred up to the time of the original loss settlement, verdict, judgment, or award shall be prorated in proportion to each party’s interest in such original loss settlement, verdict, judgment or award.

ARTICLE 6 — FUNDS WITHHELD

To secure Reinsurer’s obligations to the Company, the Company shall retain exclusive control of the net ceded premium. The net ceded premium collected by the Company and retained hereunder plus any additional cash collateral provided to the Company shall be known as the “Funds Withheld” and shall be held in the “Funds Withheld Account” (as such terms are hereinafter defined).

As used herein, the following terms shall have the following meanings:

A. The Funds Withheld Account shall be comprised of funds that may, depending on loss experience, become due to Reinsurer, to be held by the Company subject to the terms and conditions of this Agreement.

(i)	The average monthly balance of the Funds Withheld Account shall be equal to the sum of the beginning balance and the ending balance of the Funds Withheld Account for such month, divided by two.
(ii)	Monthly interest shall be calculated by the Company on the average monthly balance of the Funds Withheld Account for a particular month. The monthly interest so calculated shall equal the interest rate for a three-month U.S. Treasury Note, as said

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interest shall appear on the first calendar day of the quarter. However, in the event the insured’s losses exceed the aggregate coverage provided herein, the Company shall not owe or pay any such interest.

B.	Reinsurer hereby agrees to provide additional cash collateral, letters of credit or other financial instruments acceptable to the Company (the “Assets”) and to maintain such Assets in the Funds Withheld Account in sums at least equal to the reserves the Company has determined to be required on the business which is the subject of this Agreement on a monthly basis, hereby called the “Required Account Balance.” For purposes of this Agreement, the Required Account Balance shall be ninety percent (90%) of eighty-seven and one-half percent (87.5%) of AGP plus ten percent (10%) of twenty percent (20%) of AGP. At no time shall the Required Account Balance be allowed to be less than said ninety percent (90%) of eighty-seven and one-half percent (87.5%) of AGP plus ten percent (10%) of twenty percent (20%) of AGP.
C.	Reinsurer authorizes the Company to deposit and maintain in the Funds Withheld Account any funds ceded by the Company to Reinsurer under this Reinsurance Agreement, plus all collateral funds received by the Company from Reinsurer. Reinsurer authorizes the Company to withdraw from the Funds Withheld Account any amounts owed by Reinsurer to the Company under this Agreement.
D.	Within forty-five (45) days after the end of each month, the Company shall furnish to Reinsurer a statement for such month that sets forth the actual balance of the Funds Withheld Account and the amount of the Required Account Balance for such month. Thirty (30) days after the delivery of such statement, Reinsurer may request in writing that the Company release that portion of the Funds Withheld Account that exceeds the Required Account Balance set forth in such statement, if any. Such request shall state the amount to be released from the Funds Withheld Account and the recipient of such payment. Reinsurer may reduce any claims payments due the Company by an offset against the excess funds, if any, in the Funds Withheld Account and Reinsurer authorizes the withdrawal of such amounts from the Funds Withheld Account. The Company shall have no obligation to release or allow the withdrawal of any funds from the Funds Withheld Account if such release or withdrawal would result in the amount in the Funds Withheld Account falling below the Required Account Balance.
E.	The Company will credit to the balance of the Funds Withheld Account any and all Assets deposited by Reinsurer with the Company under the terms of this Agreement. If upon written notice by the Company the amount of the Funds Withheld Account is less than the Required Account Balance, Reinsurer agrees, within fifteen (15) days of receiving notice, to increase the Assets deposited in the Funds Withheld Account to equal or exceed the Required Account Balance, as otherwise required in Subsection (B) of this Section 6. Reinsurer authorizes the Company to commingle any cash with its own funds, provided suitable account balance identification is maintained, and to invest the funds in any investment allowed under South Carolina insurance regulations, subject to the provisions of Article 7 below.
F.	The Company shall be under no duty or responsibility with respect to the Funds Withheld Account, except to hold the Assets in the Funds Withheld Account, to accurately report and

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provide notice as required hereunder, to release funds from the Funds Withheld Account only to extent allowed or required by the Funds Withheld Account provisions of this Agreement, and to otherwise fulfill its obligations under this Agreement.

G. The Company shall credit Reinsurer with interest based on the interest rate for three-month U.S. Treasury Notes calculated on the average monthly balance of the Funds Withheld Account. Interest will accrue and will be credited to the Funds Withheld Account on a monthly basis, commencing on the first day of the first calendar month following the date that this Agreement is entered into and continuing on the first day of every calendar month thereafter while the Agreement is in effect. All of the Assets in the Funds Withheld Account shall be available to be used towards the satisfaction of all claims and losses up to the amount of the aggregate hereunder. In no event shall investment income be earned by or accredited to the Reinsurer if losses are equal to or exceed the aggregate.

Nothing contained herein shall be construed as other than requiring payment in full of collateral into the Funds Withheld Account, promptly upon the execution of this Agreement, as stated above, in the form of Assets acceptable to the Company.

ARTICLE 7- ACCOUNTS, REPORTS AND REMITTANCES

A.	The Company will provide Reinsurer with all requisite information respecting premiums and losses, including reserves, to enable it to properly prepare its balances and accounts, as of dates and on forms mutually acceptable to the Company and Reinsurer.
B.	Within forty-five (45) days of the close of each month, the Company shall render a premium and loss bordereau to Reinsurer for all business written. The bordereau shall include a summary of gross policy premiums written and earned, losses incurred, reserves for such losses, and all payments of losses net of salvage and subrogation; all other written and earned inuring excess of loss reinsurance, and an account current summarizing premiums earned, commissions, losses and loss expenses paid net of salvage and subrogation. Detailed information supporting the bordereau amounts will be made reasonably available to Reinsurer as required.
C.	It is further agreed that loss bordereaux will continue to be furnished to Reinsurer after expiration of this Agreement until all loss activity has ceased or the Company and Reinsurer mutually agree to discontinue reports. In addition, the Company shall furnish the Reinsurer with additional information as requested and mutually agreed by the Company and Reinsurer.

ARTICLE 8 — SALVAGE AND SUBROGATION

Reinsurer shall be credited with its share of salvage and subrogation (i.e., reimbursement obtained or recoveries made by the Company, less actual cost, excluding office expenses of the Company, salaries and other remuneration of Company employees and officers and sums paid to attorneys as retainers, incurred in obtaining such reimbursement or making such recoveries) pertaining to any claims or settlements under policies reinsured hereunder. The Company shall reasonably enforce its rights to salvage or subrogation relating to any loss within the scope of this Agreement and shall reasonably prosecute all claims arising out of those rights. In the event the Company refuses or neglects to enforce its rights to salvage or

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subrogation, the Company shall immediately inform Reinsurer and Reinsurer is thereby empowered and authorised to bring any appropriate action in the name of the Company or its policyholders, or otherwise to enforce such rights, and the Company shall cooperate fully with Reinsurer in enforcing those rights.

ARTICLE 9 — OFFSET

The Company may offset any balance, whether on account of premium, losses, recoveries, salvage, or any other amount due under this Agreement. However, in the event of the insolvency of either party hereto, offset shall only be allowed in accordance with applicable law.

ARTICLE 10 — TAXES

(Applicable to those reinsurers, except Underwriters at Lloyd’s of London and other reinsurers exempt from Federal Excise Tax, who are domiciled outside the United States of America).

The Company shall pay on behalf of Reinsurer all taxes on premiums reported to Reinsurer on this Agreement. Reinsurer agrees to allow the Company to retain, for the purpose of paying Federal Excise Tax thereon, the applicable percentage of the reinsurance premium payable hereunder to the extent such reinsurance premium is subject to the Federal Excise Tax.

In the event of any return premium becoming due hereunder, Reinsurer shall deduct the aforesaid percentage from such return premium, and the Company or its agent shall be responsible for recovering such tax from the United States Government.

ARTICLE 11 — STATISTICS

The Company shall furnish such other statistics as may be required by Reinsurer for the completion of Reinsurer’s statutory requirements and internal records.

ARTICLE 12 — ERRORS AND OMISSIONS

Reinsurer shall not be relieved of liability because of an error or accidental omission by the Company in reporting any claim, loss, or any business reinsured under this Agreement, provided that the error or omission is rectified promptly after discovery. Reinsurer shall be obligated only for the return of the premium paid for business reported but not reinsured under this Agreement.

ARTICLE 13 — AMENDMENTS

The terms and conditions contained in this Agreement may be changed, altered or amended as the parties may agree, provided such change, alteration or amendment is evidenced by a written Addendum to this Agreement executed by the Company and Reinsurer.

ARTICLE 14 — ACCESS TO RECORDS

The Company shall comply with Reinsurer’s reasonable requests for information or records relating to this Agreement. Additionally, Reinsurer, or their authorised representatives, shall have the right to inspect, at any reasonable time at the office of the Company and upon

8

reasonable notice, all papers, books, accounts, documents, claims files, underwriting guidelines, sample policies, auditing procedures and other records of the Company relating to this Agreement. The Company shall, at any reasonable time at the office of the Company and upon reasonable notice, allow Reinsurer to conduct a review of the underwriting being done by the Company relating to this Agreement. Reinsurer shall have the right to be consulted if any material changes are made to the underwriting guidelines or procedures relating to this Agreement. Reinsurer’s rights under this clause shall survive the termination of this Agreement.

In the event records relating to the business which is the subject of this Agreement are maintained by service providers to the Company, the Company shall request, upon Reinsurer’s request, that all such records be made available at a convenient time and place to Reinsurer. However, the Company shall not be liable for any refusal by any such service provider to cooperate.

ARTICLE 15 — LOSS ADJUSTMENT EXPENSES

Reinsurer shall bear its share of all Loss Adjustment Expenses incurred by the Company and shall receive its proportionate share of any recoveries of such expenses. It is understood and agreed that all loss expenses incurred are subject to the maximum liability of Reinsurer as provided in Article 5 of this Agreement.

ARTICLE 16 — LOSS RESERVES

Reinsurer agrees to abide by the loss settlements and claims payments made by the Company. However, if requested by Reinsurer, the Company shall afford Reinsurer an opportunity to be associated with the Company, at the expense of Reinsurer, in the defence of any claim, suit or proceeding involving this reinsurance, and the Company will cooperate with Reinsurer in every respect in the defence or control of such claim, suit or proceeding. All settlements by the Company of claims involving this reinsurance, including voluntary compromise and release, shall be unconditionally binding on Reinsurer when made by the Company.

ARTICLE 17 — COMMUTATION

At any time after three (3) months following the expiration of the last policy reinsured hereunder (the “Commutation Date”), the parties may agree to commute, as of the Commutation Date, any risk or risks reinsured hereunder in accordance with the following terms and conditions. The Company shall designate an independent actuary to determine Reinsurer’s share of outstanding loss reserves, allocated loss adjustment expense reserves, IBNR reserves, and reserves for any future adjustments of the expenses identified in Schedule 1 attached to and hereby made a part of this Agreement by this reference (collectively called the “Outstanding Reserves”) with respect to the risk or risks agreed to be commuted as of the Commutation Date. An amount equal to the Outstanding Reserves shall be deducted from the Funds Withheld Account, and Reinsurer shall be released from any further liability with respect to the risk or risks commuted. If all risks under this Agreement are commuted, any monies remaining in the Funds Withheld Account after deducting all Outstanding Reserves shall be paid to Reinsurer. Schedule 2 attached hereto and made a part hereof by the references sets out IBNR loss development factors to be used in commuting this Agreement.

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ARTICLE 18 — ARBITRATION

Any dispute arising out of the interpretation, performance or breach of this Agreement, including the formation or validity hereof, shall be submitted for decision to a panel of three arbitrators. Notice requesting arbitration shall be in writing and sent certified or registered mail, return receipt requested, or by overnight courier service.

Each party shall choose one individual as an arbitrator and the two arbitrators shall then choose a third arbitrator who shall preside at the hearing. If either party fails to appoint an arbitrator within thirty (30) days after being requested to do so by the other party, the latter, after ten (10) days’ notice by certified or registered mail or by overnight courier service of its intention to do so, may appoint the third arbitrator. If the two individuals are unable to agree upon the third arbitrator within thirty (30) days of their appointment, the third arbitrator shall be selected as follows: each arbitrator shall select three individuals and submit their names to the other arbitrator. In the event a name appears on both lists, that person shall be the third arbitrator. Otherwise, or in the event that more than one name appears on both lists, each arbitrator shall strike two from the other arbitrator’s list. Of the two persons remaining, one shall be chosen as the third arbitrator by drawing lots. All arbitrators shall be impartial and disinterested active or former officers of insurance or reinsurance companies or Underwriters at Lloyd’s.

Within thirty (30) days after the appointment of the third arbitrator, the arbitrators shall jointly determine timely periods for the filing of briefs with the panel, discovery procedures and schedules for hearings. The arbitrators shall be relieved of all judicial formalities and shall not be bound by the strict rules of law, but, rather, shall view this Agreement as an honourable engagement between the parties. The arbitration shall take place in the State of South Carolina or such other place as the panel may select as being in the best interests of the arbitration proceeding. The decision of the majority of the arbitrators, when rendered in writing, shall be final and binding. The arbitrators are empowered to grant interim relief, as they may deem appropriate.

The arbitrators shall make their decision considering the customs and practices of the applicable insurance and reinsurance business and as promptly as possible following the termination of hearings. It is specifically agreed that, in the event the issue or issues before the arbitrators involve matters of valuation including, but not limited to, claims payments, segregated portfolio collateralisation, adjusted premiums, so-called IBNR claims, reserves and all such similar matters, the panel of arbitrators shall retain an independent actuary of their choosing, whose determination as to the accuracy, correctness or propriety of such amounts shall be binding upon the parties. Said actuary shall submit a written report of his or her findings to the panel of arbitrators as soon as reasonably possible following his or her determinations in this regard. The costs and expense of said actuary and of said report shall be borne jointly and equally between the parties hereto. Judgment upon the award may be entered in any court of competent jurisdiction.

Each party shall severally bear the costs of its chosen arbitrator and, unless the panel awards otherwise, its own attorneys’ fees, and jointly and equally bear, with the other party, the costs of the third arbitrator and of the arbitration, including, but not limited to, arbitrator travel and lodging, court reporters, room rental fees, et, al. The arbitrators may, in their discretion, award

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such further costs and expenses as they may consider appropriate, including but not limited to, attorneys’ fees to the extent permitted by law.

ARTICLE 19 — INSOLVENCY

In the event of the insolvency of the Company, this reinsurance shall be payable directly to the Company or to its liquidator, receiver, conservator, statutory successor, trustee or other legal successor in interest on the basis of the liability of the Company without diminution because of the insolvency of the Company or because the liquidator, 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 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 Reinsurer, within a reasonable time after such claim is filed in the conservation, liquidation or receivership proceeding, and that during the pendency of such claim, Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defence or defences that it may deem available to the Company or its liquidator, receiver, conservator, statutory successor, trustee or other legal successor in interest. The expense thus incurred by 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 which may accrue to the Company solely as a result of the defence undertaken by Reinsurer.

Where two or more reinsurers are involved in the same claim and a majority in interest elects to interpose a defence to such claim, Reinsurer shall agree that the expense shall be apportioned in accordance with the terms of this Agreement as though the insolvent Company had incurred such expense.

ARTICLE 20 — CURRENCY

All transactions under this Agreement shall be in United States dollars. Amounts paid or received by the Company in any other currency shall be converted to United States dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

ARTICLE 21 — FOLLOW THE TERMS AND CONDITIONS

Reinsurer’s liability shall attach simultaneously with that of the Company, and all cessions to Reinsurer by virtue of this Agreement shall be subject in all respects to the same risks, terms, conditions, interpretations, assessments, waivers, modifications, alternations, and cancellations as the policies of the Company reinsured hereunder to which such cessions relate, the true intent of this Agreement being that Reinsurer shall, in every case to which this Agreement applies and in the proportions specified herein, follow the fortunes and terms and conditions of the Company in respect of the risk the Company has accepted under insurance or reinsurance policies, binders or contracts including declaratory judgment expenses, settlements of extra contractual obligations and losses in excess of policy limits.

ARTICLE 22 — SERVICE OF SUIT

In the event of the failure of Reinsurer to pay any amount claimed to be due hereunder or as

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ordered by a panel of arbitrators pursuant to Article 18, Reinsurer, at the request of the Company, shall submit to the jurisdiction of a court of competent jurisdiction within the United States. In such event, Reinsurer shall have the right to remove an action to an appropriate United States District Court or to seek a transfer or remand of a case to another court as permitted by the laws of the United States or of any State of the United States.

The Company may serve process upon Reinsurer by serving its agent:

Caledonian Insurance Services Limited
Attention: Conor Jennings, Managing Director
P.O. Box 1043
GT, Grand Cayman
Cayman Islands

and in any suit instituted against Reinsurer upon this Agreement, Reinsurer will abide by the final decision of the court or, in the event of an appeal, of any appellate court of competent jurisdiction in the United States.

The right of the Company to bring suit as provided herein shall be limited to a suit brought in its own name and for its own account.

The above-named agent is authorised and directed to accept service of process on behalf of Reinsurer in any such suit and/or upon the request of the Company to give a written undertaking to the Company that, subject to the right to seek removal, remand or transfer of such suit to any other court of competent jurisdiction, it will enter a general appearance upon Reinsurer’s behalf in the event such a suit shall be instituted.

Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, Reinsurer hereby designates the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or the successor or successors in office (the “Officer”), 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 Agreement, and hereby designates the above named as the person to whom the said Officer is authorised to mail such process or a true copy thereof.

In the event of any proceedings under this Article, this Agreement shall be governed and construed in accordance with the laws of the State of South Carolina, except as otherwise provided in Article 26 below.

ARTICLE 23 — EXCLUSIONS

This Agreement is subject to and limited by any exclusions in the original policies reinsured by this Agreement.

ARTICLE 24 — INSOLVENCY FUNDS EXCLUSION

This Agreement excludes all liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any

12

insolvency fund. The term “insolvency fund” includes any guaranty fund, plan, insolvency fund, pool, association, fund, or other arrangement, howsoever denominated, established, or governed by the laws or regulations of any state which 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, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

ARTICLE 25 — LOSS IN EXCESS OF ORIGINAL POLICY LIMITS AND EXTRA CONTRACTUAL OBLIGATIONS

Subject to compliance with its terms, this Agreement shall protect the Company to the limits of liability provided hereunder, when the ultimate net loss includes any loss for which the Company may be legally liable to pay in excess of the limit of the original policy reinsured hereunder, where the loss in excess of the limit of the original policy has been incurred because of the Company’s failure to settle within the policy limits or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement, or in the preparation of the defence 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. For the purposes of this paragraph, “loss” shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original policy reinsured hereunder as determined by a court of competent jurisdiction.

This Agreement shall protect the Company when ultimate net loss includes any Extra Contractual Obligations, defined as those liabilities not covered under any other provision of this Agreement and which arise from the handling of any claim on business reinsured hereunder, such liabilities arising because of, but not limited to, failure by the Company to settle within policy limits, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defence or in the trial or any action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such action.

The date on which the Company incurs any Extra Contractual Obligation or Loss in Excess of Policy Limits shall be deemed in all circumstances, to be the date the loss attached to the policy reinsured hereunder.

However, this Article shall not apply where: (1) the loss has been incurred due to fraud by a member of the Board of Directors, an officer or supervisory employee of the Company acting individually or collectively or in collusion with any individual or corporation or any other organisation or party involved in the presentation, defence or settlement or any claim covered hereunder; or (2) the liability of the Company arises from the handling of any claim under self-insurance or under policies issued to itself or other insurance or reinsurance companies.

ARTICLE 26 — TERMINATION

A. If a state insurance department or other competent authority has ordered either party to cease writing business, the other party may declare this Agreement as no longer valid or operative as to that state as of the date of the order to cease writing business;

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B.

If either party has become insolvent, or has been put into conservation, liquidation or receivership (whether voluntary or involuntary), or there have been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, or trustee in bankruptcy or other agent known by whatever name, to take possession of its assets or control of its operations, the other party may terminate this Agreement;

C.

If either party has reinsured its entire liability under this Agreement without the other party’s prior written consent, the other party may terminate this Agreement.

Termination for any of the above events A through C shall take place by the terminating party sending to the other party, by registered or certified mail or by overnight courier service, to the principal office of the other party, notice stating the time and date when, not less than thirty (30) days after the mailing of such notice, termination shall be effective. Further, Reinsurer may terminate this Agreement on thirty (30) days notice.

At the Company’s option, (i) all reinsurance hereunder shall remain in force until the expiration date, anniversary date, or prior termination date of policies reinsured hereunder, but in no event longer than twelve (12) months after the Termination Date; or (ii) Reinsurer shall not be liable for any losses occurring under the Company’s policies becoming effective on and after the Termination Date.

ARTICLE 27 — CELL LIMITATION AND INDEMNIFICATION

Reinsurer is a segregated portfolio company duly incorporated and in good standing under, and as defined in, the Companies Law (2004 Revision) of the Cayman Islands. Notwithstanding any other provision of this Agreement, the parties hereto acknowledge and agree that the liability of Reinsurer to pay any amount due hereunder to any relevant party hereof whether in respect of performance or for loss arising from any breach of its obligations or otherwise, shall be limited to the net proceeds of the realisation of all the assets of the Segregated Portfolio, which assets shall include without limitation the right to receive collateral and other payments from any shareholder of, owner of beneficial interest, or other investor in Reinsurer pursuant to participation or other similar agreements between Reinsurer and any such shareholder, owner or investor (“Payment Obligations”).

If the net proceeds of the realisation of all the assets is insufficient to pay all Reinsurer’s obligations hereunder in full for any reason, Reinsurer shall have no obligation to make up the insufficiency and following exhaustion of such amount any liability to pay such insufficiency shall thereafter be extinguished. Accordingly, the rights and entitlement of any relevant party hereof is restricted to the net proceeds of the realisation of all the assets of the Segregated Portfolio and not to the assets of any other segregated portfolio or to the general assets of Reinsurer. Reinsurer agrees to use all reasonable efforts to collect any and all Payment Obligations due to Reinsurer. Upon written notice by the Company to the Reinsurer, the Company shall have the right to assume control of all such collection efforts on behalf of the Reinsurer, and to the extent permitted by applicable law, the Reinsurer shall assign all of its right, title and interest in, and the right to collect, the Payment Obligations to the Company; provided, however, that, for the avoidance of doubt, all monies recovered shall remain the property of Reinsurer.

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The parties hereto covenant and agree that, absent fraud, dishonesty, gross negligence or willful malfeasance, they shall not take or seek to take any recourse (including but not limited to action before any court or governmental agency), directly or indirectly, with respect to the actions or inactions of Reinsurer or any obligations of Reinsurer under this Agreement against:

• Reinsurer (other than in respect of the Segregated Portfolio as limited above);

• Caledonian Insurance Services Ltd;

• any owner of a beneficial interest in Caledonian Insurance Services Ltd, Caledonian Reinsurance SPC; or

• any partner, owner, beneficiary, director, officer, shareholder, employee or agent of Caledonian Insurance Services Ltd, Reinsurer in its individual, capacity, or any of their respective legal advisers.

The parties hereto further covenant and agree that absent fraud, dishonesty, gross negligence or willful malfeasance, they respectively shall not take any corporate action, other steps, or legal proceedings for the winding-up, dissolution or re-organisation, or for the appointment of a receiver, administrator, administrative receiver, trustee, liquidator, sequestrator or similar officer of the Caledonian Insurance Services Ltd., Reinsurer, or the Segregated Portfolio or of any or all of Reinsurer’s revenues and assets or analogous proceedings in any jurisdiction.

The Company agrees to indemnify and hold harmless (a) the Segregated Portfolio and its officers, directors, employees, attorneys, affiliates and agents (but expressly excluding its shareholders, beneficial owners or other investors); and (b) Reinsurer and its officers, directors, shareholders, employees, attorneys, affiliates and agents (individually, an “Indemnified Person”), and hold each of them harmless from and against any error of judgment, and any and all loss, damage, claims, demands, or proceedings, or liability or expense, including costs and reasonable attorneys’ fees and expenses (together “Losses”), to which any Indemnified Person may be put or may incur by reason of or in connection with any misrepresentation made by the Company, any breach of the Company’s representations and warranties, the Company’s failure to fulfill any of its covenants or agreements under this Agreement or any Losses suffered or sustained by an Indemnified Person by reason of such person’s status as an Indemnified Person other than Losses which arise out of or relate to fraud, negligence or willful default of such Indemnified Person.

ARTICLE 28 — ASSIGNMENT

Neither party may assign this Agreement unless the prior written approval of the other party is first obtained, which approval shall not be unreasonably withheld or delayed.

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ARTICLE 29 — ENTIRE AGREEMENT

This Agreement forms the entire agreement and understanding between the parties relating to the subject matter hereof, supersedes and extinguishes any previous agreement or understanding between the parties in relation to all or any such matters.

IN WITNESS WHEREOF, this Agreement has been signed as of this ___day of August, 2005.

FOR THE COMPANY:		FOR THE REINSURER:
By:		By:
	Title: Chairman		Title: Manager

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INTERESTS AND LIABILITIES CONTRACT TO THE

QUOTA SHARE REINSURANCE AGREEMENT

BETWEEN

GUARANTEE INSURANCE COMPANY,
(hereinafter referred to as the “Company”)

AND

SEGREGATED PORTFOLIO 110, A SEGREGATED PORTFOLIO OF
CALEDONIAN REINSURANCE SPC
(hereinafter referred to as the “Reinsurer”)

It is agreed that Reinsurer shall have the Interests and Liabilities specified in the attached Agreement effective as of the Effective Date. This Agreement shall be continuous and in force until terminated subject to the terms and conditions for termination stipulated in the Article 2 thereof entitled Term and Cancellation.

FOR THE COMPANY:		FOR THE REINSURER:
By:		By:
	Title: Chairman		Title: Manager
	Date: August 17 2005		Date: 10 Jan 2006

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EX-10.37

Exhibit 10.37

NOTE OFFSET AND CALL OPTION AGREEMENT

     This Note Offset and Call Option Agreement (this “Agreement”) is made and entered into as of the 29^th day of July, 2004, by and between SunCoast Holdings, Inc., a Delaware corporation (the “Company”), Guarantee Insurance Company, a South Carolina corporation (“Guarantee”) and Westwind Holding Company, LLC, a Florida limited liability company (“Westwind”).

Statement Of Purpose

     Contemporaneously with the execution of this Agreement, Westwind is purchasing 195,694 shares of the Series A Common Stock of the Company and Westwind, with Caledonian Reinsurance SPC Segregated Portfolio 110 (“SP110”), is entering into that certain Participation Agreement (the "Participation Agreement”) and that certain Segregated Portfolio 110 Subscription Agreement (the "Subscription Agreement”). Under the terms of the Participation Agreement and the Subscription Agreement, Westwind will participate in the results of the reinsurance business of SP110 and is obligated to contribute to SP110 funds in an amount up to 20% of the gross premium written by Guarantee, an indirect wholly-owned subsidiary of the Company, and reinsured by SP110 (the “Gross Premium”). Contemporaneously with the execution of this Agreement, Westwind is providing surplus funds of $500,000 (the “Surplus Contribution”) to Guarantee, and such Surplus Contribution is to be repaid by Guarantee pursuant to a promissory note (the “Surplus Note”), to be executed and delivered to Westwind by Guarantee. Westwind is also obligated under the terms of the Participation Agreement and the Subscription Agreement to contribute additional funds to maintain its participation in SP110 at an amount up to, but not to exceed, 20% of Gross Premium. In conjunction with and as further consideration for the Company to issue the Series A Common Stock of the Company to Westwind and for Guarantee to cede reinsurance to SP110, which is subject to Westwind’s obligations under the Participation Agreement and the Subscription Agreement, Westwind has agreed to grant the Company an option to purchase certain of the above-described shares of Series A Common Stock of the Company owned by Westwind in accordance with the terms and conditions set forth herein.

     Now, Therefore, in consideration of the foregoing Statement of Purpose, the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

     1. Grant Of Option. Subject to the terms and conditions set forth in this Agreement, Westwind hereby grants to the Company the option (the “Option”) to purchase from Westwind up to 195,694 shares in the aggregate of Westwind’s Series A Common Stock of the Company (the “Option Shares”), which Option vests immediately upon execution of this Agreement by the parties hereto. The Option shall be exercisable in accordance with Section 4 below. The number of Option Shares shall be subject to adjustment pursuant to Section 3 below.

     2. Option Price Per Share. The price of each of the Option Shares to be purchased and sold pursuant to the exercise or partial exercise of the Option shall be $0.001 (the

“Option Price Per Share”). The Option Price Per Share shall be subject to adjustment pursuant to Section 3 below.

     3. Adjustment Of Option Shares And Option Price Per Share. If there is any change in the common stock of the Company after the effective date hereof, whether by reason of declaration of a stock split or stock dividend or by reason of the subdivision, combination or reclassification of shares or by reason of any liquidation, recapitalization, reorganization, merger, consolidation or sale of assets of the Company, the number of Option Shares as to which the Company has not exercised the Option shall be appropriately and equitably adjusted, and the Option Price Per Share of the said Option Shares, as adjusted, shall be determined by dividing the total option price required to purchase all of the Option Shares as to which the Option had not been exercised immediately prior to the said adjustment by the total number of Option Shares as to which the Option had not been exercised immediately after the said adjustment.

     4. Offset Against Note. In the event that from time to time the Company receives notice from Caledonian Reinsurance SPC, or any of its affiliates, that Westwind is in default of its payment obligations to fund SP110 pursuant to the Participation Agreement or the Subscription Agreement, then, notwithstanding any provision to the contrary set forth in this Agreement or the Surplus Note, Guarantee shall have the sole and absolute right immediately to offset against and reduce from the accrued interest and outstanding principal amount of the Surplus Note an amount equal to such default, and in such event Guarantee shall have no further obligation to pay Westwind any such amount(s) so offset from such Surplus Note. Westwind shall have the right to designate whether any appropriate offset on the Surplus Note shall be applied toward principal, interest or a combination thereof.

     5. Exercise of Option; Procedure; Payment Terms.

     (a) The Company shall be entitled to exercise the Option in whole or in part from time to time upon notice from Caledonian Reinsurance SPC, or any of its affiliates, to the Company that Westwind is in default of its payment obligations to fund SP110 pursuant to the Participation Agreement or the Subscription Agreement and the full amount of such default is not satisfied pursuant to Section 4 above. The number of Option Shares that the Company may elect to purchase at any one time with respect to any such exercise of the Option shall be equal to the quotient of (i) divided by (ii) where (i) is the amount of the deficit that Westwind has failed to fund and which gives rise to its default under the Participation Agreement or the Subscription Agreement (after giving effect to any offset against any Surplus Notes pursuant to Section 4 above) and (ii) is $10.22.

     (b) To exercise the Option, the Company shall give written notice of exercise to Westwind (the "Option Notice”), setting forth in such notice the number (which must be a whole number) of Option Shares that the Company elects to purchase and the purchase price applicable to such purchase (the "Purchase Price”), which Purchase Price shall be in the amount equal to the product of (i) multiplied by (ii) where (i) is the number of Option Shares that the Company elects to purchase pursuant to such exercise and (ii) is the Option Price Per Share.

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     (c) Contemporaneously upon giving an Option Notice to Westwind and as a condition to each such exercise, the Company shall deliver to Westwind a cashier’s or bank check made payable to the order of Westwind in the full amount of the Purchase Price.

     (d) Contemporaneously with the execution of this Agreement, Westwind shall deliver a stock power duly executed in blank in form satisfactory to the Company sufficient to transfer ownership of the Option Shares to the Company upon exercise of the Option by the Company. The Company shall maintain possession of the stock certificates representing the Option Shares until the later of the exercise in full of the Option by the Company or the termination of this Agreement. Westwind hereby irrevocably appoints the Company as its attorney-in-fact to transfer ownership of the Option Shares on the books and records of the Company upon exercise by the Company of the Option, and Westwind acknowledges that this power of attorney is irrevocable and coupled with an interest.

     (e) Upon each exercise or partial exercise of the Option in accordance with the provisions of this Section 4, the Company shall be entitled to transfer to the Company the Option Shares as to which the Option is exercised and to deliver to the Secretary of the Company certificates representing the same for cancellation thereof.

     6. Legend.

     (a) Concurrently with the execution of this Agreement, Westwind shall cause to be imprinted or otherwise placed on the certificates representing the Option Shares the following restrictive legend (the “Legend”):

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A NOTE OFFSET AND CALL OPTION AGREEMENT, DATED JULY 29, 2004, WHICH PLACES CERTAIN TRANSFER OBLIGATIONS ON THE HOLDER OF THIS CERTIFICATE. ANY PERSON ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BE BOUND BY ALL OF THE PROVISIONS OF SUCH NOTE OFFSET AND CALL OPTION AGREEMENT.”

     (b) Westwind agrees that during the term of the Agreement it will not cause or permit the removal of the Legend from any such certificate for the Option Shares with respect to which it is the holder and will cause the Legend to be placed on any new certificate issued to represent the Option Shares.

     7. Termination. This Agreement shall terminate on the date which is ninety (90) days after termination of all of Westwind’s obligations to fund SP110 under the Participation Agreement and the Subscription Agreement.

     8. Miscellaneous.

     (a) Status as Stockholder. Nothing herein is intended to or shall give the Company any right or status of any kind as a stockholder of the Company in respect of any of the Option

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Shares unless and until the Option Shares have been delivered to the Company pursuant to the exercise or partial exercise of the Option.

     (b) Further Assurances. The Company and Westwind agree to execute and deliver such other documents or agreements and to take such other action as may be reasonably necessary or desirable for the implementation of this Agreement and the consummation of the transactions contemplated hereby.

     (c) Entire Agreement; Amendments and Waivers. This Agreement represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof. This Agreement may be amended, supplemented or changed, and any provision hereof may be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof.

     (d) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflict of laws principles thereof.

     (e) Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a nationally recognized overnight courier for next day delivery. All communications shall be sent to the Company and Westwind at their respective addresses set forth below or at such other address as the Company or Westwind may designate for it by ten (10) days’ advance written notice to the other party hereto.

     If to the Company:

          SunCoast Holdings, Inc.
          5212 Fisher Island Drive
          Miami, Florida 33109
          Attn: Steven M. Mariano

     If to Westwind:

          Westwind Holding Company, LLC

          Attn:                                                   

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     (f) Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

     (g) Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.

     (h) Counterparts; Facsimile Signature. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument, and may be executed by means of signatures transmitted by facsimile.

[Signatures appear on the following page.]

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     In Witness Whereof, the parties hereto have caused this Note Offset and Call Option Agreement to be executed by their duly authorized representatives as of the date first above written.

COMPANY:	Suncoast Holdings, Inc.
	By:
		Steven M. Mariano
		President
GUARANTEE:	Guarantee Insurance Company
	By:
		Lucia A. Tompkins
		President
WESTWIND:	Westwind Holding Company, LLC
	By:
		Name:
		Title:

     In Witness Whereof, the parties hereto have caused this Note Offset and Call Option Agreement to be executed by their duly authorized representatives as of the date first above written.

COMPANY:	Suncoast Holdings, Inc.
	By:
		Steven M. Mariano
		President
GUARANTEE:	Guarantee Insurance Company
	By:
		Lucia A. Tompkins
		President
WESTWIND:	Westwind Holding Company, LLC
	By:
		Name:	Michael Corley
		Title:	President

AMENDMENT TO NOTE OFFSET AND CALL OPTION AGREEMENT

     This Amendment to Note Offset and Call Option Agreement (this “Amendment”) is made and entered into as of the 2 day of November, 2004, by and between Suncoast Holdings, Inc, a Delaware corporation (the “Company”), Guarantee Insurance Company, a South Carolina corporation (“Guarantee”) and Westwind Holding Company, LLC, a Florida limited liability company (“Westwind”).

Statement of Purpose

     On July 29, 2004, the parties hereto entered into that certain Note Offset and Call Option Agreement, (the “Call Option Agreement”) pursuant to which Westwind granted the Company an option to purchase 195,694 shares of Series A Common Stock of the Company owned by Westwind in accordance with the terms and conditions set forth therein. Contemporaneously with the execution of this Amendment, Westwind is purchasing an additional 19,569 shares of the Series A Common Stock of the Company (the “Additional Shares”). In conjunction with and as further consideration for the Company to issue the Additional Shares to Westwind, Westwind has agreed to grant the Company an option to purchase the Additional Shares by amending the Call Option Agreement in accordance with the terms and conditions set forth herein.

     Now, Therefore, in consideration of the foregoing Statement of Purpose, the mutual covenants hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that (i) the Call Option Agreement is hereby amended by deleting the phrase “195,694 shares” wherever such phrase appears in the Call Option Agreement and by substituting in lieu thereof the phrase “215,263 shares” and (ii) the defined term “Option Shares” as used in the Call Option Agreement shall be deemed to include the Additional Shares wherever such term is used in the Call Option Agreement. Except as amended hereby, the Call Option Agreement is hereby ratified and confirmed and shall continue is full force and effect.

[Signatures appear on the following page.]

     In Witness Whereof, the parties hereto have caused this Amendment to Note Offset and Call Option Agreement to be executed by their duly authorized representatives as of the date first above written.

COMPANY:	Suncoast Holdings, Inc.
	By:
		Steven M. Mariano
		President
GUARANTEE:	Guarantee Insurance Company
	By:
		Lucia A. Tompkins
		President
WESTWIND:	Westwind Holding Company, LLC
	By:
		Michael Corley
		President

     In Witness Whereof, the parties hereto have caused this Amendment to Note Offset and Call Option Agreement to be executed by their duly authorized representatives as of the date first above written.

COMPANY:	Suncoast Holdings, Inc.
	By:
		Steven M. Mariano
		President
GUARANTEE:	Guarantee Insurance Company
	By:
		Lucia A. Tompkins
		President
WESTWIND:	Westwind Holding Company, LLC
	By:
		Michael Corley
		President

EX-10.38

Exhibit 10.38

                           

CALEDONIAN REINSURANCE SPC

This Agreement is made in on the 16 day of August, 2004 (this “Agreement”)

Between:

Westwind Holding Company, LLC (Shareholder) whose registered office is 7560 Commerce Court, Sarasota, FL 34243 USA and Caledonian Reinsurance SPC reference Segregated Portfolio 110 (“Segregated Portfolio 110”), a segregated portfolio company whose registered office is at Caledonian House, PO Box 1043GT, 69 Dr Roy’s Drive, George Town, Grand Cayman, Cayman Islands.

This Agreement sets out the terms which have been agreed in respect of the participation of the Shareholder in Segregated Portfolio 110.

1.	Description of the business to be conducted by Segregated Portfolio 110
1.1	Segregated Portfolio 110 has been established to provide workers compensation reinsurance for professional employment organizations in the US, specifically reinsurance for workers’ compensation policies issued to Progressive Employer Services, III, Inc., its affiliates and their client entities, (collectively “Progressive”). Primary policy issuance is with Guarantee Insurance Company and SP110 reinsures this risk up to certain levels.
2.	The Participation
2.1	Shareholder wishes to purchase one Segregated Portfolio Share in the capital of the Caledonian Reinsurance SPC to be designated Segregated Portfolio 110 Share (the “SP Share”) on and subject to the terms of the Memorandum and Articles of Association of Caledonian Reinsurance SPC, a copy of which is attached hereto as Exhibit “A”, for a subscription price of US$1, plus 20% percent of Gross Annual Written Premium on policies written by Guarantee for Progressive, with said 20% being payable within sixty (60) days of written demand by Caledonian if the loss fund of the program becomes negative. Further subscriptions of Segregated Portfolio Shares in Caledonian Reinsurance SPC designated Segregated Portfolio 110 Shares may be made on such terms as the parties may agree. Absent such further subscriptions, Shareholder shall be the sole owner and have 100% of the interest of Segregated Portfolio 110 of Caledonian Reinsurance SPC.

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2.2	Shareholder will participate in the results of the reinsurance business to Segregated Portfolio 110 in accordance with Section 1 above (the “Reinsurance”).
2.3	The directors of Caledonian Reinsurance SPC may declare dividends on the SP Share solely out of the profits made by Segregated Portfolio 110 arising from the Reinsurance, which dividends will be calculated in accordance with Part 1 of the Schedule to this Agreement. The holder of a SP Share will not be entitled to share in any profits of any other segregated portfolio of Caledonian Reinsurance SPC or any other profits of Caledonian Reinsurance SPC.
2.4	No shareholder of any other segregated portfolio of Caledonian Reinsurance SPC will be entitled to participate in any profits of Segregated Portfolio 110 by virtue of holding such shares.
2.5	Caledonian Reinsurance SPC may redeem any SP Share in accordance with Part 2 of the Schedule to this Agreement.
2.6	On the first to occur of a winding up of Segregated Portfolio 110 or Caledonian Reinsurance SPC the assets of Segregated Portfolio 110 remaining will be distributed solely to the holders of SP Shares in accordance with the Redemption provisions as set out in Part 2 of the Schedule to this Agreement. Holders of SP 110 Shares will not be entitled to share in any other assets of Caledonian Reinsurance SPC available for distribution or any assets of any other segregated portfolio of Caledonian Reinsurance SPC.
2.7	SP shares have not been registered in the United Stated and shall not be sold, transferred, hypothecated, pledged or otherwise encumbered and will bear the following legend:
	The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, of the United Stated (the “U.S Securities Act”) or any securities laws of any state of the United States. They may not be offered or transferred by sale, assignment, pledge or otherwise unless (i) a registration statement for the shares under the Securities Act is in effect or (ii) the Company has received such agreements and certificates as the Company may require and an opinion of counsel, which opinion is satisfactory to the Company, to the effect that such registration is not required under the Securities Act or state securities laws. Transfer of these shares is further restricted as provided in the Participation Agreement between the Company and the Shareholder. In addition to the transfer restrictions above, the securities represented by this certificate may not be sold or otherwise transferred if such transfer would result in the Company being required to register as an investment company under the Investment Company Act of 1940, as amended, or result in a violation of any applicable securities law or other applicable law or regulation. Specifically the shares may not be transferred without the consent of the Cayman Islands Monetary Authority and in compliance with the requirements of the Insurance Law of the Cayman Islands.

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2.8	Caledonian Reinsurance SPC on behalf of Segregated Portfolio 110, and subject to the overall supervision and discretion of the board of directors of Caledonian Reinsurance SPC, agrees to make such investments and divestments of assets of Segregated Portfolio 110 as Shareholder may reasonably instruct. In acting on the instructions of Shareholder neither Caledonian Reinsurance SPC nor any of its directors, officers or employees shall be liable for any loss, claim cost or expense suffered by Segregated Portfolio 110 and each of Caledonian Reinsurance SPC and its directors, officers and employees shall be indemnified and held harmless by Shareholder and Segregated Portfolio 110 for any loss, claim, cost or expense incurred by them in so acting. Caledonian Reinsurance SPC shall be entitled to rely on a Shareholder’s instruction, approval and authorisation without further enquiry if it shall have been given in writing or by facsimile (or any person whom Caledonian Reinsurance SPC believes to be one of the following):
	Westwind Holding Company, LLC
3.	Limited Recourse
	Notwithstanding any other provision of this Agreement, Shareholder acknowledges and agrees that no liability shall arise under this Agreement for any reason against Caledonian Insurance Services Limited, Caledonian Reinsurance SPC, any portfolio of Caledonian Reinsurance SPC (other than Segregated Portfolio 110) and Caledonian Bank & Trust Limited and their respective officers, directors, shareholders, employees, and their attorneys and agents (the “Limited Liability Parties”).
	The Shareholder further acknowledges and agrees that all liability under this Agreement shall be limited to the net proceeds following the realisation of all the assets of Segregated Portfolio 110 only. If such amount is insufficient to pay all the obligations hereunder in full for any reason neither Segregated Portfolio 110 nor any of the Limited Liability Parties shall have any obligation to make up the insufficiency and following exhaustion of such amount any liability to pay such insufficiency shall thereafter be extinguished.
	The Shareholder covenants, acknowledges and agrees that it shall not take or seek to take any recourse (including but not limited to action before any court or governmental agency), directly or indirectly, with respect to the actions or inactions of Segregated Portfolio 110 or Caledonian Reinsurance SPC or any obligations of Segregated Portfolio 110 or Caledonian Reinsurance SPC or under this Agreement against:

• any owner of a beneficial interest in Segregated Portfolio 110;

• any partner, owner, beneficiary, director, officer, shareholder, employee or agent of Segregated Portfolio 110 in its individual capacity or any of their respective legal advisers; or

• any of the Limited Liability Parties.

The Shareholder further covenants, acknowledges and agrees that it shall not, until the expiry of one year and one day after the payment of all secured obligations, take any corporate action or other steps or legal proceedings for the winding-up, dissolution or re-

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organisation or for the appointment of a receiver, administrator, administrative receiver, trustee, liquidator, sequestrator or similar officer of Caledonian Reinsurance SPC or Segregated Portfolio 110 or of any or all of Caledonian Reinsurance SPC or Segregated Portfolio 110 revenues and assets or analogous proceedings in any jurisdiction domestic or foreign.

4.	Indemnification
	The Shareholder agrees to indemnify and hold harmless the Segregated Portfolio 110 and Caledonian Reinsurance SPC and their respective officers, directors, shareholders, employees, and their attorneys, affiliates and agents (“Indemnified Persons”), and hold each of them harmless from and against any error of judgment, and any and all loss, damage, claims, demands, or proceedings, liability or expense, including costs and reasonable attorneys’ fees and expenses (together “Losses”), to which any Indemnified Person may be put or may incur by reason of or in connection with any misrepresentation made by the Shareholder, any breach of the Shareholder representations and warranties, the Shareholder failure to fulfill any of its covenants or agreements under this Agreement or any Losses suffered or sustained by an Indemnified Person by reason of such person’s status as an Indemnified Person other than Losses which arise out of or relate to fraud or willful default of such Indemnified Person.
5.	Undertakings, Representations and Warranties
5.1	Shareholder undertakes and/or represents and warrants to Caledonian Reinsurance SPC:

(a)	that it has had its own opportunity to investigate its participation and the terms and conditions of its participation and to obtain such legal, tax, accounting and other professional advice as it considers proper or appropriate and that it is not relying on any advice, representation or warranty from Caledonian Reinsurance SPC, and specifically that it is aware of the provisions of the Cayman Islands Companies Law (2003 Revision) which relate to segregated portfolio companies;
(b)	that it has the legal capacity and authority and is permitted by applicable law to execute and deliver this Agreement;
(c)	that it is not (i) a U.S. person from whom an investment would not qualify for an exemption under the U.S. Securities Act of 1933 or would require Caledonian Reinsurance SPC to register this Agreement under the U.S. federal or state securities laws or causes Caledonian Reinsurance SPC to become subject to the United States Investment Company Act of 1940 or (ii) a person in circumstances (whether directly or indirectly affecting the shareholder and whether taken alone or in conjunction with any other person, connected or not, or any other circumstance appearing to Caledonian Reinsurance SPC to be relevant) which in the opinion of Caledonian Reinsurance SPC might result in Caledonian Reinsurance SPC incurring any liability to taxation or suffering any other

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pecuniary, fiscal or regulatory disadvantage which Caledonian Reinsurance SPC might not otherwise incur or suffer;

(d)	that all consents required to be obtained and all legal requirements necessary to be complied with or observed in order for this Agreement or the participation to be lawful and valid under the laws or regulatory rules or regulations of any jurisdiction to which Shareholder is subject have been obtained, complied with and observed;
(e)	to notify Caledonian Reinsurance SPC immediately if it becomes aware that any of these undertakings, representations and warranties is nolonger accurate and complete;
(f)	that its participation will not breach any applicable money laundering rules and regulations of any jurisdiction and that it has provided accurate verification of its identity;
(g)	that it acknowledges and agrees that directors, officers, agents and shareholders of Caledonian Reinsurance SPC are or may be interested in the insurance manager or affiliates of the insurance manager as either directors, officers, or shareholders or otherwise and that directors, officers, agents and shareholders of the insurance manager are or may be interested in Caledonian Reinsurance SPC or segregated portfolios thereof as directors, officers, shareholders or otherwise and it further acknowledges that no person so interested shall be liable to account for any benefit to any other party by reason solely of such interest and without limitation, the insurance manager will be entitled to retain for its own benefit and without accounting therefore to Caledonian Reinsurance SPC or Segregated Portfolio 110 or Shareholder any profit arising out of it acting in such capacity or any other capacity (including banker) to Caledonian Reinsurance SPC or Segregated Portfolio 110 and that Segregated Portfolio 110 is obligated to pay Caledonian Reinsurance SPC fees in relation to the administrative services provided by Caledonian Reinsurance SPC to Segregated Portfolio 110 and that Segregated Portfolio 110 is to indemnify and hold harmless Caledonian Reinsurance SPC in respect of any loss, claim or cost it may incur in the performance of its administrative services.

6. Term

6.1 This Agreement will terminate when Caledonian Reinsurance SPC has no further liability or obligation under or in respect of the Reinsurance. On termination of this Agreement Caledonian Reinsurance SPC shall redeem the SP Share held by Shareholder for an amount calculated in accordance with the Redemption Provisions set out in Part 2 of the Schedule and otherwise in accordance with the Articles of Association of Caledonian Reinsurance SPC.

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6.2	Each party’s further rights and obligations cease immediately on termination of this Agreement, but termination does not affect a party’s accrued rights and obligations at the date of termination. Shareholder’s sole right to any payment on termination will be the amount, if any, calculated in accordance with the Redemption Provisions set out in Part 2 of the Schedule.
7.	Confidentiality
7.1	For the purposes of this Agreement Confidential Information means all information disclosed (whether in writing or orally) by a party (the Disclosing Party) to the other party (the Receiving Party) whether before or after the date of this Agreement including, without limitation, information relating to the Disclosing Party’s products, operations, processes, plans or intentions, product information, know-how, market opportunities and business affairs.
7.2	Except as required by the laws of any relevant jurisdiction or by the requirements of its regulators (including for the avoidance of doubt Caledonian Reinsurance SPC’s obligations under the Cayman Islands Insurance Law (as revised)), during the term of this Agreement and after termination or expiration of this Agreement for any reason, the Receiving Party (a) may not use Confidential Information for a purpose other than the performance of its obligations under this Agreement and (b) may not disclose Confidential Information to a person (other than the employees, officers, directors, auditors, legal advisers and other duly authorised agents of the Receiving Party) except with the prior written consent of the Disclosing Party.
	Notwithstanding the foregoing, either party may use Confidential Information (i) in the course of prosecuting or defending any claim or cause or action in any proceedings of any nature whatsoever, including a threatened proceeding; (ii) in making any filings with or statements to any governmental agency of any nature whatsoever: (iii) to the extent either party in its sole discretion determines disclosure of Confidential Information may be required by or advisable under applicable law, rule, regulation, order, contract or agreement; (iv) in communicating with the respective parties, shareholders, prospective shareholders and creditors; and (v) as the parties deem reasonably necessary or prudent, in their sole discretion, in connection with the operation or management of its business.
7.3	This restriction does not apply to Confidential Information which (a) is at the date of this Agreement, or at any time after that date becomes, publicly known other than by the Receiving Party’s breach of this Agreement or (b) was known by the Receiving Party before disclosure by the Disclosing Party to the Receiving Party, or (c) the disclosure of any Confidential Information in any legal proceedings relating to this Agreement.
8.	Assignment

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8.1	No party to this Agreement may assign or transfer or subcontract or purport to assign or transfer or subcontract any right or obligation under this Agreement without having first obtained the written consent Caledonian Reinsurance SPC.
9.	Notices
9.1	A notice under or in connection with this Agreement shall be in writing and shall be delivered personally or sent by fax, as follows;

if to Caledonian Reinsurance SPC or Segregated Portfolio 110 to:

Address:   Caledonian Reinsurance SPC
PO Box ll03GT
Caledonian House
69 Dr Roy’s Drive
George Town
Grand Cayman
Cayman Islands
Tel: 345-949-0050
Fax: 345-949-8062

Marked for the attention of:   Nicholas J. Leighton

if to Shareholder to:   Westwind Holding Company, LLC
7560 Commerce Court, Sarasota, FL 34243
USA

Marked for the attention of:   Westwind Holding Company, LLC

or to another person, address, telex number or fax number specified by a party by written notice to the other.

9.2	In the absence of evidence of earlier receipt, a notice is deemed given, if delivered personally, when left at the address referred to above, if sent by fax, on confirmation of receipt.
10.	General
10.1	This Agreement shall not be amended nor shall any provision of this Agreement be considered modified or waived unless evidenced in writing signed by Shareholder and Caledonian Reinsurance SPC on its own behalf and on behalf of Segregated Portfolio 110.
10.2	Shareholder shall not be an employee, partner or co-venturer of Caledonian Reinsurance SPC or Segregated Portfolio 110 and shall have no authority to bind, obligate or represent Caledonian Reinsurance SPC or Segregated Portfolio 110 in any respect.

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10.3	A failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not constitute a waiver of the right or remedy or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy.
10.4	Shareholder shall be responsible for all its own costs relating to the negotiation, preparation, execution and implementation of this Agreement and of each document referred to in it.
10.5	This Agreement constitutes the entire agreement, and supersedes any previous agreement, between us relating to the subject matter of this Agreement.
11.	Governing Law
	This Agreement and all matters arising out of or in connection with it shall be governed by and interpreted in accordance with the laws of the Cayman Islands and the parties to it irrevocably submit to the jurisdiction of the courts of the Cayman Islands in respect of all such matters.

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Signed for and on behalf of Caledonian Reinsurance SPC For the Account of Segregated Portfolio 110.
By:	Nicholas John Leighton
	Title: Director
	Date:	30 AUG 2004
	Witness:
	Name:	Priscilla Burlington
	Date:	30 Aug 2004
	Signed for and on behalf of Shareholder
	By:
	Title:	President
	Date	8/26/04
	Witness:
	Name:	Steve Harris
	Date	8/26/04

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SCHEDULE

DIVIDEND & REDEMPTION POLICY

Part 1

Dividends

Dividends can be declared at any time, at the request of the shareholder, out of the available profits of Segregated Portfolio 110, subject to any constraints imposed upon Segregated Portfolio 110, by the Cayman Islands Monetary Authority (“CIMA”). Profits are defined as the excess of insurance and investment income, over the insurance losses and administrative expenses of Segregated Portfolio 110, as calculated in accordance with United States generally accepted accounting principles.

It is anticipated that no dividends will be declared during the first 18 months of operation of Segregated Portfolio 110, and this will be incorporated into the business plan for Segregated Portfolio 110 as presented to CIMA.

Part 2

Redemption

The consideration for the redemption of each SP Share, shall be the distribution to the holders of the SP Shares of the assets of Segregated Portfolio 110 remaining available for distribution at the date of redemption divided by the number of SP Shares being redeemed. In the event that there is more than one holder of SP Shares the assets will be distributed pro rata to the holders of the SP Shares.

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EX-10.39

Exhibit 10.39

CALEDONIAN REINSURANCE SPC

This Renewal Participation Agreement (the “Agreement”) is made as of this 16th day of August, 2005

Between:

Westwind Holding Company, LLC (“Shareholder”), whose registered office is 7560 Commerce Court, Sarasota, FL 33423 and Segregated Portfolio 110 (the “Segregated Portfolio”), a segregated portfolio of Caledonian Reinsurance SPC (the “Company”) whose registered office is at Caledonian House, PO Box 1043GT, 69 Dr Roy’s Drive, George Town, Grand Cayman, Cayman Islands.

This Agreement sets out the terms which have been agreed in respect of the participation of the Shareholder in the Segregated Portfolio:

1.	Description of the business to be conducted by the Segregated Portfolio.
	The Segregated Portfolio has been established to provide workers compensation reinsurance for Shareholder’s operations in the United States (the “Reinsurance”). Primary policy issuance is with Guarantee Insurance Company, a Delaware corporation (“Guarantee”), and the Segregated Portfolio reinsures the Guarantee risk up to certain limits.
2.	The participation
2.1	Shareholder is the owner of one Segregated Portfolio Share (the “SP Share) and wishes to purchase an additional SP Share in the capital of the Company on and subject to the terms of the Memorandum and Articles of Association of the Company for a subscription price of US$1.00, plus up to 20% of the Gross Annual Premium written on policies written by Guarantee for Shareholder, Shareholder’s affiliates and clients of Shareholder or Shareholder’s affiliates, provided however, that such additional 20% shall be payable only in the event the Insured and/or Shareholder fail to meet their collateral funding obligations as set forth in that certain Collateral Carry Forward Agreement executed on even date herewith between the Insured, Shareholder and Guarantee. Further subscriptions of SP Shares in the Company designated Segregated Portfolio Shares may be made on such terms as the parties may subsequently agree.
2.2	Shareholder will participate in the results of the Reinsurance in accordance with this Agreement.
2.3	The directors of the Company may declare dividends on the SP Share solely out of the profits made by the Segregated Portfolio arising from the Reinsurance, which dividends will be

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	calculated in accordance with the Dividends provision of Part 1 of the Schedule attached to and hereby made part of this Agreement by this reference. The holder of the SP Share will not be entitled to share in any profits of any other segregated portfolio of the Company or any other profits of the Company.
2.4	No shareholder of any other segregated portfolio of the Company will be entitled to participate in any profits of the Segregated Portfolio by virtue of holding such shares.
2.5	The Company may redeem the SP Share in accordance with the Redemption provisions of Part 2 of the above-referenced Schedule to this Agreement.
2.6	On the first to occur of a winding up of the Segregated Portfolio or the Company, the assets of the Segregated Portfolio remaining will be distributed solely to the holder of the SP Share in accordance with the Redemption provisions of Part 2 of the above-referenced Schedule to this Agreement. The holder of the SP Share will not be entitled to share in any other assets of the Company available for distribution or any assets of any other segregated portfolio of the Company.
2.7	The SP Share has not been registered in the United States and shall not be sold, transferred, hypothecated, pledged or otherwise encumbered and will bear the following legend:

The share represented by this certificate has not been registered under the Securities Act of 1933, as amended, of the United States (the “U.S Securities Act”) or any securities laws of any state of the United States. It may not be offered or transferred by sale, assignment, pledge or otherwise unless (i) a registration statement for the share under the Securities Act is in effect or (ii) the Company has received such agreements and certificates as the Company may require and an opinion of counsel, which opinion is satisfactory to the Company, to the effect that such registration is not required under the Securities Act or State securities laws. Transfer of this share is further restricted as provided in the Participation Agreement between the Company and the Shareholder. In addition to the transfer restrictions above, the securities represented by this certificate may not be sold or otherwise transferred if such transfer would result in the Company being required to register as an investment company under the Investment Company Act of 1940, as amended, or result in a violation of any applicable securities law or other applicable law or regulation. Specifically, the share may not be transferred without the consent of the Cayman Islands Monetary Authority and in compliance with the requirements of the Insurance Law of the Cayman Islands.

2.8 The Company, on behalf of the Segregated Portfolio and subject to the overall supervision and discretion of the board of directors of the Company, agrees to make such investments and divestments of assets of the Segregated Portfolio as Shareholder may reasonably instruct. In acting on the instructions of Shareholder, neither the Company nor any of its directors, officers or

2

	employees shall be liable for any loss, claim cost or expense suffered by the Segregated Portfolio and each of the Company and its directors, officers and employees shall be indemnified and held harmless by Shareholder and the Segregated Portfolio for any loss, claim, cost or expense incurred by them in so acting, unless due to fraud, gross negligence, dishonesty or willful malfeasance of such directors, officers or employees. The Company shall be entitled to rely on a Shareholder’s instructions, approval and authorisation without further enquiry if it shall have been given in writing or by facsimile (or by any person whom the Company reasonably believes to be an authorized officer of Shareholder.).
3.	Limited recourse
	Notwithstanding any other provision of this Agreement, Shareholder acknowledges and agrees that no liability shall arise under this Agreement for any reason against Caledonian Insurance Services Limited, the Company, any portfolio of the Company (other than the Segregated Portfolio) and Caledonian Bank & Trust Limited and their respective officers, directors, shareholders, employees, and their attorneys and agents (the “Limited Liability Parties”), unless due to fraud, gross negligence, dishonesty or willful malfeasance of such entities or parsons.
	Notwithstanding any other provision of this Agreement, Shareholder further acknowledges and agrees that all liability under this Agreement shall be limited to the net proceeds of the realisation of all the assets of the Segregated Portfolio only, in which case liability shall be limited only to proved damages, unless due to fraud, gross negligence, dishonesty or willful malfeasance on the part of any or all of the Limited Liability Parties. If such amount is insufficient to pay all the obligations hereunder in full for any reason, neither the Segregated Portfolio or any of the Limited Liability Parties shall have any obligation to make up the insufficiency, and following exhaustion of such amount, any liability to pay such insufficiency shall thereafter be extinguished, unless due to fraud, gross negligence, dishonesty or willful malfeasance of any or all of the Limited Liability Parties.
	Notwithstanding any other provision of this Agreement, Shareholder covenants, acknowledges and agrees that it shall not take or seek to take any recourse (including, but not limited to, action before any court or governmental agency), directly or indirectly, with respect to the actions or inactions of the Segregated Portfolio or the Company or any obligations of the Segregated Portfolio or the Company or under this Agreement against:

• any owner of a beneficial interest in the Segregated Portfolio;

• any partner, owner, beneficiary, director, officer, shareholder, employee or agent of the Segregated Portfolio in his, her or its individual capacity or any of their respective legal advisers; or

• any of the Limited Liability Parties,

unless due to such parties’ fraud, gross negligence, dishonesty or willful malfeasance.

Shareholder further covenants, acknowledges and agrees that it shall not take any corporate action or other steps or legal proceedings for the winding-up, dissolution or re-organisation or for

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	the appointment of a receiver, administrator, administrative receiver, trustee, liquidator, sequestrator or similar officer of the Company or the Segregated Portfolio or of any or all of the Company or the Segregated Portfolio revenues and assets or analogous proceedings in any jurisdiction domestic or foreign, unless due to fraud, gross negligence, dishonesty or willful malfeasance.
4.	Indemnification
	Shareholder agrees to indemnify and hold harmless the Segregated Portfolio and the Company and their respective officers, directors, shareholders, employees, and their attorneys, affiliates and agents (“Indemnified Persons”), and hold each of them harmless from and against any error of judgment, and any and all loss, damage, claims, demands, or proceedings, liability or expense, including costs and reasonable attorneys’ fees and expenses (together “Losses”), to which any Indemnified Person may be put or may incur by reason of or in connection with any misrepresentation made by Shareholder, any breach of Shareholder’s representations and warranties Shareholder’s failure to fulfil any of its covenants or agreements under this Agreement or any Losses suffered or sustained by an Indemnified Person by reason of such person’s status as an Indemnified Person other than Losses which arise out of or relate to fraud, gross negligence, dishonesty or willful malfeasance of such Indemnified Person.
5.	Undertakings, Representations and Warranties
	Shareholder undertakes and represents and warrants to the Company that:

(a)	it has had its own opportunity to investigate its participation and the terms and conditions of its participation and to obtain such legal, tax, accounting and other professional advice as it considers proper or appropriate and that it is not relying on any advice, representation or warranty from the Company, and specifically that it is aware of the provisions of the Cayman Islands Companies Law (2003 Revision) which relate to segregated portfolio companies;
(b)	it has the legal capacity and authority and is permitted by applicable law to execute and deliver this Agreement;
(c)	it is not (i) a U.S. person from whom an investment would not qualify for an exemption under the U.S. Securities Act of 1933 or would require the Company to register this Agreement under the U.S. federal or state securities laws or causes the Company to become subject to the United States Investment Company Act of 1940; or (ii) a person in circumstances (whether directly or indirectly affecting the Shareholder and whether taken alone or in conjunction with any other person, connected or not, or any other circumstance appearing to the Company to be relevant) which in the opinion of the Company might result in the Company incurring any liability to taxation or suffering any other pecuniary, fiscal or regulatory disadvantage which the Company might not otherwise incur or suffer;

4

(d)	all consents required to be obtained and all legal requirements necessary to be complied with or observed in order for this Agreement or the participation to be lawful and valid under the laws, rules or regulations of any jurisdiction to which Shareholder is subject, have been obtained, complied with and observed;
(e)	it will notify the Company immediately if it becomes aware that any of these undertakings, representations and warranties is no longer accurate and complete;
(f)	its participation will not breach any applicable money laundering rules and regulations of any jurisdiction and that it has provided accurate verification of its identity;
(g)	it acknowledges and agrees that directors, officers, agents and shareholders of the Company are or may be interested in the insurance manager or affiliates of the insurance manager as either directors, officers, or shareholders or otherwise, and that directors, officers, agents and shareholders of the insurance manager are or may be interested in the Company or segregated portfolios thereof as directors, officers, shareholders or otherwise and it further acknowledges that no person so interested shall be liable to account for any benefit to any other party by reason solely of such interest and without limitation, the insurance manager will be entitled to retain for its own benefit and without accounting therefore to the Company or the Segregated Portfolio or Shareholder any profit arising out of it acting in such capacity or any other capacity (including banker) to the Company or the Segregated Portfolio and that the Segregated Portfolio is obligated to pay the Company fees in relation to the administrative services provided by the Company to the Segregated Portfolio and that the Segregated Portfolio is to indemnify and hold harmless the Company in respect of any loss, claim or cost it may incur in the performance of its administrative services.

6.	Term
6.1	This Agreement will terminate when the Company has no further liability or obligation under or in respect of the Reinsurance. On termination of this Agreement, the Company shall redeem the SP Share held by Shareholder for an amount calculated in accordance with the Redemption provision set out in Part 2 of the above-referenced Schedule and otherwise in accordance with the Articles of Association of the Company.
6.2	Each party’s further rights and obligations cease immediately on termination of this Agreement, but termination does not affect a party’s accrued rights and obligations at the date of termination. Shareholder’s sole right to any payment on termination will be the amount, if any, calculated in accordance with the Redemption provision set out in Part 2 of the above-referenced Schedule.
7.	Confidentiality
7.1	For the purposes of this Agreement, “Confidential Information” means all information disclosed (whether in writing or orally) by a party (the “Disclosing Party”) to the other party (the “Receiving

5

	Party”) whether before or after the date of this Agreement, including, without limitation, information relating to the Disclosing Party’s products, operations, processes, plans or intentions, product information, know-how, market opportunities and business affairs.
7.2	Except as required by the laws of any relevant jurisdiction or by the requirements of its regulators (including, for the avoidance of doubt, but not limited to, the Company’s obligations under the Cayman Islands Insurance Law, as revised), during the term of this Agreement and after termination or expiration of this Agreement for any reason, the Receiving Party (a) may not use Confidential Information for a purpose other than the performance of its obligations under this Agreement and (b) may not disclose Confidential Information to a person (other than the employees, officers, directors, auditors, legal advisers and other duly authorised agents of the Receiving Party) except with the prior written consent of the Disclosing Party. Notwithstanding the foregoing, either party may use Confidential Information (i) in the course of prosecuting or defending any claim or cause of action in any proceedings of any nature whatsoever, including a threatened proceeding and in the event such records are sought by legal process in connection with a legal proceeding; (ii) in making any filings with or statements to any governmental agency of any nature whatsoever; (iii) to the extent either party in its sole discretion determines disclosure of Confidential Information may be required by or advisable under applicable law, rule, regulation, order, contract or agreement; (iv) in communicating with the respective parties, shareholders, prospective shareholders and creditors; and (v) as the parties deem reasonably necessary, or prudent, in their sole discretion, in connection with the operation or management of their respective businesses.
7.3	This restriction does not apply to Confidential Information which (a) at the date of this Agreement, or at any time after that date, becomes publicly known other than by the Receiving Party’s breach of this Agreement; (b) was known by the Receiving Party before disclosure by the Disclosing Party to the Receiving Party, or (c) the disclosure of any Confidential Information in any legal proceedings relating to this Agreement.
8.	Assignment
	No party to this Agreement may assign or transfer or subcontract or purport to assign or transfer or subcontract any right or obligation under this Agreement without having first obtained the written consent the Company.
9.	Notices
9.1	A notice under or in connection with this Agreement shall be in writing and shall be delivered personally or sent by fax, as follows:

If to Caledonian Reinsurance SPC or the Segregated Portfolio, to:

Caledonian Reinsurance SPC
PO Box 1043GT
Caledonian House
69 Dr Roy’s Drive

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George Town
Grand Cayman
Cayman Islands
Attention: Conor Jennings,
                  Managing Director
Tel: 345-949-0050
Fax 345-949-8062

If to Shareholder, to:

Westwind Holding Company, LLC
7560 Commerce Court
Sarasota, FL 33243
Attention: Mr. Steven F. Herrig
Tel. (941) 925-2990
Fax (941) 308-1782

	or to another person, address, telex number or fax number previously specified by a party by written notice to the other.
9.2	In the absence of evidence of earlier receipt, a notice is deemed given, if delivered personally, when left at the address referred to above, or, if sent by fax, on confirmation of receipt.
10.	General
10.1	This Agreement shall not be amended nor shall any provision of this Agreement be considered modified or waived unless evidenced in writing signed by Shareholder and the Company on its own behalf and on behalf of the Segregated Portfolio.
10.2	Shareholder shall not be an employee, partner or co-venturer of the Company or the Segregated Portfolio and shall have no authority to bind, obligate or represent the Company or the Segregated Portfolio in any respect.
10.3	A failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not constitute a waiver of the right or remedy or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy.
10.4	Shareholder shall be responsible for all its own costs relating to the negotiation, preparation, execution and implementation of this Agreement and of each document referred to in it.
10.5	This Agreement constitutes the entire agreement between the parties as to the subject matter of this Agreement, and supersedes any previous agreement between the parties relating to the subject matter of this Agreement.

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10.6	This Agreement may be executed in any number of counterparts, each of which may be executed by less than all of the parties hereto, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.
11.	Governing Law
	This Agreement and all matters arising out of or in connection with it shall be governed by and interpreted in accordance with the laws of the Cayman Islands and the parties to it irrevocably submit to the exclusive jurisdiction of the courts of the Cayman Islands in respect of all such matters.

SIGNED FOR AND ON BEHALF OF REINSURER FOR THE ACCOUNT OF THE SEGREGATED PORTFOLIO, A SEGREGATED PORTFOLIO OF CALEDONIAN REINSURANCE SPC AS OF THE DATE FIRST ABOVE WRITTEN.

By:
	Conor Jennings
	Title:	Managing Director

SIGNED FOR AND ON BEHALF OF SHAREHOLDER AS OF THE DATE FIRST ABOVE WRITTEN.

By:
	Steven F. Herrig
	Title:	CEO

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SCHEDULE
DIVIDEND & REDEMPTION POLICY

Part 1
Dividends

Dividends can be declared at any time, at the request of the shareholder, out of the available profits of the Segregated Portfolio, subject to any constraints imposed upon the Segregated Portfolio by the Cayman Islands Monetary Authority (“CIMA”). Profits are defined as the excess of insurance and investment income over the insurance losses and administrative expenses of the Segregated Portfolio, as calculated in accordance with United States generally accepted accounting principles.

It is anticipated that no dividends will be declared during the first eighteen (18) months of operation of the Segregated Portfolio, and this will be incorporated into the business plan for the Segregated Portfolio as presented to CIMA.

Part 2
Redemption

The consideration for the redemption of the SP Share shall be the distribution to the holder of the SP Share of the assets of the Segregated Portfolio remaining available for distribution at the date of redemption divided by the number of SP Shares being redeemed. In the event that there is more than one holder of SP Shares, the assets will be distributed pro rata to the holders of the SP Shares.

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EX-10.41

Exhibit 10.41

PURCHASE AND SALE AGREEMENT

     THIS PURCHASE AND SALE AGREEMENT, dated as of this 1^st day of January, 2006 (referred to herein as the “Agreement”) is entered into by and between THE TARHEEL GROUP, INC., a Delaware corporation, and TARHEEL INSURANCE MANAGEMENT COMPANY, a Delaware corporation and subsidiary of THE TARHEEL GROUP, INC. (both referred to collectively herein as “Sellers”), and SUNCOAST HOLDINGS, INC., a Delaware corporation (referred to herein as “Purchaser”).

WITNESSETH:

     WHEREAS, Sellers wish to sell and transfer, and Purchaser has agreed to buy and accept from Sellers, certain contracts (referred to herein as the “Assumed Contracts”) that Sellers hold with GUARANTEE INSURANCE COMPANY, a South Carolina corporation (referred to herein as “GIC”) and

     WHEREAS, Sellers and Purchaser wish to enter into this Agreement pursuant to which Sellers agree to sell and transfer and Purchaser agrees to buy and accept from Sellers the Assumed Contracts; and

     WHEREAS, Sellers have consulted with GIC and have been assured that GIC has no objection to the sale and transfer of the Assumed Contracts to Purchaser;

     NOW, THEREFORE, in consideration of the foregoing, and of the mutual agreements hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Purchaser and Sellers hereby agree as follows:

I. PURCHASE AND SALE OF ASSUMED CONTRACTS

A. Subject to and upon the terms and conditions of this Agreement, at the closing of the transaction contemplated herein (referred to herein as the “Closing”), Sellers shall sell, transfer, convey, assign and deliver to Purchaser and Purchaser shall purchase, accept and acquire from Sellers, all of Sellers’ right, title and interest, as of the time and date of Closing as set forth in Section 2 below (referred to herein as the “Closing Date”), in and to all of the Assumed Contracts identified below, including any and all goodwill generated therefrom, free and clear of any encumbrances, claims, liens, pledges, charges, agreements, or other restrictions whatsoever on the them:

1) That certain contract entitled “Producer Agreement” entered into by and between Sellers and GIC, dated as of January 1, 2004;

2)	That certain contract entitled “Managed Care Services Agreement” entered by and between Sellers and GIC, dated as of January 1, 2004; and
3)	That certain contract entitled “Expense Reimbursement Agreement” entered into by and between Sellers and GIC, dated as of January 1, 2004.

B. Sellers additionally acknowledge that all right, title and interest in and to, and benefits to Sellers from, the above Assumed Contracts (collectively referred to herein as the “Contract Rights”), including any and all goodwill generated therefrom, shall pass to Purchaser on and as of the Closing Date.

II. CLOSING

     The Closing for the transactions contemplated by this Agreement shall be effective for all purposes and shall take place at the offices of Sellers, 1061 521 Corporate Center Drive, Suite 140, Fort Mill, SC 29715 on January 1, 2006, or at such other time and place as shall be fixed by agreement in writing among Sellers and Purchaser.

III. PURCHASE PRICE

A. On the Closing Date, in consideration of the conveyance, transfer and assignment of the Assumed Contracts and the attendant Contract Rights to Purchaser and in full payment therefor, Purchaser shall transfer, convey, assign and deliver to Sellers One Hundred Sixty-Nine Thousand (169,000) shares of Purchaser’s Series A common stock, with a current value of $8.02 per share, equivalent to a total value of $1,355,380.00 (referred to herein as the “Purchase Price”), which stock shall be, when issued and delivered, validly issued, fully paid and non-assessable (referred to herein as the “Stock”). It shall be subject to the restrictions set out in Section 15 below.

B. Sellers agree to execute and deliver on the Closing Date and thereafter all such and other instruments, and to take or cause to be taken all such further actions, as may be necessary to fully vest in and confirm to Purchaser all right, title and interest in and to the Assumed Contracts and the attendant Contract Rights.

IV. ASSUMPTION OF LIABILITIES

A. Purchaser shall assume, and hereby agrees to perform, pay and discharge all obligations and liabilities (collectively referred to herein as the “Assumed Liabilities”) arising under the Assumed Contracts from and after the Closing Date.

B. Purchaser shall not assume nor agree to perform, pay or discharge, and Sellers shall remain unconditionally liable for, all obligations, liabilities or commitments, fixed or contingent of Sellers, whether arising before or after the Closing Date, for other than the Assumed Liabilities.

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V. CLOSING STEPS

A. At the Closing, each party shall deliver to the other party entitled to receipt thereof the documents required to be delivered hereunder and such other documents, instruments and materials (or complete and accurate copies thereof, where appropriate) as may be reasonably required in order to effectuate the intent and provisions of this Agreement. All such documents, instruments and materials shall be in form and substance satisfactory to counsel for the receiving party.

B. The conveyance, transfer, assignment and delivery of the Assumed Contracts shall be effected by Sellers’ execution of this Agreement and delivery to Purchaser of the Assumed Contracts themselves on the Closing Date, plus such other instruments of conveyance, transfer, assignment and delivery as Purchaser shall reasonably request to cause Sellers to transfer, convey, assign and deliver the Assumed Contracts to Purchaser.

VI. MUTUAL RELEASES

A. Purchaser hereby waives, releases and forever discharges Sellers from any losses that Purchaser had, has or may hereafter have related to any act or omission occurring on or before the Closing Date related to any of the Assumed Contracts; provided, however, that Sellers did not in any way act to diminish the relationship between them and GIC with regard to any of the Assumed Contracts or the value thereof.

B. Sellers hereby waive, release and forever discharge Purchaser from any losses that Sellers had, have or may hereafter have related to any act or omission occurring on or before the Closing Date related to any of the Assumed Contracts or any action of Purchaser concerning Purchaser’s commercial use or application in Purchaser’s business of the Assumed Contracts.

VII. REPRESENTATIONS AND WARRANTIES OF SELLERS

Sellers represent and warrant to Purchaser as follows:

A. Sellers are each corporations, each duly organized, validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct their business as presently conducted and as proposed to be conducted by them, to enter into and perform this Agreement and all other agreements as may be required to be executed by Sellers at or prior to Closing and pursuant to the other provisions of this Agreement, and to carry out the transactions contemplated by this Agreement. Sellers are each duly qualified to do business as a foreign corporation and are in good standing in every jurisdiction in which the failure to so qualify would have a material adverse effect on the business, prospects, assets or condition (financial or otherwise) of Sellers. Sellers have made available to Purchaser true and complete copies of each of their

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Page 3

Certificates of Incorporation and By-Laws, each as amended to date and presently in effect.

B. The execution, delivery and performance by Sellers of this Agreement, and the consummation by Sellers of the transactions contemplated hereby, have been duly authorized by all necessary corporate action. This Agreement will, upon execution, have been duly executed and delivered by Sellers and constitutes the valid and binding obligations of Sellers enforceable in accordance with its terms on a joint and several basis, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights or by general principles of equity. The execution and performance of the transactions contemplated by this Agreement and compliance with its provisions by Sellers will not (i) conflict with or violate any provision of their respective Certificates of Incorporation or By-Laws, as each may be amended to date; (ii) conflict with, result in a breach of, constitute (without due notice or lapse of time or both) a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any material contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, document creating or pertaining to an encumbrance or other arrangement to which the Sellers are a part or by which the Sellers are bound; (iii) result in the imposition of any encumbrance upon any of the Assumed Contracts; or (iv) violate any order writ, injunction, decree, statute, rule or regulation applicable to the Sellers or to any of the Assumed Contracts.

C. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental or regulatory authority or agency is required on the part of Sellers in connection with the execution and delivery of this Agreement or the transactions to be consummated at the Closing.

D. Sellers, at the Closing, will have the right to sell and transfer to Purchaser the Assumed Contracts, free and clear of all encumbrances or restrictions, if any, so as to allow Purchaser to assume the obligations and benefits of Sellers thereunder. The delivery to Purchaser of the instruments of transfer of ownership contemplated by this Agreement will transfer to Purchaser right, title and interest in, and the benefits of, the Assumed Contracts, including any and all goodwill generated therefrom, free and clear of any and all encumbrances, obstructions or restrictions whatsoever.

E. Copies of all Assumed Contracts have been previously delivered or made available by Sellers to Purchaser. Seller further states:

1) Sellers are not in material breach of or default under any Assumed Contract.

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Page 4

2)	To the knowledge of Sellers, there is no existing breach or default by any other party to any Assumed Contract.
3)	Sellers are not in material breach or material default under any of the Assumed Contracts, and no event has occurred which, with the notice or lapse of time, would constitute a material breach or material default by Sellers or permit termination, modification, or acceleration thereunder.
4)	There are no disputes, oral agreements or forbearance in effect as to the Assumed Contracts.

F. There is no action, suit or proceeding, or governmental inquiry or investigation, pending, or, to Sellers’ knowledge, any basis therefor or threat thereof, against Sellers which questions the validity of this Agreement or the right of Sellers to enter into it or perform their obligations hereunder.

G. Neither this Agreement nor any Exhibit hereto, nor any report, certificate or instrument furnished to Purchaser in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.

VIII. REPRESENTATIONS AND WARRANTIES OF PURCHASER

A. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

B. Purchaser has full corporate power and authority to execute, deliver and perform this Agreement and has taken all corporate action required by law, its certificate of incorporation, by-laws or otherwise, to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

IX. ACCESS TO RECORDS, PUBLIC ANNOUNCEMENTS

A. Purchaser shall have a reasonable opportunity to make such inquiry of Sellers or Sellers’ agents, representatives, directors or employees as Purchaser shall reasonably need to make in connection with this Agreement.

B. No information concerning the Assumed Contracts and the Assumed Liabilities thereunder not previously disclosed to the public or generally known to persons engaged in the respective businesses of Sellers which shall have been furnished by Sellers to Purchaser in connection with the transactions contemplated hereby, or as provided pursuant to this Section 9, shall be disclosed (i) to any person other than the respective employees, directors, attorneys, accountants or financial advisors of the parties hereto who have been advised of the provisions of this Agreement and only for purposes of evaluating and effectuating the transactions

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contemplated hereby; or (ii) otherwise than as contemplated herein. In the event the transactions contemplated by this Agreement shall not be consummated, all such information in writing shall be returned to the party furnishing the same, including, to the extent reasonably practicable, all copies or reproductions thereof which may have been prepared, and neither party shall at any time thereafter disclose to third parties, or use, directly or indirectly, for its own benefit, any such information, written or oral, about the business of the other party hereto. Notwithstanding the above, to the extent required by law, either party may disclose, to the extent reasonably advised by counsel as being required by applicable law, any information regarding the Assumed Contracts, Sellers, Purchaser or the terms of this Agreement. If either party intends to make any such disclosure, it shall provide a copy to the other party prior to such disclosure and provide the other party with an opportunity to comment on such disclosure if the other party wishes to do so.

C. Except as otherwise required by law, the parties agree not to make any public announcements or other public communications concerning this Agreement and the purchase of the Assumed Contracts by Purchaser without the prior written approval of Sellers; provided, however, that a party making a public disclosure which it believes in good faith to be required by law shall use its best efforts to advise the other party prior to making the disclosure and provide such other party with an opportunity to comment on such public disclosure if it wishes to do so.

X. PRE-CLOSING COVENANTS — SELLERS

Without the prior written consent of Purchaser, Sellers shall not, until the Closing:

A.	Sell, assign or transfer any of its assets, except in the ordinary course of business;
B.	Mortgage, pledge, hypothecate, or subject any of the Assumed Contracts to any lien, charge or any other encumbrance or restriction;
C.	Merge or consolidate with any other corporation or other entity;
D.	Modify or amend the Assumed Contracts or Contract Rights; or
E.	Commit or agree to do any of the foregoing.

XI. PRE-CLOSING COVENANTS — PURCHASER

     The obligation of Purchaser to purchase the Assumed Contracts at the Closing is subject to the fulfillment or waiver by Purchaser of each of the following conditions on or before Closing:

A. No legal proceeding shall be pending wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of any of the transactions contemplated by this Agreement; (ii) cause any of the transactions

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contemplated by this Agreement to be rescinded following consummation; (iii) cause the value of the Assumed Contracts to decline in value; or (iv) have a material adverse effect on the Assumed Contracts, and no such judgment, order, decree, stipulation or injunction shall be in effect.

B. The representations and warranties herein contained shall be true and correct in all material respects as though made on and as of the Closing Date, except to the extent such representations and warranties are made as of a particular date or as of the date of this Agreement (in which case, such representations and warranties shall be and correct as of such date).

C. Sellers shall have performed and complied in all material respects with its agreements and covenants contained in this Agreement required to be performed or complied with by Sellers prior to or at the Closing.

D. Sellers shall have delivered to Purchaser:

1)	The Assumed Contracts;
2)	Such assignments and other instruments of covenants and transfer, if any, in form and substance reasonably satisfactory to Purchaser and its counsel, as are appropriate to convey, transfer and assign to, and vest in, Purchaser or its subsidiaries, good and marketable title to the Assumed Contracts;
3)	Executed releases with respect to any encumbrances or restrictions, if any, relating to the Assumed Contracts;
4)	Tax lien waivers from any governmental entities which may be required, if any;
5)	A certificate of the Secretary of State of the State of Delaware as to the legal existence and good standing of both companies constituting Sellers in Delaware; and
6)	Resolutions of Sellers’ Board of Directors, authorizing and approving all matters in connection with this Agreement and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of Sellers as of the Closing Date.

XII. TRANSFER TAXES, GOVERNMENTAL FEES AND CHARGES, CERTAIN INCOME TAXES

A. Notwithstanding any provision of law imposing the burden of transfer taxes on Sellers or Purchaser, as the case may be, any sales, use and other transfer taxes imposed in connection with the consummation of the transactions contemplated by this Agreement shall be borne by Sellers. Sellers and Purchaser agree to cooperate in good faith with each other, and to use their commercially reasonable

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efforts, to minimize transfer taxes. Without limiting the generality of the foregoing, (i) Purchaser shall promptly and properly complete, execute and deliver to Sellers resale, exemption, and/or similar certificates or other documentation necessary or appropriate under any applicable law to claim and/or evidence that all or any portion of the sale or transfer of the Assumed Contracts is exempt from or otherwise not subject to transfer taxes imposed under such applicable law; and (ii) the parties shall consult and cooperate in good faith on a timely basis in order to effectively handle and contest any audit, examination, investigation or administrative court, or other proceedings relative to transfer taxes.

B. Sellers shall pay and be responsible for all filing, recording, transfer or other governmental fees or charges, in each case relating to the sale or transfer of any of the Assumed Contracts.

XIII. BROKERS

A. Sellers represent and warrant to Purchaser that there are no brokerage or finders’ fees which may be payable in connection with this Agreement or the transactions contemplated hereby based in any way on agreements, arrangements, understandings or other actions claimed to have been made or taken by Sellers with any third Party.

B. Purchaser represents and warrants that there are no brokerage or finders’ fees which may be payable in connection with this Agreement or the transactions contemplated hereby based in any way on agreements, arrangements, understandings or other actions claimed to have been made or taken by Purchaser with any third party.

C. Sellers on the one hand and Purchaser on the other hand each agree to indemnify and hold harmless the other from and against claim for brokerage or other commissions relative to this Agreement, to the transactions contemplated hereby or the consummation thereof, based in any way on agreements, arrangements, understandings or other action claimed to have been made or taken by Sellers on the one hand or Purchaser on the other hand with any third party.

XIV. SURVIVAL AND BREACH OF REPRESENTATIONS AND
WARRANTIES

A. The representations, warranties, covenants and agreements (including, without limitation, the covenants and agreements contained in this Section 14) of Sellers and Purchaser contained in this Agreement, shall survive the making of this Agreement and any examinations made by or on behalf of the parties hereto and the closing hereunder without any limitation as to time and amount.

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B.	Sellers agree to indemnify and hold Purchaser harmless from and against, and will pay to Purchaser, the full amount of any loss, claim, damage, liability or expense resulting to Purchaser either directly or indirectly, from any breach by Sellers of the representations, warranties, covenants and agreements contained in this Agreement. Any amount payable under the aforesaid indemnity shall be due and payable by Sellers on demand, subject to the provisions of the following paragraph.
C.	Purchaser shall give Sellers written notice of, and the right to contest or participate in, the defense of any action in respect of any such loss, claim, damage, liability or expense, and no settlement relating to any such loss, claim, damage liability or expense shall be made which affects Sellers’ liability under this Section 14(B) unless Sellers give their written consent to such settlement, which consent shall not be unreasonably withheld. In the event that Purchaser elects not to defend an action in respect of any such loss, claim, damage, liability or expense, and either (i) the amount at issue in such actions is $1,000 or more, or (ii) the aggregate of the amount at issue in such action and the sum of all losses, claims, damages or liabilities resulting to Purchaser under this Agreement exceeds $1,000, then Sellers may, at their own expense, defend the action.
D.	Purchaser agrees to indemnify and hold Sellers harmless from and against, and will pay to Sellers the full amount of, any loss, claim, damage, liability or expense resulting to Sellers, either directly or indirectly, from any breach of the representations, warranties, covenants and agreements of Purchaser contained in this Agreement. Any amount due Sellers under the aforesaid indemnity shall be due and payable by Purchaser on demand. Sellers shall give Purchaser written notice of any action with respect to any such loss, claim, damage, liability or expense, and no settlement relating to any such loss, claim, damage, liability or expense shall be made which affects Purchaser’s liability under this Section 14(C) unless Purchaser gives its written consent to such settlement.

XV. RESTRICTIONS ON STOCK TRANSFER

     Sellers and Purchaser acknowledge that the Stock is being transferred in a private placement and that the Stock is not publicly traded. Sellers and Purchaser, in entering into this Agreement and the transactions contemplated hereby, are each relying solely upon the representations and warranties of the other contained in this Agreement. In this regard, Sellers hereby represent and warrant to Purchaser as follows:

A. Sellers understand that the Shares have not been registered under the Securities Act of 1933, as amended (referred to herein as the “Securities Act”). Sellers also understand that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Sellers’ representations contained in this Agreement. Sellers hereby represent and warrant as follows:

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1)	Sellers have substantial experience in evaluating and investing in private placement transactions of securities in companies similar to Purchaser so that they are capable of evaluating the merits and risks of their investment in Purchaser and have the capacity to protect their own interests. Sellers must bear the economic risk of this investment indefinitely unless the Shares are registered pursuant to the Securities Act, or an exemption from registration is available. Sellers understand that Purchaser has no present intention of registering the Shares or any shares of its capital stock. Sellers also understand there is no assurance that any exemption from registration under the Securities Act will be available and that, even if available, such exemption may not allow Sellers to transfer all or any portion of the Shares under the circumstances, in the amounts or at the times Sellers might propose.
2)	Sellers are acquiring the Shares for Sellers’ own account for investment only, and not with a view to their distribution, though Sellers specifically reserve the right to transfer or otherwise distribute the shares should they see fit.
3)	Sellers represent that by reason of their management, business and financial experience, Sellers have the capacity to protect their own interests in connection with the transactions contemplated in this Agreement. Further, Sellers are aware of no publication or any advertisement in connection with the transactions contemplated in this Agreement.
4)	Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act.
5)	Sellers have received and read all written information of Purchaser provided by Purchaser, and have had an opportunity to discuss Purchaser’s business, management and financial affairs with directors, officers and management of Purchaser, and have had the opportunity to review Purchaser’s operations and facilities. Sellers have also had the opportunity to ask questions of, and receive answers from, Purchaser and its management regarding the terms and conditions of this investment.
6)	Sellers acknowledge and agree that the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits limited resale of shares purchased in private placements subject to the satisfaction of certain conditions, including, among other things, the availability of certain current public information about Purchaser, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through

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an unsolicited “broker’s transaction” or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934, as amended) and the number of shares being sold during any three-month period not exceeding specified limitations.

7) Sellers understand the Shares will bear the following legend until such time, if any, as (a) the Shares are sold (i) in compliance with Rule 144 under the Securities Act (or a comparable successor provision); or (ii) pursuant to an effective registration statement under the Securities Act; or (b) Purchaser receives an opinion of Purchaser’s counsel reasonably satisfactory to Purchaser to the effect that such legend may be removed:

The securities evidenced hereby have not been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and may not be offered, sold, pledged or otherwise transferred except (a) (1) if registered under the Securities Act; or (2) in a transaction exempt from, or not subject to such registration, and (b) in accordance with all applicable securities laws of the States of the United States.

8)	The investment decision by Sellers was made at the address of Sellers set forth below, and Sellers are domiciliaries (not temporary, or transient residents) of such state and have no present intention of becoming a resident of any other state or jurisdiction. Sellers intend that the state securities laws of such state alone shall govern this transaction.
9)	In addition to the legend set forth in Section A(7) above, certificates representing the shares shall bear the following legend:

The shares evidenced by this certificate are subject to a right of first refusal option in favor of Purchaser and its other stockholders, as provided in the bylaws of Purchaser.

The shares evidenced by this certificate are subject to agreements and restrictions with regard to the voting of such shares and their transfer, as provided in the bylaws of Purchaser, a copy of which is on file in the Office of Purchaser’s Secretary.

XVI. FEES AND EXPENSES

     Each of the parties hereto shall pay their own expenses, including, but not limited to, legal and accounting expenses, incident to the execution of this Agreement and the consummation of the transactions contemplated hereby whether or not such transactions shall be consummated.

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XVII. NOTICES

     All notices, requests, demands and other communications hereunder must be made in writing and shall be deemed to have been duly given if delivered by hand, recognized overnight mail delivery service, or mailed by first-class, registered mail, return receipt requested, postage and registry fees prepaid and addressed as follows:

A.	If to Sellers:
	The Tarheel Group, Inc.
	Attn: Mr. Steven M. Mariano
	1061 521 Corporate Center Drive, Suite 140
	Fort Mill, SC 29715
	AND
	Tarheel Insurance Management Company
	Attn: Mr. Steven M. Mariano
	1061 521 Corporate Center Drive, Suite 140
	Fort Mill, SC 29715
B.	If to Purchaser:
	SunCoast Holdings, Inc.
	401 E. Las Olas Boulevard, Suite 1540
	Fort Lauderdale, FL 33301
	Attn.: Marvin J. Cashion, Esq.
	E.V.P., Chief Legal Officer & Secretary

Addresses may be changed by notice in writing signed by the addressee.

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XVIII. MISCELLANEOUS

A.	This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of Florida, the Purchaser’s state of domicile, without regard to that State’s laws on conflict of laws. Further, any legal action arising under this Agreement, or otherwise concerning this Agreement in any fashion whatsoever, may only be brought in a competent court of jurisdiction and proper venue in Florida.
B.	Neither this Agreement nor any terms hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.
C.	This Agreement embodies the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof, whether oral or in writing, and no party hereto has made any representation, warranty or covenant in connection with the matters set forth herein except as expressly stated herein or in any documents referred to herein.
D.	All the terms of this Agreement, whether so expressed or not, shall be binding upon the respective personal representatives, successors and assigns of the parties hereto and shall inure to the benefit of and be enforceable by the parties hereto, their respective representatives, successors and assigns; provided, however, that this Agreement may not be assigned by any party hereto without the prior written consent of the others; and provided, further, that nothing in this Agreement shall be construed to limit or restrict the right of Purchaser to merge, consolidate with or transfer substantially all of its assets to another corporation and to assign this Agreement to an acquiring corporation in connection with any such merger, consolidation or sale.
E.	The headings of this Agreement are for purpose of reference only and shall not limit or otherwise affect the meaning thereof.
F.	This Agreement may be executed simultaneously in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.

SELLER	PURCHASER
The Tarheel Group	SunCoast Holdings, Inc.
Name: Steven M. Mariano	Name: Steven M. Mariano
Title:   President	Title:   CEO and Chairman
SELLER
Tarheel Insurance Management Company, Inc.
Name:
Title:   President

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EX-10.42

Exhibit 10.42

$750,000.00 Date: June 13, 2006

PROMISSORY NOTE

     FOR VALUE RECEIVED, The Tarheel Group, Inc. (the “Borrower”) promises to pay to SunCoast Holdings, Inc. (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 Seven Hundred Fifty Thousand Dollars ($750,000.00) (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 one percent (1%) above the Prime Rate as set forth from time to time in The Wall Street Journal on a per annum basis as of the date set forth above, compounded annually, calculated on the basis of a 365-day year.
2.	Repayment Date. The Principal Amount of this Note, together with Interest accrued thereon, shall be due and payable five (5) years after the date set forth above, that is to say June 13, 2011. Interest shall be payable monthly and the Principal Amount shall be repaid in its entirety on said June 13, 2011.
3.	Personal Guarantee. This promissory note shall be guaranteed personally by Steven M. Mariano who guarantees the prompt, full and complete performance of any and all present and future duties, obligations and indebtedness, up to a limit of $750,000 in addition to all interest charges, under the terms of this Promissory Note.
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

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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 to the 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.

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 13 day of June, 2006

The Tarheel Group, Inc.
By:
	Steven M. Mariano,
	Chief Executive Officer

PROMISSORY NOTE
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EX-10.43

Exhibit 10.43

PERSONAL GUARANTEE

     THIS GUARANTEE dated this 13 day of June, 2006.

From: Steven M. Mariano of 5212 Fisher Island, Miami, FL33109 (The “Guarantor”)

To: SunCoast Holdings, Inc. of 401 E. Las Olas Blvd., Suite 1540, Ft. Lauderdale, FL 33301 (The “Lender”)

Re: The Tarheel Group, Inc. (The “Debtor”)

     IN CONSIDERATION OF the Lender extending a loan of seven hundred fifty thousand dollars ($750,000) to the Debtor plus other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Guarantor personally guarantees the prompt, full and complete performance of any and all present and future duties, obligations and indebtedness (the “Debt”) due to the Lender by the Debtor, up to a limit of $750,000, under the terms of the June 13, 2006 Promissory Note signed by Debtor (the “Agreement”) and under the following terms and conditions:

1.	The Guarantor guarantees that Debtor will promptly pay the full amount of principal and interest of the Debt as and when the same will, in any manner, be or become due, either according to the terms and conditions provided by the Agreement or upon acceleration of the payment under the Agreement by reason of a default;
2.	The Guarantor agrees not to pledge, hypothecate, mortgage, sell or otherwise transfer all or substantially all of Guarantor’s assets without the prior written consent of the Lender;
3.	To the extent permitted by law, the Guarantor waives all defenses, counterclaims or offsets that are legally available to the Guarantor with respect to the payment of the Debt of Debtor; and
4.	Debtor will pay Guarantor, as a service fee for personally guaranteeing this loan, nine thousand one hundred sixty-one (9,161) shares of SunCoast Common A shares currently held by Debtor.

     This Personal Guarantee shall be construed exclusively in accordance with, and governed by, the laws of the State of Florida. Any dispute arising hereunder may only be brought within the State Courts of the State of Florida. This Personal Guarantee embodies the entire promise of Guarantor to personally guarantee Debtor’s Debt and supersedes all prior agreements and understandings relating to the subject matter here, whether oral or in writing. This Personal Guarantee may not be assigned or transferred without a written document, signed by the Guarantor, Debtor, and Lender, permitting such assignment or transfer.

     Dated this 13 day of June, 2006

 

Steven M. Mariano 

EX-10.44

Exhibit 10.44

CONTRIBUTION AGREEMENT

     This CONTRIBUTION AGREEMENT (this “Agreement”) is made as of April 20, 2007, by and between Steven M. Mariano, an individual residing in the State of Florida (“Mariano”), and SunCoast Holdings, Inc., a Delaware corporation (“SunCoast”).

     WHEREAS, Mariano currently owns 100,000 shares of common stock, par value $0.01 per share (collectively, the “Shares”), of Patriot Risk Management of Florida, Inc., a Delaware corporation (the “PRMFI”);

     WHEREAS, PRMFI has one wholly owned subsidiary, Patriot Insurance Management Company, Inc. (“PIMC”), which engages in the business of providing services for insurance;

     WHEREAS PRMFI is the sole shareholder of PIMC;

     WHEREAS, SunCoast previously considered acquiring PRMFI and its subsidiary in order to enhance SunCoast’s current lines of business and Mariano previously considered transferring PRMFI and its subsidiary to SunCoast, but the parties never consummated a transaction; and

     WHEREAS, Mariano and SunCoast have determined the contribution of PRMFI to SunCoast will enhance the business of both SunCoast and PRMFI by, among other things, allowing both companies to take advantage of synergies from the combination of the businesses, allowing Mariano to focus his full-time attention to the combined businesses and satisfying third party covenants relating to related party transactions.

     NOW, THEREFORE, for good an valuable consideration, the receipt and sufficiency of which is hereby acknowledged and agreed, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Contribution of the Shares.

     1.1 General. On the terms and subject to the conditions set forth in this Agreement and upon the representations and warranties made herein by each of the parties to the other, on the date hereof, Mariano hereby contributes, conveys, assigns, transfers and delivers to SunCoast the Shares, and SunCoast hereby accepts and acquires the Shares.

     1.2 Delivery of Documents. On the date hereof, Mariano shall deliver or cause to be delivered to SunCoast a certificate or certificates representing the Shares registered in his name, duly endorsed (or accompanied by a duly executed stock power in the form attached hereto as Exhibit A).

2. Representations and Warranties.

     2.1 Representations of Mariano. Mariano hereby represents and warrants to SunCoast as follows:

          (a) Authority. This Agreement has been duly executed by Mariano and constitutes the legal, valid and binding obligation of Mariano enforceable against Mariano in accordance with its terms, except as to the enforceability thereof as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles.

          (b) No Conflicts or Violation. None of the execution, delivery or performance of this Agreement, the consummation of the transactions contemplated hereby or compliance by Mariano with any provisions hereof, will (i) violate (with or without the giving of notice or the lapse of time or both), conflict with, or result in any violation of or default under, any agreement, indenture or other instrument to which Mariano or PRMFI is a party or may be bound, (ii) violate any judgment, decree, order or award of any court, governmental body or other authority to which Mariano or PRMFI is subject or (iii) violate any statute, regulation, ordinance or code of any foreign, federal, state or local government or other governmental department or agency.

          (c) No Consents Required. No application, notice, order, registration, qualification, waiver, consent, approval or other action (collectively “Consent”) is required to be filed, given, obtained or taken by virtue of the execution, delivery and performance of this Agreement by Mariano or the consummation of the transactions contemplated hereby by Mariano.

          (d) Shares. Mariano is the record and beneficial owner of the Shares, with good and marketable title thereto, free and clear of all liens, claims, charges, pledges, proxies, restrictions, preemptive rights, security interests, or any encumbrance whatsoever, and, except as provided in this Agreement, there are no outstanding purchase agreements, options, warrants or other rights of any kind whatsoever entitling any person to purchase an interest in any Shares or restricting the transfer if the Shares.

          (e) Capitalization. As of the date hereof and immediately prior to Mariano’s contribution of the Shares to SunCoast, the authorized capital stock of PRMFI consists of 100,000 shares of common stock, par value $0.01 per share, of which 100,000 shares are issued and outstanding, all of which are owned by Mariano. There are no outstanding subscriptions, options, convertible securities, rights (preemptive or otherwise), warrants, calls or agreements relating to any shares of capital stock of the PRMFI. As of the date hereof, the authorized capital stock of PIMC consists of 100 shares of common stock, par value $0.01 per share, of which 100 shares are issued and outstanding all of which are owned by PRMFI. There are no outstanding subscriptions, options, convertible securities, rights (preemptive or otherwise), warrants, calls or agreements relating to any shares of capital stock of the PIMC.

          (f) Recitals. The facts stated in the recitals to this Agreement are accurate.

     2.2 Representations of SunCoast. SunCoast hereby represents and warrants to Mariano as follows:

          (a) Authority. SunCoast has all necessary power and authority to execute and deliver this Agreement and to perform the obligations to be performed by SunCoast hereunder.

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Page 2

The execution, delivery and performance of this Agreement by SunCoast and the purchase of the Shares by SunCoast pursuant hereto have been duly authorized. This Agreement has been duly executed and delivered by SunCoast and constitutes the legal, valid and binding obligations of SunCoast, enforceable against SunCoast in accordance with its terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles.

          (b) No Conflicts or Violation. None of the execution, delivery and performance of this Agreement, the consummation of the transactions contemplated hereby or compliance by SunCoast with any provisions hereof, will (i) conflict with or violate any provision of the organizational documents of SunCoast, (ii) violate (with or without the giving of notice or the lapse of time or both), conflict with, or result in any violation of or default under, any agreement, indenture or other instrument to which SunCoast is a party or may be bound, (iii) violate any judgment, decree, order or award of any court, governmental body or other authority to which SunCoast is subject or (iv) violate any statute, regulation, ordinance or code of any foreign, federal, state or local government or other governmental department or agency.

          (c) No Consents Required. No Consent is required to be filed, given, obtained or taken by virtue of the execution, delivery and performance of this Agreement by SunCoast or the consummation of the transactions contemplated hereby by SunCoast.

3. Miscellaneous.

     3.1. Further Assurances. Each party hereto shall at any time, and from time to time, upon request of another party hereto, execute, acknowledge and deliver all such further assignments, transfers, conveyances or other documents or instruments, and take all such further action, as may be reasonably requested by such other party to carry out the intent of this Agreement and to transfer and vest title to the Shares as contemplated herein.

     3.2. Entire Agreement. This Agreement (including the agreements, exhibits and schedules referred to herein or delivered pursuant hereto, which are a part hereof for all purposes) constitutes the entire agreement between the parties with respect to the subject matter hereof and can only be amended, supplemented or changed by a written instrument making specific reference to this Agreement and duly executed by the party to be bound thereby. This Agreement supersedes all prior agreements and understandings between the parties with respect to the transactions contemplated hereby, whether oral, written, or in any other form.

     3.3. Assignability. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party and any attempt to do so shall be of no force or effect. This Agreement shall be binding upon and inure to the benefit of each party hereto and their respective heirs, successors and assigns.

     3.4. Severability. If any provision of this Agreement, or in any document referred to herein, shall be determined to be illegal, void or unenforceable, all other provisions of this Agreement, or in any other document referred to herein, shall not be affected and shall remain in full force and effect.

Contribution Agreement
Page 3

     3.5. Applicable Law. This Agreement shall be exclusively governed by, and construed only in accordance with, the laws of the State of Florida without regard to conflict of laws principles.

     3.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one and the same instrument.

     3.7 Costs and Expenses. Each of the parties to this Agreement shall bear his or its own expenses incurred in connection with the negotiation, preparation, execution and closing of this Agreement and the transactions contemplated hereby.

     3.8 Attorneys’ Fees. In the event any suit or other legal proceeding is brought for the enforcement of any of the provisions of this Agreement, the parties hereto agree that the prevailing party or parties shall be entitled to recover from the other party or parties upon final judgment on the merits reasonable attorneys’ fees (and sales taxes thereon, if any), including attorneys’ fees for any appeal, and costs incurred in bringing such suit or proceeding.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

	SUNCOAST HOLDINGS, INC.
	By:
STEVEN M. MARIANO		Name:	Steven M. Mariano
		Title:	CEO and Chairman of the Board
Addresses for Notice: 5212 Fisher Island Drive Miami, FL 33109	Addresses for Notice: 401 E. Las Olas Blvd. Suite 1540 Ft. Lauderdale, FL 33301

Contribution Agreement
Page 4

EX-10.46

Exhibit 10.46

SETTLEMENT STIPULATION AND RELEASE

     This Settlement Stipulation and Release (“Stipulation”) is made and entered into as of June 28, 2007 (the “Settlement Date”), by and among FOUNDATION INSURANCE COMPANY (“Foundation”), STEVE M. MARIANO (“Mariano”), NEW PACIFIC INTERNATIONAL, INC. (“New Pacific”), (collectively, “First Party”) and PETERSON, GOLDMAN & VILLANI, INC., (“Second Party”) (First Party and Second Party each being a “Party” to this Stipulation), with reference to the following facts:

(Wherever used herein the terms “Party” or “Parties” shall include singular and plural, their representatives, legal representatives, assigns, transferees, successors, heirs, partners, affiliates, parents, subsidiaries, venturers, principals, attorneys, agents, officers, directors, shareholders, former and present employees, and predecessors wherever the context so admits or requires.)

     WHEREAS, on or around January 28, 2003, Wachovia Bank, National Association obtained a Default Judgment against Foundation and Mariano in the State of North Carolina, County of Mecklenburg, In the General Court of Justice, Superior Court Division, Case No. 2002-CVS-13779 (the “Wachovia Judgment”);

     WHEREAS, on or around September 20, 2006, Second Party recorded the Wachovia Judgment in the public records of Broward County, Florida OR Book 24939, Page 2001;

     WHEREAS, on or around September 20, 2006, Second Party commenced an action to domesticate the Wachovia Judgment in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, Case No. 06-19064 CA 05 (the “Domestication Action”);

     WHEREAS, Second Party owns and holds the Wachovia Judgment;

     WHEREAS, although First Party disputes that any obligation is owed to Second Party under the Wachovia Judgment, First Party and Second Party wish to completely, finally, and amicably resolve all claims asserted or that could have been asserted against each other in the

Domestication Action and/or in connection with the Wachovia Judgment and to thereby avoid the burden and expense of same; and

     WHEREAS, neither First Party nor Second Party, by entering into this Stipulation, make any admissions of any unlawful conduct whatsoever as against the other.

     NOW, THEREFORE, in consideration of the promises, covenants, warranties, and representations set forth herein, First Party and Second Party agree as follows:

          1. Recitals. All of the foregoing Recitals are true and correct.

          2. Payment ByFirst Party. On or before July 12, 2007, First Party shall pay to Second Party $75,000. Thereafter, on or before July 27, 2007, First Party shall pay to Second Party an additional payment of $75,000. Additionally, beginning on July 12, 2007 and thereafter on the first day of each successive month, First Party shall also pay to Second Party twenty nine (29) equal monthly payments in the amount of $l5,000 per month. Accordingly, the total amount due under this Paragraph 2 shall be $585,000. Each of the foregoing payments shall be made either by cashier’s check or by wire transfer. If First Party breaches its obligation to timely make any of the foregoing payments under this Paragraph, then Second Party shall provide written notice of any such breach to First Party and ten business days to cure the first such breach, and Second Party shall provide to First Party written notice and five business days to cure any subsequent breaches. If First Party has failed to cure any such breach within the applicable cure period, then the full balance owed under the Wachovia Judgment shall be due and owing to Second Party, less any payments made to Second Party under this Stipulation, and Second Party shall have whatever rights and remedies which may be available to it under that Wachovia Judgment.

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          3. Satisfaction of Judgments. In consideration for making the foregoing disputed payments with respect to the Wachovia Judgment, immediately upon receipt of payment in full under Paragraph 2 above ($585,000), Second Party shall: (a) record satisfactions of judgments for the Wachovia Judgment in each and every county in which the Wachovia Judgment has been recorded to the knowledge of Second Party, and in any other county as may be directed by First Party: and also (b) record satisfactions of judgments for each of the following judgments owned and held by Second Party in each and every county in which either of those judgments has been recorded to the knowledge of Second Party, and in any other county as may be directed by First Party: (i) a Default Judgment against Mariano obtained on January 28, 2003, by Wachovia Bank, National Association in the State of North Carolina, County of Mecklenburg, In the General Court of Justice, Superior Court Division, Case No. 02-CVS-13780, and (ii) a Default Judgment obtained by Wachovia Bank on or about October 14, 2002 against New Pacific and Mariano, in the State of North Carolina, County of Mecklenburg, In the General Court of Justice, Superior Court Division, Case No. 01-CVS-588 (collectively, the “Undomesticated Judgments”).

          4. Removal of Negative Credit History. Immediately upon receipt of payment in full under Paragraph 2 above, Second Party shall use its best efforts to attempt to remove from First Party’s credit history as reported on all major credit reporting agencies all negative information attributable to the Wachovia Judgment, the Undomesticated Judgments and/or the Domestication Action. Additionally, Second Party shall fully cooperate with First Party to cause all major credit reporting agencies to remove any such negative credit histories or information. Any correspondence to a credit reporting agency that may be necessary to satisfy the obligations of this paragraph shall be approved in form by counsel for both First Party and

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Second Party, which approval shall not be unreasonably withheld. Upon request, Second Party shall provide to First Party copies of any and all correspondence, e-mail, and any other documentation which Second Party believes reflects its compliance with its “best efforts” and “full cooperation” obligations under this Paragraph.

          5. Dismissal of Domestication Action. Immediately upon receipt of payment in full under Paragraph 2 above, Second Party shall dismiss with prejudice the Domestication Action.

          6. Withdrawal of Garnishments. Immediately upon receipt in full of the two $75,000 payments (totaling $150,000) by July 27, 2007, in cleared funds as provided in Paragraph 2 above, Second Party shall withdraw the Garnishments served in the Domestication Action and shall immediately release all garnishees from any such garnishments. So long as First Party has not failed to cure any breach of the payment obligations in Paragraph 2, above, within the applicable cure period, Second Party will not cause any further garnishment to be issued or served in connection with the Domestication Action.

          7. Mutual Release of Claims and Covenant Not to Sue. Upon receipt of payment in full under Paragraph 2 above, each Party absolutely and forever releases, acquits and discharges the other Party from any and all potential or actual claims, rights, demands, covenants, agreements, contracts, duties, obligations, responsibilities, representations, warranties, promises, liens, mechanic’s liens, accounts, debts, liabilities, damages, expenses, attorneys’ fees, costs and causes of action, known or unknown, of whatever kind and howsoever arising, past or present, which either Party now has, ever has had, or may have had from the beginning of the world to the day of these presents against the other Party, whether at law or in equity, in connection with or arising out of any and all claims asserted or which could have been

4

asserted by either Party against the other Party in the Domestication Action and/or in connection with or arising out of the Wachovia Judgment or any of the Undomesticated Judgments, except that this Release shall not release or limit any of the obligations, duties, liabilities, ability or right to enforce, or rights under this Stipulation or any obligations relating to this Stipulation (the “Released Claims”). Each Party additionally covenants not to sue the other Party or to file any complaint of any kind whatsoever arising out of or in any way relating to any of the Released Claims.

          8. Statute of Limitations. If First Party breaches its payment obligations under Paragraph 2, above, and fails to cure that breach after having received written notice from Second Party within the time period provided in Paragraph 2, then (but only then) First Party waives any statute of limitations defense First Party may have with respect to any action filed by Second Party seeking to domesticate in Florida the Undomesticated Judgments.

          9. Attorneys’ Fees. Each Party shall bear its own attorneys’ fees and costs, except that, in any legal action or other proceeding arising oat of or relating to this Stipulation the prevailing Party shall be entitled to recover their reasonable attorneys’ fees and court costs from the non-prevailing Party including reasonable attorneys’ fees incurred in connection with such dispute (including costs and fees incurred prior to the filing of any lawsuit, and also those costs including fees incurred at the trial court and appellate court levels, and fees incurred litigating entitlement to, or the amount of, any fees awarded under this provision), in addition to any other relief to which such Party or Parties may be entitled.

          10. Choice of Law. The laws of the State of Florida shall govern the construction, enforcement and interpretation of this Stipulation, regardless of and without

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reference to whether any applicable conflicts of laws principles may point to the application of the laws of another jurisdiction.

          11. Venue and Jurisdiction. The Parties hereby agree that the exclusive venue and jurisdiction for all suits or proceedings arising out of or relating to this Stipulation shall be in Circuit Court for the Seventeenth Judicial Circuit in and for Broward County, Florida.

          12. Entire Agreement. This Stipulation embodies the entire Stipulation and understanding between First Party and Second Party, and supersedes any and all prior or concurrent Stipulations, understandings, statements, assurances, assumptions, premises, promises, agreements, discussions or representations, oral or written, relating to the subject matter of this Stipulation, including oral stipulations or representations, if any. Neither First Party nor Second Party has made any representations upon which either Party has relied that are not contained in this Stipulation. Neither First Party nor Second Party is relying on an unstated assumption, premise or condition not contained in this Stipulation.

          13. Construction. It is understood that this Stipulation was negotiated and prepared by First Party and Second Party through their respective counsel as a combined effort designed to meet their desires and needs. This Stipulation shall be interpreted without regard to any presumption or rule requiring interpretation against the drafter or the Party causing this Stipulation to be prepared.

          14. No Modification or Waiver. No modification or waiver of any of the terms of this Stipulation shall be valid unless in writing and executed by First Party and Second Party with the same formality as this Stipulation. No waiver of any breach hereof or default hereunder shall be deemed a waiver of any subsequent breach or default of the same or similar or dissimilar nature. No course of dealing or course of conduct shall be effective to amend, modify

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or change any provision of this Stipulation. Notwithstanding any applicable law, the terms of this Paragraph may not be waived by any course of dealing or course of conduct.

          15. Counterparts/Copies. First Party and Second Party agree that this Stipulation may be executed in counterparts and will become effective immediately upon execution by First Party and Second Party, subject to exchange of signature pages and subject to the stipulations set forth above, with a copy being deemed equivalent to an original.

          16. Notice. Any and all notices, demands or communications required or permitted to be given hereunder shall be in writing and sent by facsimile (if provided below) or overnight mail to

First Party at:	Kenneth A. Horky, Esq. and
	Avi Benayoun, Esq.
	401 East Las Olas Boulevard, Suite 2000
	Fort Lauderdale, FL 33301
Copy to:	Theodore G. Bryant, Esq.
	401 East Las Olas Boulevard, Suite 1540
	Fort Lauderdale, FL 33301
Second Party at:	Richard Storfer.Esq,
	401 East Las Olas Boulevard, Suite 1650
	Fort Lauderdale, FL 33301

Or to such other addresses as either First Party or Second Party may hereafter provide to the other in writing as a notice of change of address. Each, such notice, demand or other communication shall be effective upon receipt

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURES APPEAR ON NEXT PAGE]

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For First Party

Witness	STEVE M. MARIANO
Witness

STATE OF Florida		)
	)ss
COUNTY OF BROWARD		)

     The foregoing instrument was acknowledged before me this 12^th day of July  , 2007, by STEVE M. MARIANO. He is presently known to me or produced as identification.

[NOTARY SEAL] Notary:
Print Name: Cynthia L. Campbell
Notary Public, State of Florida
My commission expires: June 4, 2009

8

	For First Party
(Corporate Seal)	FOUNDATION INSURANCE COMPANY
Attest:
Secretary	By:
- or -		Name: Theodore G. Bryant *
		Title:
Witness
Witness

* Foundation Insurance Company’s corporate existence was dissolved in March 2006 by operation of Court Order issued by the South Carolina Court. The Company had been under the control of the South Carolina Department of Insurance since May 2004.

STATE OF FLORIDA		)
	) ss
COUNTY OF		)

     The foregoing instrument was acknowledged before me this 12^th day of July, 2007, by                                                             of FOUNDATION INSURANCE COMPANY, on behalf of the corporation. He/She is presently known to me or has produced                                                              as identification.

[NOTARY SEAL]		Signature- Notary Public Printed Name of Notary : Cynthia L. Campbell Notary Public, State of: Florida My commission expires: June 4, 2009

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	For First Party
(Corporate Seal)	NEW PACIFIC INTERNATIONAL, INC.
Attest:
Secretary	By:
- or -		Name: Steven M. Mariano
		Title: President
Witness
Witness

STATE OF FLORIDA		)
	) ss
COUNTY OF BROWARD		)

     The foregoing instrument was acknowledged before me this 12^th day of July 2007, by Steven M. Mariano of NEW PACIFIC INTERNATIONAL, INC. on behalf of the corporation. He/She is presently known to me or has produced                     as identification.

[NOTARY SEAL]		Signature- Notary Public Printed Name of Notary: Cynthia L. Campbell Notary Public, State of: Florida My commission expires: June 4, 2009

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	For Second Party
(Corporate Seal)	PETERSON, GOLDMAN & VILLANI, INC.
Attest:
Secretary	By:
- or -		Name: J. C. CARPENTER
		Title: SUP
Witness
Witness

STATE OF FLORIDA		)
	) ss
COUNTY OF DALLAS		)

     The foregoing instrument was acknowledged before me this 11^TH day of JULY 2007, by J. CARPENTER of PETERSON, GOLDMAN & VILLANI, INC. on behalf of the corporation. He/She is presently known to me or has produced TX DRIVER LICENSE as identification.

[NOTARY SEAL]
	Signature- Notary Public Printed Name of Notary : DEBBIE PIATZ Notary Public, State of TEXAS My commission expires: 02.25.2010

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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
SunCoast Capital, Inc.	Delaware
SunCoast Premium Finance, 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 May 8, 2008, relating to the consolidated financial statements of Patriot Risk Management, Inc. which is contained in that Prospectus.

We also consent to the reference to us under the caption “Experts” in the Prospectus.

/s/ BDO Seidman, LLP

Grand Rapids, Michigan
May 12, 2008