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April 22, 2009

Board of Directors
Penn Millers Mutual Holding Company
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 Mutual Holding Company (“PMMHC”) as of April 1, 2009, which is conducting a public offering in connection with the Plan of Conversion, as of April 22, 2009 (the “Plan” or “Offering”) transaction described below. PMHC Corp. (“PMHC”) is the wholly-owned subsidiary of PMMHC and the holding company for Penn Millers Insurance Company (“PMIC”, and together with PMHC and PMMHC, “Penn Millers” or the “Company”).

Because the Plan involves the conversion of PMMHC from mutual to stock form, the 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 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 PLAN OF CONVERSION

The Board of Directors of the Company has adopted the Plan. As part of the Plan, PMMHC will convert from mutual to stock form and issue its common stock to its newly formed holding company, Penn Millers Holding Corporation, which will offer shares of its common stock (“Common Stock”) for sale in a subscription offering to the following potential subscribers: the Company’s policyholders, the Company’s employee stock ownership plan (“ESOP”), and directors, officers and employees of the Company in accordance with the terms and conditions of the 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.

Board of Directors
Penn Millers Mutual Holding Company
Page 2 of 4

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 stock issuance process.

VALUATION METHODOLOGY

In preparing the Appraisal, we conducted an analysis of PMMHC 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, 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 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 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 PMMHC. 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.

Board of Directors
Penn Millers Mutual Holding Company
Page 3 of 4

We have reviewed conditions in the securities markets in general and the markets for insurance companies, and insurance holding companies.

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, 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. 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 April 1, 2009, the Estimated Pro Forma Market Value of the aggregate common shares outstanding immediately following the Offering, was within a range (the “Valuation Range”) of $45.05 million to $60.95 million with a midpoint of $53.0 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. Exhibit VI shows the assumptions and calculations utilized in determining the Company’s Valuation Range.

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 PMMHC 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

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 Mutual Holding Company (“PMMHC”), as of April 1, 2009, which is to offer the stock of its newly formed holding company in connection with the Plan of Conversion, as of April 22, 2009 (the “Plan” or “Offering”) transaction described below. PMHC Corp. (“PMHC”) is the wholly-owned subsidiary of 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 Plan adopted by the Board of Directors of the Company on April 22, 2009, PMMHC will convert from mutual to stock form and issue its common stock to its newly formed holding company, Penn Millers Holding Corporation, which will offer its common stock (the “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 April 22, 2009 (the “Eligibility Record Date”); the Company’s employee stock ownership plan (“ESOP”); and directors, officers, and employees 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.

Because the Plan involves the conversion of PMMHC from mutual to stock form the Plan must be approved by the Pennsylvania Insurance Commissioner pursuant to the Commissioner’s 1998



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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 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 PMMHC 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, 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.



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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 its Form S-1 Registration Statement 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 PMMHC only as a going concern on a stand-alone basis and should not be considered as an indication of the liquidation value of PMMHC. 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 PMMHC, 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 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,



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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 PMMHC’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 December 31, 2008, Penn Millers had total assets of $220.5 million, total equity of $50.8 million, and approximately 8,900 property and casualty (“P&C”) policies in force. For the fiscal year ended December 31, 2008, Penn Millers had net premiums earned of $78.7 million, total revenue of $78.7 million and a net loss of $4.5 million, which excludes discontinued operations.



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PRO FORMA VALUATION APPRAISAL

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), William Dine (Vice-President of Commercial Lines Segment), Kevin Higgins (Senior Vice-President, Director of Claims), and Jonathan 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” stock 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 2008, the Company sold substantially all the assets of its non-insurance subsidiary, Penn Software & Technology Services, Inc. and in February, 2009 sold substantially all the assets of its Eastern Insurance Group (“EIG”) subsidiary.



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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, 2008, the Company’s most significant commercial product offerings included commercial multi-peril (31.5% of direct premiums written), workers’ compensation (21.4% of direct premiums written), general liability (15.9% of direct premiums written), fire and allied (13.6% of direct premiums written), and commercial automobile (13.5% of direct premiums written). As of December 31, 2008, there were approximately 7,150 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 introduced a new product line within its commercial lines segment (“PennEdge”). PennEdge is 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 PennEdge to increase direct premiums written and increase profitability due to the risk profiles of PennEdge’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



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reinsured. Insurance policies written by the Company are reinsured with other insurance 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 from a one hundred year event) is approximately $4.6 million.

Due to industry conditions, in 2009 the Company purchased additional catastrophe reinsurance, for a total of $45 million catastrophe protection. The Company also chose to decrease retention levels. In 2009, the Company retained 52.5% of all losses between $500,000 and $1.0 million. In 2009, the Company’s maximum retention per loss decreased from $1.875 million to $762,500, excluding catastrophe.



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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.

For 2008, the Company’s largest commercial agent accounted for approximately 4.0% of its direct commercial premiums written and the Company’s top ten commercial agents accounted for approximately 27.9% of direct commercial premiums written. The Company’s top ten commercial lines agents in 2008 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., Beskin & Associates, Diversified Insurance and Iroquois Services, Corp.

In 2008, the Company’s largest agribusiness broker accounted for approximately 19.2% of its direct agribusiness premiums written. The Company’s top ten agribusiness brokers accounted for approximately 51.5% of its direct agribusiness premiums written in 2008. The Company’s top ten agribusiness brokers in 2008 included Arthur J. Gallagher Risk Management, Lamair-Mulock Condon, Carlton Insurance, Grace / Mayer Insurance Agency, Southgroup of Cleveland, Brownlee Agency Inc., Kansas Farmers Service Association, Agri Insurance Business South East, LLC, AG States Group, and IMA of Kansas, Inc.

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



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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.

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 PennEdge 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 claims audit process and implement a workers compensation nurse case management triage program.



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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 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



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Company’s Best’s Rating may be an important factor affecting its ability to attract new business from customers and producers.

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 and, thus, its ability to write and renew business. In the second-half of 2008, the Company’s portfolio of equity investments declined markedly as a result of the overall deteriorating market conditions. To protect its BCAR rating by preserving capital and eliminating equity market risk, the Company sold its entire equity portfolio and reinvested the proceeds into fixed asset securities during the second-half of 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, 2008.

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


	12/31/2008			12/31/2007			12/31/2006
Balance Sheet Data
Total assets		220,524			219,613			207,768
Total investments and cash		133,873			136,312			126,655
Premiums and fees receivable		31,080			32,489			30,465
Reinsurance receivables		20,637			15,640			18,886

Loss and loss adjustment expense reserves		108,065			95,956			89,405
Unearned premiums		45,322			46,595			43,294
Total liabilities		169,769			158,212			147,238
Total surplus		50,755			61,401			60,530
Total surplus / assets		23.02	%		27.96	%		29.13	%

Source: Penn Millers’ GAAP financial statements.



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The Company’s total assets increased 5.7% from $207.8 million at December 31, 2006 to $219.6 million at December 31, 2007 and increased 0.4% to $220.5 million at December 31, 2008. From December 31, 2007 to December 31, 2008, reinsurance receivables increased by $5.0 million, deferred income taxes increased by $2.9 million, and cash increased by $1.8 million. These increases were offset by a $4.3 million decline in investment securities, which resulted from a write-down of impaired, equity securities, a $1.4 million decline in premiums and fees receivable and a $3.9 million decline in assets from discontinued operations.

The Company’s portfolio of investment securities amounted to $121.9 million at December 31, 2008 and constituted 55.3% of total assets. The Company’s investment portfolio amounted to $126.2 million as of December 31, 2007. Exhibit IV-3 presents the Company’s investment portfolio as of December 31, 2006, December 31, 2007, and December 31, 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



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through 2008. Penn Millers’ operating results are influenced by factors affecting the P&C insurance industry in general. The performance of the P&C insurance industry is subject to significant variations due to competition, weather, catastrophic events, regulation, general economic conditions, judicial trends, fluctuations in interest rates, and other factors.

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


	2008			2007			2006
REVENUE

Premiums earned	$	78,737		$	70,970		$	64,645
Investment income, net of investment expense		5,335			5,324			4,677
Realized investment (losses) gains, net		(5,819	)		(702	)		349
Other revenue		411			508			345

Total revenue		78,664			76,100			70,016

LOSSES AND EXPENSES

Losses and loss adjustment expenses		57,390			49,783			43,766
Underwriting and administrative expenses		26,562			24,163			23,296
Interest expense		184			125			222
Other expenses, net		365			184			314

Total losses and expenses		84,501			74,255			67,598

Income from continuing operations		(5,837	)		1,845			2,418


Income taxes expense (benefit)		(1,378	)		396			506


Net income (loss) from continuing operations		(4,459	)		1,449			1,912


Discontinued Operations:
Pre-tax (loss) income on discontinued ops		(3,090	)		(489	)		292
Income tax (benefit) expense		(170	)		(126	)		124

(Loss) income on discontinued ops		(2,920	)		(363	)		168

Net income		(7,379	)		1,086			2,080


Operating Ratios
Loss ratio (a)		72.9	%		70.1	%		67.7	%
Expense ratio (b)		33.7	%		34.0	%		36.0	%
Combined ratio (c)		106.6	%		104.2	%		103.7	%


Notes:

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

(b)		Underwriting and administrative expenses divided by premiums earned.

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

Source: Audited financial reports prepared by the management of the Company and audited by KPMG. Statutory financials provided in Exhibit V.



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Penn Millers’ total revenue grew from $70.0 million in 2006 to $78.7 million in 2008, excluding revenue from discontinued operations. Net premiums earned grew from $64.6 million in 2006 to $78.7 million in 2008, representing a compound annual growth rate of 10.4%. Realized investment losses of $5.8 million in 2008, 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 $7.4 million in 2008 as compared to net income of $1.1 million for 2007 and $2.1 million in 2006. On February 2, 2009, the Company completed the sale of EIG to Eastern Insurance Acquisition Agency, LLC for approximately $3.4 million. Performance results of EIG have been classified as discontinued operations in Penn Millers’ historical financial statements.

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 $26.6 million in 2008. As a percent of earned premium revenue, the Company’s expense ratio has decreased steadily from 36.0% in 2006 to 33.7% in 2008. The loss ratio increased from 67.7% in 2006 to 72.9% in 2008, resulting in a combined ratio that increased from 103.7% in 2006 to 106.6% in 2008. According to management, Penn Millers experienced unusually high



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Table 3
Segment Operating Performance Data
For the Years Ended December 31, 2006, December 31, 2007 and December 31, 2008
(Dollars in Thousands)


	For the twelve month period ended December 31, 2008
																		As a % of Total
	Agri		Commerical			Personal			Assumed			Total			Agri			Comm			Pers			Assum

Direct premiums written	$	57,281	$	37,458		$	0		$	245			94,984			60.3	%		39.4	%		0.0	%		0.3	%

Net premiums written		45,110		30,632			0			1,625			77,367			58.3	%		39.6	%		0.0	%		2.1	%

Net premiums earned		45,298		31,805			0			1,634			78,737			57.5	%		40.4	%		0.0	%		2.1	%

Losses and loss adjustment expenses		31,137		25,480			(335	)		1,108			57,390			54.3	%		44.4	%		-0.6	%		1.9	%
Other underwriting expenses		13,848		11,371			0			574			25,793			53.7	%		44.1	%		0.0	%		2.2	%


Total losses and expenses		44,985		36,851			(335	)		1,682			83,183			54.1	%		44.3	%		-0.4	%		2.0	%

Underwriting income (loss)		313		(5,046	)		335			(48	)		(4,446	)		-7.0	%		113.5	%		-7.5	%		1.1	%


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

Direct premiums written	$	55,965	$	37,860		$	0		$	248			94,073			59.5	%		40.2	%		0.0	%		0.3	%

Net premiums written		41,402		31,266			0			1,450			74,119			55.9	%		42.2	%		0.0	%		2.0	%

Net premiums earned		40,245		29,260			0			1,464			70,970			56.7	%		41.2	%		0.0	%		2.1	%

Losses and loss adjustment expenses		27,313		20,570			94			1,806			49,783			54.9	%		41.3	%		0.2	%		3.6	%
Other underwriting expenses		12,491		10,603						561			23,656			52.8	%		44.8	%		0.0	%		2.4	%


Total losses and expenses		39,804		31,173			94			2,367			73,439			54.2	%		42.4	%		0.1	%		3.2	%

Underwriting income (loss)		441		(1,913	)		(94	)		(903	)		(2,469	)		-17.9	%		77.5	%		3.8	%		36.6	%


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

Direct premiums written	$	51,874	$	32,365		$	0		$	305			84,544			61.4	%		38.3	%		0.0	%		0.4	%

Net premiums written		38,350		27,144			0			2,030			67,525			56.8	%		40.2	%		0.0	%		3.0	%

Net premiums earned		35,889		26,761			0			1,995			64,645			55.5	%		41.4	%		0.0	%		3.1	%

Losses and loss adjustment expenses		23,795		17,531			98			2,342			43,766			54.4	%		40.1	%		0.2	%		5.4	%
Other underwriting expenses		12,092		9,908			0			661			22,661			53.4	%		43.7	%		0.0	%		2.9	%


Total losses and expenses		35,887		27,439			98			3,004			66,428			54.0	%		41.3	%		0.1	%		4.5	%

Underwriting income (loss)		2		(678	)		(98	)		(1,008	)		(1,782	)		-0.1	%		38.0	%		5.5	%		56.6	%

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, 2007 and December 31, 2008.



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Table 4
Agribusiness and Commercial Lines Segment Gross Premium Data
For the Year Ended December 31, 2007 and December 31, 2008
(Dollars in Thousands)


	Agribusiness						Commerical Lines
	2008			2007			2008			2007
Direct premiums written:
Fire and Allied		18,504		$	17,796			5,097		$	5,482
Inland		2,166			2,302			281			247
Workers Compensation		8,064			7,394			8,031			7,716
General Liability		10,048			9,379			5,949			5,425
Product Liability		4,529			3,990			334			254
Surety		19			18			—			—
Burglary		161			166			38			42
Boiler and Machinery		871			866			850			768
Auto		12,919			14,055			5,068			4,914
Commercial Multi-Peril		—			—			11,782			12,987
Earthquake		—			—			27			27

Total		57,281			55,965			37,458			37,860


(% of Total Premiums)
Direct premiums written:
Fire and Allied		32.3	%		31.8	%		13.6	%		14.5	%
Inland		3.8	%		4.1	%		0.7	%		0.7	%
Workers Compensation		14.1	%		13.2	%		21.4	%		20.4	%
General Liability		17.5	%		16.8	%		15.9	%		14.3	%
Product Liability		7.9	%		7.1	%		0.9	%		0.7	%
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	%		2.3	%		2.0	%
Auto		22.6	%		25.1	%		13.5	%		13.0	%
Commercial Multi-Peril		0.0	%		0.0	%		31.5	%		34.3	%
Earthquake		0.0	%		0.0	%		0.1	%		0.1	%

Total		100.0	%		100.0	%		100.0	%		100.0	%

Source: Penn Millers GAAP financial data.

Fire and allied gross premiums written, the largest component of the Company’s agribusiness segment, increased by 4.0% to $18.5 million in 2008, compared to $17.8 million in 2007. Direct commercial multi-peril gross premiums written, the largest component of the Company’s commercial lines segment, decreased by 9.3% to $11.8 million in 2008, compared to $13.0 million in 2007 due to declining prices. The chart below shows the Company’s composition of direct premiums written, by line of business, for the year ended December 31, 2008.



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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 a March 9, 2009 article from SNL Financial, statutory results released thus far for the domestic P&C industry for full year 2008 were adversely impacted by increasing capital and underwriting losses, challenged top-line growth and diminishing surplus positions. The industry’s combined ratio was 102.69% for 2008, up from a combined ratio of 93.63% for FY 2007. Net premiums written declined by approximately 0.8% from $360.4 billion in 2007 to $357.7 billion for 2008. Further, realized capital losses totaled $11.54 billion in 2008 versus realized capital gains for 2007 of $4.61 billion. Of the $11.5 billion in 2008 capital losses, $6.32 billion were realized in Q4 2008. As a result, surplus for reporting entities declined by a combined 8.7%, which more than erased aggregate surplus gains achieved by the same entities of 7.6% from 2006 to 2007.

The Insurance Services Office (“ISO”) Property Claim Services unit reported in January 2009 that U.S. catastrophe losses totaled $25.2 billion in 2008, the fourth highest yearly total during the past decade.



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SNL reports that despite adverse conditions, underwriting and capital losses do not appear to be sufficient to offset investment income and send the industry as a whole to a net loss. Of the approximately 2,200 entities having reported full year 2008 results, 1,600 reported a net profit, although only about 600 recorded year-over-year increases in profitability.

SNL reports the poor equity and bond market conditions that adversely impacted the P&C industry, combined with ongoing soft market conditions for primary insurers, are expected to continue to suppress the industry’s performance during Q1 2009.

Fitch, Inc. (“Fitch”) downgraded the United States P&C industry from a stable to negative rating outlook in October 2008 primarily reflected the fallout from significant deterioration in the global financial markets, and the adverse impact on insurers’ balance sheets and financial flexibility. According to Fitch, the downgrade reflects the significant falls in the global credit and equity markets, and unprecedented market volatility and uncertainty. Declining market value of investment holdings has lead to significant declines in economic capitalization and profitability. Furthermore, ongoing market volatility creates the potential for further reductions in capital as market values decline and additional impairments are recognized.

According to Fitch, the P&C insurance industry has fared better than other financial services sectors. Unlike life insurance companies, non-life, or P&C companies generally have minimal liquidity exposure as their products are not deposit-based or linked to institutional funding. However, P&C companies do face pressures from declining investment (and capital) values, intense competition and soft premium rates in many lines of business. According to Fitch, these factors along with the general deterioration of underwriting results and expected reductions in reserve releases as compared to recent years could ease the “softening” trend in pricing.



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PRO FORMA VALUATION APPRAISAL

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 PMMHC 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 PMMHC and the comparable group of companies discussed below.

Selection Criteria

When applying the comparative market approach, the appraiser would ideally utilize companies identical to PMMHC in terms of lines of business, growth, profitability, earnings, and the publicly-held structure. Since there are no companies identical to PMMHC, 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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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.



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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	$	220,524	$	50,755		23.0	%

Comparable Group Mean	NA	NA	NA		637,505		192,477		31.5	%
Comparable Group Median	NA	NA	NA		673,365		171,743		30.5	%

Comparable Group
21st Century Holding Company	TCHC	NASDAQ	FL		197,110		76,231		38.7	%
Baldwin & Lyons, Inc.	BWINB	NASDAQ	IN		777,743		330,067		42.4	%
CRM Holdings, Ltd.	CRMH	NASDAQ			444,192		108,860		24.5	%
Donegal Group Inc.	DGICA	NASDAQ	PA		880,109		363,584		41.3	%
Eastern Insurance Holdings, Inc.	EIHI	NASDAQ	PA		377,311		138,137		36.6	%
EMC Insurance Group Inc.	EMCI	NASDAQ	IA		1,108,099		282,916		25.5	%
First Mercury Financial Corporation	FMR	NYSE	MI		943,653		261,637		27.7	%
Hallmark Financial Services, Inc.	HALL	NASDAQ	TX		538,398		179,412		33.3	%
Mercer Insurance Group, Inc.	MIGP	NASDAQ	NJ		568,986		137,270		24.1	%
National Interstate Corporation	NATL	NASDAQ	OH		990,812		216,074		21.8	%
National Security Group, Inc.	NSEC	NASDAQ	AL		124,890		34,648		27.7	%
NYMAGIC, INC.	NYM	NYSE	NY		946,476		164,073		17.3	%
SeaBright Insurance Holdings, Inc.	SBX	NYSE	WA		842,687		324,813		38.5	%
Unico American Corporation	UNAM	NASDAQ	CA		184,603		76,958		41.7	%

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 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.



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PRO FORMA VALUATION APPRAISAL

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.

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


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



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PRO FORMA VALUATION APPRAISAL

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 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



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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.

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.



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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 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



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PRO FORMA VALUATION APPRAISAL

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 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,



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Michigan with additional offices in Chicago, Illinois; Dallas, Texas; Boston, Massachusetts; Irvine, California; and Atlanta, Georgia.

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



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PRO FORMA VALUATION APPRAISAL

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 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



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company was founded in 1989 and is headquartered in Richfield, Ohio. National Interstate is a subsidiary of Great American Insurance Company.

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



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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 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.



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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 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 PMMHC 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 2.13x, as compared to the Comparable Group’s mean and median of 1.99x and 1.72x, respectively. Among the Comparable Group, National Security Group and First Mercury displayed ratios closest to the



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Company’s total policy reserves to total equity ratio at 2.12x and 1.99x, respectively. The Company’s total equity to total asset ratio of 23.0% 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 30.5%, respectively, while the Public P&C Insurance Group mean and median ratios of total equity to total assets were slightly lower at 30.0% and 27.4%, respectively.

The Company’s ratio of cash and investments to total assets was 60.7% as of December 31, 2008, and was positioned below the Comparable Group mean and median ratios of 70.6% and 70.6%, 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	$	220,524	$	50,755	$	48,144	$	108,065	$	133,873		23.0	%		21.8	%		2.13x		60.7	%

Public P&C Insurance Group Mean		12,566,065		3,381,086		2,791,377		6,796,363		8,012,686		30.0	%		27.6	%		2.45x		69.6	%
Public P&C Insurance Group Median		2,924,148		764,148		718,080		1,715,040		2,199,974		27.4	%		24.4	%		2.20x		72.0	%
Comparable Group Mean		637,505		192,477		180,074		367,770		438,250		31.5	%		29.5	%		1.99x		70.6	%
Comparable Group Median		673,365		171,743		147,819		395,575		459,577		30.5	%		26.6	%		1.72x		70.6	%

Comparable Group
21st Century Holding Company		197,110		76,231		76,231		106,990		150,843		38.7	%		38.7	%		1.40x		76.5	%
Baldwin & Lyons, Inc.		777,743		330,067		326,667		406,741		537,821		42.4	%		42.0	%		1.23x		69.2	%
CRM Holdings, Ltd.		444,192		108,860		105,608		258,708		344,862		24.5	%		23.8	%		2.38x		77.6	%
Donegal Group Inc.		880,109		363,584		362,662		468,823		633,967		41.3	%		41.2	%		1.29x		72.0	%
Eastern Insurance Holdings, Inc.		377,311		138,137		118,206		201,482		275,038		36.6	%		31.3	%		1.46x		72.9	%
EMC Insurance Group Inc.		1,108,099		282,916		281,974		733,897		965,349		25.5	%		25.4	%		2.59x		87.1	%
First Mercury Financial Corporation		943,653		261,637		196,803		520,570		574,863		27.7	%		20.9	%		1.99x		60.9	%
Hallmark Financial Services, Inc.		538,398		179,412		109,363		258,555		360,683		33.3	%		20.3	%		1.44x		67.0	%
Mercer Insurance Group, Inc.		568,986		137,270		131,565		384,408		381,333		24.1	%		23.1	%		2.80x		67.0	%
National Interstate Corporation		990,812		216,074		216,074		556,599		563,714		21.8	%		21.8	%		2.58x		56.9	%
National Security Group, Inc.		124,890		34,648		34,648		73,314		93,159		27.7	%		27.7	%		2.12x		74.6	%
NYMAGIC, INC.		946,476		164,073		164,073		632,114		546,986		17.3	%		17.3	%		3.85x		57.8	%
SeaBright Insurance Holdings, Inc.		842,687		324,813		320,202		447,958		554,377		38.5	%		38.0	%		1.38x		65.8	%
Unico American Corporation		184,603		76,958		76,958		98,617		152,502		41.7	%		41.7	%		1.28x		82.6	%

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	$	78,664		($4,459	)		33.7	%		72.9	%		106.6	%		-2.0	%		-8.0	%

Public P&C Insurance Group Mean		3,752,634		161,709			30.6	%		63.1	%		93.8	%		0.7	%		3.1	%
Public P&C Insurance Group Median		653,049		29,149			30.2	%		64.0	%		94.1	%		1.4	%		4.5	%

Comparable Group Mean		189,682		(541	)		33.4	%		65.6	%		99.0	%		-0.1	%		-1.3	%
Comparable Group Median		159,196		1,894			32.6	%		64.5	%		97.7	%		0.5	%		2.2	%

Comparable Group
21st Century Holding Company		67,356		(2,478	)		45.0	%		64.3	%		109.3	%		-1.2	%		-3.0	%
Baldwin & Lyons, Inc.		156,930		(7,713	)		30.9	%		63.5	%		94.4	%		-0.9	%		-2.2	%
CRM Holdings, Ltd.		143,171		(1,496	)		32.9	%		70.1	%		103.0	%		-0.4	%		-1.3	%
Donegal Group Inc.		372,312		25,542			32.5	%		64.7	%		97.2	%		2.9	%		7.2	%
Eastern Insurance Holdings, Inc.		131,204		(17,383	)		34.0	%		73.0	%		107.0	%		-4.5	%		-10.8	%
EMC Insurance Group Inc.		413,892		(1,705	)		32.7	%		75.6	%		108.3	%		-0.2	%		-0.5	%
First Mercury Financial Corporation		215,367		40,841			28.0	%		55.7	%		83.7	%		4.7	%		16.2	%
Hallmark Financial Services, Inc.		268,690		12,899			28.9	%		61.0	%		89.9	%		2.4	%		6.9	%
Mercer Insurance Group, Inc.		161,462		8,234			35.7	%		62.4	%		98.1	%		1.5	%		6.1	%
National Interstate Corporation		293,716		10,660			24.7	%		64.7	%		89.4	%		1.1	%		5.0	%
National Security Group, Inc.		61,233		(5,204	)		43.2	%		79.5	%		122.7	%		-3.8	%		-12.3	%
NYMAGIC, INC.		56,181		(104,335	)		46.3	%		65.8	%		112.1	%		-10.2	%		-46.5	%
SeaBright Insurance Holdings, Inc.		267,262		29,278			28.5	%		56.7	%		85.2	%		3.7	%		9.5	%
Unico American Corporation		46,770		5,283			24.3	%		60.7	%		85.0	%		2.8	%		7.3	%

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 106.6%. The Comparable Group reported mean and median combined ratios of 99.0% and 97.7%, respectively. Seven companies in the Comparable Group 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 72.9% for the LTM period, which was above the Comparable Group mean and median loss ratios of 65.6% and 64.5%. Among the Comparable Group members, Eastern Insurance Holdings, EMC Insurance and National Security reported higher loss ratios at 73.0%, 75.6% and 79.5%, 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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median of negative 4.8%. Nine of the companies experienced negative revenue growth during 2008.

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 72.9% for 2008, well above the Comparable Group’s mean and median loss ratios of 65.6% and 64.5%, respectively. Penn Millers’ management has advised that the Company experienced unusually high losses in 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 33.7% for 2008. A high expense ratio indicates excessive overhead costs while a low expense ratio would indicate an efficient organization. Penn Millers’ expense ratio for 2008 of 33.7% was slightly above the Comparable Group, which had mean and median ratios of 33.4% and 32.6%, respectively.

On a combined ratio basis (losses and underwriting expenses), the Company underperformed the Comparative Group, yielding a combined ratio of 106.6% for 2008, compared to 99.0% and 97.7% for the mean and median of the Comparable Group, respectively. 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 such projections. Penn Millers’ management has developed a comprehensive growth plan that focuses on growing revenue, managing expenses and ultimately increasing profitability by



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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 the second half of 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 that the Company is a smaller insurer, and that smaller insurers are often at a competitive



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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, PMMHC expects the publicly-traded Common Stock of its newly formed holding company to be quoted on the NASDAQ Global Market, pending receipt of approval. 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 relatively small size of the Offering, there is no assurance that an established and liquid market for the Common Stock will develop or that it will continually meet listing requirements. Further, the relative attractiveness of the Common 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.



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PRO FORMA VALUATION APPRAISAL

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 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 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. There have been no completed offerings in 2009. Additionally, a “second-stage” savings offering has extended its syndicated community offering two times, thus far. Further, 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 a conversion always buy at a discount to book value. Demutualizing insurance



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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

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. Such confidence outweighs the negative factors discussed above. 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 51.1% over the



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twelve month period ended April 1, 2009. The SNL Insurance Index underperformed the broader markets indexes as reflected by the Standard & Poor’s 500 and Russell 3000, which both fell 40.8% 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 30.5% over the past year, compared to the SNL All Financial Institutions sector, which was down 58.2% over the past year.

Table 12
Selected Stock Market Index Performance
For the Period Ended April 1, 2009


	Change (%)
	Close		YTD			1 Year			3 Years
SNL Insurance Indexes
SNL Insurance		245.09		(19.80	)		(51.08	)		(54.19	)
SNL Insurance Underwriter		238.83		(20.12	)		(52.49	)		(55.37	)
SNL Insurance Broker		462.05		(15.02	)		(17.66	)		(28.15	)
SNL Sector Indexes
SNL Insurance Multiline		61.44		(33.29	)		(85.75	)		(88.68	)
SNL Insurance L&H		220.38		(41.05	)		(69.43	)		(65.92	)
SNL Insurance P&C		280.08		(14.38	)		(30.45	)		(19.26	)
SNL Reinsurance		358.14		(11.36	)		(60.83	)		(58.23	)
SNL Managed Care		349.89		(15.91	)		(41.25	)		(57.76	)
SNL Title Insurer		584.99		3.11			(16.68	)		(42.03	)
SNL Mortgage & Finl Guaranty		25.09		(23.33	)		(74.15	)		(95.43	)
SNL Asset Size Indexes
SNL Insurance < $250M		289.98		(2.39	)		(41.78	)		(55.67	)
SNL Insurance $250M-$500M		255.62		(15.61	)		(40.43	)		(56.78	)
SNL Insurance $500M-$1B		308.44		(4.92	)		(18.72	)		(28.25	)
SNL Insurance $1B-$2.5B		520.89		(13.86	)		(22.86	)		(16.62	)
SNL Insurance $2.5B-$10B		353.22		(12.33	)		(28.36	)		(39.32	)
SNL Insurance > $10B		224.41		(21.57	)		(55.77	)		(58.00	)
SNL Insurance > $1B		249.86		(20.23	)		(52.67	)		(55.49	)
SNL Insurance < $1B		346.49		(5.61	)		(24.60	)		(35.85	)
SNL Market Cap Indexes
SNL Micro Cap Insurance		128.34		(22.68	)		(61.07	)		(63.41	)
SNL Small Cap Insurance		320.07		(23.52	)		(40.39	)		(46.40	)
SNL Mid Cap Insurance		160.14		(26.81	)		(51.12	)		(61.77	)
SNL Large Cap Insurance		199.56		(18.09	)		(53.08	)		(55.54	)
Broad Market Indexes
S&P 500		811.08		(10.21	)		(40.81	)		(37.36	)
SNL All Financial Institutions		276.88		(22.69	)		(58.15	)		(65.20	)
Russell 1000		847.30		(9.63	)		(40.89	)		(37.63	)
Russell 2000		1,066.57		(14.07	)		(39.61	)		(43.91	)
Russell 3000		860.92		(9.98	)		(40.79	)		(38.21	)

Source: SNL Financial.



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PRO FORMA VALUATION APPRAISAL

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.

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 4.6% and 3.4%, 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.



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PRO FORMA VALUATION APPRAISAL

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, we have concluded that no adjustment is warranted at the present time for purposes of dividend outlook.

New Issue Discount

A “new issue” discount that reflects investor concerns and investment risks inherent in all IPOs is a factor to be considered for purposes of valuing companies converting from mutual-to-stock form. The necessity to build a new issue discount into the stock price of a converting insurance company relates to uncertainty among investors. In this regard, investors are concerned about the lack of a seasoned trading history for the converting company, its operation in an intensely competitive industry, underlying concerns regarding interest rate and economic recovery trends, recent volatility in the stock market, and the ever-changing landscape of competitors and product marketing in the insurance marketplace.

We therefore believe that a downward adjustment is warranted for new issue in the pricing of the Company’s Estimated Pro Forma Market Value.

Summary of Adjustments

Based on the market value adjustments discussed above, the Company’s Estimated Pro Forma Market Value should be discounted to reflect the following, additional valuation adjustments relative to the Comparable Group:



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PRO FORMA VALUATION APPRAISAL

Table 13
Comparative Market Valuation Analysis
As of April 1, 2009


								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
Pro Forma Valuation Minimum	$	10.00	$	45,050		51.2	%		52.7	%	Neg			0.57x		17.5	%		34.2	%		0.0	%
Pro Forma Valuation Midpoint		10.00		53,000		55.7	%		57.3	%	Neg			0.66x		20.0	%		35.9	%		0.0	%
Pro Forma Valuation Maximum		10.00		60,950		59.7	%		61.3	%	Neg			0.76x		22.4	%		37.6	%		0.0	%

Comparable Group Mean	NA		$	163,035		74.6	%		81.5	%		12.87x		0.85x		23.2	%		31.5	%		4.6	%
Comparable Group Median	NA			116,773		73.3	%		74.1	%		10.66x		0.77x		24.2	%		30.5	%		2.8	%

Comparable Group
21st Century Holding Company		3.30		26,446		34.7	%		34.7	%	Neg			0.39x		13.4	%		38.7	%		15.6	%
Baldwin & Lyons, Inc.		19.61		291,789		88.4	%		89.3	%	Neg			1.86x		37.5	%		42.4	%		5.5	%
CRM Holdings, Ltd.		0.63		10,389		9.5	%		9.8	%	Neg			0.07x		2.3	%		24.5	%	NA
Donegal Group Inc.		15.21		387,790		106.7	%		106.9	%		15.21x		1.04x		44.1	%		41.3	%		2.5	%
Eastern Insurance Holdings, Inc.		7.60		66,569		48.2	%		56.3	%	Neg			0.51x		17.6	%		36.6	%		3.5	%
EMC Insurance Group Inc.		21.48		285,489		100.9	%		101.2	%	Neg			0.69x		25.8	%		25.5	%		2.8	%
First Mercury Financial Corporation		14.58		267,649		102.3	%		136.0	%		6.66x		1.24x		28.4	%		27.7	%	NA
Hallmark Financial Services, Inc.		6.61		137,587		76.7	%		125.8	%		10.66x		0.51x		25.6	%		33.3	%	NA
Mercer Insurance Group, Inc.		14.40		89,465		65.2	%		68.0	%		11.08x		0.55x		15.7	%		24.1	%		2.4	%
National Interstate Corporation		16.88		327,084		151.4	%		151.4	%		30.69x		1.11x		33.0	%		21.8	%		1.3	%
National Security Group, Inc.		10.85		26,763		77.2	%		77.2	%	Neg			0.44x		21.4	%		27.7	%		6.6	%
NYMAGIC, INC.		11.44		95,959		58.5	%		58.5	%	Neg			1.71x		10.1	%		17.3	%		1.7	%
SeaBright Insurance Holdings, Inc.		10.64		227,340		70.0	%		71.0	%		7.71x		0.85x		27.0	%		38.5	%	NA
Unico American Corporation		7.50		42,165		54.8	%		54.8	%		8.06x		0.90x		22.8	%		41.7	%	NA

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.

As of April 1, 2009, the mean and median P/B ratios for the Comparable Group were 74.6% and 73.3%, respectively. In comparison, the Public P&C Insurance Group mean and median P/B ratios were positioned slightly higher at 92.4% and 87.5%, 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



		59

PRO FORMA VALUATION APPRAISAL

midpoint value of $53.0 million for the Company, which implies an aggregate midpoint ratio of 55.7%. Applying a range of value of 15% above and below the midpoint, the resulting minimum of $45.05 million implies a P/B ratio of 51.2% and the resulting maximum of $60.95 million implies a P/B ratio of 59.7%.

The Company’s pro forma P/B valuation ratios reflect discounts to the Comparable Group’s mean ratio of 74.6%, measuring 20.0% at the valuation maximum, 25.3% at the valuation midpoint, and 31.4% at the valuation minimum. The Company’s P/B valuation ratios reflect a discount to the Comparable Group’s 73.3% median of 18.6% at the valuation maximum, 24.0% at the valuation midpoint, and 30.2% 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 $53.0 million reflects a P/A ratio of 20.0%, ranging from 17.5% at the minimum to 22.4% at the maximum. The Company’s P/A valuation ratio at the maximum is slightly below the Comparable Group’s corresponding mean and median P/A ratios of 23.2% and 24.2%, respectively.

Valuation Conclusion

It is our opinion that, as of April 1, 2009, the Estimated Pro Forma Market Value of the shares to be issued immediately following the Offering was within a range (the “Valuation



		60

EXHIBIT I

STATEMENT OF GENERAL ASSUMPTIONS AND LIMITING CONDITIONS

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

1.		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.

2.		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.

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

4.		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.

5.		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.

6.		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.

7.		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.

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

9.		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. He has been involved with seven mutual to stock conversions. 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, and has been involved with three mutual to stock conversions. 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 Mutual Holding Company
Historical Balance Sheets — GAAP Basis
(Dollars in Thousands)


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

Investments:
Fixed securities		121,914			112,769			99,906			94,549			92,752			87,123
Equity securities		—			13,409			13,697			12,328			12,819			11,266

Total investments		121,914			126,178			113,603			106,877			105,571			98,389

Cash and cash equivalents (cash overdraft)		11,959			10,134			13,052			10,021			11,431			14,387
Premiums and fees receivable		31,080			32,489			30,465			26,910			29,256			24,056
Reinsurance receivables		20,637			15,640			18,886			22,923			18,053			22,222
Deferred acquisition costs		10,601			11,014			10,381			9,646			10,352			9,243
Prepaid reinsurance premiums		4,342			4,234			4,119			3,645			3,731			3,209
Accrued investment income		1,431			1,499			1,439			1,302			1,225			1,236
PP&E, less accumulated depreciation		4,231			4,401			4,228			4,255			5,020			5,583
Income taxes receivable		1,508			1,056			—			894						—
Deferred income taxes		4,728			1,872			1,439			1,429			—			—
Other		4,879			3,972			2,812			2,557			2,144			1,845
Assets from discontinued operations		3,214			7,124			7,344			7,438			5,237			5,285

Total assets		220,524			219,613			207,768			197,897			192,020			185,455


LIABILITIES AND SURPLUS

Loss and loss adjustment expense reserves		108,065			95,956			89,405			83,849			73,287			69,463
Unearned premiums		45,322			46,595			43,294			39,984			42,798			38,090
Accounts due reinsurers		—			—			—			—			2,597			4,973
Accounts payable and accrued expenses		13,353			12,874			10,394			9,603			7,991			7,226
Deferred income taxes payable		—			—			—			—			673			1,344
Income taxes payable		—			—			256			1			22			161
Long-term debt		2,382			1,745			2,307			4,400			3,064			3,059
Liabilities from discontinued operations		647			1,042			1,582			2,291			1,682			1,864


Total liabilities		169,769			158,212			147,238			140,128			132,114			126,180

Unassigned surplus		51,914			59,293			58,207			56,127			55,837			54,439
Accumulated other comprehensive income, net		(1,159	)		2,108			2,323			1,642			4,069			4,836

Total surplus		50,755			61,401			60,530			57,769			59,906			59,275

Total liabilities and surplus		220,524			219,613			207,768			197,897			192,020			185,455


Performance and Capital Ratios
Return on average assets		-2.03	%		0.68	%		0.94	%		0.12	%		0.64	%		1.00	%
Return on average surplus		-7.95	%		2.38	%		3.23	%		0.41	%		2.03	%		3.12	%
Surplus to total assets		23.02	%		27.96	%		29.13	%		29.19	%		31.20	%		31.96	%


Notes:


Source:		Audited financial reports prepared by the management of the Company and audited by KPMG.

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


	2008			2007			2006			2005			2004			2003
REVENUE

Premiums earned	$	78,737		$	70,970		$	64,645		$	64,723		$	63,090		$	56,065
Investment income, net of investment expense		5,335			5,324			4,677			4,444			4,278			4,058
Realized investment (losses) gains, net		(5,819	)		(702	)		349			424			936			833
Other revenue		411			508			345			277			301			371

Total revenue		78,664			76,100			70,016			69,868			68,605			61,327

LOSSES AND EXPENSES

Losses and loss adjustment expenses		57,390			49,783			43,766			40,242			42,910			35,822
Underwriting and administrative expenses		26,562			24,163			23,296			29,221			24,359			22,911
Interest expense		184			125			222			195			51			56
Other expenses, net		365			184			314			266			82			101

Total losses and expenses		84,501			74,255			67,598			69,924			67,402			58,890

Income from continuing operations		(5,837	)		1,845			2,418			(56	)		1,203			2,437


Income taxes expense (benefit)		(1,378	)		396			506			(296	)		(4	)		587

Net income (loss) from continuing operations		(4,459	)		1,449			1,912			240			1,207			1,850


Discontinued Operations:
Pre-tax (loss) income on discontinued ops		(3,090	)		(489	)		292			385			240			340
Income tax (benefit) expense		(170	)		(126	)		124			151			63			143

(Loss) income on discontinued ops		(2,920	)		(363	)		168			234			177			197

Net income		(7,379	)		1,086			2,080			474			1,384			2,047


Operating Ratios
Loss ratio (a)		72.9	%		70.1	%		67.7	%		62.2	%		68.0	%		63.9	%
Expense ratio (b)		33.7	%		34.0	%		36.0	%		45.1	%		38.6	%		40.9	%
Combined ratio (c)		106.6	%		104.2	%		103.7	%		107.3	%		106.6	%		104.8	%


Notes:

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

(b)		Underwriting and administrative expenses divided by premiums earned.

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



Source: Audited financial reports prepared by the management of the Company and audited by KPMG. Statutory financials provided in Exhibit V.

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


	12/31/2008 (c)			12/31/2007			12/31/2006			12/31/2005			12/31/2004			12/31/2003
ASSETS
Investments:
Bonds		120,538			110,972			99,628			93,879			89,641			82,441
Stocks		1			13,411			13,697			12,329			12,819			11,267
Real estate		2,694			2,788			2,909			1,199			1,204			1,076
Receivables for securities					91			—			—			—			—

Total investments		123,233			127,262			116,234			107,407			103,664			94,784

Cash and cash equivalents (cash overdraft)		11,695			10,034			12,911			9,459			10,996			14,365
Premiums and considerations		30,951			32,416			30,396			26,730			29,076			23,919
Reinsurance receivables		3,073			917			1,120			1,114			838			1,036
Accrued investment income		1,431			1,499			1,439			1,302			1,225			1,236
Other receivables		1,160			1,723			1,524			1,682			1,490			926
PP&E		642			857			508			152			194			295
Income taxes receivable		1,406			646			—			10			13			—
Deferred income taxes		5,190			4,893			4,242			4,071			3,820			3,747
Receivable from parent		186			557			219			361			204			250
Aggregate write-ins for other than invested assets		2,973			3,011			1,960			1,761			981			517

Total assets		181,941			183,815			170,553			154,049			152,501			141,075


LIABILITIES AND SURPLUS
Loss and loss adjustment expense reserves		85,437			77,222			69,317			61,033			55,805			48,072
Unearned premiums		41,062			42,499			39,221			36,348			39,102			35,122
Accounts due reinsurers and provisions		5			22			276			227			100			287
Commissions payable, contingent commissions		1,488			2,515			2,581			2,292			2,867			2,154
Other expenses		6,411			6,532			6,110			6,124			5,480			5,361
Ceded reinsurance premiums payable		2,024			3,686			1,275			614			2,482			2,782
Funds held by company under reinsurance treaties		2,616			—			677			73			114			2,191
Amounts withheld or retained by company		55			47			67			78			68			130
Payable for securities		—			414			472			—			—			—
Aggregate write ins for liabilities		—			—			—			—			811			273
Payable to parent		15			83			32			44			227			371


Total liabilities		139,114			133,020			120,028			106,833			107,056			96,743

Total surplus		42,827			50,795			50,525			47,216			45,445			44,332

Total liabilities and surplus		181,941			183,815			170,553			154,049			152,501			141,075


Performance and Capital Ratios
Return on assets		-2.44	%		0.50	%		0.85	%		2.07	%		0.43	%		0.43	%
Return on surplus		-9.53	%		1.73	%		2.81	%		6.84	%		1.41	%		1.37	%
Surplus to total assets		23.54	%		27.63	%		29.62	%		30.65	%		29.80	%		31.42	%


Notes:

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

(b)		Statutory financial statements represent the results of operations of PMHC.

(c)		Financial statements as of December 31, 2008 prepared by Company management. Audited statutory financial statements as of December 31, 2008 were not available as of the date of this report.

Source: Statutory prepared financial statements.

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


	2008			2007			2006			2005			2004			2003
REVENUE
Premiums earned		78,737		$	70,970		$	64,645		$	64,723		$	63,090		$	56,065
Investment income, net of investment expense		5,085			5,104			4,370			4,131			4,052			4,097
Realized investment (losses) gains, net		(5,778	)		(431	)		232			262			937			833

Total revenue		78,044			75,643			69,247			69,116			68,079			60,995

LOSSES AND EXPENSES
Losses and loss adjustment expenses		57,391			49,774			43,770			40,242			42,910			35,822
Underwriting and administrative expenses		25,256			24,059			23,525			24,427			24,407			23,407
Other expenses, net		39			(318	)		(31	)		(114	)		(219	)		(212	)

Total losses and expenses		82,686			73,515			67,264			64,555			67,098			59,017

Income from continuing operations		(4,642	)		2,128			1,983			4,561			981			1,978


Income taxes expense (benefit)		(181	)		1,250			609			1,390			347			1,369


Net income (loss)		(4,461	)		878			1,374			3,171			634			609


Operating Ratios
Loss ratio (a)		72.9	%		70.1	%		67.7	%		62.2	%		68.0	%		63.9	%
Expense ratio (b)		32.1	%		33.9	%		36.4	%		37.7	%		38.7	%		41.7	%
Combined ratio (c)		105.0	%		104.0	%		104.1	%		99.9	%		106.7	%		105.6	%


Notes:

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

(b)		Underwriting expenses divided by net premiums earned.

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

(d)		Statutory financials do not include the effects of discontinued operations. Audited statutory financial statements as of December 31, 2008 were not yet available as of the date of this report.

(e)		Statutory financial statements represent the results of operations of PMHC.

Source: Statutory prepared financial statements.

Exhibit VI-1
Penn Millers Mutual Holding Company
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		197,110		106,990		76,231		76,231		65,130		150,843		0.77		1.40		0.39		0.39		0.66		64.30		44.97		109.27		-1.18		-3.04
ACE Limited	ACE		72,057,000		46,375,000		14,446,000		10,699,000		13,203,000		41,414,000		0.57		3.21		0.20		0.15		0.82		60.60		29.00		89.60		1.60		7.48
Affirmative Insurance Holdings, Inc.	AFFM		802,051		313,734		216,483		35,578		357,301		351,613		0.44		1.45		0.27		0.04		1.57		76.80		20.90		97.70		0.17		0.66
Alleghany Corporation	Y		6,181,828		3,192,657		2,646,689		2,495,466		948,652		4,294,266		0.69		1.21		0.43		0.40		0.32		60.10		30.20		90.30		2.14		5.31
Allied World Assurance Company Holdings, Ltd	AWH		9,072,079		5,507,186		2,416,862		2,076,920		1,116,905		6,863,397		0.76		2.28		0.27		0.23		0.50		57.40		26.80		84.20		2.21		8.32
Allstate Corporation	ALL		134,798,000		100,774,000		12,641,000		11,767,000		28,862,000		96,413,000		0.72		7.97		0.09		0.09		1.54		74.40		25.00		99.40		-1.13		-9.74
American Financial Group, Inc.	AFG		26,427,500		20,654,600		2,490,000		2,203,400		3,301,800		16,870,500		0.64		8.30		0.09		0.08		1.01		56.60		31.00		87.60		0.74		6.85
American Physicians Capital, Inc.	ACAP		1,005,823		700,380		254,037		254,037		124,268		830,648		0.83		2.76		0.25		0.25		0.46		52.60		22.10		74.70		4.35		17.21
American Physicians Service Group, Inc.	AMPH		283,554		128,926		136,465		134,201		64,081		231,769		0.82		0.94		0.48		0.47		0.51		28.98		17.30		46.28		6.78		14.79
American Safety Insurance Holdings, Ltd.	ASI		1,026,364		708,906		217,030		207,334		174,471		686,637		0.67		3.27		0.21		0.20		0.80		63.10		42.90		106.00		0.03		0.14
AMERISAFE, Inc.	AMSF		1,107,833		710,761		253,272		253,272		289,493		799,973		0.72		2.81		0.23		0.23		1.25		60.90		20.50		81.40		3.99		19.05
AmTrust Financial Services, Inc.	AFSI		3,143,893		1,773,974		392,548		290,123		439,097		1,361,440		0.43		4.52		0.12		0.09		1.40		54.30		20.10		74.40		2.89		20.88
Arch Capital Group Ltd.	ACGL		14,616,545		9,193,639		3,432,965		3,405,565		2,845,454		10,820,774		0.74		2.68		0.23		0.23		0.75		65.00		30.00		95.00		1.82		7.79
Argo Group International Holdings, Ltd.	AGII		6,381,500		3,804,200		1,352,900		1,095,300		1,127,100		4,001,500		0.63		2.81		0.21		0.17		0.83		64.30		36.20		100.50		1.07		4.54
Aspen Insurance Holdings Limited	AHL		7,288,800		3,881,000		2,779,100		2,770,900		1,701,700		5,754,000		0.79		1.40		0.38		0.38		0.65		65.80		29.80		95.60		1.40		3.70
AXIS Capital Holdings Limited	AXS		14,282,834		8,407,184		4,461,041		4,400,624		2,687,181		10,432,571		0.73		1.88		0.31		0.31		0.53		63.74		26.13		89.87		2.54		7.73
Baldwin & Lyons, Inc.	BWINB		777,743		406,741		330,067		326,667		182,299		537,821		0.69		1.23		0.42		0.42		0.49		63.50		30.90		94.40		-0.93		-2.16
Berkshire Hathaway Inc.	BRK.A		267,399,000		71,343,000		109,267,000		75,486,000		25,525,000		127,779,000		0.48		0.65		0.41		0.28		0.23		70.91		18.15		89.06		1.80		4.23
Chubb Corporation	CB		48,429,000		28,734,000		13,432,000		12,965,000		11,828,000		38,794,000		0.80		2.14		0.28		0.27		0.84		58.32		30.81		89.13		3.57		12.88
Cincinnati Financial Corporation	CINF		13,369,000		7,181,000		4,182,000		4,182,000		3,136,000		9,899,000		0.74		1.72		0.31		0.31		0.64		68.30		32.30		100.60		2.86		8.62
CNA Surety Corporation	SUR		1,565,519		687,548		767,295		628,510		431,696		1,126,079		0.72		0.90		0.49		0.40		0.60		18.70		54.50		73.20		7.18		15.39
CRM Holdings, Ltd.	CRMH		444,192		258,708		108,860		105,608		121,942		344,862		0.78		2.38		0.25		0.24		1.12		70.12		32.91		103.03		-0.36		-1.34
Donegal Group Inc.	DGICA		880,109		468,823		363,584		362,662		346,575		633,967		0.72		1.29		0.41		0.41		1.02		64.70		32.50		97.20		2.93		7.16
Eastern Insurance Holdings, Inc.	EIHI		377,311		201,482		138,137		118,206		135,807		275,038		0.73		1.46		0.37		0.31		0.84		73.00		34.00		107.00		-4.51		-10.80
EMC Insurance Group Inc.	EMCI		1,108,099		733,897		282,916		281,974		389,318		965,349		0.87		2.59		0.26		0.25		1.16		75.60		32.70		108.30		-0.15		-0.51
Employers Holdings, Inc.	EIG		3,756,713		2,654,525		444,728		390,318		328,947		2,245,834		0.60		5.97		0.12		0.10		0.78		41.50		44.40		85.90		3.12		25.43
Endurance Specialty Holdings Ltd.	ENH		7,272,470		4,120,944		2,207,283		2,006,492		1,766,485		5,358,087		0.74		1.87		0.30		0.28		0.76		64.30		29.20		93.50		1.28		4.19
Enstar Group Limited	ESGR		4,358,151		2,798,287		615,209		593,987		0		3,508,778		0.81		4.55		0.14		0.14		0.00	NA		NA		NA			2.24		16.17
Erie Indemnity Company	ERIE		2,613,386		1,389,451		791,875		791,875		207,407		1,042,748		0.40		1.75		0.30		0.30		0.22		66.20		27.40		93.60		2.49		7.24
Everest Re Group, Ltd.	RE		16,846,590		10,242,343		4,960,355		4,960,355		3,694,301		13,714,280		0.81		2.06		0.29		0.29		0.65		66.00		29.60		95.60		-0.11		-0.35
Fairfax Financial Holdings Limited	FFH		27,305,400		16,619,000		4,968,800		4,845,600		4,529,100		19,979,200		0.73		3.34		0.18		0.18		0.92		82.16		27.94		110.10		5.34		31.23
First Acceptance Corporation	FAC		441,411		154,170		225,670		81,228		257,288		213,516		0.48		0.68		0.51		0.18	NA			69.70		23.20		92.90		-1.53		-3.13
First Mercury Financial Corporation	FMR		943,653		520,570		261,637		196,803		193,744		574,863		0.61		1.99		0.28		0.21		0.87		55.70		28.00		83.70		4.69		16.16
Flagstone Reinsurance Holdings Limited	FSR		2,215,970		682,456		986,013		935,999		654,168		1,700,844		0.77		0.69		0.44		0.42		0.63		58.10		31.30		89.40		-8.06		-17.05
FPIC Insurance Group, Inc.	FPIC		997,985		664,011		259,894		249,061		172,830		712,665		0.71		2.55		0.26		0.25		0.57		57.70		22.00		79.70		3.07		11.33
GAINSCO, INC.	GAN		239,483		123,964		55,347		54,738		176,606		176,575		0.74		2.24		0.23		0.23		2.96		73.30		25.70		99.00		-1.41		-5.65
Greenlight Capital Re, Ltd.	GLRE		958,005		170,351		485,382		485,382		114,949		857,859		0.90		0.35		0.51		0.51		0.25		48.30		48.20		96.50		-10.84		-21.02
Hallmark Financial Services, Inc.	HALL		538,398		258,555		179,412		109,363		236,320		360,683		0.67		1.44		0.33		0.20		1.26		61.00		28.90		89.90		2.37		6.92
Hanover Insurance Group, Inc.	THG		9,230,200		4,491,900		1,887,200		1,717,300		2,484,900		4,719,900		0.51		2.38		0.20		0.19		1.16		65.40		33.20		98.60		0.22		0.95
Harleysville Group Inc.	HGIC		3,155,318		2,252,161		652,634		629,234		918,515		2,473,738		0.78		3.45		0.21		0.20		1.34		66.50		34.02		100.52		1.33		5.95
HCC Insurance Holdings, Inc.	HCC		8,332,383		4,456,891		2,639,341		1,780,492		2,007,774		5,006,535		0.60		1.69		0.32		0.21		0.81		60.40		25.00		85.40		3.67		11.98
Hilltop Holdings Inc.	HTH		1,048,770		102,474		791,455		753,465		115,247		906,444		0.86		0.13		0.75		0.72		0.14		69.80		35.60		105.40		-2.08		-2.82
Horace Mann Educators Corporation	HMN		5,507,718		3,691,552		448,845		401,449		658,532		3,910,959		0.71		8.22		0.08		0.07		1.69		76.90		23.80		100.70		0.18		1.93
Infinity Property and Casualty Corporation	IPCC		1,721,335		925,181		525,331		450,056		922,451		1,172,668		0.68		1.76		0.31		0.26		1.53		70.29		22.23		92.52		1.02		3.30
IPC Holdings, Ltd.	IPCR		2,388,688		441,366		1,850,947		1,850,947		387,367		2,235,187		0.94		0.24		0.77		0.77		0.20		40.20		16.20		56.40		3.61		4.55
Kingsway Financial Services Inc.	KFS		3,343,441		2,415,496		453,572		407,795		1,484,263		2,537,757		0.76		5.33		0.14		0.12		1.70		81.20		35.20		116.40		-9.61		-50.45
Markel Corporation	MKL		9,477,690		6,320,227		2,180,674		1,836,643		2,022,184		6,908,456		0.73		2.90		0.23		0.19		0.80		62.76		36.52		99.28		-0.59		-2.39
Meadowbrook Insurance Group, Inc.	MIG		1,813,916		1,167,783		438,170		272,191		369,721		1,085,648		0.60		2.67		0.24		0.15		1.06		62.00		31.30		93.30		1.98		7.75
Mercer Insurance Group, Inc.	MIGP		568,986		384,408		137,270		131,565		152,577		381,333		0.67		2.80		0.24		0.23		1.09		62.40		35.70		98.10		1.48		6.09
Mercury General Corporation	MCY		3,950,195		2,013,159		1,494,051		1,694,772		2,808,839		2,969,216		0.75		1.35		0.38		0.43		1.56		73.30		28.50		101.80		-5.70		-13.71
Montpelier Re Holdings Ltd.	MRH		2,797,600		994,100		1,357,600		1,352,850		528,500		2,365,200		0.85		0.73		0.49		0.48		0.36		55.80		35.20		91.00		-4.52		-9.60

Exhibit VI-1 (Continued)
Penn Millers Mutual Holding Company
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		990,812		556,599		216,074		216,074		290,741		563,714		0.57		2.58		0.22		0.22		1.39		64.70		24.70		89.40		1.08			4.97
National Security Group, Inc.	NSEC		124,890		73,314		34,648		34,648		56,264		93,159		0.75		2.12		0.28		0.28		1.46		79.53		43.19		122.72		-3.79			-12.29
Navigators Group, Inc.	NAVG		3,349,580		2,334,329		689,317		682,695		643,976		1,917,715		0.57		3.39		0.21		0.20		0.99		61.00		32.80		93.80		1.59			7.70
NYMAGIC, INC.	NYM		946,476		632,114		164,073		164,073		167,073		546,986		0.58		3.85		0.17		0.17		0.74		65.80		46.30		112.10		-10.16			-46.53
Odyssey Re Holdings Corp.	ORH		9,726,509		5,952,439		2,827,735		2,777,435		2,076,364		7,892,538		0.81		2.11		0.29		0.29		0.75		72.70		28.50		101.20		5.66			20.23
Old Republic International Corporation	ORI		13,266,000		8,534,300		3,740,300		3,578,900		3,318,100		8,746,800		0.66		2.28		0.28		0.27		0.75		81.80		39.10		120.90		-4.23			-13.54
OneBeacon Insurance Group, Ltd.	OB		7,940,800		5,382,200		1,155,100		1,155,100		1,879,000		3,864,500		0.49		4.66		0.15		0.15		1.28		59.90		35.10		95.00		-4.39			-24.99
PartnerRe Ltd.	PRE		16,279,320		10,216,468		4,199,108		3,769,589		3,928,024		11,724,671		0.72		2.43		0.26		0.23		0.93		63.90		30.20		94.10		0.28			1.08
Platinum Underwriters Holdings, Ltd.	PTP		4,927,163		2,682,396		1,809,397		1,809,397		1,114,796		4,259,939		0.86		1.48		0.37		0.37		0.55		64.40		27.50		91.90		4.54			11.95
PMA Capital Corporation	PMACA		2,502,716		1,496,535		344,656		314,308		390,217		772,498		0.31		4.34		0.14		0.13		1.12		69.40		44.67		114.07		0.22			1.53
ProAssurance Corporation	PRA		4,280,938		2,565,224		1,423,585		1,351,372		459,278		3,579,401		0.84		1.80		0.33		0.32		0.33		46.10		21.90		68.00		4.05			13.66
Progressive Corporation	PGR		18,250,500		10,353,300		4,215,300		4,215,300		13,631,400		12,981,000		0.71		2.46		0.23		0.23		2.96		73.50		21.10		94.60		-0.37			-1.52
RenaissanceRe Holdings Ltd.	RNR		7,984,051		2,670,847		3,032,743		2,958,562		1,386,824		6,317,274		0.79		0.88		0.38		0.37		0.41		54.80		24.20		79.00		0.35			0.89
RLI Corp.	RLI		2,419,401		1,494,481		708,154		681,940		528,764		1,697,525		0.70		2.11		0.29		0.28		0.68		46.70		37.50		84.20		3.02			10.45
Safety Insurance Group, Inc.	SAFT		1,437,817		757,254		603,371		603,371		576,556		1,071,590		0.75		1.26		0.42		0.42		0.94		64.10		30.00		94.10		4.83			11.93
SeaBright Insurance Holdings, Inc.	SBX		842,687		447,958		324,813		320,202		248,644		554,377		0.66		1.38		0.39		0.38		0.83		56.70		28.50		85.20		3.68			9.49
Selective Insurance Group, Inc.	SIGI		4,941,332		3,485,307		890,493		860,856		1,495,490		3,558,952		0.72		3.91		0.18		0.17		1.48		67.80		33.20		101.00		0.87			4.35
Specialty Underwriters’ Alliance, Inc.	SUAI		454,737		295,553		136,289		125,544		143,465		263,613		0.58		2.17		0.30		0.28		1.03		62.30		39.12		101.42		1.72			5.54
State Auto Financial Corporation	STFC		2,443,600		1,306,300		761,000		759,000		1,126,000		2,091,800		0.86		1.72		0.31		0.31		1.43		75.20		34.60		109.80		-1.28			-3.70
Tower Group, Inc.	TWGP		1,533,013		863,838		335,204		295,778		314,551		709,555		0.46		2.58		0.22		0.19		1.08		51.70		30.70		82.40		4.08			18.01
Transatlantic Holdings, Inc.	TRH		13,376,938		9,344,615		3,198,220		3,198,220		4,067,389		10,518,477		0.79		2.92		0.24		0.24		1.26		71.50		27.00		98.50		0.68			3.13
Travelers Companies, Inc.	TRV		109,751,000		72,030,000		25,319,000		21,265,000		21,579,000		71,088,000		0.65		2.84		0.23		0.19		0.84		59.40		32.50		91.90		2.58			11.36
Unico American Corporation	UNAM		184,603		98,617		76,958		76,958		33,950		152,502		0.83		1.28		0.42		0.42		0.43		60.70		24.30		85.00		2.81			7.33
United America Indemnity, Ltd.	INDM		2,473,201		1,656,106		631,993		622,684		382,508		1,599,528		0.65		2.62		0.26		0.25		0.40		79.80		37.30		117.10		-5.34			-18.34
United Fire & Casualty Company	UFCS		2,687,130		1,970,740		641,741		641,191		503,375		2,205,355		0.82		3.07		0.24		0.24		0.69		84.50		29.40		113.90		-0.48			-1.82
Universal Insurance Holdings, Inc.	UVE		544,637		346,437		101,554		101,554		147,414		266,014		0.49		3.41		0.19		0.19		1.61		55.20	NA		NA			7.17			42.86
Validus Holdings, Ltd.	VR		4,322,480		1,844,753		1,938,734		1,791,124		1,256,518		3,281,385		0.76		0.95		0.45		0.41		0.63		61.50		30.70		92.20		1.19			2.69
W.R. Berkley Corporation	WRB		16,121,158		10,965,746		3,046,319		2,938,755		4,289,580		12,278,116		0.76		3.60		0.19		0.18		1.23		62.70		30.40		93.10		1.70			8.60
Wesco Financial Corporation	WSC		3,050,695		323,063		2,377,756		2,100,014		237,964		2,194,592		0.72		0.14		0.78		0.69		0.13		72.36		29.54		101.90		2.59			3.30
White Mountains Insurance Group, Ltd.	WTM		15,895,800		8,997,500		2,898,800		2,879,300		3,710,000		9,529,200		0.60		3.10		0.18		0.18		0.87		67.56		32.86		100.42		-3.03			-12.96
Zenith National Insurance Corp.	ZNT		2,520,783		1,319,812		1,023,437		1,002,452		607,327		1,968,472		0.78		1.29		0.41		0.40		0.55		46.00		40.00		86.00		3.57			8.90

Group Aggregate
Overall P&C Insurance Group Mean			12,566,065		6,796,363		3,381,086		2,791,377		2,404,730		8,012,686		0.70		2.45		0.30		0.28		0.91		63.29		30.96		94.35		0.74			3.10
Overall P&C Insurance Group Median			2,924,148		1,715,040		764,148		718,080		552,660		2,199,974		0.72		2.20		0.27		0.24		0.83		64.10		30.30		94.25		1.37			4.55

P&C Group Mean > $1.2 Bil. Total Assets			18,081,814		9,780,953		4,846,812		3,993,509		3,436,251		11,510,847		0.70		2.69		0.29		0.27		0.88		63.45		30.76		94.21		0.92			3.46
P&C Group Median > $1.2 Bil. Total Assets			5,844,773		3,338,982		1,869,074		1,785,808		1,321,671		3,956,230		0.72		2.33		0.26		0.24		0.81		64.30		30.20		93.80		1.50			4.55

P&C Group Mean < $1.2 Bil. Total Assets			685,989		368,017		224,137		202,170		182,992		478,186		0.70		1.94		0.33		0.30		0.98		62.94		31.40		94.65		0.36			2.32
P&C Group Median < $1.2 Bil. Total Assets			789,897		330,086		216,279		149,137		169,952		459,577		0.72		2.05		0.28		0.25		0.87		63.30		30.90		97.20		0.63			2.82

P&C Group Mean > $500 m Total Revenue			14,077,671		7,614,522		3,784,390		3,124,460		2,686,758		8,974,499		0.69		2.55		0.29		0.27		0.89		63.12		30.88		94.10		0.85			3.60
P&C Group Mean > $500 m Total Revenue			3,349,580		2,252,161		986,013		935,999		658,532		2,473,738		0.72		2.38		0.26		0.24		0.82		63.82		30.20		94.10		1.48			4.97

P&C Group Mean < $500 m Total Revenue			305,255		160,192		109,845		89,707		117,170		211,320		0.72		1.63		0.36		0.31		1.13		64.66		31.63		96.29		(0.16	)		(0.95	)
P&C Group Median < $500 m Total Revenue			283,554		128,926		108,860		81,228		121,942		213,516		0.75		1.46		0.37		0.28		0.94		69.70		32.91		101.42		(1.18	)		(3.04	)

Source: SNL Financial.

Exhibit VI-2

Penn Millers Mutual Holding Company

Market Valuation Data for Publicly Traded Property and Casualty Companies


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


21st Century Holding Company	TCHC		3.30		8,014		26,446		34.69		34.69		6.00	Neg			0.39			13.42		15.55		(74.10	)
ACE Limited	ACE		40.82		332,800		13,584,896		94.04		126.97		5.24		11.56		0.99			18.85		2.04		(28.77	)
Affirmative Insurance Holdings, Inc.	AFFM		3.25		15,415		50,099		23.14		140.81		27.08		27.08		0.11			6.25		2.53		(58.01	)
Alleghany Corporation	Y		274.98		8,438		2,320,344		87.67		92.98		23.09		17.48		2.35			37.53	NA			(18.79	)
Allied World Assurance Company Holdings, Ltd	AWH		38.55		50,367		1,941,641		80.34		93.49		4.27		10.74		1.68			21.40		1.77		(8.63	)
Allstate Corporation	ALL		20.06		536,100		10,754,166		85.07		91.39		6.12	Neg			0.37			7.98		5.01		(59.74	)
American Financial Group, Inc.	AFG		16.35		116,600		1,906,410		76.56		86.52		4.00		9.79		0.44			7.21		2.19		(39.40	)
American Physicians Capital, Inc.	ACAP		41.64		9,379		390,542		153.73		153.73		8.56		9.05		2.44			38.83		0.83		(13.79	)
American Physicians Service Group, Inc.	AMPH		19.08		7,134		136,117		99.74		101.43		7.23		7.23		1.82			48.00		1.39		(2.20	)
American Safety Insurance Holdings, Ltd.	ASI		11.28		10,274		115,895		53.40		55.90		376.00		376.00		0.60			11.29	NA			(37.40	)
AMERISAFE, Inc.	AMSF		16.11		19,198		309,277		122.11		122.11		5.51		7.49		1.02			27.92	NA			18.98
AmTrust Financial Services, Inc.	AFSI		9.37		60,281		564,833		143.89		194.69		4.52		6.84		0.98			17.97		1.72		(43.21	)
Arch Capital Group Ltd.	ACGL		55.74		60,048		3,347,090		97.50		98.28		6.23		13.63		1.13			22.90	NA			(21.95	)
Argo Group International Holdings, Ltd.	AGII		30.37		30,700		932,359		68.92		85.12		10.88	Neg			0.74			14.61	NA			(16.70	)
Aspen Insurance Holdings Limited	AHL		22.66		83,423		1,890,365		68.02		68.22		12.48		25.46		1.06			25.94		2.47		(15.89	)
AXIS Capital Holdings Limited	AXS		23.59		149,363		3,523,473		78.98		80.07		8.08		10.44		1.25			24.67		2.75		(32.87	)
Baldwin & Lyons, Inc.	BWINB		19.61		14,880		291,789		88.40		89.32		12.51	Neg			1.86			37.52		5.50		(23.76	)
Berkshire Hathaway Inc.	BRK.A		87,600.00		1,549		135,712,548		124.20		179.79		14.08		27.17		1.26			50.75	NA			(33.41	)
Chubb Corporation	CB		42.65		359,600		15,336,940		114.18		118.29		7.50		8.67		1.16			31.67		2.59		(16.81	)
Cincinnati Financial Corporation	CINF		23.72		162,486		3,854,158		92.16		92.16		11.20		9.05		1.01			28.83		5.37		(40.66	)
CNA Surety Corporation	SUR		18.81		44,266		832,643		108.52		132.48		7.48		7.55		1.74			53.19	NA			19.05
CRM Holdings, Ltd.	CRMH		0.63		16,491		10,389		9.54		9.84	Neg		Neg			0.07			2.34	NA			(87.27	)
Donegal Group Inc.	DGICA		15.21		25,496		387,790		106.66		106.93		14.12		15.21		1.04			44.06		2.50		(13.82	)
Eastern Insurance Holdings, Inc.	EIHI		7.60		8,765		66,569		48.19		56.32	Neg		Neg			0.51			17.64		3.49		(49.57	)
EMC Insurance Group Inc.	EMCI		21.48		13,291		285,489		100.91		101.25		20.12	Neg			0.69			25.76		2.81		(25.26	)
Employers Holdings, Inc.	EIG		10.05		48,902		491,465		110.51		125.91		4.86		4.86		1.24			13.08		1.45		(44.90	)
Endurance Specialty Holdings Ltd.	ENH		25.45		59,616		1,517,234		68.74		75.62		8.31		19.28		0.85			20.86		3.28		(33.36	)
Enstar Group Limited	ESGR		57.09		14,471		826,166		134.29		139.09		9.05		9.05		16.49			18.96	NA			(48.52	)
Erie Indemnity Company	ERIE		33.88		57,405		1,944,891		245.61		245.61		13.63		28.47		1.81			74.42		4.78		(35.41	)
Everest Re Group, Ltd.	RE		72.37		61,272		4,434,255		89.39		89.39		7.88	Neg			1.26			26.32		2.52		(22.61	)
Fairfax Financial Holdings Limited	FFH		323.50		17,592		5,691,128		114.54		117.45		4.07		4.07		0.71			20.84		1.60		2.27
First Acceptance Corporation	FAC		2.44		47,658		116,286		51.53		143.16	Neg		Neg			0.39			26.34	NA			(18.39	)
First Mercury Financial Corporation	FMR		14.58		18,357		267,649		102.30		136.00		8.53		6.66		1.24			28.36	NA			(17.53	)
Flagstone Reinsurance Holdings Limited	FSR		8.05		84,879		683,272		69.30		73.00	Neg		Neg			1.51			30.83		1.64		(36.81	)
FPIC Insurance Group, Inc.	FPIC		38.00		8,120		308,560		118.73		123.89		7.51		10.22		1.62			30.92	NA			(22.02	)
GAINSCO, INC.	GAN		1.45		16,100		23,345		42.18		42.65		32.56	Neg			0.12			9.75	NA			(51.01	)
Greenlight Capital Re, Ltd.	GLRE		16.77		35,919		602,355		124.10		124.10	Neg		Neg			(53.89	)		62.88	NA			(8.86	)
Hallmark Financial Services, Inc.	HALL		6.61		20,815		137,587		76.69		125.81		6.80		6.30		0.51			25.55	NA			(45.05	)
Hanover Insurance Group, Inc.	THG		29.84		51,400		1,533,776		81.27		89.31		8.71		74.60		0.57			16.62		1.05		(30.99	)
Harleysville Group Inc.	HGIC		32.26		28,353		914,677		140.15		145.36		11.26		22.40		0.93			28.99		3.46		(12.05	)
HCC Insurance Holdings, Inc.	HCC		25.84		114,111		2,948,628		111.72		165.61		9.13		9.79		1.29			35.39		1.87		8.12
Hilltop Holdings Inc.	HTH		11.41		56,456		644,163		81.39		85.49	Neg		Neg			6.28			61.42	NA			8.56

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


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


Horace Mann Educators Corporation	HMN		8.42		39,800		335,116		74.66		83.48		6.48		31.19		0.40		6.08		2.29		(54.26	)
Infinity Property and Casualty Corporation	IPCC		34.54		14,303		494,026		94.04		109.77		6.95		28.08		0.53		28.70		0.94		(23.12	)
IPC Holdings, Ltd.	IPCR		27.48		55,135		1,515,105		81.86		81.86		5.86		18.95		4.84		63.43		2.94		(4.95	)
Kingsway Financial Services Inc.	KFS		2.58		55,090		142,132		31.34		34.85	Neg		Neg			0.10		4.25		4.37		(78.78	)
Markel Corporation	MKL		287.86		9,823		2,827,597		129.67		153.95		13.72	Neg			1.49		29.83	NA			(36.87	)
Meadowbrook Insurance Group, Inc.	MIG		6.52		57,781		376,730		85.98		138.41		9.71		10.69		0.86		20.77		1.24		(22.01	)
Mercer Insurance Group, Inc.	MIGP		14.40		6,213		89,465		65.17		68.00		6.93		11.08		0.55		15.72		2.37		(15.49	)
Mercury General Corporation	MCY		29.52		54,764		1,616,633		108.20		95.39		13.97	Neg			0.67		40.93		5.04		(36.53	)
Montpelier Re Holdings Ltd.	MRH		12.85		84,112		1,080,843		79.61		79.89		11.47	Neg			2.97		38.63		1.79		(23.28	)
National Interstate Corporation	NATL		16.88		19,377		327,084		151.38		151.38		9.98		30.69		1.11		33.01		1.34		(26.51	)
National Security Group, Inc.	NSEC		10.85		2,467		26,763		77.24		77.24	Neg		Neg			0.44		21.43		6.57	NA
Navigators Group, Inc.	NAVG		47.17		16,971		800,522		116.13		117.26		10.45		15.52		1.17		23.90	NA			(15.95	)
NYMAGIC, INC.	NYM		11.44		8,388		95,959		58.49		58.49	Neg		Neg			1.71		10.14		1.68		(50.43	)
Odyssey Re Holdings Corp.	ORH		39.17		59,818		2,343,059		82.86		84.36		25.17		4.61		0.77		24.09		0.58		3.51
Old Republic International Corporation	ORI		11.20		233,764		2,618,154		70.00		73.16	Neg		Neg			0.81		19.74		5.70		(20.68	)
OneBeacon Insurance Group, Ltd.	OB		10.49		95,100		997,599		86.36		86.36		8.77	Neg			0.77		12.56		8.05		(46.53	)
PartnerRe Ltd.	PRE		63.51		56,602		3,594,799		85.61		95.36		7.66		288.68		0.90		22.08		2.58		(18.12	)
Platinum Underwriters Holdings, Ltd.	PTP		29.00		54,499		1,580,471		87.35		87.35		7.29		7.29		1.20		32.08		0.89		(13.30	)
PMA Capital Corporation	PMACA		4.13		31,585		130,444		37.85		41.50		6.06		22.94		0.26		5.21	NA			(53.70	)
ProAssurance Corporation	PRA		47.38		33,765		1,599,786		112.38		118.38		7.73		9.08		2.82		37.37	NA			(12.98	)
Progressive Corporation	PGR		13.80		671,800		9,270,840		219.93		219.93		10.66	Neg			0.72		50.80	NA			(17.17	)
RenaissanceRe Holdings Ltd.	RNR		50.71		60,732		3,079,720		101.55		104.10		15.95	Neg			2.50		38.57		1.78		(4.77	)
RLI Corp.	RLI		50.86		21,706		1,103,967		155.89		161.89		10.13		14.13		1.95		45.63		1.70		(0.70	)
Safety Insurance Group, Inc.	SAFT		31.53		16,121		508,284		84.24		84.24		7.28		7.23		0.79		35.35		4.20		(13.73	)
SeaBright Insurance Holdings, Inc.	SBX		10.64		21,367		227,340		69.99		71.00		7.71		7.71		0.85		26.98	NA			(28.30	)
Selective Insurance Group, Inc.	SIGI		12.22		51,945		634,768		71.28		73.74		8.36		14.90		0.37		12.85		2.27		(50.67	)
Specialty Underwriters’ Alliance, Inc.	SUAI		3.35		15,800		52,930		38.84		42.16		7.13		7.13		0.34		11.64	NA			(27.96	)
State Auto Financial Corporation	STFC		17.67		39,500		697,965		91.72		91.96	Neg		Neg			0.59		28.56		2.00		(40.28	)
Tower Group, Inc.	TWGP		25.18		23,267		585,867		174.78		198.08		8.77		10.19		1.21		38.22		0.71		(6.88	)
Transatlantic Holdings, Inc.	TRH		37.19		66,595		2,476,668		77.44		77.44		6.43		24.31		0.61		18.51		1.90		(45.12	)
Travelers Companies, Inc.	TRV		42.14		593,000		24,989,020		98.70		117.51		7.82		8.74		1.02		22.77		2.65		(15.62	)
Unico American Corporation	UNAM		7.50		5,622		42,165		54.79		54.79		7.99		8.52		0.90		22.84	NA			(20.21	)
United America Indemnity, Ltd.	INDM		4.10		31,410		128,781		20.38		20.68	Neg		Neg			0.32		5.21	NA			(79.54	)
United Fire & Casualty Company	UFCS		22.64		26,693		604,324		94.17		94.25	Neg		Neg			1.00		22.49		1.93		(40.55	)
Universal Insurance Holdings, Inc.	UVE		3.80		39,511		150,141		147.84		147.84		3.75		3.58		0.82		27.57		32.92		(6.17	)
Validus Holdings, Ltd.	VR		23.91		75,741		1,810,957		93.41		101.11		10.35		12.65		1.42		41.90		3.63		2.01
W.R. Berkley Corporation	WRB		23.02		167,859		3,864,114		126.85		131.49		7.53		10.05		0.82		23.97		0.87		(19.71	)
Wesco Financial Corporation	WSC		275.00		7,120		1,957,948		82.34		93.23		25.24		21.09		2.45		64.18		0.53		(33.09	)
White Mountains Insurance Group, Ltd.	WTM		180.38		6,529		1,177,788		40.63		40.91	Neg		Neg			0.40		7.41		0.39		(61.63	)
Zenith National Insurance Corp.	ZNT		25.06		37,435		938,121		91.66		93.58		8.74		7.41		1.37		37.22		6.64		(32.80	)

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


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

Group Aggregate
Overall P&C Insurance Group Mean			3,640,874		92.39		102.64		15.39		26.05		0.66			27.33		3.42		(27.47	)
Overall P&C Insurance Group Median			813,344		87.51		93.53		8.34		10.44		0.95			25.66		2.29		(23.28	)

P&C Group Mean > $1.2 Bil. Total Assets			5,238,741		97.76		107.00		9.60		22.47		1.45			27.73		2.62		(27.32	)
P&C Group Median > $1.2 Bil. Total Assets			1,590,128		90.53		93.53		8.36		11.15		1.01			24.38		2.12		(23.20	)

P&C Group Mean < $1.2 Bil. Total Assets			199,315		80.81		93.24		30.32		35.60		(1.02	)		26.45		6.11		(27.82	)
P&C Group Median < $1.2 Bil. Total Assets			136,852		76.96		95.28		7.99		8.52		0.76			26.05		2.53		(23.76	)

P&C Group Mean > $500 m Total Revenue			6,418,519		94.00		101.42		9.68		25.82		1.04			25.93		2.75		(26.45	)
P&C Group Mean > $500 m Total Revenue			1,898,388		88.53		92.57		8.54		12.65		0.96			24.38		2.27		(22.87	)

P&C Group Mean < $500 m Total Revenue			424,654		90.51		104.06		22.63		26.29		0.23			28.94		4.64		(28.70	)
P&C Group Median < $500 m Total Revenue			276,569		84.16		104.18		7.86		9.06		0.94			26.05		2.44		(25.26	)


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 Mutual Holding Company
Pro Forma Assumptions for Conversion Valuation


B-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.


B-2		Offering expenses are estimated at $2.570 million plus commissions and fees of 1.5% of the total shares sold in the subscription and community offerings. Also assumes that no shares are sold in a syndicated community offering.


B-3		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.

B-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 2.78%, which represents the estimated yield on the 10 year U.S. Treasury bond at the end March 2009. The effective income tax rate was assumed to be 35.0%, resulting in an after-tax yield of 1.81%.

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

B-6		No effect has been given in the pro forma equity calculation for the assumed earnings on the net proceeds.

B-7		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.

B-8		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.

B-9		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 Mutual Holding Company
Pro Forma Conversion Valuation Range
(Dollars in Thousands, except per share data)


	Minimum			Midpoint			Maximum
Total implied shares offered		4,505,000			5,300,000			6,095,000
Offering price (b-1)	$	10.00		$	10.00		$	10.00

Implied gross proceeds:	$	45,050		$	53,000		$	60,950
Less: estimated expenses (b-2)		(3,246	)		(3,365	)		(3,484	)

Implied net offering proceeds		41,804			49,635			57,466
Less: ESOP purchase (b-3)		(4,505	)		(5,300	)		(6,095	)

Net investable proceeds (b-4)	$	37,299		$	44,335		$	51,371

Net income:
LTM ended 12/31/2008 (a)		(4,459	)		(4,459	)		(4,459	)
Pro forma income on net proceeds (b-4)		674			801			928
Pro forma ESOP adjustment (b-5)		(293	)		(345	)		(396	)

Pro forma net income		(4,078	)		(4,002	)		(3,927	)
Pro forma earnings per share (b-8)		(1.01	)		(0.84	)		(0.72	)
Total Revenue:
LTM ended 12/31/2008 (a)		78,664			78,664			78,664
Pro forma revenue on net proceeds, pre-tax		1,037			1,233			1,428

Pro forma total revenue		79,701			79,897			80,092
Total Equity:
Total equity at 12/31/2008		50,755			50,755			50,755
Net offering proceeds		41,804			49,635			57,466
Less: ESOP purchase		(4,505	)		(5,300	)		(6,095	)

Pro forma total equity (b-6)		88,054			95,090			102,126
Pro forma book value per share (b-7)		19.55			17.94			16.76
Tangible Equity:
Total tangible equity at 12/31/2008 (c)		48,144			48,144			48,144
Net offering proceeds		41,804			49,635			57,466
Less: ESOP purchase		(4,505	)		(5,300	)		(6,095	)

Pro forma tangible equity		85,443			92,479			99,515
Pro forma tangible book value per share (b-7)		18.97			17.45			16.33
Total Assets:
Total assets at 12/31/2008		220,524			220,524			220,524
Net offering proceeds		41,804			49,635			57,466
Less: ESOP purchase		(4,505	)		(5,300	)		(6,095	)

Pro forma total assets		257,823			264,859			271,895
Pro Forma Ratios:
Price / LTM EPS		-9.94x			-11.92x			-13.97x
Price / LTM Revenue		0.57x			0.66x			0.76x
Price / Book Value		51.16	%		55.74	%		59.68	%
Price / Tangible Book Value		52.73	%		57.31	%		61.25	%
Price / Total Assets		17.47	%		20.01	%		22.42	%
Total Equity / Assets		34.15	%		35.90	%		37.56	%
Tangible Equity / Assets		33.14	%		34.92	%		36.60	%


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 $2.147 million and $464,000, which are classified as assets from discontinued operations in the December 31, 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 Conversion Valuation
VII-2.		Pro Forma 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


	12/31/2008				12/31/2007				12/31/2006
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
ASSETS
Fixed Securities:
U.S. government and agencies		23,459		25,399		26,360		26,984		27,509		27,461
State and political subdivisions		31,775		32,957		30,321		31,134		26,538		27,047
Mortgage backed		25,374		25,305		20,636		20,724		11,618		11,488
Corporate		39,930		38,253		33,656		33,927		33,964		33,910

Total fixed securities		120,538		121,914		110,973		112,769		99,629		99,906

Equity		—		—		10,525		13,409		10,476		13,697

Total investment securities		120,538		121,914		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 Conversion Offering			7
Agribusiness Segment			8
Commercial Lines Segment			9
Reinsurance			9
Marketing and Distribution			11
Underwriting, Risk Assessment, and Pricing			12
Claims Management			12
Financial Strength Ratings by A.M. Best			13
Financial Condition			14
Income and Expense Trends			18
III. INDUSTRY FUNDAMENTALS			27
IV. COMPARISONS WITH PUBLICLY-TRADED COMPANIES			31
General Overview			31
Selection Criteria			32
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			54
Dividend Outlook			56
New Issue Discount			57
Summary of Adjustments			57
Valuation Approach			58
Valuation Conclusion			60

	•		value for the policyholders who invest;

	•		attracting, retaining and motivating personnel and agents; and

	•		enhancing company image and visibility.

	•		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 December 31, 2008 (the “LTM Period”).

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

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

	•		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 April 22, 2009


Notes:


Source: Audited GAAP financial reports prepared by the management of the Company and audited by KPMG.


	Respectfully submitted,

	Curtis Financial Group, LLC