Exhibit 99.1

January 22, 2009

Board of Directors
Penn Millers Holding Corporation
72 North Franklin Street
Wilkes Barre, Pennsylvania 18773

Members of the Board:

At your request, Curtis Financial Group, LLC (“Curtis”) completed and hereby provides an independent appraisal (the “Appraisal”) of the estimated consolidated pro forma market value of Penn Millers Holding Corporation (“PMHC”) as of November 17, 2008, which is to be offered in connection with the amended plan of minority stock offering, amended and restated as of December 10, 2008 (the “Amended Plan” or “Offering”) transaction described below. PMHC is the wholly-owned subsidiary of Penn Millers Mutual Holding Company (“PMMHC”) and the holding company for Penn Millers Insurance Company (“PMIC”, and together with PMHC and PMMHC, “Penn Millers” or the “Company”).

Because the Amended Plan involves a public offering of PMHC’s shares, the Amended Plan must be approved by the Pennsylvania Insurance Commissioner pursuant to the Commissioner’s 1998 order approving the conversion transaction by which the Company’s current mutual holding company structure was created. Accordingly, and in order to ensure that this Plan is fair to members of PMMHC, the Company has discussed this Plan with senior staff at the Pennsylvania Insurance Department (“PID”), and, as a condition to the Offering, will obtain from the Insurance Commissioner an approval of the Offering or, as applicable, will obtain written confirmation from the Commissioner that such approval is not required and that the Company may proceed with the Offering. In accordance with the Amended Plan, the estimated consolidated pro forma market value of the Company shall be determined by an independent valuation expert and shall represent the aggregate price of common stock (the “Estimated Pro Forma Market Value”). Furthermore, the pro forma market value may be expressed as a range of value and may be that value that is estimated to be necessary to attract a full subscription for the shares of common stock offered for sale in the Offering.

THE AMENDED PLAN OF MINORITY STOCK OFFERING

The Board of Directors of the Company has adopted the Amended Plan. As part of the Amended Plan, PMHC, a mid-tier holding corporation, will issue approximately (45%) of its common stock (“Common Stock”) to the public, and PMMHC, will retain a majority of PMHC’s outstanding Common Stock. It is anticipated that the public shares will be offered in a subscription offering to the Company’s policyholders, the Company’s employee stock ownership plan (“ESOP”), and directors and officers of PMHC in accordance with the terms and conditions

Board of Directors
Penn Millers Holding Corporation
Page 2 of 4

of the Amended Plan. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale in a community offering and a syndicated community offering, if needed.

CURTIS FINANCIAL GROUP, LLC

Curtis is an investment banking firm specializing in business valuations, mergers and acquisitions, and raising private capital. The professional staff has a diverse background in investment banking, securities analysis, banking, insurance, engineering, accounting and tax. The expertise of the staff includes valuing, originating, structuring, negotiating and closing a wide variety of investment banking transactions. The background of Curtis is presented in Exhibit III. We believe that, except for the fee we will receive for our appraisal, we are independent of the Company and the other parties engaged by the Company to assist in the corporate reorganization and minority stock issuance process.

VALUATION METHODOLOGY

In preparing the Appraisal, we conducted an analysis of PMHC that included discussions with the Company’s management and an onsite visit to the Company’s headquarters. We reviewed the audited GAAP and statutory financial statements of the Company as of and for the years ended December 31, 2003 through December 31, 2007 and the unaudited financial statements as of and for the nine month periods ended September 30, 2007 and September 30, 2008. In addition, where appropriate, we considered information based on other available published sources that we believe are reliable; however, we cannot guarantee the accuracy and completeness of such information.

In preparing the Appraisal, we also reviewed and analyzed: (i) financial and operating information with respect to the business, operations, and prospects of the Company furnished to us by the Company; (ii) publicly available information concerning the Company that we believe to be relevant to our analysis; (iii) a comparison of the historical financial results and present financial condition of the Company with those of selected, publicly-traded insurance companies that we deemed relevant; and (iv) financial performance and market valuation data of certain publicly-traded insurance industry aggregates as provided by industry sources.

The Appraisal is based on the Company’s representation that the information contained in the Amended Plan and additional evidence furnished to us by the Company and its independent auditor are truthful, accurate, and complete. We did not independently verify the financial statements and other information provided by the Company and its independent auditor, nor did we independently value the assets or liabilities of the Company. The Appraisal considers the Company only as a going concern on a stand-alone basis and should not be considered as an indication of the liquidation value of the Company.

We have investigated the competitive environment within which the Company operates and have assessed the Company’s strengths and weaknesses relative to comparable companies. We have monitored material regulatory and legislative actions affecting financial institutions generally and analyzed the potential impact of such developments on the Company and the industry as a

Board of Directors
Penn Millers Holding Corporation
Page 3 of 4

whole, to the extent we were aware of such matters. We have analyzed the potential effects of the Offering on the Company’s operating characteristics and financial performance as they relate to the Estimated Pro Forma Market Value of PMHC. We have reviewed the economy and demographic characteristics of the primary market area in which the Company currently operates. We have compared the Company’s financial performance and condition with publicly-traded insurance institutions evaluated and selected in accordance with the valuation guidelines. We have reviewed conditions in the securities markets in general and the markets for insurance companies, insurance holding companies and mutual holding companies including mutual holding company offerings.

Our appraised value is predicated on a continuation of the current operating environment for PMHC, PMMHC, and for all insurance companies and their holding companies. Changes in the local and national economy, the federal and state legislative and regulatory environments for insurance companies and mutual holding companies, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the value of insurance stocks as a whole or the Company’s value alone. It is our understanding that there are no current plans for pursuing a second-step conversion or for selling control of PMHC or the Company following the Offering. To the extent that such factors can be foreseen, they have been factored into our analysis.

VALUATION CONCLUSION

It is our opinion that, as of November 17, 2008, the Estimated Pro Forma Market Value of the aggregate common shares outstanding immediately following the Offering, including shares issued publicly as well as to PMMHC, was within a range (the “Valuation Range”) of $43.35 million to $58.65 million with a midpoint of $51.0 million. The Valuation Range was based upon a fifteen percent decrease from the midpoint to determine the minimum and a fifteen percent increase from the midpoint to determine the maximum. The Board of Directors has established a public offering range such that the public ownership of PMHC will constitute approximately 45.0% ownership interest in PMHC, with PMMHC owning the majority of the shares. Based on the foregoing valuation, the corresponding range of shares and market values based on a $10.00 per share price are as follows:


	Public
	Offering		PMMHC		Total
Shares
Maximum		2,639,250		3,225,750		5,865,000
Midpoint		2,295,000		2,805,000		5,100,000
Minimum		1,950,750		2,384,250		4,335,000

Shares x Value per Share ($10.00)
Maximum	$	26,392,500	$	32,257,500	$	58,650,000
Midpoint	$	22,950,000	$	28,050,000	$	51,000,000
Minimum	$	19,507,500	$	23,842,500	$	43,350,000

Board of Directors
Penn Millers Holding Corporation
Page 4 of 4

LIMITING FACTORS AND CONSIDERATIONS

Our Appraisal is not intended, and must not be construed, to be a recommendation of any kind as to the advisability of purchasing shares of Common Stock. Moreover, because the Appraisal is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of stock in the conversion will thereafter be able to sell such shares at prices related to the foregoing Estimated Pro Forma Market Value. The Appraisal reflects only a valuation range as of this date for the Estimated Pro Forma Market Value of PMHC immediately upon issuance of the stock and does not take into account any trading actively with respect to the purchase and sale of common stock in the secondary market on the date of issuance of such securities or at anytime thereafter following the completion of the Offering. Any report prepared by Curtis shall not be used as an offer or solicitation with respect to the purchase or sale of any securities.

Curtis has made no recommendation regarding the merits of the decision to proceed or not to proceed with the Offering. The results of our appraisal are but one of the many factors the Company’s Board of Directors should consider in making its decision. The Company has assured Curtis that it has relied on its own counsel, accountants and other experts for legal, accounting, tax and similar professional advice.

The Valuation Range reported herein will be updated as appropriate. These updates will consider, among other factors, any developments or changes in the Company’s operating performance, financial condition, or management policies, and current conditions in the securities markets for insurance company common stocks. Should any such new developments or changes be material, in our opinion, to the Estimated Pro Forma Market Value of PMHC, appropriate adjustments will be made to the Valuation Range. The reasons for any such adjustments will be explained in detail at that time.


	Respectfully submitted, Curtis Financial Group, LLC

PRO FORMA VALUATION APPRAISAL

I. INTRODUCTION

As requested, Curtis Financial Group, LLC (“Curtis”) has prepared an independent appraisal (the “Appraisal”) of the estimated consolidated pro forma market value of the common stock (the “Estimated Pro Forma Market Value”) of Penn Millers Holding Corporation (“PMHC”), as of November 17, 2008, which is to be offered in connection with the plan of minority stock offering, amended and restated as of December 10, 2008 (the “Amended Plan” or “Offering”) transaction described below. PMHC is the wholly-owned subsidiary of Penn Millers Mutual Holding Company (“PMMHC”) and the holding company for Penn Millers Insurance Company (“PMIC”, and together with PMHC and PMMHC, “Penn Millers” or the “Company”).

Pursuant to the Amended Plan adopted by the Board of Directors of the Company on December 10, 2008, PMHC will issue approximately 45% of its common stock (the “Common Stock”) to the public and PMHC’s parent company, PMMHC, will retain a majority of PMHC’s common stock. As part of the Offering, PMHC is offering 45% of its Common Stock for sale in a subscription offering in the following order of priority: policyholders insured under policies of insurance issued by Penn Millers as of October 22, 2008 (the “Eligibility Record Date”); the Company’s employee stock ownership plan (“ESOP”); and directors and officers of Penn Millers. Any shares not subscribed for in the subscription offering may be offered to members of the general public in a community offering with preference given to licensed insurance agencies and brokers that market and distribute insurance policies issued by the Company, policyholders insured under policies of insurance issued by Penn Millers after the Eligibility Record Date, and residents of Lackawanna or Luzerne Counties in Pennsylvania. If there are any shares of Common Stock not purchased in the subscription or community offerings, they may be offered for sale to the public in a syndicated community offering.




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Because the Amended Plan involves a public offering of PMHC’s shares, the Amended Plan must be approved by the Pennsylvania Insurance Commissioner pursuant to the Commissioner’s 1998 order approving the conversion transaction by which the Company’s current mutual holding company structure was created. Accordingly, and in order to ensure that this Plan is fair to members of PMMHC, the Company has discussed this Plan with senior staff at the Pennsylvania Insurance Department (“PID”), and, as a condition to the Offering, will obtain from the Insurance Commissioner an approval of the Offering or, as applicable, will obtain written confirmation from the Commissioner that such approval is not required and that the Company may proceed with the Offering. In accordance with the Amended Plan, the Estimated Pro Forma Market Value of the Company shall be determined by an independent valuation expert and shall represent the aggregate price of common stock sold. Furthermore, the Estimated Pro Forma Market Value may be expressed as a range of value and may be that value that is estimated to be necessary to attract a full subscription for the shares of Common Stock offered for sale in the Offering.

Curtis is an investment banking firm specializing in business valuations, mergers and acquisitions, and raising private capital. The background of Curtis is presented in Exhibit III. In preparing the Appraisal, we conducted an analysis of PMHC that included discussions with the Company’s management and an onsite visit to the Company’s headquarters. We also reviewed the audited GAAP and statutory financial statements of the Company as of and for the years ended December 31, 2003 through December 31, 2007 and the unaudited financial statements as of and for the nine month periods ended September 30, 2007 and September 30, 2008. In addition, where appropriate, we considered information based on other available published




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sources that we believe are reliable; however, we cannot guarantee the accuracy and completeness of such information.

In preparing the Appraisal, we also reviewed and analyzed: (i) financial and operating information with respect to the business, operations, and prospects of the Company furnished to us by the Company; (ii) publicly available information concerning the Company that we believe to be relevant to our analysis; (iii) a comparison of the historical financial results and present financial condition of the Company with those of selected publicly-traded insurance companies that we deemed relevant; and (iv) financial performance and market valuation data of certain publicly-traded insurance industry aggregates as provided by industry sources.

The Appraisal is based on the Company’s representation that the information contained in the Application and additional evidence furnished to us by the Company and its independent auditor are truthful, accurate, and complete. We did not independently verify the financial statements and other information provided by the Company and its independent auditor, nor did we independently value the assets or liabilities of the Company. The Appraisal considers PMHC only as a going concern on a stand-alone basis and should not be considered as an indication of the liquidation value of PMHC. The attached Statement of Limiting Conditions in Exhibit I is an integral part of this Appraisal.

In determining our estimate of the Estimated Pro Forma Market Value of PMHC, we utilized the comparable market valuation approach. The comparable market valuation approach arrives at a market value by reviewing the relevant market pricing characteristics of common stocks of comparable companies that are publicly-traded. In utilizing this valuation approach, we selected a group of insurance companies based on criteria discussed later in the Appraisal that we believe investors potentially would compare to the Company. We also considered relative




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market value adjustments to derive the Estimated Pro Forma Market Value based on the quantitative and qualitative comparisons of Penn Millers with the selected group of publicly-traded companies.

Our Appraisal is not intended, and must not be construed, to be a recommendation of any kind as to the advisability of purchasing shares of common stock in the Offering. Moreover, because the Appraisal is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of stock in the Offering will thereafter be able to sell such shares at prices related to the foregoing estimate of PMHC’s Estimated Pro Forma Market Value. Any report prepared by Curtis shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. Curtis has made no recommendation regarding the merits of the decision to proceed or not to proceed with the Offering. The results of our appraisal are but one of the many factors the Company’s Board of Directors should consider in making its decision. The Company has assured Curtis that it has relied on its own counsel, accountants and other experts for legal, accounting, tax and similar professional advice.

The valuation range reported herein, which is calculated as 15% above the midpoint and 15% below the midpoint (the “Valuation Range”), will be updated as appropriate. These updates will consider, among other factors, any developments or changes in the Company’s operating performance, financial condition, or management policies, and current conditions in the securities markets for insurance company common stocks. Should any such new developments or changes be material, in our opinion, to the Estimated Pro Forma Market Value of the Company, appropriate adjustments will be made to the Valuation Range. The reasons for any such adjustments will be explained in detail at that time.




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II. BUSINESS OF PENN MILLERS

General Overview

Penn Millers is a Pennsylvania-domiciled, mutual holding company that offers general commercial insurance policies to small and medium-sized businesses and agricultural businesses primarily located in the Mid-Atlantic States, and also in the northeastern, southern and midwestern regions of the United States (the “U.S.”). The Company, which is located in Wilkes Barre, Pennsylvania, is licensed in 39 U.S. states, but currently limits its agricultural insurance product sales to 33 states and commercial insurance product sales to 8 states. The Company markets its products directly and through a network of more than 450 licensed, independent insurance brokers and agents.

Penn Millers is subject to examination and comprehensive regulation by the PID. Primary business is written through PMIC with its subsidiary, American Millers Insurance Company (“American Millers”), providing excess-of-loss reinsurance to PMIC for property losses between $450,000 and $500,000. American Millers, which was formed in 1987 to write business in states other than Pennsylvania, was inactive for a number of years. At the request of the PID, the Company began writing reinsurance through American Millers. Penn Millers also relies on reinsurance from other providers such as Swiss Reinsurance, Arch Reinsurance, Hanover Ruckverischerung AG, the Underwriters at Lloyd’s, and Partner Reinsurance Company of the U.S. As of September 30, 2008, Penn Millers had total assets of $219.6 million, total equity of $54.8 million, and more than 9,000 property and casualty (“P&C”) policies in force. For the latest twelve month period ended September 30, 2008 (“LTM”), Penn Millers had net premiums earned of $76.8 million, total revenue of $80.3 million and a net loss of $1.0 million, which excludes discontinued operations.




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Penn Millers is managed by an experienced group of executives led by Mr. Doug Gaudet, the President and Chief Executive Officer. Mr. Gaudet has served with Penn Millers since 2005, and has been in the insurance industry for over 30 years. Michael O. Banks, the Company’s Chief Financial Officer, has served in his current position since 2002 and in various other positions in the insurance industry since 1989. On average, each of the Company’s executive officers has more than 20 years of experience in the P&C insurance industry. Other members of the Company’s management team include Harold Roberts (Senior Vice-President, Director of Agribusiness, and Chief Underwriting Officer), Bill Dine (Vice-President of Commercial Lines Segment), Kevin Higgins (Senior Vice-President, Director of Claims), and Jon Couch (Vice-President and Controller).

Corporate History

Penn Millers was established in 1887 as Pennsylvania Millers Mutual Fire Insurance Company in Huntington, Pennsylvania and wrote insurance for grist mill owners. The Company moved to Wilkes Barre, Pennsylvania in 1904, and changed its name to Pennsylvania Millers Mutual Insurance Company in 1960. In 1999, Penn Millers demutualized and became a stock insurance company (Penn Millers Insurance Company) within a mutual holding company structure in accordance with a plan approved by the Commonwealth of Pennsylvania and Penn Millers’ policyholders. A “mid-tier” mutual holding company was formed (PMHC), and the rights of the policyholders were transferred to the mutual holding company, which became the parent of the reorganized holding company system.

In 2005, the Company acquired Galland Steinhauer & Repa, Inc, (“GSR”) for approximately $2.0 million. GSR was an insurance agency that placed business with PMIC and unaffiliated insurance companies. GSR was subsequently integrated into the Company’s Eastern

PRO FORMA VALUATION APPRAISAL

The Company explored many capital raising options including, bank debt, private debt and equity placement, preferred stock and convertible debt, public equity, reinsurance and trust preferred securities. After careful review, the Company determined that its best and most flexible option was to raise the necessary amount of capital through a minority stock offering. The Company is pursuing a minority stock offering so that it can maintain operational flexibility through ownership and control. Advantages include:

	•		value for the policyholders who invest;

	•		attracting, retaining and motivating personnel and agents; and

	•		enhancing company image and visibility.

Agribusiness Segment

The Company’s specialty agribusiness segment writes coverage for agricultural enterprises such as manufacturers, processors, and distributors of products for the agricultural industry. Penn Millers does not write property or liability insurance for farms or farming operations unless written in conjunction with an eligible agribusiness operation and does not write any crop insurance or livestock insurance. Based on gross premiums written for the year ended December 31, 2007, the Company’s most significant agribusiness product offerings included fire and allied (31.8% of direct premiums written), automobile (25.1%), general liability (16.8%), workers compensation (13.2%), and product liability (7.1%). There were approximately 1,750 agribusiness policies in force as of September 30, 2008. Penn Millers believes its agribusiness is the third largest policy writer of such business in the U.S. behind Nationwide Agribusiness Insurance Company and Michigan Millers Mutual Insurance Company. Other competitors include Continental Western Insurance Company and Westfield Insurance Company.




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Commercial Lines Segment

The Company’s commercial lines segment includes product offerings for small- and medium-sized business owners, including workers’ compensation, commercial multi-peril, fire and allied, commercial automobile and general liability. The Company targets retail and service establishments such as dry cleaners, shoe stores, furniture stores, restaurants and apartment buildings. Based on gross premiums written for the year ended December 31, 2007, the Company’s most significant commercial product offerings included commercial multi-peril (34.3% of direct premiums written), workers’ compensation (20.4%), fire and allied (14.5%), general liability (14.3%), and commercial automobile (13.0%). As of September 30, 2008, there were approximately 7,300 commercial policies in force. Penn Millers commercial segment competes with national insurance companies such as Travelers Companies, Inc. and Hartford Financial Services as well as regional players such as Harleysville Group Inc., Donegal Group Inc. and Cincinnati Financial Corporation.

In the first quarter of 2009, the Company plans to introduce a new product line within its commercial lines segment (“Penn Edge”). Penn Edge will be a highly customized product designed for larger, more sophisticated business owners, such as wholesale, light manufacturers, hospitality, commercial laundries and dry cleaning, and printers. Management expects Penn Edge to increase direct premiums written and increase profitability due to the risk profiles of Penn Edge’s customer base.

Reinsurance

In accordance with insurance industry practice, Penn Millers reinsures a portion of its loss exposure and pays reinsurers a portion of the gross premiums received on all policies reinsured. Insurance policies written by the Company are reinsured with other insurance




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companies principally to: (i) reduce net liability on individual risks; (ii) mitigate the effect of individual loss occurrences (including catastrophic losses); (iii) stabilize underwriting results; (iv) decrease leverage; and (v) increase underwriting capacity. The Company’s reinsurance arrangements are placed with America Millers and other non-affiliated reinsurers including Swiss Reinsurance, Arch Reinsurance, Hanover Ruckverischerung AG, the Underwriters at Lloyd’s, and Partner Reinsurance Company of the U.S. Reinsurance arrangements are generally renegotiated annually. Each of Penn Millers’ non-affiliated reinsurance providers have an A.M. Best rating of “A-” or better. Prior to 2008, the Company’s maximum retention per risk was $500,000. In 2008, the Company chose to retain additional premiums, increasing their retention per risk to the first $500,000 of losses, plus 75.0% of all property and liability losses between $500,000 and $1.0 million, and 25.0% of all losses between $1.0 million and $5.0 million. Their maximum risk retention per loss is $1.875 million, excluding catastrophe. Due to the increased per risk retention in 2008, the Company added an aggregate stop loss reinsurance cover which provides 20 points of loss ratio protection in excess of a 72% loss and LAE ratio. For their catastrophe program, the maximum retention is $3.65 million. The net probable maximum catastrophe loss (including reinstatement premium) is approximately $4.6 million.

Marketing and Distribution

Penn Millers markets its insurance products directly and through a network of more than 450 independent brokers and agents. Penn Millers actively recruits new agents and brokers through referrals, marketing representative relationships and recruiting campaigns. Independent agents and brokers seek to establish relationships with the Company because of its coverage leadership and the responsive service that it provides to its producers and policyholders. The Company believes it has strong producer relationship management processes in place.




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For the past nine months, the Company’s largest commercial agent accounted for approximately 4.1% of its direct commercial premiums written and the Company’s top ten commercial agents accounted for approximately 26.1% of direct commercial premiums written. The Company’s top ten commercial lines agents over the last nine months included brokers from Creative Coverage, Brown & Brown of Lehigh Valley, John M. Glover Agency, E.A. Boniakowski Agency, Inc., Smith Insurance Inc., Association Benefits Insurance Agency, Masters Coverage Corp., Joyce, Jackman & Bell, Beskin & Associates, and Eastern Insurance Group, Inc.

In the past nine months, the Company’s largest agribusiness broker accounted for approximately 17.0% of its direct agribusiness premiums written. The Company’s top ten agribusiness brokers accounted for approximately 48% of its direct agribusiness premiums written for the nine month period ended September 30, 2008. The Company’s top ten agribusiness brokers over the last nine months included Arthur J. Gallagher Risk Management (comprised of three distinct brokers), Carlton Insurance, Grace / Mayer Insurance Agency, ABIS Agency, Inc., Frank Cragle (an employed direct producer), Kansas Farmers Service Association, and Agri Insurance Business South East, LLC.

The Company’s producers are compensated through a fixed base commission with an opportunity for profit-sharing depending on the producers relative premium volume and profitability. According to Company management, the profit-sharing plan is comparable to other market plans. The Company is currently in the process of terminating its relationships with unprofitable and low volume agents.




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Underwriting, Risk Assessment, and Pricing

Penn Millers underwrites its commercial and agribusiness lines by evaluating each risk under consistent standards. The Company’s centralized underwriting operations include manager review of new business quotes and renewal business, as well as senior management review of significant new business quotes above $150,000 in premiums for agribusiness and above $70,000 in premiums for commercial lines. The Company maintains a continuous, standardized rate review process by reporting pricing, profitability, loss ratios by class, and premium trends. The Company’s management represented that its new Penn Edge product will create more accurate pricing as it relates to risk selection and mitigating exposure.

Claims Management

Claims on insurance policies are received directly from the insured or through the Company’s independent producers. Penn Millers currently staffs 14 employees in its claims department. Any settlement of a claim for an amount in excess of $100,000 requires the approval of the claims reserve committee comprised of Mr. Gaudet, Mr. Banks, Mr. Roberts, and Mr. Higgins. According to management, Penn Millers will focus on improving its customer-centric claims culture in the coming years by implementing customer satisfaction surveys and re-tooling its after-hours claims services through the implementation of an integrated voice response system. The Company also plans to implement a court reporter program, engage claims audit consultants, and implement a workers compensation triage program.

Financial Strength Ratings by A.M. Best

A.M. Best is a widely recognized rating agency dedicated to the insurance industry. A.M. Best provides ratings (“Best’s Ratings”) that indicate the financial strength of insurance




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companies. The objective of A.M. Best’s rating system is to provide an independent opinion of an insurer’s financial strength and its ability to meet ongoing obligations to policyholders. The assigned rating is derived from an in-depth evaluation and analysis of a company’s balance sheet strength, operating performance, and business profile. The Best’s Ratings scale is comprised of 15 individual ratings grouped into 9 categories (excluding suspended ratings).

A.M. Best currently assigns a Best’s Rating of “A-” (Excellent) to PMIC and “B++” (Good) to American Millers, effective June 2, 2008. These ratings are the fourth-and fifth-highest of 15 ratings, respectively. The categories of “Excellent” and “Good” represent the second and third highest of nine categories. Insurance companies rated “A-” are considered by A.M. Best to have “an excellent ability to meet their ongoing obligations” to policyholders and companies rated “B++” are considered by A.M. Best to have “a good ability to meet their ongoing obligations” to policyholders. PMIC and American Millers were both assigned an A- rating in reports as of May 18, 2007 and May 3, 2006. According to A.M. Best, American Millers’ current rating has dropped due to its modest business profile.

In its most recent ratings report on Penn Millers, A.M. Best cited that the Company’s rating reflects solid capitalization, steps taken to retain a greater portion of direct underwriting profits through a more efficient use of ceded reinsurance, significant presence in the agri-business market segment and strong agency relationships. The report indicated that these positive rating factors were partially offset by the Company’s below average underwriting results driven by a high expense ratio, erratic reserve development and history of large storm losses. The Company’s Best’s Rating may be an important factor affecting its ability to attract new business from customers and producers.




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Best Capital Adequacy Ratio (“BCAR”) is the ratio of adjusted surplus to net required capital, as determined by A.M. Best. The Company’s BCAR rating impacts its overall A.M. Best rating. The Company estimates that it needs a minimum BCAR ratio of at least 175 to maintain its A- rating. As of December 31, 2007 the Company’s BCAR was 219.7. A high level of weather-related losses and declines in the market value of bonds and stocks drove the Company’s estimated BCAR ratio down to 175.6 at October 10, 2008.

Financial Condition

Table 1 presents selected data concerning the Company’s financial position and Exhibit IV-1 presents the Company’s balance sheet as of December 31, 2003 through December 31, 2007 and September 30, 2008.

Table 1
Selected Financial Condition Data
As of December 31, 2006, December 31, 2007 and September 30, 2008
(Dollars in Thousands)


	9/30/2008			12/31/2007			12/31/2006
Balance Sheet Data
Total assets		219,583			219,784			207,939
Total investments and cash		131,632			136,296			126,639
Premiums and fees receivable		33,302			32,489			30,465
Reinsurance receivables		20,223			15,640			18,886

Loss and loss adjustment expense reserves		103,278			95,956			89,405
Unearned premiums		47,753			46,595			43,294
Total liabilities		164,741			158,212			147,238
Total surplus		54,842			61,572			60,701
Total surplus / assets		24.98	%		28.01	%		29.19	%

Source: Penn Millers’ GAAP financial statements.

The Company’s total assets increased 5.7% from $207.9 million at December 31, 2006 to $219.8 million at December 31, 2007 and stayed flat at $219.6 million at September 30, 2008. From December 31, 2007 to September 31, 2008, reinsurance receivables increased by $4.6 million and deferred income taxes increased by $2.4 million. These increases were offset by a $2.9 million decline in investment securities, which resulted from a write-down of impaired,




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equity securities, a $1.7 million decline in cash and a $3.3 million decline in assets from discontinued operations.

The Company’s portfolio of investment securities amounted to $126.2 million at December 31, 2007 and constituted 57.4% of total assets. The Company’s investment portfolio amounted to $123.2 million as of September 30, 2008. Exhibit IV-3 presents the Company’s investment portfolio as of December 31, 2006, December 31, 2007, and September 30, 2008. All of the Company’s investment securities are carried at fair value. The Company’s investment objectives are to (a) fund insurance policy liabilities when they are due and (b) maximize enterprise value. In addition, the Company’s investment approach seeks to (a) emphasize bond portfolio interest income rather than realized gains; (b) emphasize long-term appreciation on common stock investments; (c) limit realized losses, and (d) ensure stable surplus growth consistent with the Company’s objective to maintain a high quality portfolio while managing duration to limit interest rate risk.

Consistent with its investment policy, the Company’s investment portfolio is primarily comprised of fixed-income debt securities. The Company’s fixed-income investment portfolio is professionally managed by an external firm, Conning Asset Management (“CAM”), which is a registered independent investment advisor that specializes in providing investment management services to the insurance industry. As of September 30, 2008, CAM managed approximately $72.1 billion of assets. The company’s equity portfolio is invested in index funds with the majority place in an S&P 500 based fund.

As of year-end 2007, Penn Millers’ investments consisted of $20.7 million of mortgage-backed securities, $92.0 million of other types of fixed-income securities and $13.4 of equity securities. The current average maturity of the Company’s debt security investments, excluding




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Table 2
Selected Operating Performance Data
For the Year Ended December 31, 2006, December 31, 2007 and September 30, 2008
(Dollars in Thousands)


	LTM (a)			2007			2006
REVENUE

Premiums earned	$	76,799		$	70,970		$	64,645
Investment income, net of investment expense		5,464			5,324			4,677
Realized investment (losses) gains, net		(2,384	)		(702	)		349
Other revenue		452			508			345

Total revenue		80,331			76,100			70,016

LOSSES AND EXPENSES
Losses and loss adjustment expenses		56,511			49,783			43,766
Underwriting and administrative expenses		24,890			24,163			23,296
Interest expense		141			125			222
Other expenses, net		265			184			314

Total losses and expenses		81,807			74,255			67,598

Income from continuing operations		(1,476	)		1,845			2,418

Income taxes expense (benefit)		(465	)		396			506


Net income (loss) from continuing operations		(1,011	)		1,449			1,912


Discontinued Operations:
Pre-tax (loss) income on discontinued ops		(3,441	)		(489	)		292
Income tax (benefit) expense		(332	)		(126	)		124

(Loss) income on discontinued ops		(3,109	)		(363	)		168

Net income		(4,120	)		1,086			2,080


Operating Ratios
Loss ratio (b)		73.6	%		70.1	%		67.7	%
Expense ratio (c)		32.4	%		34.0	%		36.0	%
Combined ratio (d)		106.0	%		104.2	%		103.7	%

Notes:

(a)		LTM = Last twelve month period ended September 30, 2008.

(b)		Losses and loss adjustment expenses divided by premiums earned.

(c)		Underwriting expenses divided by premiums earned.

(d)		Sum of the loss ratio and the expense ratio.

Source: Penn Millers’ GAAP financial statements. Statutory financials provided in Exhibit V.

Penn Millers’ total revenue grew from $70.0 million in 2006 to $80.3 million in the LTM period, excluding revenue from discontinued operations. Net premiums earned grew from $64.6




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PRO FORMA VALUATION APPRAISAL

million in 2006 to $76.8 million in the LTM period, representing a compound annual growth rate of 10.3%. Realized investment losses of $2.4 million for the LTM period, caused by recent financial markets activity, had a negative impact on total revenue growth and net income. Including discontinued operations, Penn Millers experienced a net loss of $4.1 million in the LTM period as compared to net income of $1.1 million for 2007 and $2.1 million in 2006.

A key measurement of the core profitability of any insurance company for a given period is its combined ratio, which is equal to the sum of its loss ratio and its expense ratio. However, investment income, federal income taxes and other non-underwriting income or expense are not reflected in the combined ratio. The profitability of P&C insurance companies depends on income from underwriting, investment, and service operations. Underwriting results are considered profitable when the combined ratio is under 100% and unprofitable when the combined ratio is over 100%.

Underwriting and administrative expenses increased from $23.3 million in 2006 to $24.9 million in the LTM period. As a percent of earned premium revenue, the Company’s expense ratio has decreased steadily from 36.0% in 2006 to 32.4% in the LTM period. The loss ratio increased from 67.7% in 2006 to 73.6% in the LTM period, resulting in a combined ratio that increased from 103.7% in 2006 to 106.0% in the LTM period. According to management, Penn Millers experienced unusually high losses in 2007 and 2008. As shown in the following chart, since 2003, Penn Millers’ combined ratio has ranged from 103.7% to 107.3%.




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PRO FORMA VALUATION APPRAISAL

Table 3
Segment Operating Performance Data
For the Years Ended December 31, 2006, December 31, 2007 and the LTM Period
(Dollars in Thousands)


	For the twelve month period ended September 30, 2008
																			As a % of Total
	Agri			Commerical			Personal			Assumed			Total			Agri			Comm			Pers

Direct premiums written	$	43,812		$	32,446		$	0		$	1,596		$	77,854			56.3	%		41.7	%		0.0	%

Net premiums earned		43,377			31,871			0			1,551			76,799			56.5	%		41.5	%		0.0	%

Losses and loss adjustment expenses		31,786			23,231			(269	)		1,763			56,511			56.2	%		41.1	%		-0.5	%
Other underwriting expenses		12,624			11,194			0			514			24,332			51.9	%		46.0	%		0.0	%


Total losses and expenses		44,410			34,425			(269	)		2,278			80,843			54.9	%		42.6	%		-0.3	%

Underwriting income (loss)		(1,033	)		(2,554	)		269			(727	)		(4,044	)		25.5	%		63.2	%		-6.7	%


	For the year ended December 31, 2007
																		As a % of Total
	Agri		Commerical			Personal			Assumed			Total			Agri			Comm			Pers

Direct premiums written	$	41,402	$	31,266		$	0		$	1,450		$	74,119			55.9	%		42.2	%		0.0	%

Net premiums earned		40,245		29,260			0			1,464			70,970			56.7	%		41.2	%		0.0	%

Losses and loss adjustment expenses		27,313		20,570			94			1,806			49,783			54.9	%		41.3	%		0.2	%

Other underwriting expenses		12,491		10,603						561			23,656			52.8	%		44.8	%		0.0	%


Total losses and expenses		39,804		31,173			94			2,367			73,439			54.2	%		42.4	%		0.1	%

Underwriting income (loss)		441		(1,913	)		(94	)		(903	)		(2,469	)		-17.9	%		77.5	%		3.8	%


	For the year ended December 31, 2006
																		As a % of Total
	Agri		Commerical			Personal			Assumed			Total			Agri %			Comm %			Personal %

Direct premiums written	$	38,350	$	27,144		$	0		$	2,030		$	67,525			56.8	%		40.2	%		0.0	%

Net premiums earned		35,889		26,761			0			1,995			64,645			55.5	%		41.4	%		0.0	%

Losses and loss adjustment expenses		23,795		17,531			98			2,342			43,766			54.4	%		40.1	%		0.2	%
Other underwriting expenses		12,092		9,908			0			661			22,661			53.4	%		43.7	%		0.0	%


Total losses and expenses		35,887		27,439			98			3,004			66,428			54.0	%		41.3	%		0.1	%

Underwriting income (loss)		2		(678	)		(98	)		(1,008	)		(1,782	)		-0.1	%		38.0	%		5.5	%

Source: Penn Millers financial statements.

Table 4 presents additional gross premium data for the Company’s agribusiness and commercial lines segments for the years ended December 31, 2006 and December 31, 2007.




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Table 4
Agribusiness and Commercial Lines Segment Gross Premium Data (a)
For the Year Ended December 31, 2006 and December 31, 2007
(Dollars in Thousands)


	Agribusiness						Commerical Lines
	2007			2006			2007			2006
Gross premiums written:
Fire and Allied	$	17,796		$	16,762		$	5,482		$	5,144
Inland		2,302			2,045			247			258
Workers Compensation		7,394			6,610			7,716			5,825
General Liability		9,379			8,454			5,425			3,899
Product Liability		3,990			3,707			254			150
Surety		18			15			0			0
Burglary		166			153			42			32
Boiler and Machinery		866			793			768			653
Auto		14,055			13,334			4,914			3,983
Commercial Multi-Peril		0			0			12,987			12,394
Earthquake		0			0			27			29

Total		55,965			51,874			37,860			32,365


(% of Total Premiums) Gross premiums written:
Fire and Allied		31.8	%		32.3	%		14.5	%		15.9	%
Inland		4.1	%		3.9	%		0.7	%		0.8	%
Workers Compensation		13.2	%		12.7	%		20.4	%		18.0	%
General Liability		16.8	%		16.3	%		14.3	%		12.0	%
Product Liability		7.1	%		7.1	%		0.7	%		0.5	%
Surety		0.0	%		0.0	%		0.0	%		0.0	%
Burglary		0.3	%		0.3	%		0.1	%		0.1	%
Boiler and Machinery		1.5	%		1.5	%		2.0	%		2.0	%
Auto		25.1	%		25.7	%		13.0	%		12.3	%
Commercial Multi-Peril		0.0	%		0.0	%		34.3	%		38.3	%
Earthquake		0.0	%		0.0	%		0	%		0	%

Total		100.0	%		100.0	%		100.0	%		100.0	%

Note: (a) Gross premiums written are prior to ceded premiums to reinsurers.

Source: Penn Millers GAAP financial data.

Fire and allied gross premiums written, the largest component of the Company’s agribusiness segment, increased by 6.2% to $17.8 million in 2007, compared to $16.8 million in 2006. Direct commercial multi-peril gross premiums written, the largest component of the Company’s commercial lines segment, increased by 4.8% to $13.0 million in 2007, compared to $12.4 million in 2006. The chart below shows the Company’s composition of direct premiums written, by line of business, for the year ended December 31, 2007.




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PRO FORMA VALUATION APPRAISAL

The P&C industry includes insurers ranging from large, diverse, global companies to small, specialized regional companies. Often times, smaller insurance companies compete with many insurance companies with substantially greater financial resources, more advanced technology, larger volumes of business, more diversified insurance coverage, broader ranges of projects, and higher ratings. Insurance companies compete on the sale of products to customers and recruitment and retention of agents. Larger insurers may have certain competitive advantages over smaller regional companies, including increased name recognition, increased loyalty of their customer base, greater efficiencies and economies of scale and lower policy acquisition costs.

According to data from SNL Financial, the domestic P&C industry generated a net underwriting loss of $11.22 billion on a statutory basis for the third quarter of 2008, a decrease of $14.46 billion from the third quarter of 2007. The industry’s combined ratio was 110.91% for the third quarter of 2008, which was an increase of 14.8 points over the industry’s 2007 third quarter combined ratio of 96.1%. The Insurance Services Office (the “ISO”) Property Claim Service unit reported that insured property losses in the third quarter totaled $11.5 billion as a result of eleven defined catastrophes.

The results for the P&C insurance industry were also affected by deterioration in results from mortgage and other financial guaranty insurers. Combined net realized capital losses in the third quarter of 2008 totaled $7.2 billion on an after-tax basis, compared to generated capital gains of $3.29 billion in the third quarter of 2007.

Fitch, Inc. (“Fitch”) downgraded the United States P&C industry from a stable to negative rating outlook in October 2008 primarily reflecting the fallout from significant deterioration in the global financial markets, and the adverse impact on insurers’ balance sheets




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IV. COMPARISONS WITH PUBLICLY-TRADED COMPANIES

General Overview

Curtis considered several established valuation methodologies for this Appraisal, including the discounted cash flow approach, cost approach, and comparative market approach. The comparative market approach was chosen to determine the Estimated Pro Forma Market Value of PMHC because: 1) it has been widely accepted as a valuation approach by applicable regulatory authorities; 2) where possible, the generally employed valuation method in initial public offerings is the comparative market approach, which can also be relied upon to determine the Estimated Pro Forma Market Value of an insurance company mutual-to-stock conversion; and 3) reliable market and financial data are readily available for most comparable companies.

The comparable market approach provides a basis for determining estimates of going-concern valuations where a regular and active market exists for the stocks of comparable companies. The comparable market approach measures the value of an asset through an analysis of recent sales or offerings of property sharing valuation characteristics with the subject company. When applied to the valuation of equity interests, consideration is given to the financial condition and operating performance of the company being appraised relative to those of publicly-traded companies, or recently acquired companies operating in the same or similar lines of business. These companies are potentially subject to similar economic, environmental and political factors and considered to be reasonable investment alternatives. Publicly-traded companies provide indications of value of a freely-traded minority interest (i.e. non-control).

The comparable market approach derives valuation benchmarks from the trading patterns of selected comparable companies that, due to certain factors such as financial performance and operating strategies, enable the appraiser to estimate the potential value of the subject institution




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PRO FORMA VALUATION APPRAISAL

in a mutual-to-stock conversion offering. In this chapter, our valuation analysis focuses on the selection and comparison of the Company with a comparable group of publicly-traded insurance companies. Chapter V discusses market value adjustments (both discounts and premiums) to account for actual differences between PMHC and the comparable group of companies discussed below.

Selection Criteria

When applying the comparative market approach, the appraiser would ideally utilize companies identical to PMHC in terms of lines of business, growth, profitability, earnings, and the publicly-held, minority structure. Since there are no companies identical to PMHC, we selected a peer group of publicly-traded P&C insurance companies that share valuation characteristics with Penn Millers (the “Comparable Group”). Selected market price and financial performance data for P&C insurance companies listed on the New York and American Stock Exchanges or traded on the NASDAQ Stock Market are shown in Exhibit VI as compiled from data obtained from SNL Financial LC (“SNL Financial”), a leading provider of financial and market data focused on financial services industries and Capital IQ, Inc. (“Capital IQ”), a provider of financial and market data. Several criteria, discussed below, were used to select the individual members of the Comparable Group from the overall universe of the publicly-traded P&C insurance segment (“Public P&C Insurance Group”). Generally, we considered operating characteristics, marketability of stocks, and liquidity in our selection process.

Operating Characteristics: A company’s operating characteristics affect investors’ expected rates of return on a company’s stock under various business and economic scenarios, and they influence the market’s general perception of the quality and attractiveness of a given company. Operating characteristics, which may vary in importance during the business cycle,




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PRO FORMA VALUATION APPRAISAL

include financial variables such as profitability, capitalization, growth, risk exposure, liquidity, and other factors such as lines of business and management strategies.

Marketability of a stock: Marketability of a stock reflects the relative ease and promptness with which a security may be sold when desired, at a representative current price, without material concession in price merely because of the necessity of sale. Marketability also connotes the existence of buying interest as well as selling interest and is usually indicated by trading volumes and the spread between the bid and asked price for a security.

Liquidity: Liquidity of the stock issue refers to the organized market exchange process whereby the security can be converted into cash. We attempted to limit our selection to companies that have access to a regular trading market or price quotations. We eliminated from the selection process companies with market prices that were materially influenced by publicly-announced or widely rumored acquisitions.

Specifically, in determining the Comparable Group, we focused primarily on size, profitability, and market segment. To obtain a meaningful Comparable Group, we broadened the size criterion to encompass what we believed to be a meaningful number of companies. In addition, due to ongoing consolidation activity within the insurance industry, we sought to include a sufficient number of companies in the event that one or more of the Comparable Companies are subsequently subject to an acquisition prior to completion of the Offering.

We focused on the lower quartile of the Public P&C Insurance Group based on asset size and market capitalization metrics. Our selection criteria are summarized below:

•

Publicly-traded — stock-form insurance company whose shares are traded on New York Stock Exchange, American Stock Exchange, or NASDAQ Stock Market.

PRO FORMA VALUATION APPRAISAL

	•		Market segment — insurance companies whose primary market segment is listed as P&C by SNL Financial.

	•		Current financial data — publicly reported financial data for the twelve months ended June 30, 2008 or September 30, 2008, if available.

	•		Asset size — total assets less than $1.2 billion.

	•		Profitability — return on average equity (“ROE”) less than 20.0%.

The mutual holding company form of ownership (“MHC”) has been in existence in its present form in the thrift industry since 1991. As of the date of this Appraisal, there were approximately 40 publicly-traded thrift companies operating as subsidiaries of MHCs, but no publicly-traded insurance institutions operating as subsidiaries of MHCs. There were, however, certain P&C insurance companies operating with corporate forms of ownership that can be considered economically similar to Penn Millers’ pro forma MHC corporate organization. These companies were considered in our analysis, however, they did not constitute a comparable group by themselves. The unique characteristics of the MHC form of ownership were considered in Chapter V when determining discounts and premiums to the Company’s pro-forma market value, where appropriate.

After applying the above criteria, the screening process yielded twenty-three companies. Eight of these companies (Affirmative Insurance Holdings, Inc., American Safety Insurance Holdings, Ltd., American Physicians Services Group, Inc, American Physicians Capital, Inc, Amerisafe, Inc, Castlepoint Holdings, Inc, Hilltop Holdings, Inc, and FPIC Insurance Group, Inc.) were excluded from the Comparable Group due to their concentrated business activity in specialized products whose lines of business were not comparable to Penn Millers and/or the specialty nature of their business yielded above average profitability. Additionally, Specialty




		33

PRO FORMA VALUATION APPRAISAL

Underwriters’ Alliance, Inc. was excluded from the Comparable Group due to a recently announced offer to purchase this company.

A general operating summary of the fourteen companies selected for the Comparable Group is presented below.

Table 8
General Operating Summary of the Comparable Group
As of the LTM period


				Total Assets		Total Equity		Equity /
	Ticker	Exchange	State	($000)		($000)		Assets


Penn Millers	NA	NA	PA	$	219,583	$	54,842		25.0	%

Comparable Group Mean	NA	NA	NA		643,379		195,397		31.5	%
Comparable Group Median	NA	NA	NA		682,567		186,369		31.4	%

Comparable Group
21st Century Holding Company	TCHC	NASDAQ	FL		198,435		79,724		40.2	%
Baldwin & Lyons, Inc.	BWINB	NASDAQ	IN		838,653		343,851		41.0	%
CRM Holdings, Ltd.	CRMH	NASDAQ			447,604		109,906		24.6	%
Donegal Group Inc.	DGICA	NASDAQ	PA		894,071		355,657		39.8	%
Eastern Insurance Holdings, Inc.	EIHI	NASDAQ	PA		390,597		156,138		40.0	%
EMC Insurance Group Inc.	EMCI	NASDAQ	IA		1,108,380		303,403		27.4	%
First Mercury Financial Corporation	FMR	NYSE	MI		912,238		259,052		28.4	%
Hallmark Financial Services, Inc.	HALL	NASDAQ	TX		549,680		189,506		34.5	%
Mercer Insurance Group, Inc.	MIGP	NASDAQ	NJ		564,442		132,953		23.6	%
National Interstate Corporation	NATL	NASDAQ	OH		990,475		204,817		20.7	%
National Security Group, Inc.	NSEC	NASDAQ	AL		140,762		35,106		24.9	%
NYMAGIC, INC.	NYM	NYSE	NY		986,563		183,231		18.6	%
SeaBright Insurance Holdings, Inc.	SBX	NYSE	WA		800,691		309,355		38.6	%
Unico American Corporation	UNAM	NASDAQ	CA		184,713		72,859		39.4	%

Source: Penn Millers’ GAAP financial statements; SNL Financial.

The Comparable Group includes five companies with total assets less than $500 million and three below $250 million (21^st Century Holding Company, National Security Group, Inc., and Unico American Corporation) in total assets. In addition, two of the insurance companies, Donegal Group, Inc. and Eastern Insurance Holdings, Inc., are headquartered in Pennsylvania, while another, Mercer Insurance Group, Inc. is based in New Jersey with an insurance subsidiary domiciled and generating a significant portion of its business in Pennsylvania. Two of these companies, National Interstate Corporation and First Mercury Financial Corporation, offer niche




		34

PRO FORMA VALUATION APPRAISAL

and/or underserved products in the commercial sector. Additionally, many of the Comparable Group companies completed an initial public offering within the past several years and two companies, Eastern Insurance Holdings, Inc. and Mercer Insurance Group, Inc., specifically completed mutual-to-stock conversion offerings. Lastly, two companies, Donegal Group Inc. and EMC Insurance Group, Inc, operate under corporate forms of ownership that are economically similar to Penn Millers’ pro forma MHC corporate organizational structure. For purposes of our analysis, the financial data and pricing ratios of Donegal Group, Inc. and EMC Insurance Group, Inc. have been considered on an “as-reported” basis. The financial data and pricing ratios of these companies were also separately considered on a fully-converted basis to eliminate distortions that result from different outstanding public ownership interests. Following the “second-step” thrift conversion model, the fully-converted Price/Book (“P/B”) ratios of Donegal Group Inc. and EMC Insurance Group Inc. are within the range of the Comparable Group of companies P/B ratios as discussed later in this report. It should be noted, however, given the fact that the structures of these companies were created under different regulations, it is uncertain as to how a “second-step” or full conversion could work.

While none of these companies are exactly identical to Penn Millers, we believe that the chosen Comparable Group on the whole provides a meaningful basis of financial comparison for valuation purposes.




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PRO FORMA VALUATION APPRAISAL

Summary Profiles of the Comparable Group Companies¹

21^st Century Holding Company (NASDAQ: TCHC)

21st Century Holding Company (“21^st Century”), an insurance holding company, engages in insurance underwriting, distribution, and claims process primarily in the United States. The company underwrites homeowners’ insurance that protects an owner of real and personal property against the causes of loss to the property; commercial general liability insurance for approximately 250 classes of artisan and mercantile trades, habitational exposures, and various special events; personal and commercial automobile insurance; and flood insurance products. It also processes claims made by third-party insureds; and provides premium financing through its distribution network of general and independent agents. The company was founded in 1991 and is based in Lauderdale Lakes, Florida.

Baldwin & Lyons, Inc. (NASDAQ: BWINB)

Baldwin & Lyons, Inc. (“Baldwin & Lyons”), through its subsidiaries, engages in marketing and underwriting property and casualty insurance in the United States, Canada, and Bermuda. It offers fleet trucking insurance products to companies in the motor carrier industry, which include casualty insurance, such as motor vehicle liability, physical damage, and other liability insurance; workers’ compensation insurance; specialized accident, such as medical and indemnity insurance for independent contractors; fidelity and surety bonds; and cargo insurance. The company also offers various services, including risk surveys and analyses; government compliance assistance; loss control and cost studies; claims handling; and research, development, and consultation in connection with new insurance programs, including development of


¹		Comparable Company business descriptions sourced from company 10-K filings and Capital IQ.




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PRO FORMA VALUATION APPRAISAL

computerized systems to assist in monitoring accident data. In addition, Baldwin & Lyons accepts cessions and retrocessions from selected insurance and reinsurance companies, principally reinsuring against catastrophes. Further, it markets private passenger automobile liability and physical damage coverages to individuals; commercial automobile liability, physical damage, and cargo insurance to truck owner-operators. Baldwin & Lyons sells its products through a network of independent agents. The company was founded in 1930 and is based in Indianapolis, Indiana.

CRM Holdings Ltd. (NASDAQ: CRMH)

CRM Holdings, Ltd. (“CRM”), thorough its subsidiaries, provides workers’ compensation insurance products and services. Its primary insurance segment offers workers’ compensation insurance to employers in California, Arizona, Florida, Nevada, New Jersey, and New York through independent insurance brokers and agents; and excess and frequency coverage policies to self-insured entities. The company’s Reinsurance segment includes the reinsurance of workers’ compensation coverage written by other insurance companies and self-insured entities. This segment offers excess of loss and quota share reinsurance products. Its Fee-Based Management Services segment includes the offering of various management services to self-insured groups in California and New York under fee-for-service arrangements. It provides the groups with a range of services, including general management, underwriting, risk assessment, medical bill review and case management, general record keeping, and regulatory compliance, as well as safety and loss control services to group members. The company also acts as an insurance broker by placing excess and frequency insurance coverage and surety bonds for the groups. CRM is based in Hamilton, Bermuda.




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PRO FORMA VALUATION APPRAISAL

Donegal Group, Inc. (NASDAQ: DGICA)

Donegal Group, Inc. (“Donegal”), through its subsidiaries, provides personal and commercial property and casualty lines of insurance to businesses and individuals in the United States. Its personal lines of insurance products include private passenger automobile, which provides protection against liability for bodily injury and property damage arising from automobile accidents, and protection against loss from damage to automobiles owned by the insured; and homeowners insurance that provides coverage for damage to residences and their contents from a range of perils, including fire, lightning, windstorm, and theft, as well as covers liability of the insured arising from injury to other persons or their property. The company’s commercial lines of insurance products comprise commercial multi-peril policies; workers’ compensation policies, which provide benefits to employees for injuries sustained during employment; and commercial automobile policies that provide protection against liability for bodily injury and property damage arising from automobile accidents, and protection against loss from damage to automobiles owned by the insured. The company markets its products through approximately 2,000 independent insurance agencies. Donegal was founded in 1986 as a downstream holding company by Donegal Mutual Insurance Company, which currently holds approximately 65.4% of the aggregate voting power of both classes of Donegal’s common stock. The company is headquartered in Marietta, Pennsylvania.

Eastern Insurance Holdings, Inc. (NASDAQ: EIHI)

Eastern Insurance Holdings, Inc. (“Eastern”), through its subsidiaries, offers workers’ compensation and group benefits insurance and reinsurance products in the United States. Its Workers’ Compensation Insurance segment provides workers’ compensation products, including




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PRO FORMA VALUATION APPRAISAL

guaranteed cost policies, policyholder dividend policies, retrospectively-rated policies, large deductible policies, and alternative market products, and large deductible policies to employers primarily in Pennsylvania, Maryland, and Delaware. The company’s Segregated Portfolio Cell Reinsurance segment offers program design, fronting, claims administration, risk management, segregated portfolio cell rental, investment, and segregated portfolio management services. Its Group Benefits Insurance segment provides dental, short and long-term disability, and term life insurance products. The company’s Specialty Reinsurance segment assumes business through its participation in reinsurance treaties with an unaffiliated insurance company related to an underground storage tank program and a non-hazardous waste transportation product. Eastern is headquartered in Lancaster, Pennsylvania.

EMC Insurance Group, Inc. (NASDAQ: EMCI)

EMC Insurance Group, Inc. (“EMC Insurance”), through its subsidiaries, provides property and casualty insurance and reinsurance products in the United States. It operates through two segments, Property and Casualty Insurance, and Reinsurance. The Property and Casualty Insurance segment underwrites commercial and personal lines of property and casualty insurance. Its commercial lines of property and casualty insurance products include automobile, property, workers’ compensation, and liability insurance, as well as other insurance products that provide protection with respect to burglary and theft loss, aircraft, marine, fidelity and surety bonds, and other losses. This segment’s personal lines of property and casualty insurance products comprise automobile, property, and liability insurance. The Reinsurance segment underwrites property and casualty, property, crop, casualty, marine/aviation, and surety reinsurance for other insurers and reinsurers. EMC Insurance sells its products to small and




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PRO FORMA VALUATION APPRAISAL

medium-sized businesses, institutions, and individual customers through independent insurance agents. The company was founded in 1974 and is based in Des Moines, Iowa. EMC Insurance Group, Inc. is a subsidiary of Employers Mutual Casualty Company, which owns approximately 59.1% of EMC Insurance common stock.

First Mercury Financial Corporation (NYSE: FMR)

First Mercury Financial Corporation (“First Mercury”), together with its subsidiaries, provides property and casualty insurance products and services to the specialty commercial insurance markets in the United States. The company underwrites and provides general liability insurance for the security industry, including security guards and detectives, alarm installation and service businesses, and safety equipment installation and service businesses. It also operates a wholesale insurance agency, which produces commercial lines business on an excess and surplus lines basis for non-affiliated insurers. In addition, the company provides underwriting, claims, and other insurance services to third parties through its insurance services business; third party administration services for risk sharing pools of governmental entity risks, including underwriting, claims, loss control, and reinsurance services. It markets its insurance policies through a network of wholesale and retail insurance brokers under CoverX brand name. First Mercury Financial Corporation was founded in 1973 and is headquartered in Southfield, Michigan with additional offices in Chicago, Illinois; Dallas, Texas; Boston, Massachusetts; Irvine, California; and Atlanta, Georgia.




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PRO FORMA VALUATION APPRAISAL

Hallmark Financial Services, Inc. (NASDAQ: HALL)

Hallmark Financial Services, Inc. (“Hallmark”), through its subsidiaries, engages in marketing, distributing, underwriting, and servicing property and casualty insurance products for businesses and individuals in the United States. The company offers standard commercial insurance products, such as commercial automobile, general liability, umbrella, commercial property, commercial multi-peril, and business owner’s insurance products; excess and surplus lines of commercial insurance; and general aviation insurance products. It also provides non-standard personal automobile insurance products, such as personal automobile liability and personal automobile physical damage insurance; and claims management services. Hallmark markets its products through independent general agents, retail agents, and specialty brokers. The company was founded in 1987 and is headquartered in Fort Worth, Texas.

Mercer Insurance Group, Inc. (NASDAQ: MIGP)

Mercer Insurance Group, Inc. (“Mercer”), through its subsidiaries, provides property and casualty insurance products for individuals, and small and medium-sized businesses. It offers commercial multi-peril policies for apartment building owners, condominium associations, business owners who lease their buildings to tenants, mercantile business owners, and offices with owner and tenant occupancies; commercial automobile policies for trucks used in business, company-owned private passenger type vehicles, church vans, funeral director vehicles, and farm labor buses; and other liability policies that cover premises and products liability exposures, and vacant land and habitational risks for carpenters, painters, and electricians. The company also writes workers’ compensation policies; surety insurance for contract and subdivision bonds, and miscellaneous license and permit bonds; and fire, allied lines, and inland marine insurance. In




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addition, it provides homeowners and private passenger automobile insurance coverages. It has operations in Arizona, California, Nevada, New Jersey, New York, Pennsylvania, and Oregon. Mercer markets its products through a network of independent agents, as well as through Internet and direct mail. The company was founded in 1844 and is headquartered in Pennington, New Jersey.

National Interstate Corporation (NASDAQ: NATL)

National Interstate Corporation (“National Interstate”), through its subsidiaries, operates as a specialty property and casualty insurance company in the United States, the District of Columbia, and the Cayman Islands. It underwrites and sells traditional and alternative property and casualty insurance products primarily to the passenger transportation industry and the trucking industry; general commercial insurance to small businesses in Hawaii and Alaska; and personal insurance to owners of recreational vehicles, commercial vehicles, and watercraft in the United States. The company provides truck and passenger transportation alternative risk insurance products; and commercial auto liability, general liability, physical damage, and motor truck cargo coverage for truck and passenger operators, as well as offers coverage for campsite liability, vehicle replacement coverage, and coverage for trailers, golf carts, and campsite storage facilities. It also provides companion personal auto coverage to recreational vehicle policyholders. National Interstate offers its products through various distribution channels, including independent agents and brokers, affiliated agencies, and agent Internet initiatives. The company was founded in 1989 and is headquartered in Richfield, Ohio. National Interstate is a subsidiary of Great American Insurance Company.




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National Security Group, Inc. (NASDAQ: NSEC)

The National Security Group, Inc. (“National Security”), through its subsidiaries, provides property and casualty, and life insurance products and services in the United States. It writes personal lines coverage, including dwelling fire and windstorm, homeowners, mobile homeowners, and personal non-standard automobile lines of insurance. The company also offers a line of life, accident and health, supplemental hospital, and cancer insurance products. National Security operates its business in the states of Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Oklahoma, South Carolina, Tennessee, and West Virginia, as well as on a surplus lines basis in the states of Louisiana, Missouri, and Texas. It offers its products and services through a field force of agents and career agents, as well as through a network of independent agents. The company was founded in 1947 and is based in Elba, Alabama.

NYMAGIC, Inc. (NYSE: NYM)

NYMAGIC, INC. (“NYMAGIC”), through its subsidiaries, engages in the ownership and operation of insurance companies, risk bearing entities, and insurance underwriters and managers primarily in the United States. The company specializes in underwriting ocean marine, inland marine/fire, other liability, and aircraft insurance through insurance pools. Its ocean marine insurance covers hull and machinery, hull and machinery war risk, cargo, cargo war risk, protection and indemnity, charters’ legal liability, shoreline marine liability, marine contractor’s liability, maritime employers liability, marine umbrella (bumbershoot) liability, onshore and offshore oil and gas exploration and production exposures, energy umbrella (bumbershoot) liability, and petroleum and bulk liquid cargo. The company’s inland marine/fire insurance provides coverage for contractor’s equipment, motor truck cargo, transit floaters, surety, and




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commercial property. Its non-marine liability insurance include accountants professional, lawyers professional, contractors, commercial and habitational, and products liability products, as well as workers compensation, commercial automobile, and employment practices liability products. NYMAGIC was founded in 1964 and is based in New York, New York.

SeaBright Insurance Holdings, Inc. (NYSE: SBX)

SeaBright Insurance Holdings, Inc. (“SeaBright”), through its subsidiaries, provides multi-jurisdictional workers’ compensation insurance in the United States. It offers insurance coverage for prescribed benefits that employers are required to provide to their employees, who may be injured in the course of their employment. The company provides its services to maritime employers with coverage needs over land, shore, and navigable waters; employers in the construction industry; and employers who are obligated to pay insurance benefits specifically under state worker’s compensation laws. It distributes its products through independent insurance brokers, and its licensed in-house wholesale insurance brokers and third-party administrators. SeaBright is licensed in 45 states and the District of Columbia to write workers’ compensation insurance. The company was founded in 1986 and is headquartered in Seattle, Washington.

Unico American Corporation (NASDAQ: UNAM)

Unico American Corporation (“Unico”), an insurance holding company, underwrites property and casualty insurance in the United States. The company provides multiple line property and casualty insurance products, which include commercial multiple peril policies. These policies comprise property and liability coverage for natural disasters, including




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hurricanes, windstorms, hail, water, explosions, winter weather, and other events, such as theft and vandalism, fires, storms, and financial loss due to business interruption resulting from covered property damage. It also provides commercial liability coverage against third party liability from accidents occurring on the insured’s premises or arising out of its operation, as well as writes separate policies to insure commercial property and commercial liability risk on a mono-line basis. The company also markets medical, dental, and vision insurance through non-affiliated insurance companies for individuals and groups. In addition, Unico provides insurance premium financing services to insurance purchasers. The company markets its insurance products through independent insurance agents and brokers. It operates primarily in California, Arizona, Nevada, Oregon, and Washington. The company was founded in 1969 and is based in Woodland Hills, California.

Recent Financial Comparisons

Table 9 summarizes certain key financial comparisons between PMHC and the Comparable Group. The Public P&C Insurance Group includes all the companies presented in Exhibit VI.

The Company’s ratio of total policy reserves to total equity was 1.88x, as compared to the Comparable Group’s mean and median of 1.98x and 1.67, respectively. Among the Comparable Group, CRM Holdings, Inc. and First Mercury displayed ratios closest to the Company’s total policy reserves to total equity ratio at 2.19x and 1.92x, respectively. The Company’s total equity to total asset ratio of 25.0% was lower than the P&C industry aggregate and the Comparable Group. The Comparable Group mean and median ratios of total equity to total assets were 31.5% and 31.4%, respectively, while the Public P&C Insurance Group mean




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and median ratios of total equity to total assets were slightly lower at 29.8% and 27.5%, respectively.

The Company’s ratio of cash and investments to total assets was 59.9% as of September 30, 2008, and was positioned below the Comparable Group mean and median ratios of 70.0% and 70.7%, respectively but was still within the range demonstrated by the Comparable Group.

Table 9
Comparable Financial Condition Data
Penn Millers and the Comparable Group
As of or for the LTM Period


									Total Cash
							Total Policy		and					Tangible			Total Policy		Cash and
	Total Assets		Total Equity		Tangible		Reserves		Investments		Equity /			Equity /			Reserves /		Investments /
	($000)		($000)		Equity ($000)		($000)		($000)		Assets			Assets			Equity		Assets


Penn Millers	$	219,583	$	54,842	$	50,094	$	103,278	$	131,632		25.0	%		22.8	%		1.88x		59.9	%

Public P&C Insurance Group Mean		12,952,557		3,570,022		2,994,120		6,900,833		8,342,941		29.8	%		27.4	%		2.37x		69.0	%
Public P&C Insurance Group Median		3,097,800		772,175		725,845		1,696,441		2,074,100		27.5	%		25.5	%		2.19x		70.9	%

Comparable Group Mean		643,379		195,397		183,398		370,699		439,328		31.5	%		29.6	%		1.98x		70.0	%
Comparable Group Median		682,567		186,369		159,447		402,653		449,024		31.4	%		26.1	%		1.67x		70.7	%

Comparable Group
21st Century Holding Company		198,435		79,724		79,724		105,484		157,691		40.2	%		40.2	%		1.32x		79.5	%
Baldwin & Lyons, Inc.		838,653		343,851		343,851		420,044		607,346		41.0	%		41.0	%		1.22x		72.4	%
CRM Holdings, Ltd.		447,604		109,906		106,636		240,692		348,626		24.6	%		23.8	%		2.19x		77.9	%
Donegal Group Inc.		894,071		355,657		355,207		482,028		630,611		39.8	%		39.7	%		1.36x		70.5	%
Eastern Insurance Holdings, Inc.		390,597		156,138		135,662		198,886		276,765		40.0	%		34.7	%		1.27x		70.9	%
EMC Insurance Group Inc.		1,108,380		303,403		302,461		751,816		957,203		27.4	%		27.3	%		2.48x		86.4	%
First Mercury Financial Corporation		912,238		259,052		193,645		497,959		556,817		28.4	%		21.2	%		1.92x		61.0	%
Hallmark Financial Services, Inc.		549,680		189,506		122,085		260,581		368,641		34.5	%		22.2	%		1.38x		67.1	%
Mercer Insurance Group, Inc.		564,442		132,953		127,537		385,262		367,966		23.6	%		22.6	%		2.90x		65.2	%
National Interstate Corporation		990,475		204,817		204,817		574,292		544,148		20.7	%		20.7	%		2.80x		54.9	%
National Security Group, Inc.		140,762		35,106		35,106		88,526		100,130		24.9	%		24.9	%		2.52x		71.1	%
NYMAGIC, INC.		986,563		183,231		183,231		654,790		555,359		18.6	%		18.6	%		3.57x		56.3	%
SeaBright Insurance Holdings, Inc.		800,691		309,355		304,744		426,401		529,407		38.6	%		38.1	%		1.38x		66.1	%
Unico American Corporation		184,713		72,859		72,859		103,020		149,888		39.4	%		39.4	%		1.41x		81.1	%

Source: Penn Millers’ GAAP financial statements; SNL Financial.

Table 10 compares Penn Millers with the Comparable Group and Public P&C Insurance Group based on selected measures of profitability.




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Table 10
Comparable Operating Performance Data
Penn Millers and the Comparable Group
For the LTM period


	Total Revenue		Net Income			GAAP			GAAP Loss			Combined
	($000)		($000)			Expense Ratio			Ratio			Ratio			ROAA			ROAE


Penn Millers	$	80,331		($1,011	)		32.4	%		73.6	%		106.0	%		-0.5	%		-1.7	%

Public P&C Insurance Group Mean		3,682,549		275,837			30.9	%		64.2	%		95.3	%		1.9	%		7.0	%
Public P&C Insurance Group Median		653,049		48,429			30.3	%		63.8	%		95.8	%		2.3	%		7.9	%

Comparable Group Mean		196,876		8,291			33.6	%		66.4	%		100.0	%		1.6	%		4.1	%
Comparable Group Median		181,784		9,840			32.1	%		63.1	%		95.8	%		2.3	%		8.1	%

Comparable Group
21st Century Holding Company		80,917		8,386			44.1	%		60.1	%		104.2	%		3.9	%		10.2	%
Baldwin & Lyons, Inc.		195,232		14,843			31.9	%		63.7	%		95.6	%		1.8	%		4.0	%
CRM Holdings, Ltd.		158,111		9,195			32.0	%		62.5	%		94.5	%		2.3	%		8.3	%
Donegal Group Inc.		363,361		31,637			33.0	%		62.9	%		95.9	%		3.7	%		8.9	%
Eastern Insurance Holdings, Inc.		139,217		8,645			37.4	%		63.3	%		100.7	%		2.2	%		5.2	%
EMC Insurance Group Inc.		425,537		4,879			32.2	%		77.1	%		109.3	%		0.4	%		1.4	%
First Mercury Financial Corporation		205,832		48,692			26.9	%		55.1	%		82.0	%		5.9	%		20.0	%
Hallmark Financial Services, Inc.		277,431		21,946			28.9	%		62.1	%		91.0	%		4.0	%		11.9	%
Mercer Insurance Group, Inc.		168,335		10,485			36.1	%		61.9	%		98.0	%		1.9	%		7.8	%
National Interstate Corporation		295,364		20,845			25.3	%		67.2	%		92.5	%		2.2	%		9.8	%
National Security Group, Inc.		64,001		(4,647	)		46.4	%		100.8	%		147.2	%		-3.4	%		-10.2	%
NYMAGIC, INC.		71,543		(92,838	)		44.8	%		70.8	%		115.6	%		-8.8	%		-36.8	%
SeaBright Insurance Holdings, Inc.		263,503		29,051			27.9	%		55.8	%		83.7	%		3.8	%		9.6	%
Unico American Corporation		47,878		4,951			24.0	%		65.8	%		89.8	%		2.6	%		7.0	%

Source: Penn Millers’ GAAP financial statements; SNL Financial.

The Company was not profitable in the LTM period. Penn Millers’ profitability was impacted by losses on investments and a high combined ratio, which was 106.0%. The Comparable Group reported mean and median combined ratios of 100.0% and 95.8%, respectively. Two companies in the Comparable Group, NYMAGIC and National Security experienced operating losses during the LTM period.

The Company’s relatively high combined ratio was attributable primarily to its higher loss ratio. Penn Millers’ loss ratio measured 73.6% for the LTM period, which was above the Comparable Group mean and median loss ratios of 66.4% and 63.1%. Among the Comparable Group members, only EMC Insurance and National Security reported higher loss ratios at 77.1% and 100.8%, respectively.




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V. MARKET VALUE ADJUSTMENTS

General Overview

In the foregoing sections of this Appraisal, the Company’s relative operating performance is considered against the operating metrics of the Comparable Group. The Estimated Pro Forma Market Value of the Company reflects these considerations and also certain, additional market valuation adjustments relative to the Comparable Group. This section of the Appraisal identifies such categories of market value adjustments and how each adjustment impacts the Company’s estimated pro forma valuation. Relative to the Comparable Group, the valuation adjustments in this chapter are made from the viewpoints of potential investors, which could include policyholders with subscription rights and unrelated third parties. It is assumed that these potential investors are aware of all relevant and necessary facts as they would pertain to the value of the Company relative to other publicly-traded insurance companies and relative to alternative investments.

The concluded Valuation Range of the Company is predicated on the assumption that the current operating environment will continue for the Company and the insurance industry in general. Changes in the Company’s operating performance along with changes in the regional and national economies, the stock market, interest rates, the regulatory environment, and other external factors may occur from time to time, often with great unpredictability, which could materially impact the Estimated Pro Forma Market Value of the Company or the trading market values of insurance company stocks in general. Therefore, the Valuation Range provided herein is subject to a re-evaluation prior to the actual completion of the Offering.




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revenue growth for the Comparable Group ranged from negative 65.5% to 9.6%, with a mean of negative 4.9% and a median of 2.7%. Seven of the companies experienced negative revenue growth during this LTM period.

While Penn Millers’ revenue growth outperformed the Comparable Group, its profitability was below that of the Comparable Group. Penn Millers’ loss ratio, which measures loss expenses to net premiums earned, was 73.6% for the LTM period, well above the Comparable Group’s mean and median loss ratios of 66.4% and 63.1%, respectively. Penn Millers’ management has advised that the Company experienced unusually high losses in 2007 and the first nine months of 2008, which served to significantly increase the Company’s loss ratio.

Penn Millers’ expense ratio, which measures underwriting expenses plus policy acquisition costs to net premiums earned, was 32.4% for the LTM period. A high expense ratio indicates excessive overhead costs while a low expense ratio would indicate an efficient organization. Penn Millers’ expense ratio for the LTM period of 32.4% was comparable to the Comparable Group, which had mean and median ratios of 33.6% and 32.1%, respectively.

On a combined basis (losses and underwriting expenses), the Company has underperformed the Comparative Group, ranging between 103.7% and 106.0% during the past three years as compared to a range of 89.0% to 95.6% for the median of the Comparable Group. Small insurers often exhibit higher combined ratios as they typically lack economies of scale and are often more concentrated geographically as compared to larger underwriters, such as those in the Comparable Group.

In determining Penn Millers’ future earnings prospects and related risks, an investor would consider the Company’s estimated financial projections and its likelihood of achieving




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such projections. Penn Millers’ management has developed a comprehensive growth plan that focuses on growing revenue, managing expenses and ultimately increasing profitability by targeting larger, more complex commercial accounts with highly customized products, adding new agents, terminating unprofitable agent relationships, reducing agent commission rates, expanding its geographic footprint and targeted market niches, augmenting existing products with product enhancements, pursuing new non-traditional distribution channels, adding personnel only in production roles, implementing new and renewal pricing increases and more pricing discipline to ensure rate adequacy, and improving risk selection. This detailed growth plan and forecast is predicated on hard market conditions returning in 2009.

Due to the unknown timing of the next hard market and the Company’s recent profit trends, we do not believe investors would place much weight on the Company’s forecast and earnings prospects relative to the Comparable Group. As such, a downward adjustment is warranted as compared to the Comparable Group.

Management

A management team’s primary charge is to articulate and implement a strategic plan, which includes creating value through revenue growth, profit improvements, risk mitigation and the efficient utilization of resources. The financial characteristics of the Company suggest that senior management and the Board of Directors have professionally managed the enterprise, and have been reasonably successful in implementing an existing operating model supported by the Company’s present organizational structure. We also believe investors will consider that the Company’s management is comprised of a team of experienced insurance executives with practical knowledge in all of the key areas of the Company’s operations, and that they have developed a detailed, strategic growth plan. Each of these are important considerations given




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that the Company is a smaller insurer, and that smaller insurers are often at a competitive disadvantage in terms of economies of scale. Given these factors, no adjustment is warranted based on management relative to the Comparable Group.

Liquidity of the Issue

The development of a public market depends upon the presence in the marketplace of a sufficient number of willing buyers and sellers at any given time and the existence of market makers to facilitate stock trade transactions. Therefore, stock liquidity is predicated upon the development of a broad, efficient marketplace.

Each of the fourteen companies in the Comparable Group are listed and traded on major stock exchanges. Eleven are listed on the NASDAQ Global Market, and the remaining three on the New York Stock Exchange. Following the completion of the Offering, PMHC expects its publicly-traded common stock to be quoted on the NASDAQ Capital Market, pending receipt of approval. The NASDAQ Capital Market has lower listing threshold requirements than the NASDAQ Global Market based on certain financial and market indicators such as stockholders’ equity, net income, total assets and total market value. PMHC stock will be listed on this market because of the Company’s small size relative to the Comparable Group, and the small size of the Offering.

The Offering is structured such that PMMHC will retain a majority of the Company’s Common Shares, and a substantial portion of the stock will likely be held by Company management and the ESOP. Since it is a minority stock offering and less than 50% of the Common Shares will be available for public trading, the stock’s after-market liquidity will be lower. Given that the MHC structure expressly limits the voting control of the Company with




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PMMHC, there is no ability for public shareholders to force a liquidity event, which dampens the likelihood of an active, liquid market for the shares.

The Offering’s mid-tier holding company legal structure will facilitate the ability of the MHC to implement stock repurchases, improving liquidity. Additionally, it should be noted that a partial discount for a lack of liquidity is implicit in certain companies in the Comparable Group, given that such companies’ exhibit weekly trading volumes of less than one percent of the average shares in float.

Given the Company’s stock is expected to be listed on the less active NASDAQ Capital Market, the minority nature and relatively small size of the Offering and its pro forma MHC status, there is no assurance that an established and liquid market for the common stock of PMHC will develop or that it will continually meet listing requirements. Further, the relative attractiveness of PMHC’s stock in an industry of insurers with larger market capitalizations and stock issues followed widely by investors, analysts, brokers, and market makers would suggest a less liquid market post-offering. As such, we believe a downward adjustment is appropriate to address these factors.

Subscription Interest

The subscription interest market value adjustment endeavors to give affect to the level of investors’ confidence that an Offering or conversion will be successful. To gain insight, an investor would look to similar, previous offerings and also consider the particular attributes of the Amende Plan and the external environment.

While mutual-to-stock conversions are commonplace in the savings institution industry, such conversions and demutualizations are less common in the insurance industry. In recent years, IPOs of savings institution stocks have attracted a great deal of investor interest. Previous




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insurance demutualizations, which include Mercer and Eastern, were oversubscribed, although purchasers with subscription rights for Eastern common stock did not purchase enough stock to reach the pro forma valuation range, and a community offering was required.

Given the recent, economic downturn, most 2008 offerings for savings institution conversions have not fulfilled the minimum number of shares offered in the subscription offering phase, and community and syndicated community offerings were necessary to complete the aggregate stock sale. In addition, the small size and MHC status of the Offering guarantees that public shareholders will hold a minority ownership interest, with no opportunity of exercising voting control of the institution, which should serve to dampen subscription interest. Lastly, the P&C industry is currently experiencing a “soft” market, characterized by intense price competition, significant catastrophe losses, weak underwriting integrity and a deteriorating macro-economic environment. Each of these factors will likely serve to moderate subscription interest.

Conversely, demutualized insurance companies have historically had an immediate “step up” in value based on pro forma share price after an initial public offering. This is because investors in conversion always buy at a discount to book value. Demutualizing insurance companies, in general, have historically had a positive return after an initial public offering (“IPO”), as shown in the following table.

Table 11
Previous Demutualization Offerings


				Price / Share		Stock Price
Company Name	Ticker	Offer Date		Offering		1 Day		1 Month		1 Year


Old Guard Group, Inc.	OGGI		2/18/97	$	10.00	$	14.63	$	14.63	$	17.56
Mercer Insurance Group	MIGP		12/16/03		10.00		12.15		13.66		13.36
Eastern Insurance Holdings (Educators Mutual)	EIHI		6/19/06		10.00		11.41		12.90		14.99




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Penn Millers has engaged Griffin Financial Group, LLC (“Griffin”) as a marketing agent in connection with the Offering of the common stock. Griffin has agreed to use its best efforts to assist the Company with the solicitation of purchase orders for shares of common stock in the subscription and community offering. In addition, if necessary, Griffin would manage a syndicated community offering conducted by a group of registered broker-dealers to complete the sale of shares offered in the conversion.

Notwithstanding the macro-environment and the fact that the Company has not yet commenced or completed the subscription and community offering, we believe that precedent demutualization outcomes provide a reasonable level of confidence to potential investors of the likelihood that the Offering can be successfully completed. Based on these circumstances, we believe no adjustment is appropriate for subscription interest.

Stock Market Conditions

Table 12 summarizes the recent performance of various insurance stock indexes maintained by SNL Financial, along with selected other industry and broader market indexes. The SNL Insurance Index of all publicly-traded insurance companies decreased 53.7% over the LTM ended November 17, 2008. The SNL Insurance Index underperformed the broader markets indexes as reflected by the Standard & Poor’s 500, which fell 40.4% and the Russell 3000, which fell 41.1% over the last year. However, the SNL P&C Insurance Index did not fare as poorly as the overall financials sector. As discussed earlier in this report, the recent decline in the financial markets has had an industry-wide effect on insurance companies’ investment portfolios. The SNL P&C Insurance Index was down 27.3% over the past year, compared to the SNL All Financial Institutions sector, which was down 54.3% over the past year.




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Table 12
Selected Stock Market Index Performance
For the Period Ended November 17, 2008


	Total Return (%)
	Close		YTD			1 Year			3 Years
SNL Insurance Indexes
SNL Insurance		327.27		(54.62	)		(53.73	)		(49.71	)
SNL Insurance Underwriter		316.02		(56.11	)		(55.21	)		(51.30	)
SNL Insurance Broker		754.90		(17.82	)		(18.02	)		(11.14	)
SNL Sector Indexes
SNL Insurance Multiline		88.59		(85.49	)		(85.23	)		(85.92	)
SNL Insurance L&H		362.85		(63.55	)		(64.31	)		(55.63	)
SNL Insurance P&C		382.34		(29.10	)		(27.25	)		(12.37	)
SNL Reinsurance		430.24		(61.06	)		(59.96	)		(53.75	)
SNL Managed Care		418.83		(65.29	)		(62.90	)		(61.35	)
SNL Title Insurer		536.42		(42.28	)		(41.01	)		(65.82	)
SNL Mortgage & Finl Guaranty		37.20		(82.25	)		(85.07	)		(93.75	)
SNL Asset Size Indexes
SNL Insurance < $250M		356.86		(40.82	)		(43.13	)		(40.46	)
SNL Insurance $250M-$500M		354.76		(34.79	)		(36.38	)		(35.43	)
SNL Insurance $500M-$1B		333.60		(35.71	)		(35.98	)		(29.70	)
SNL Insurance $1B-$2.5B		628.65		(32.18	)		(30.01	)		(18.34	)
SNL Insurance $2.5B-$10B		441.55		(39.14	)		(38.32	)		(39.08	)
SNL Insurance > $10B		302.42		(58.44	)		(57.55	)		(53.68	)
SNL Insurance > $1B		326.93		(56.26	)		(55.35	)		(51.70	)
SNL Insurance < $1B		389.79		(36.27	)		(36.76	)		(31.39	)
SNL Market Cap Indexes
SNL Micro Cap Insurance		172.95		(59.05	)		(61.46	)		(49.59	)
SNL Small Cap Insurance		396.57		(47.69	)		(48.58	)		(36.85	)
SNL Mid Cap Insurance		228.10		(50.40	)		(51.31	)		(53.37	)
SNL Large Cap Insurance		245.38		(57.58	)		(56.42	)		(52.62	)
Broad Market Indexes
S&P 500		1,363.14		(40.89	)		(40.36	)		(27.32	)
SNL All Financial Institutions		557.60		(53.45	)		(54.32	)		(53.11	)
Russell 1000		2,115.48		(41.72	)		(41.18	)		(28.27	)
Russell 2000		1,954.28		(40.36	)		(40.50	)		(29.75	)
Russell 3000		2,087.88		(41.61	)		(41.12	)		(28.38	)

Source: SNL Financial.

Stock market performance is factored into the liquidity of issue discount and stock market volatility is factored into new issue discount. Therefore, we conclude that no adjustment is warranted for the Stock Market Conditions.




		56

PRO FORMA VALUATION APPRAISAL

Dividend Outlook

When reviewing a company from an investment prospective, investors will consider a company’s capital base and its ability to pay future dividends. The payment of dividends on common stock will be subject to determination and declaration by a company’s Board of Directors and generally depends upon its financial condition, operating results, future prospects and regulatory constraints.

Nine of the fourteen companies in the Comparable Group currently pay regular dividends, and approximately 70% of the Public P&C Insurance Group companies pay dividends. The mean of current dividend yields for the Comparable Group and the Public P&C Insurance Group were 3.7% and 2.5%, respectively. Of the six companies in the Comparable Group which completed IPOs since 2005, only two currently pay dividends, Eastern and National Interstate. Companies with new stock issues generally appear to defer dividend payments pending the post-offering determination of alternative deployment strategies and the development of seasoned trading patterns.

Although the Company should have the capacity to make dividend payments following a successful Offering, Company management currently has no intention to pay dividends to shareholders. Further, the PID has historically prohibited converting companies from declaring or paying any dividends during the first three years following their conversions, unless granted explicit PID approval.

In conclusion, although the Company has not established a formal policy or committed to paying dividends at any point following the Offering, we believe that investors will take note of its solid dividend-paying capacity as evidenced by its strong pro forma capitalization. Therefore,




		57

PRO FORMA VALUATION APPRAISAL

Table 13
Comparative Market Valuation Analysis
As of November 17, 2008


								Price /															Current
			Total Market					Tangible			Price / LTM			Price / LTM			Price / Total			Equity /			Dividend
	Closing Price		Value ($000’s)		Price / Book			Book			EPS			Revenue			Assets			Assets			Yield


Penn Millers (Fully Converted)
Pro Forma Valuation Minimum	$	10.00	$	43,350		47.5	%		48.9	%	Neg				0.53	x		16.9	%		35.7	%		0.0	%
Pro Forma Valuation Midpoint		10.00		51,000		51.9	%		53.4	%	Neg				0.62	x		19.4	%		37.4	%		0.0	%
Pro Forma Valuation Maximum		10.00		58,650		55.8	%		57.3	%	Neg				0.71	x		21.7	%		39.0	%		0.0	%

Comparable Group Mean	NA		$	152,925		69.4	%		74.8	%		12.98	x		0.68	x		21.4	%		31.5	%		3.7	%
Comparable Group Median	NA			126,425		67.8	%		70.1	%		7.78	x		0.63	x		22.5	%		31.4	%		2.4	%

Comparable Group
21st Century Holding Company		4.24		33,979		42.6	%		42.6	%		4.04	x		0.31	x		17.1	%		40.2	%		16.6	%
Baldwin & Lyons, Inc.		16.51		247,848		72.1	%		72.1	%		17.02	x		1.10	x		29.6	%		41.0	%		5.5	%
CRM Holdings, Ltd.		1.13		18,607		16.9	%		17.4	%		2.02	x		0.13	x		4.2	%		24.6	%		0.0	%
Donegal Group Inc.		14.35		367,245		103.3	%		103.4	%		11.67	x		1.09	x		41.1	%		39.8	%		2.4	%
Eastern Insurance Holdings, Inc.		7.80		68,459		43.8	%		50.5	%		9.40	x		0.48	x		17.5	%		40.0	%		3.4	%
EMC Insurance Group Inc.		21.84		292,956		96.6	%		96.9	%		64.24	x		0.66	x		26.4	%		27.4	%		3.1	%
First Mercury Financial Corporation		11.22		210,109		81.1	%		108.5	%		4.33	x		1.09	x		23.0	%		28.4	%		0.0	%
Hallmark Financial Services, Inc.		6.11		127,522		67.3	%		104.5	%		5.82	x		0.49	x		23.2	%		34.5	%		0.0	%
Mercer Insurance Group, Inc.		12.25		78,185		58.8	%		61.3	%		7.42	x		0.50	x		13.9	%		23.6	%		2.5	%
National Interstate Corporation		15.20		293,254		143.2	%		143.2	%		14.21	x		1.07	x		29.6	%		20.7	%		1.4	%
National Security Group, Inc.		7.27		17,932		51.1	%		51.1	%	Neg				0.26	x		12.7	%		24.9	%		15.0	%
NYMAGIC, INC.		14.91		125,328		68.4	%		68.4	%	Neg				0.60	x		12.7	%		18.6	%		2.3	%
SeaBright Insurance Holdings, Inc.		10.25		219,033		70.8	%		71.9	%		7.43	x		0.91	x		27.4	%		38.6	%		0.0	%
Unico American Corporation		7.15		40,501		55.6	%		55.6	%		8.13	x		0.79	x		21.9	%		39.4	%		0.0	%

Source: Penn Millers, SNL Financial and Capital IQ.

Investors continue to make decisions to buy or sell P&C insurance company stocks based primarily upon consideration of P/B and P/E, and secondarily upon P/A comparisons. The P/E ratio is an important valuation ratio in the current insurance stock environment. However, Penn Millers’ relatively low returns on equity and assets in recent years and negative profitability during the LTM period render the comparative P/E approach not applicable. Thus, the comparative P/B approach takes on additional meaning as a valuation metric. We also relied upon the P/A ratios to confirm that our Valuation Range was within reason.

Further, in order to provide meaningful pricing ratios for the Company such that accurate comparisons can be made with the Comparable Group pricing data, the Company’s pricing ratios reflect an assumed, full conversion of the Common Stock.



		60

PRO FORMA VALUATION APPRAISAL

As of November 17, 2008, the mean and median P/B ratios for the Comparable Group were 69.4% and 67.8%, respectively. In comparison, the Public P&C Insurance Group mean and median P/B ratios were positioned slightly higher at 91.8% and 81.7%, respectively. In consideration of the foregoing analysis along with the additional adjustments discussed in this chapter and the assumptions summarized in Exhibit VII-1, we have determined a pro forma midpoint value of $51.0 million for the Company on a fully-converted basis, which implies an aggregate midpoint ratio of 51.9%. Applying a range of value of 15% above and below the midpoint, the resulting minimum of $43.35 million implies a P/B ratio of 47.5% and the resulting maximum of $58.65 million implies a P/B ratio of 55.8%.

The Company’s pro forma P/B valuation ratios reflect discounts to the Comparable Group’s mean ratio of 69.4%, measuring 19.6% at the valuation maximum, 25.2% at the valuation midpoint, and 31.6% at the valuation minimum. The Company’s P/B valuation ratios reflect a discount to the Comparable Group’s 67.8% median of 17.8% at the valuation maximum, 23.5% at the valuation midpoint, and 30.1% at the valuation minimum. In our opinion, these levels of discounts are appropriate to reflect the previously discussed adjustments for earnings prospects, the new issue discount, and liquidity of the issue. Penn Millers’ ability to deploy the excess capital profitably and to generate growth and improved returns on equity constitutes a significant operating challenge in the highly competitive P&C insurance marketplace wherein the Company strives to overcome the relative lack of scale, critical mass, and geographic diversification in its fundamental business model.

Based on the price-to-assets (“P/A”) measure, the Company’s midpoint valuation of $51.0 million reflects a P/A ratio of 19.4%, ranging from 16.9% at the minimum to 21.7% at the



		61

EXHIBIT I

STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS

This report is subject to the following general assumptions and limiting conditions.

No investigation has been made of, and no responsibility is assumed for, the legal description of the property being valued or legal matters, including title or encumbrances. Title to the property is assumed to be good and marketable unless otherwise stated. The property is assumed to be free and clear of any liens, easements or encumbrances unless otherwise stated.

Information furnished by others, upon which all or portions of this analysis is based, is believed to be reliable, but has not been verified except as set forth in this report. No warranty is given as to the accuracy of such information.

This report has been made only for the purpose stated and shall not be used for any other purpose.

Except as specified in our engagement letter, neither Curtis nor any individual signing or associated with this report shall be required by reason of this report to give further consultation, provide testimony, or appear in court or other legal proceeding.

No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or conditions which occur subsequent to the date hereof.

The date to which the opinions expressed in this report apply is set forth in the letter of transmittal. Our opinion is based on the purchasing power of the United States dollar as of that date.

It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can readily be obtained or renewed.

Full compliance with all applicable federal, state and local zoning, use, environmental and similar laws and regulations is assumed, unless otherwise stated.

Competent management is assumed.

10.

The opinion is predicated on the financial structure prevailing as of the date of this report.

Exhibit III

Overview of Curtis

With offices in Philadelphia and Pittsburgh, PA, Curtis Financial Group, LLC (“Curtis”) is a leading investment banking and corporate finance advisory firm serving middle-market clients since 1994. Our expertise and experience with financial services industry clients is reflected in our consistently high national rankings by SNL Financial LC. The Curtis team offers clients the benefit of more than 125 years of collective experience, having served: public and private middle-market companies operating in a diverse group of industries in the United States and globally; and entrepreneurs, families, corporations, private equity and venture capital investors. All securities are sold through Curtis Securities, LLC, a FINRA (www.finra.org) registered broker-dealer.

Background of Appraisers

Anthony A. Latini, Jr., CFA
Managing Director

Mr. Latini has over 20 years of experience providing corporate finance and investment banking services to middle market and large corporate clients. Mr. Latini focuses on merger and acquisition advisory services and capital raising for clients in a wide variety of industries including manufacturing, distribution, and financial services. Prior to joining Curtis, Mr. Latini was a Director in the Financial Services Group at Berwind Financial L.P. and has also held positions at Evans & Company, Inc., and CoreStates Financial Corporation. Mr. Latini received his B.S. from the Wharton School at the University of Pennsylvania and is a Chartered Financial Analyst (CFA).

Paul M. Yeakel, Jr.
Vice President

Mr. Yeakel has more than eight years of investment banking and real estate financing experience, having successfully completed projects in industries including telecommunications, flat panel displays, accounts receivable management, healthcare, software, energy and real estate. Prior to joining Curtis Financial Group, Mr. Yeakel co-founded Lighthouse Development Partners, LLC, a real estate development firm, and spent four years working in a corporate development role for CD Ventures and Gatehouse Ventures, both private investment firms located in Berwyn, PA. Additionally, Mr. Yeakel worked for Corning Incorporated as an internal corporate strategy consultant. Mr. Yeakel graduated from Carnegie Mellon’s Graduate School of Industrial Administration with a M.B.A. and earned a B.A. in English from The College of Wooster.

Laura E. Anastasio
Senior Associate

Ms. Anastasio joined Curtis Financial Group in 2005 after two years with Ernst & Young, LLP. As part of the Transaction Advisory Services Group, Ms. Anastasio completed valuation assignments involving both businesses and sale leaseback transactions. She has experience working in a variety of industries ranging from consumer products to computer technology. Ms. Anastasio holds a B.S. in Industrial Engineering from Lehigh University. She is also a member of the American Society of Appraisers.

Exhibit IV-1
Penn Millers Holding Corporation
Historical Balance Sheets — GAAP Basis
(Dollars in Thousands)


	9/30/2008			12/31/2007			12/31/2006			12/31/2005			12/31/2004			12/31/2003
ASSETS

Investments:
Fixed securities		107,330			112,769			99,906			94,549			92,752			87,123
Equity securities		15,913			13,409			13,697			12,328			12,819			11,266

Total investments		123,243			126,178			113,603			106,877			105,571			98,389

Cash and cash equivalents (cash overdraft)		8,389			10,118			13,036			10,004			11,415			14,382
Premiums and fees receivable		33,302			32,489			30,465			26,910			29,256			24,056
Reinsurance receivables		20,223			15,640			18,886			22,923			18,053			22,222
Deferred acquisition costs		11,278			11,014			10,381			9,646			10,352			9,243
Prepaid reinsurance premiums		4,355			4,234			4,119			3,645			3,731			3,209
Accrued investment income		1,287			1,499			1,439			1,302			1,225			1,236
PP&E, less accumulated depreciation		4,212			4,401			4,228			4,255			5,020			5,583
Income taxes receivable		770			1,056			—			1,081			10			—
Deferred income taxes		4,317			1,872			1,439			1,325			—			—
Other		4,206			3,972			2,812			2,557			2,144			1,845
Assets from discontinued operations		4,001			7,311			7,531			7,729			5,257			5,285

Total assets		219,583			219,784			207,939			198,254			192,034			185,450


LIABILITIES AND SURPLUS

Loss and loss adjustment expense reserves		103,278			95,956			89,405			83,849			73,287			69,463
Unearned premiums		47,753			46,595			43,294			39,984			42,798			38,090
Accounts due reinsurers		—			—			—			—			2,597			4,973
Accounts payable and accrued expenses		11,471			12,874			10,394			9,646			8,015			7,223
Deferred income taxes payable		—			—			—			—			693			1,311
Income taxes payable		—			—			256			—			—			108
Long-term debt		1,510			1,745			2,307			1,844			2,008			2,185
Liabilities from discontinued operations		729			1,042			1,582			4,991			2,743			2,821


Total liabilities		164,741			158,212			147,238			140,314			132,141			126,174

Unassigned surplus		56,856			59,464			58,378			56,298			55,824			54,440
Accumulated other comprehensive income, net		(2,014	)		2,108			2,323			1,642			4,069			4,836


Total surplus		54,842			61,572			60,701			57,940			59,893			59,276


Total liabilities and surplus		219,583			219,784			207,939			198,254			192,034			185,450


Performance and Capital Ratios
Return on average assets		-0.46	%		0.68	%		0.94	%		0.12	%		0.64	%		1.00	%
Return on average surplus		-1.72	%		2.37	%		3.22	%		0.41	%		2.03	%		3.12	%
Surplus to total assets		24.98	%		28.01	%		29.19	%		29.23	%		31.19	%		31.96	%

Notes:


(a)		Return on average assets and return on average equity as of 9/30/2008; asset and equity values are derived as the average of 9/30/2007 and 9/30/2008.

Source: Audited financial reports prepared by KPMG and interim financial statements prepared by the Company.

Exhibit IV-2
Penn Millers Holding Corporation
Historical Income Statements — GAAP Basis
(Dollars in Thousands)


	LTM (a)			2007			2006			2005			2004			2003
REVENUE

Premiums earned	$	76,799		$	70,970		$	64,645		$	64,723		$	63,090		$	56,065
Investment income, net of investment expense		5,464			5,324			4,677			4,444			4,278			4,058
Realized investment (losses) gains, net		(2,384	)		(702	)		349			424			936			833
Other revenue		452			508			345			277			301			371


Total revenue		80,331			76,100			70,016			69,868			68,605			61,327

LOSSES AND EXPENSES

Losses and loss adjustment expenses		56,511			49,783			43,766			40,242			42,910			35,822
Underwriting and administrative expenses		24,890			24,163			23,296			29,221			24,359			22,911
Interest expense		141			125			222			195			51			56
Other expenses, net		265			184			314			266			82			101


Total losses and expenses		81,807			74,255			67,598			69,924			67,402			58,890

Income from continuing operations		(1,476	)		1,845			2,418			(56	)		1,203			2,437


Income taxes expense (benefit)		(465	)		396			506			(296	)		(4	)		587


Net income (loss) from continuing operations		(1,011	)		1,449			1,912			240			1,207			1,850


Discontinued Operations:
Pre-tax (loss) income on discontinued ops		(3,441	)		(489	)		292			385			240			340
Income tax (benefit) expense		(332	)		(126	)		124			151			63			143

(Loss) income on discontinued ops		(3,109	)		(363	)		168			234			177			197

Net income		(4,120	)		1,086			2,080			474			1,384			2,047


Operating Ratios
Loss ratio (b)		73.6	%		70.1	%		67.7	%		62.2	%		68.0	%		63.9	%
Expense ratio (c)		32.4	%		34.0	%		36.0	%		45.1	%		38.6	%		40.9	%
Combined ratio (d)		106.0	%		104.2	%		103.7	%		107.3	%		106.6	%		104.8	%

Notes:


(a)		LTM = Last twelve month period ended September 30, 2008.

(b)		Losses and loss adjustment expenses divided by premiums earned.

(c)		Underwriting expenses divided by premiums earned.

(d)		Sum of the loss ratio and the expense ratio.

Source: Penn Millers’ GAAP financial statements. Statutory financials provided in Exhibit V.

Exhibit V-1
Penn Millers Holding Corporation
Historical Balance Sheets — Statutory Basis (a)
(Dollars in Thousands)


	9/30/2008			12/31/2007			12/31/2006			12/31/2005			12/31/2004			12/31/2003
ASSETS
Investments:
Bonds		108,939			110,972			99,628			93,879			89,641			82,441
Stocks		15,914			13,411			13,697			12,329			12,819			11,267
Real estate		2,739			2,788			2,909			1,199			1,204			1,076
Receivables for securities					91			—			—			—			—

Total investments		127,592			127,262			116,234			107,407			103,664			94,784

Cash and cash equivalents (cash overdraft)		8,313			10,034			12,911			9,459			10,996			14,365
Premiums and considerations		33,184			32,416			30,396			26,730			29,076			23,919
Reinsurance receivables		1,963			917			1,120			1,114			838			1,036
Accrued investment income		1,287			1,499			1,439			1,302			1,225			1,236
Other receivables		1,723			1,723			1,524			1,682			1,490			926
PP&E		722			857			508			152			194			295
Income taxes receivable		876			646			—			10			13			—
Deferred income taxes		5,238			4,893			4,242			4,071			3,820			3,747
Receivable from parent		601			557			219			361			204			250
Aggregate write-ins for other than invested assets		3,041			3,011			1,960			1,761			981			517

Total assets		184,540			183,815			170,553			154,049			152,501			141,075


LIABILITIES AND SURPLUS
Loss and loss adjustment expense reserves		84,382			77,222			69,317			61,033			55,805			48,072
Unearned premiums		43,466			42,499			39,221			36,348			39,102			35,122
Accounts due reinsurers and provisions		15			22			276			227			100			287
Commissions payable, contingent commissions		2,568			2,515			2,581			2,292			2,867			2,154
Other expenses		6,664			6,532			6,110			6,124			5,480			5,361
Ceded reinsurance premiums payable		—			3,686			1,275			614			2,482			2,782
Funds held by company under reinsurance treaties		1,675			—			677			73			114			2,191
Amounts withheld or retained by company		26			47			67			78			68			130
Payable for securities		—			414			472			—			—			—
Aggregate write ins for liabilities		—			—			—			—			811			273
Payable to parent		94			83			32			44			227			371


Total liabilities		138,890			133,020			120,028			106,833			107,056			96,743

Aggregate write-ins for special surplus funds		2,250			2,250			2,250			2,250			2,250			2,250
Common capital stock		5,000			5,000			5,000			5,000			5,000			5,000
Gross paid in and contributed surplus		5,000			5,000			5,000			5,000			5,000			5,000
Unassigned surplus		33,400			38,545			38,275			34,966			33,195			32,082


Total surplus		45,650			50,795			50,525			47,216			45,445			44,332


Total liabilities and surplus		184,540			183,815			170,553			154,049			152,501			141,075


Performance and Capital Ratios
Return on assets		-0.53	%		0.82	%		1.18	%		0.16	%		0.82	%		1.31	%
Return on surplus		-2.03	%		2.86	%		3.91	%		0.52	%		2.69	%		4.17	%
Surplus to total assets		24.74	%		27.63	%		29.62	%		30.65	%		29.80	%		31.42	%

Notes:


(a)		Statutory financials do not include the effects of discontinued operations.

Source: Statutory prepared financial statements.

Exhibit V-2
Penn Millers Holding Corporation
Historical Income Statements — Statutory Basis (e)
(Dollars in Thousands)


	LTM (a)			2007			2006			2005			2004			2003
REVENUE

Premiums earned	$	77,168		$	70,970		$	64,645		$	64,723		$	63,090		$	56,065
Investment income, net of investment expense		5,243			5,104			4,370			4,131			4,052			4,097
Realized investment (losses) gains, net		(1,554	)		(431	)		232			262			937			833


Total revenue		80,857			75,643			69,247			69,116			68,079			60,995

LOSSES AND EXPENSES

Losses and loss adjustment expenses		58,345			49,774			43,770			40,242			42,910			35,822
Underwriting and administrative expenses		24,289			24,059			23,525			24,427			24,407			23,407
Other expenses, net		(148	)		(318	)		(31	)		(114	)		(219	)		(212	)


Total losses and expenses		82,486			73,515			67,264			64,555			67,098			59,017

Income from continuing operations		(1,629	)		2,128			1,983			4,561			981			1,978


Income taxes expense (benefit)		1,146			1,250			609			1,390			347			1,369


Net income (loss)		(2,775	)		878			1,374			3,171			634			609


Operating Ratios
Loss ratio (b)		75.6	%		70.1	%		67.7	%		62.2	%		68.0	%		63.9	%
Expense ratio (c)		31.5	%		33.9	%		36.4	%		37.7	%		38.7	%		41.7	%
Combined ratio (d)		107.1	%		104.0	%		104.1	%		99.9	%		106.7	%		105.6	%

Notes:


(a)		LTM = Last twelve month period ended September 30, 2008.

(b)		Losses and loss adjustment expenses divided by net premiums earned.

(c)		Underwriting expenses divided by net premiums earned.

(d)		Sum of the loss ratio and the expense ratio.

(e)		Statutory financials do not include the effects of discontinued operations.

Source: Statutory prepared financial statements.

Exhibit VI-1
Penn Millers Holding Corporation
Financial Performance Data for Publicly Traded Property and Casualty Companies


												Cash and		Cash and		Policy				Tangible		Net Prem				GAAP		GAAP
		Total Assets		Total Policy		Total Equity		Tangible Equity		Total Policy		Investments		Investments /		Reserves /		Total Equity		Equity /		Writ/ Avg		GAAP Loss		Expense		Combined
Company Name	Ticker	($000)		Reserves ($000)		($000)		($000)		Revenue ($000)		($000)		Assets		Equity		/ Assets		Assets		Equity (x)		Ratio (%)		Ratio (%)		Ratio (%)		ROAA (%)		ROAE (%)


21st Century Holding Company	TCHC		198,435		105,484		79,724		79,724		75,170		157,691		0.79		1.32		0.40		0.40		0.76		60.13	NA		NA			3.91		10.21
ACE Limited	ACE		75,155,000		48,097,000		15,356,000		11,539,000		13,034,000		43,157,000		0.57		3.13		0.20		0.15		0.79		61.50		28.90		90.40		2.35		10.69
Affirmative Insurance Holdings, Inc.	AFFM		806,478		330,584		209,388		29,109		372,068		358,348		0.44		1.58		0.26		0.04		1.58		76.90		21.20		98.10		0.21		0.83
Alleghany Corporation	Y		7,195,992		3,317,238		2,689,481		2,488,075		1,075,775		4,259,264		0.59		1.23		0.37		0.35		0.37		66.50		29.50		96.00		2.58		6.38
Allied World Assurance Company Holdings, Ltd	AWH		8,102,251		5,078,972		2,272,828		2,252,991		1,100,519		6,464,396		0.80		2.23		0.28		0.28		0.47		61.10		26.00		87.10		3.46		12.57
Allstate Corporation	ALL		143,574,000		102,686,000		16,938,000		16,058,000		28,956,000		105,338,000		0.73		6.06		0.12		0.11		1.32		75.98		24.41		100.39		0.14		1.04
American Financial Group, Inc.	AFG		26,924,600		20,739,900		2,776,600		2,484,500		3,210,300		17,553,900		0.65		7.47		0.10		0.09		0.97		56.40		31.30		87.70		0.95		8.35
American Physicians Capital, Inc.	ACAP		1,042,954		713,569		268,124		268,124		127,043		846,398		0.81		2.66		0.26		0.26		0.45		53.90		21.40		75.30		4.40		17.52
American Physicians Service Group, Inc.	AMPH		284,817		133,254		133,284		132,020		65,619		229,612		0.81		1.00		0.47		0.46		0.52		23.81		17.03		40.84		8.04		18.06
American Safety Insurance Holdings, Ltd.	ASI		991,517		680,633		210,916		201,221		162,336		644,927		0.65		3.23		0.21		0.20		0.75		60.60		41.90		102.50		1.62		6.72
AMERISAFE, Inc.	AMSF		1,116,726		736,464		241,957		241,957		292,009		788,522		0.71		3.04		0.22		0.22		1.31		63.90		20.10		84.00		5.21		25.98
AmTrust Financial Services, Inc.	AFSI		3,158,328		1,740,721		387,800		285,649		419,027		1,424,606		0.45		4.49		0.12		0.09		1.30		54.40		18.70		73.10		3.05		20.39
Arch Capital Group Ltd.	ACGL		16,093,048		9,223,398		3,516,710		3,500,044		2,859,156		11,112,290		0.69		2.62		0.22		0.22		0.71		63.20		29.70		92.90		4.17		17.11
Argo Group International Holdings, Ltd.	AGII		6,470,100		3,910,800		1,349,600		1,104,800		1,027,000		4,060,200		0.63		2.90		0.21		0.17		0.79		65.30		35.80		101.10		1.35		5.37
Aspen Insurance Holdings Limited	AHL		7,306,300		4,022,700		2,637,600		2,629,400		1,646,800		5,891,700		0.81		1.53		0.36		0.36		0.61		66.10		30.40		96.50		2.94		7.70
AXIS Capital Holdings Limited	AXS		15,175,454		8,872,826		4,601,190		4,540,464		2,698,215		10,634,754		0.70		1.93		0.30		0.30		0.53		70.92		26.17		97.09		3.70		10.94
Baldwin & Lyons, Inc.	BWINB		838,653		420,044		343,851		343,851		181,040		607,346		0.72		1.22		0.41		0.41	NA			63.70		31.90		95.60		1.78		4.03
Berkshire Hathaway Inc.	BRK.A		281,729,000		72,575,000		120,155,000		86,624,000		25,204,000		143,670,000		0.51		0.60		0.43		0.31	NA			73.60		21.28		94.88		2.82		6.55
CastlePoint Holdings, Ltd.	CPHL		1,109,902		467,201		384,674		384,674		405,712		783,215		0.71		1.21		0.35		0.35		1.15		55.80		41.70		97.50		1.10		2.73
Chubb Corporation	CB		49,555,000		29,807,000		13,604,000		13,137,000		11,945,000		39,694,000		0.80		2.19		0.27		0.27		0.84		59.81		32.56		92.37		4.00		14.40
Cincinnati Financial Corporation	CINF		14,303,000		7,302,000		4,687,000		4,687,000		3,164,058		10,507,000		0.73		1.56		0.33		0.33		0.59		69.80		31.30		101.10		2.87		8.38
CNA Surety Corporation	SUR		1,513,792		696,112		722,231		583,446		424,713		1,058,558		0.70		0.96		0.48		0.39		0.62		19.40		54.50		73.90		6.76		15.06
CRM Holdings, Ltd.	CRMH		447,604		240,692		109,906		106,636		129,622		348,626		0.78		2.19		0.25		0.24		1.16		62.45		32.03		94.48		2.32		8.32
Donegal Group Inc.	DGICA		894,071		482,028		355,657		355,207		335,697		630,611		0.71		1.36		0.40		0.40		1.01		62.90		33.00		95.90		3.67		8.93
Eastern Insurance Holdings, Inc.	EIHI		390,597		198,886		156,138		135,662		133,632		276,765		0.71		1.27		0.40		0.35		0.79		63.33		37.41		100.74		2.24		5.15
EMC Insurance Group Inc.	EMCI		1,108,380		751,816		303,403		302,461		390,245		957,203		0.86		2.48		0.27		0.27		1.13		77.10		32.20		109.30		0.41		1.40
Employers Holdings, Inc.	EIG		3,265,141		2,271,610		394,608		394,608		307,290		1,961,837		0.60		5.76		0.12		0.12		0.77		36.05		43.56		79.61		3.70		30.53
Endurance Specialty Holdings Ltd.	ENH		7,869,212		4,480,226		2,268,717		2,066,035		1,735,219		5,388,466		0.68		1.97		0.29		0.26		0.73		68.20		28.50		96.70		3.06		9.41
Enstar Group Limited	ESGR		3,661,471		2,365,191		543,380		522,158		0		2,922,675		0.80		4.35		0.15		0.14		0.00	NA		NA		NA			0.65		4.56
Erie Indemnity Company	ERIE		2,734,926		1,441,434		933,783		933,783		207,293		1,113,730		0.41		1.54		0.34		0.34	NA			67.30		27.80		95.10		3.81		10.79
Everest Re Group, Ltd.	RE		17,370,387		10,732,045		5,036,576		5,036,576		3,782,321		14,119,579		0.81		2.13		0.29		0.29		0.65		70.50		29.10		99.60		0.06		0.18
Fairfax Financial Holdings Limited	FFH		27,859,600		17,499,000		4,722,600		4,661,200		4,584,000		20,516,900		0.74		3.71		0.17		0.17		0.99		78.04		29.36		107.40		6.11		37.65
First Acceptance Corporation	FAC		456,357		168,905		224,333		79,891		272,949		218,141		0.48		0.75		0.49		0.18		1.16		70.70		21.40		92.10		-3.76		-7.70
First Mercury Financial Corporation	FMR		912,238		497,959		259,052		193,645		178,706		556,817		0.61		1.92		0.28		0.21		0.83		55.10		26.90		82.00		5.94		19.99
Flagstone Reinsurance Holdings Limited	FSR		2,415,216		743,248		1,084,419		1,070,576		590,935		1,864,920		0.77		0.69		0.45		0.44		0.55		63.50		31.30		94.80		-2.67		-4.98
FPIC Insurance Group, Inc.	FPIC		1,024,626		670,383		271,784		260,951		178,612		732,978		0.72		2.47		0.27		0.25		0.57		57.80		22.00		79.80		4.02		14.75
GAINSCO, INC.	GAN		239,044		123,541		56,281		55,672		175,417		170,379		0.71		2.20		0.24		0.23		2.69		73.40		25.50		98.90		-5.75		-21.95
Greenlight Capital Re, Ltd.	GLRE		1,116,700		168,492		518,259		518,259		102,213		1,012,307		0.91		0.33		0.46		0.46		0.21		44.90		52.60		97.50		-5.34		-10.11
Hallmark Financial Services, Inc.	HALL		549,680		260,581		189,506		122,085		236,207		368,641		0.67		1.38		0.34		0.22		1.26		62.10		28.90		91.00		4.01		11.91
Hanover Insurance Group, Inc.	THG		9,254,800		4,328,400		2,040,100		1,908,200		2,477,700		4,767,500		0.52		2.12		0.22		0.21		1.11		66.70		33.00		99.70		0.65		2.78
Harleysville Group Inc.	HGIC		3,121,355		2,283,143		654,916		631,516		899,351		2,428,913		0.78		3.49		0.21		0.20		1.28		67.50		34.00		101.50		1.98		8.58
HCC Insurance Holdings, Inc.	HCC		8,449,482		4,554,903		2,547,457		1,712,717		2,005,306		5,040,885		0.60		1.79		0.30		0.20		0.82		61.20		24.10		85.30		4.04		13.34
Hilltop Holdings Inc.	HTH		1,150,233		202,804		787,566		749,109		110,359		912,751		0.79		0.26		0.68		0.65		0.15		79.70		36.40		116.10		-1.31		-1.76
Horace Mann Educators Corporation	HMN		5,787,444		3,685,958		461,830		414,434		655,983		3,931,025		0.68		7.98		0.08		0.07		1.54		79.60		23.70		103.30		0.10		0.96
Infinity Property and Casualty Corporation	IPCC		1,847,536		988,198		555,722		480,447		949,796		1,244,018		0.67		1.78		0.30		0.26		1.54		71.52		22.96		94.48		2.56		8.26
IPC Holdings, Ltd.	IPCR		2,502,882		510,042		1,818,142		1,818,142		378,461		2,314,122		0.92		0.28		0.73		0.73		0.18		33.80		16.30		50.10		8.04		10.40
Kingsway Financial Services Inc.	KFS		3,891,296		2,637,076		772,175		660,746		1,694,479		2,812,130		0.72		3.42		0.20		0.17		1.74		78.40		33.90		112.30		-3.32		-16.56
Markel Corporation	MKL		9,931,115		6,727,238		2,312,681		1,968,055		2,039,389		7,225,895		0.73		2.91		0.23		0.20		0.78		67.69		36.32		104.01		0.67		2.65
Meadowbrook Insurance Group, Inc.	MIG		1,806,928		1,172,948		422,585		265,379		315,761		1,054,837		0.58		2.78		0.23		0.15		1.03		63.20		30.80		94.00		2.24		8.44
Mercer Insurance Group, Inc.	MIGP		564,442		385,262		132,953		127,537		155,898		367,966		0.65		2.90		0.24		0.23		1.14		61.90		36.10		98.00		1.90		7.81
Mercury General Corporation	MCY		4,150,250		1,967,382		1,694,772		1,694,772		2,863,976		3,251,684		0.78		1.16		0.41		0.41		1.53		69.70		28.40		98.10		-0.67		-1.59
Montpelier Re Holdings Ltd.	MRH		3,097,800		1,209,200		1,413,500		1,413,500		540,700		2,554,800		0.82		0.86		0.46		0.46		0.34		66.50		34.00		100.50		-0.22		-0.46

Exhibit VI-1 (Continued)
Penn Millers Holding Corporation
Financial Performance Data for Publicly Traded Property and Casualty Companies


												Cash and		Cash and		Policy				Tangible		Net Prem				GAAP		GAAP
		Total Assets		Total Policy		Total Equity		Tangible Equity		Total Policy		Investments		Investments /		Reserves /		Total Equity		Equity /		Writ/ Avg		GAAP Loss		Expense		Combined
Company Name	Ticker	($000)		Reserves ($000)		($000)		($000)		Revenue ($000)		($000)		Assets		Equity		/ Assets		Assets		Equity (x)		Ratio (%)		Ratio (%)		Ratio (%)		ROAA (%)		ROAE (%)


National Interstate Corporation	NATL		990,475		574,292		204,817		204,817		282,340		544,148		0.55		2.80		0.21		0.21		1.40		67.20		25.30		92.50		2.15		9.78
National Security Group, Inc.	NSEC		140,762		88,526		35,106		35,106		58,149		100,130		0.71		2.52		0.25		0.25	NA			100.77		46.41		147.18		-3.37		-10.16
Navigators Group, Inc.	NAVG		3,340,584		2,344,546		655,561		648,048		633,759		1,896,190		0.57		3.58		0.20		0.19		0.99		62.10		33.60		95.70		2.13		10.27
NYMAGIC, INC.	NYM		986,563		654,790		183,231		183,231		173,776		555,359		0.56		3.57		0.19		0.19		0.67		70.80		44.80		115.60		-8.75		-36.82
Odyssey Re Holdings Corp.	ORH		9,837,155		6,116,503		2,608,287		2,608,287		2,091,266		8,001,704		0.81		2.35		0.27		0.27		0.78		75.10		28.50		103.60		7.10		25.73
Old Republic International Corporation	ORI		13,203,800		8,385,600		3,914,300		3,914,300		3,414,200		8,626,100		0.65		2.14		0.30		0.30	NA			80.10		39.00		119.10		-3.12		-9.56
OneBeacon Insurance Group, Ltd.	OB		8,412,400		5,516,400		1,373,400		1,373,400		1,856,400		4,235,500		0.50		4.02		0.16		0.16		1.13		63.20		34.90		98.10		-1.82		-9.77
PartnerRe Ltd.	PRE		16,324,115		10,566,163		4,084,686		3,655,167		3,933,509		11,535,367		0.71		2.59		0.25		0.22		0.91		61.40		30.00		91.40		0.79		3.04
Platinum Underwriters Holdings, Ltd.	PTP		4,905,373		2,722,164		1,772,392		1,772,392		1,142,570		4,258,693		0.87		1.54		0.36		0.36		0.54		62.40		27.70		90.10		5.24		13.59
PMA Capital Corporation	PMACA		2,599,167		1,499,521		357,994		327,476		380,107		802,598		0.31		4.19		0.14		0.13		1.02		69.86		42.93		112.79		-1.07		-7.28
ProAssurance Corporation	PRA		4,340,362		2,691,592		1,332,915		1,260,702		477,959		3,528,591		0.81		2.02		0.31		0.29		0.35		60.80		21.70		82.50		3.46		12.10
Progressive Corporation	PGR		18,639,600		10,645,500		4,260,600		4,260,600		13,630,000		12,741,300		0.68		2.50		0.23		0.23		2.82		73.10		21.30		94.40		0.04		0.14
RenaissanceRe Holdings Ltd.	RNR		8,589,239		3,191,044		3,041,241		2,969,299		1,401,069		6,530,788		0.76		1.05		0.35		0.35		0.39		68.70		23.30		92.00		1.74		4.33
RLI Corp.	RLI		2,507,527		1,534,932		718,858		692,644		534,012		1,799,593		0.72		2.14		0.29		0.28		0.67		47.60		37.60		85.20		3.93		13.59
Safety Insurance Group, Inc.	SAFT		1,462,269		786,080		594,631		594,631		588,077		1,054,161		0.72		1.32		0.41		0.41		0.98		62.60		30.10		92.70		5.17		12.99
SeaBright Insurance Holdings, Inc.	SBX		800,691		426,401		309,355		304,744		245,980		529,407		0.66		1.38		0.39		0.38		0.88		55.80		27.90		83.70		3.76		9.64
Selective Insurance Group, Inc.	SIGI		5,041,495		3,550,995		977,764		944,127		1,511,554		3,631,842		0.72		3.63		0.19		0.19		1.45		67.50		33.40		100.90		1.88		9.10
Specialty Underwriters’ Alliance, Inc.	SUAI		438,517		285,757		132,261		121,516		146,689		254,602		0.58		2.16		0.30		0.28		1.09		60.10		39.27		99.37		2.41		7.71
State Auto Financial Corporation	STFC		2,442,200		1,365,900		787,800		785,800		1,095,300		2,074,100		0.85		1.73		0.32		0.32		1.33		81.10		33.40		114.50		0.47		1.28
Tower Group, Inc.	TWGP		1,410,766		831,493		318,187		278,460		305,357		693,375		0.49		2.61		0.23		0.20		1.09		52.10		30.30		82.40		3.53		15.45
Transatlantic Holdings, Inc.	TRH		14,640,799		9,680,300		3,024,376		3,024,376		4,096,446		11,571,764		0.79		3.20		0.21		0.21		1.24		71.90		26.80		98.70		1.37		6.33
Travelers Companies, Inc.	TRV		112,695,000		75,281,000		24,721,000		20,639,000		21,577,000		71,586,000		0.64		3.05		0.22		0.18		0.83		60.90		33.10		94.00		2.79		12.20
Unico American Corporation	UNAM		184,713		103,020		72,859		72,859		34,609		149,888		0.81		1.41		0.39		0.39	NA			65.80		24.00		89.80		2.61		7.01
United America Indemnity, Ltd.	INDM		2,610,995		1,696,441		734,615		628,605		431,093		1,637,366		0.63		2.31		0.28		0.24		0.43		78.00		36.10		114.10		0.19		0.65
United Fire & Casualty Company	UFCS		2,711,576		1,957,081		684,192		725,845		504,452		2,248,825		0.83		2.86		0.25		0.27		0.68		80.50		29.60		110.10		1.02		3.82
Universal Insurance Holdings, Inc.	UVE		580,114		345,956		100,830		100,830		144,795		281,944		0.49		3.43		0.17		0.17		1.76		49.30	NA		NA			7.75		50.68
Validus Holdings, Ltd.	VR		4,509,596		1,966,148		1,916,611		1,767,960		1,258,519		3,256,116		0.72		1.03		0.43		0.39		0.63		61.70		31.40		93.10		3.53		7.92
W.R. Berkley Corporation	WRB		16,417,710		11,209,514		3,049,441		2,942,850		4,415,825		12,222,201		0.74		3.68		0.19		0.18		1.24		63.20		30.00		93.20		2.55		12.52
Wesco Financial Corporation	WSC		3,422,035		299,706		2,629,318		2,360,984		174,358		2,609,534		0.76		0.11		0.77		0.69		0.11		73.69		30.29		103.98		2.93		3.72
White Mountains Insurance Group, Ltd.	WTM		17,764,400		9,680,400		4,061,900		4,035,300		3,735,200		11,162,800		0.63		2.38		0.23		0.23		0.81		70.66		33.04		103.70		-1.27		-5.25
Zenith National Insurance Corp.	ZNT		2,596,093		1,365,908		1,044,555		1,023,570		639,855		2,035,296		0.78		1.31		0.40		0.39		0.57		41.90		40.50		82.40		4.64		11.70

Group Aggregate
Overall P&C Insurance Group Mean			12,952,557		6,900,833		3,570,022		2,994,120		2,382,980		8,342,941		0.69		2.37		0.30		0.27		0.92		64.19		30.92		95.34		1.93		6.98
Overall P&C Insurance Group Median			3,097,800		1,696,441		772,175		725,845		540,700		2,074,100		0.71		2.19		0.27		0.25		0.83		63.80		30.30		95.80		2.32		7.92

P&C Group Mean > $1.2 Bil. Total Assets			18,851,731		10,045,569		5,179,225		4,335,733		3,439,650		12,126,418		0.69		2.59		0.28		0.27		0.88		64.79		30.66		95.45		2.13		7.47
P&C Group Median > $1.2 Bil. Total Assets			6,128,772		3,434,117		1,867,377		1,770,176		1,329,794		4,147,850		0.72		2.27		0.27		0.25		0.79		66.50		30.29		95.70		2.45		8.31

P&C Group Mean < $1.2 Bil. Total Assets			717,233		378,419		232,415		211,515		191,366		495,730		0.69		1.93		0.33		0.29		1.02		62.96		31.49		95.11		1.53		5.95
P&C Group Median < $1.2 Bil. Total Assets			806,478		345,956		209,388		183,231		173,776		529,407		0.71		1.92		0.28		0.25		1.05		62.45		31.90		95.90		2.24		7.71

P&C Group Mean > $500 m Total Revenue			14,490,289		7,720,555		3,990,702		3,347,201		2,658,047		9,331,869		0.69		2.46		0.29		0.27		0.90		64.15		30.98		95.33		2.05		7.60
P&C Group Mean > $500 m Total Revenue			3,381,310		2,119,496		1,011,160		983,849		647,919		2,582,167		0.71		2.27		0.27		0.25		0.83		63.90		30.30		95.80		2.30		8.31

P&C Group Mean < $500 m Total Revenue			308,983		160,896		111,099		91,010		121,317		211,759		0.71		1.65		0.35		0.31		1.17		64.50		30.38		95.43		0.96		1.85
P&C Group Median < $500 m Total Revenue			284,817		133,254		109,906		79,891		129,622		218,141		0.71		1.41		0.39		0.28		1.09		63.33		28.77		96.69		2.32		7.01

Source: SNL Financial.

Exhibit VI-2
Penn Millers Holding Corporation
Market Valuation Data for Publicly Traded Property and Casualty Companies


												(a)		(a)
				Total Diluted
				Shares						Price /		Price /								Current		One-Year
				Outstand.		Total Market		Price / Book		Tangible		Operating		Price / LTM		Price / LTM		Price / Total		Dividend		Price Change
Company Name	Ticker	Closing price		(000’S)		value (000’s)		(%)		Book (%)		EPS (x)		EPS (x)		Revenue (x)		Assets (%)		Yield (%)		(%)


21st Century Holding Company	TCHC		4.24		8,014		33,979		42.62		42.62		2.51		4.04		0.42		17.12		16.63		(67.43	)
ACE Limited	ACE		51.21		333,047		17,055,357		111.07		111.07		6.41		9.94		1.21		22.69		2.11		(11.14	)
Affirmative Insurance Holdings, Inc.	AFFM		1.30		15,415		20,040		9.57		9.57		10.83		10.83		0.04		2.48		6.84		(88.07	)
Alleghany Corporation	Y		228.50		8,314		1,899,639		70.63		70.63		14.84		12.47		1.47		26.40		—		(39.99	)
Allied World Assurance Company Holdings, Ltd	AWH		31.83		49,007		1,559,905		68.63		68.63		3.61		6.16		1.24		19.25		2.11		(31.01	)
Allstate Corporation	ALL		25.14		540,100		13,578,114		80.16		80.16		7.00		78.56		0.43		9.46		6.92		(50.90	)
American Financial Group, Inc.	AFG		20.31		116,900		2,374,239		85.51		85.51		4.87		9.67		0.56		8.82		2.66		(30.09	)
American Physicians Capital, Inc.	ACAP		37.90		9,864		373,846		139.43		139.43		8.01		8.31		2.27		35.84		1.13		(5.60	)
American Physicians Service Group, Inc.	AMPH		19.73		7,244		142,924		107.23		107.23		6.34		6.34		1.78		50.18		1.48		5.51
American Safety Insurance Holdings, Ltd.	ASI		9.00		10,327		92,940		44.06		44.06		6.57		6.57		0.50		9.37		—		(54.93	)
AMERISAFE, Inc.	AMSF		15.01		19,207		288,304		119.16		119.16		4.92		5.38		0.90		25.82		—		(2.47	)
AmTrust Financial Services, Inc.	AFSI		8.43		60,816		512,679		132.20		132.20		6.34		6.34		0.93		16.23		2.23		(29.57	)
Arch Capital Group Ltd.	ACGL		64.88		62,831		4,076,469		115.92		115.92		6.06		6.88		1.24		25.33		—		(4.19	)
Argo Group International Holdings, Ltd.	AGII		30.66		30,590		937,894		69.49		69.49		10.05		12.67		0.80		14.50		—		(23.45	)
Aspen Insurance Holdings Limited	AHL		19.54		81,376		1,590,086		60.29		60.29		5.91		9.53		0.89		21.76		3.31		(29.89	)
AXIS Capital Holdings Limited	AXS		24.45		139,335		3,406,741		74.04		74.04		5.99		8.02		1.12		22.45		3.13		(33.25	)
Baldwin & Lyons, Inc.	BWINB		16.51		15,012		247,848		72.08		72.08		12.34		17.02		1.27		29.55		5.51		(38.83	)
Berkshire Hathaway Inc.	BRK.A		95,615.00		1,549		148,129,626		123.28		123.28		17.18		18.93		1.33		52.58		—		(29.95	)
CastlePoint Holdings, Ltd.	CPHL		9.92		38,282		379,761		98.72		98.72		33.07		33.07		0.85		34.22		1.99		(15.43	)
Chubb Corporation	CB		46.32		362,300		16,781,736		123.36		123.36		8.01		8.50		1.23		33.86		2.76		(12.12	)
Cincinnati Financial Corporation	CINF		25.34		164,242		4,161,897		88.80		88.80		9.66		9.28		1.10		29.10		5.64		(36.97	)
CNA Surety Corporation	SUR		12.85		44,264		568,792		78.75		78.75		5.51		5.52		1.21		37.57		—		(33.76	)
CRM Holdings, Ltd.	CRMH		1.13		16,466		18,607		16.93		16.93		2.02		2.02		0.12		4.16		—		(85.05	)
Donegal Group Inc.	DGICA		14.35		25,592		367,245		103.26		103.26		11.29		11.67		1.01		41.08		2.42		(15.14	)
Eastern Insurance Holdings, Inc.	EIHI		7.80		8,777		68,459		43.84		43.84		6.22		9.40		0.49		17.53		3.36		(51.25	)
EMC Insurance Group Inc.	EMCI		21.84		13,414		292,956		96.56		96.56		20.82		64.24		0.69		26.43		3.10		(8.96	)
Employers Holdings, Inc.	EIG		13.88		49,075		681,160		172.62		172.62		5.86		5.86		1.78		20.86		1.62		(23.23	)
Endurance Specialty Holdings Ltd.	ENH		24.25		57,570		1,396,063		61.54		61.54		4.96		7.82		0.75		17.74		3.97		(36.35	)
Enstar Group Limited	ESGR		59.29		13,318		789,619		145.32		145.32		29.50		29.50		10.41		21.57		—		(46.28	)
Erie Indemnity Company	ERIE		36.69		57,499		2,109,635		225.92		225.92		12.52		19.94		1.88		77.14		4.88		(33.68	)
Everest Re Group, Ltd.	RE		67.38		61,396		4,136,862		82.14		82.14		9.27		673.80		1.06		23.82		2.60		(31.65	)
Fairfax Financial Holdings Limited	FFH		327.00		18,223		5,958,865		126.18		126.18		3.63		3.63		0.73		21.39		1.79		13.54
First Acceptance Corporation	FAC		3.22		49,244		158,566		70.68		70.68	Neg		Neg			0.50		34.75		—		(16.58	)
First Mercury Financial Corporation	FMR		11.22		18,726		210,109		81.11		81.11		5.95		4.33		1.02		23.03		—		(45.05	)
Flagstone Reinsurance Holdings Limited	FSR		10.11		85,499		864,398		79.71		79.71	Neg		Neg			1.72		35.79		1.78		(27.06	)
FPIC Insurance Group, Inc.	FPIC		44.30		8,482		375,753		138.25		138.25		8.04		9.37		1.84		36.67		—		4.93
GAINSCO, INC.	GAN		1.05		24,225		25,436		45.20		45.20	Neg		Neg			0.13		10.64		—	NA
Greenlight Capital Re, Ltd.	GLRE		10.85		35,995		390,548		75.36		75.36	Neg		Neg			10.69		34.97		—		(48.68	)
Hallmark Financial Services, Inc.	HALL		6.11		20,871		127,522		67.29		67.29		5.79		5.82		0.46		23.20		—		(62.03	)
Hanover Insurance Group, Inc.	THG		36.51		51,000		1,862,010		91.27		91.27		10.50		31.75		0.68		20.12		1.21		(15.76	)
Harleysville Group Inc.	HGIC		32.39		28,721		930,273		142.04		142.04		11.34		15.65		0.93		29.80		3.28		4.48
HCC Insurance Holdings, Inc.	HCC		23.10		115,418		2,666,156		104.66		104.66		7.95		8.08		1.14		31.55		2.19		(21.85	)
Hilltop Holdings Inc.	HTH		8.66		56,452		488,874		62.07		62.07	Neg		Neg			4.43		42.50		—		(25.98	)

Exhibit VI-2 (Continued)
Penn Millers Holding Corporation
Market Valuation Data for Publicly Traded Property and Casualty Companies


												(a)		(a)
				Total Diluted
				Shares						Price /		Price /								Current		One-Year
				Outstand.		Total Market		Price / Book		Tangible		Operating		Price / LTM		Price / LTM		Price / Total		Dividend		Price Change
Company Name	Ticker	Closing price		(000’S)		value (000’s)		(%)		Book (%)		EPS (x)		EPS (x)		Revenue (x)		Assets (%)		Yield (%)		(%)


Horace Mann Educators Corporation	HMN		7.38		39,062		288,278		62.42		62.42		5.35		105.43		0.35		4.98		5.53		(61.20	)
Infinity Property and Casualty Corporation	IPCC		41.50		15,499		643,209		115.74		115.74		10.00		13.74		0.64		34.81		1.02		9.96
IPC Holdings, Ltd.	IPCR		26.40		47,623		1,257,252		69.15		69.15		3.56		10.00		3.76		50.23		3.38		(8.24	)
Kingsway Financial Services Inc.	KFS		5.77		55,185		318,417		41.24		41.24	Neg		Neg			0.17		8.18		—		(64.82	)
Markel Corporation	MKL		296.75		9,842		2,920,614		126.29		126.29		14.41		44.96		1.37		29.41		—		(37.36	)
Meadowbrook Insurance Group, Inc.	MIG		4.57		47,596		217,512		51.47		51.47		6.43		6.44		0.57		12.04		1.61		(51.38	)
Mercer Insurance Group, Inc.	MIGP		12.25		6,382		78,185		58.81		58.81		6.23		7.42		0.46		13.85		2.48		(31.14	)
Mercury General Corporation	MCY		44.58		54,748		2,440,670		144.01		144.01		13.43	Neg			0.90		58.81		5.52		(10.86	)
Montpelier Re Holdings Ltd.	MRH		13.46		84,200		1,133,332		80.18		80.18		9.11	Neg			2.26		36.59		2.31		(23.09	)
National Interstate Corporation	NATL		15.20		19,293		293,254		143.18		143.18		14.21		14.21		0.99		29.61		1.38		(53.26	)
National Security Group, Inc.	NSEC		7.27		2,467		17,932		51.08		51.08	Neg		Neg			0.28		12.74		15.00	NA
Navigators Group, Inc.	NAVG		50.73		16,927		858,707		130.99		130.99		11.25		12.68		1.23		25.71		—		(13.81	)
NYMAGIC, INC.	NYM		14.91		8,406		125,328		68.40		68.40	Neg		Neg			1.75		12.70		2.34		(26.91	)
Odyssey Re Holdings Corp.	ORH		41.15		61,859		2,545,504		97.59		97.59		19.93		4.09		0.79		25.88		0.69		9.65
Old Republic International Corporation	ORI		9.76		230,736		2,251,979		57.53		57.53	Neg		Neg			0.65		17.06		7.46		(31.99	)
OneBeacon Insurance Group, Ltd.	OB		9.11		95,200		867,272		63.15		63.15		10.36	Neg			0.52		10.31		8.94		(58.57	)
PartnerRe Ltd.	PRE		65.07		53,340		3,470,827		84.97		84.97		5.16		41.98		0.90		21.26		2.68		(19.08	)
Platinum Underwriters Holdings, Ltd.	PTP		29.73		48,260		1,434,770		80.95		80.95		7.10		7.10		1.09		29.25		1.05		(15.40	)
PMA Capital Corporation	PMACA		4.93		32,201		158,749		44.34		44.34		7.64	Neg			0.33		6.11		—		(43.72	)
ProAssurance Corporation	PRA		46.84		33,866		1,586,283		119.01		119.01		8.78		10.55		2.65		36.55		—		(14.40	)
Progressive Corporation	PGR		13.85		666,300		9,228,255		216.60		216.60		10.40	Neg			0.71		49.51		1.06		(22.76	)
RenaissanceRe Holdings Ltd.	RNR		42.19		60,943		2,571,178		84.54		84.54		7.33		33.22		1.88		29.93		1.99		(25.71	)
RLI Corp.	RLI		54.56		21,678		1,182,752		164.53		164.53		10.84		11.63		1.93		47.17		1.84		(6.59	)
Safety Insurance Group, Inc.	SAFT		33.52		16,170		542,020		91.15		91.15		7.27		7.18		0.83		37.07		4.85		(6.89	)
SeaBright Insurance Holdings, Inc.	SBX		10.25		21,369		219,033		70.80		70.80		7.43		7.43		0.83		27.36		—		(33.91	)
Selective Insurance Group, Inc.	SIGI		21.14		52,994		1,120,293		114.58		114.58		10.89		12.01		0.63		22.22		2.57		(4.90	)
Specialty Underwriters’ Alliance, Inc.	SUAI		3.15		15,567		49,036		37.08		37.08		4.92		4.92		0.31		11.18		—		(44.25	)
State Auto Financial Corporation	STFC		22.75		39,500		898,625		114.07		114.07		69.66		91.00		0.76		36.80		2.74		(17.93	)
Tower Group, Inc.	TWGP		21.12		23,251		491,065		154.33		154.33		10.11		10.11		1.06		34.81		0.91		(32.74	)
Transatlantic Holdings, Inc.	TRH		37.27		66,265		2,469,697		81.66		81.66		6.56		11.91		0.57		16.87		2.20		(48.47	)
Travelers Companies, Inc.	TRV		41.07		598,000		24,559,860		99.35		99.35		7.41		8.08		0.98		21.79		2.99		(19.94	)
Unico American Corporation	UNAM		7.15		5,665		40,501		55.59		55.59		8.19		8.13		0.85		21.93		—		(31.90	)
United America Indemnity, Ltd.	INDM		11.55		31,449		363,237		49.45		49.45		16.99		288.75		0.76		13.91		—		(43.55	)
United Fire & Casualty Company	UFCS		17.54		26,807		470,202		68.72		68.72		17.02		17.20		0.76		17.34		2.88		(39.73	)
Universal Insurance Holdings, Inc.	UVE		2.50		39,926		99,815		98.99		98.99		2.31		2.36		0.55		17.21		16.81		(65.61	)
Validus Holdings, Ltd.	VR		19.06		74,865		1,426,922		74.45		74.45		5.58		10.08		1.09		31.64		3.63		(24.21	)
W.R. Berkley Corporation	WRB		27.53		162,675		4,478,443		146.86		146.86		7.65		12.02		0.89		27.28		0.87		(2.62	)
Wesco Financial Corporation	WSC		294.00		7,120		2,093,224		79.61		79.61		22.55		22.55		2.81		61.17		0.53		(25.94	)
White Mountains Insurance Group, Ltd.	WTM		280.00		10,423		2,918,440		71.85		71.85	Neg		Neg			0.77		16.43		0.39		(44.66	)
Zenith National Insurance Corp.	ZNT		30.90		37,424		1,156,402		110.71		110.71		9.04		9.14		1.58		44.54		6.64		(23.04	)

Exhibit VI-2 (Continued)
Penn Millers Holding Corporation
Market Valuation Data for Publicly Traded Property and Casualty Companies


										(a)		(a)
			Total Diluted
			Shares					Price /		Price /								Current		One-Year
			Outstand.	Total Market		Price / Book		Tangible		Operating		Price / LTM		Price / LTM		Price / Total		Dividend		Price Change
Company Name	Ticker	Closing price	(000’S)	value (000’s)		(%)		Book (%)		EPS (x)		EPS (x)		Revenue (x)		Assets (%)		Yield (%)		(%)


Group Aggregate
Overall P&C Insurance Group Mean					3,872,518		91.84		91.84		10.23		30.05		1.29		26.52		2.54		(28.96	)
Overall P&C Insurance Group Median					864,398		81.66		81.66		7.95		9.81		0.90		25.33		1.84		(29.57	)

P&C Group Mean > $1.2 Bil. Total Assets					5,649,861		100.09		100.09		10.75		38.30		1.29		27.78		2.33		(25.68	)
P&C Group Median > $1.2 Bil. Total Assets					1,573,094		87.15		87.15		8.39		10.55		0.95		25.52		2.11		(25.83	)

P&C Group Mean < $1.2 Bil. Total Assets					186,178		74.72		74.72		8.95		11.56		1.31		23.93		2.98		(36.32	)
P&C Group Median < $1.2 Bil. Total Assets					142,924		70.68		70.68		6.57		7.43		0.83		23.20		1.13		(33.91	)

P&C Group Mean > $500 m Total Revenue					6,944,614		97.34		97.34		10.57		38.47		1.00		26.53		2.62		(23.90	)
P&C Group Mean > $500 m Total Revenue					2,075,809		87.15		87.15		8.52		11.77		0.90		25.52		2.25		(23.27	)

P&C Group Mean < $500 m Total Revenue					406,564		85.63		85.63		9.81		20.57		1.63		26.52		2.45		(34.99	)
P&C Group Median < $500 m Total Revenue					247,848		72.08		72.08		7.43		8.22		0.90		23.20		0.91		(33.68	)

Source: SNL Financial and market data provided by CapitalIQ.


(a)		Price / Operating EPS and Price / EPS is reported as “Neg” if the company has negative earnings.

Exhibit VII-1
Penn Millers Holding Corporation Pro Forma
Assumptions for Conversion Valuation

1		The initial offering price is $10.00 per share and the number of shares offered is calculated by dividing the estimated pro forma market value by the offering price.

2		Offering expenses are estimated at $2.5 million.

It is assumed that 10.0% of the shares offered for sale will be acquired by the employee stock ownership plan (“ESOP”). Pro forma adjustments have been made to earnings and equity to reflect the impact of the ESOP. Under generally accepted accounting principles, the aggregate purchase price of shares of common stock to be purchased by the ESOP in the offering represents unearned compensation and is reflected as a reduction in capital. It is further assumed that the ESOP purchase is funded by a loan from PMHC. No reinvestment is assumed on proceeds used to fund the ESOP. The amount of this borrowing has been reflected as a reduction from gross proceeds to determine the estimated net funds available for reinvestment. The ESOP expense reflects recognition of expense based upon shares committed to be allocated under the ESOP. For purposes of this calculation, the average market value was assumed to be equal to the initial offering price of $10.00.

4		The net investable proceeds is fully invested at the beginning of the applicable period. The net investable proceeds are invested to yield a return of 3.5%, which represents the estimated yield on the 10 year U.S. Treasury bond headed into year-end 2008. The effective income tax rate was assumed to be 35.0%, resulting in an after-tax yield of 2.28%.

5		The net increase in earnings excludes after-tax ESOP amortization over 10 years.

No effect has been given in the pro forma equity calculation for the assumed earnings on the net proceeds.

For the earnings per share (“EPS”) calcluations, pro forma per share amounts have been computed by dividing pro forma amounts by the total outstanding number of shares of stock, adjusted to give effect to the purchase of ESOP shares in accordance with Statement of Position (“SOP”) 93-6. Under SOP 93-6, the weighted average of the ESOP shares that have not been committed for release are subtracted from total shares outstanding when calculated EPS.

For the book value calcluations, pro forma per share amounts have been computed by dividing pro forma amounts by the total outstanding number of shares of stock.

The additional shares that Penn Millers expects to issue after the Conversion in conjunction with the grant of options or restricted stock awards under the stock-based incentive plan have not been considered in our analysis.

Exhibit VII-2
Penn Millers Holding Corporation
Pro Forma Conversion Valuation Range — Full Conversion
Basis (Dollars in Thousands, except per share data)


	Minimum			Midpoint			Maximum
Total implied shares offered		4,335,000			5,100,000			5,865,000
Offering price (b-1)	$	10.00		$	10.00		$	10.00

Implied gross proceeds:	$	43,350		$	51,000		$	58,650
Less: estimated expenses (b-2)		(2,500	)		(2,500	)		(2,500	)

Implied net offering proceeds		40,850			48,500			56,150
Less: ESOP purchase (b-3)		(4,335	)		(5,100	)		(5,865	)

Net investable proceeds (b-4)	$	36,515		$	43,400		$	50,285

Net income:
LTM ended 9/30/2008 (a)		(1,011	)		(1,011	)		(1,011	)
Pro forma income on net proceeds (b-4)		831			987			1,144
Pro forma ESOP adjustment (b-5)		(282	)		(332	)		(381	)

Pro forma net income		(462	)		(355	)		(248	)
Pro forma earnings per share (b-8)		(0.12	)		(0.08	)		(0.05	)

Total Revenue:
LTM ended 9/30/2008 (a)		80,331			80,331			80,331
Pro forma revenue on net proceeds, pre-tax		1,278			1,519			1,760

Pro forma total revenue		81,609			81,850			82,091
Total Equity:
Total equity at 9/30/2008		54,842			54,842			54,842
Net offering proceeds		40,850			48,500			56,150
Less: ESOP purchase		(4,335	)		(5,100	)		(5,865	)

Pro forma total equity (b-6)		91,357			98,242			105,127
Pro forma book value per share (b-7)		21.07			19.26			17.92

Tangible Equity:
Total tangible equity at 9/30/2008 (c)		52,066			52,066			52,066
Net offering proceeds		40,850			48,500			56,150
Less: ESOP purchase		(4,335	)		(5,100	)		(5,865	)

Pro forma tangible equity		88,581			95,466			102,351
Pro forma tangible book value per share (b-7)		20.43			18.72			17.45

Total Assets:
Total assets at 9/30/2008		219,583			219,583			219,583
Net offering proceeds		40,850			48,500			56,150
Less: ESOP purchase		(4,335	)		(5,100	)		(5,865	)

Pro forma total assets		256,098			262,983			269,868

Pro Forma Ratios:
Price / LTM EPS		-84.44	x		-129.24	x		-212.64	x
Price / LTM Revenue		0.53	x		0.62	x		0.71	x
Price / Book Value		47.45	%		51.91	%		55.79	%
Price / Tangible Book Value		48.94	%		53.42	%		57.30	%
Price / Total Assets		16.93	%		19.39	%		21.73	%
Total Equity / Assets		35.67	%		37.36	%		38.95	%
Tangible Equity / Assets		34.59	%		36.30	%		37.93	%


Notes:

(a)		Excludes income from discontinued operations.

(b)		See Exhibit VII-1 for explanation of assumptions.

(c)		Tangible book value excludes goodwill and intangible assets in the amounts of $2.312 million and $464,000, which are classified as assets from discontinued operations in the September 30, 2008 balance sheet.


I.		Statement of General Assumptions and Limiting Conditions

II.		Certification

III.		Overview of Curtis and Qualifications of Appraisers

IV-1.		Balance Sheets — GAAP Basis

IV-2.		Income Statements — GAAP Basis

IV-3.		Investment Portfolio — GAAP Basis

V-1.		Balance Sheets — Statutory Basis

V-2		Income Statements — Statutory Basis

VI-1.		Financial Performance Data for Public P&C Insurance Companies

VI-2.		Market Valuation Data for Public P&C Insurance Companies

VII-1.		Pro Forma Assumptions for Fully-Converted Conversion Valuation

VII-2.		Pro Forma Fully-Converted Conversion Valuation Range


		Adjustments
Earnings prospects		Downward
Management		Neutral
Liquidity of issue		Downward
Subscription interest		Neutral
Stock market conditions		Neutral
Dividend outlook		Neutral
New issue		Downward


	9/30/2008				2007				2006
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
ASSETS

Fixed Securities:
U.S. government and agencies		21,532		21,973		26,360		26,984		27,509		27,461
State and political subdivisions		29,124		29,435		30,321		31,134		26,538		27,047
Mortgage backed		20,266		20,017		20,636		20,724		11,618		11,488
Corporate		38,017		35,905		33,656		33,927		33,964		33,910

Total fixed securities		108,939		107,330		110,973		112,769		99,629		99,906

Equity		15,913		15,913		10,525		13,409		10,476		13,697


Total investment securities		124,852		123,243		121,498		126,178		110,105		113,603


I. INTRODUCTION			1
II. BUSINESS OF PENN MILLERS			5
General Overview			5
Corporate History			6
Reasons for the Minority Stock Offering			7
Agribusiness Segment			8
Commercial Lines Segment			9
Reinsurance			9
Marketing and Distribution			10
Underwriting, Risk Assessment, and Pricing			12
Claims Management			12
Financial Strength Ratings by A.M. Best			12
Financial Condition			14
Income and Expense Trends			18
III. INDUSTRY FUNDAMENTALS			27
IV. COMPARISONS WITH PUBLICLY-TRADED COMPANIES			30
General Overview			30
Selection Criteria			31
Summary Profiles of the Comparable Group Companies			36
Recent Financial Comparisons			45
V. MARKET VALUE ADJUSTMENTS			48
General Overview			48
Profitability and Earnings Prospects			49
Management			51
Liquidity of the Issue			52
Subscription Interest			53
Stock Market Conditions			55
Dividend Outlook			57
New Issue Discount			58
Summary of Adjustments			58
Valuation Approach			59
Valuation Conclusion			62


*		Note: ROAA and ROAE utilize LTM period net income and asset and equity book value vales at 9/30/08 and 9/30/07 to derive calculations.

	•		Profitability and earnings prospects;

	•		Management;

	•		Liquidity of the issue;

	•		Subscription interest;

	•		Stock market conditions;

	•		Dividend outlook; and

	•		New issue.

	•		the facts and data reported by the reviewer and used in the review process are true and correct;

	•		the analyses, opinions, and conclusions in this report are limited only by the assumptions and limiting conditions stated in this review report, and are our personal, impartial and unbiased professional analyses, opinions and conclusions;

	•		we have no present or prospective interest in the property that is the subject of this review report, and we have no personal interest or bias with respect to the parties involved;

	•		our engagement in this assignment was not contingent upon developing or reporting predetermined results;

	•		our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report;

	•		We have made a personal visit to the headquarters of Penn Millers.




	Anthony A. Latini, Jr.


	Paul M. Yeakel, Jr.


	Laura E. Anastasio
	January 22, 2008