exv99w7

Exhibit 99.7

PENN MILLERS MUTUAL HOLDING COMPANY
72 NORTH FRANKLIN STREET
WILKES-BARRE, PENNSYLVANIA 18773

NOTICE OF SPECIAL MEETING OF MEMBERS

Notice is hereby given that a Special Meeting of Members (the “Special Meeting”) of Penn Millers Mutual Holding Company (“Penn Millers Mutual” or the “Company”) will be held at on October 15, 2009, at a.m. Business to be considered at the Special Meeting shall be:

	(1)		To consider and vote upon the Plan of Conversion from Mutual to Stock Organization (the “Plan”) providing for the conversion of Penn Millers Mutual from a Pennsylvania mutual holding company to a Pennsylvania stock holding company, and certain related transactions including the adoption of Amended and Restated Articles of Incorporation of the Company.

	(2)		To consider and vote upon any other matters that may lawfully come before the Special Meeting.

As of the date of mailing of this Notice of Special Meeting, the Board of Directors is not aware of any other matters that may come before the Special Meeting.

Under the Bylaws of Penn Millers Mutual, each named insured under a policy of insurance issued by Penn Millers Mutual that was in force at the close of business on July 10, 2009, is a member entitled to vote, except that each such member is entitled to only one vote at the Special Meeting.


	BY THE ORDER OF THE BOARD OF DIRECTORS

	Douglas A. Gaudet
	President, Chief Executive Officer and Director

, 2009
Wilkes-Barre, Pennsylvania

THE BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL. WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, FILL IN, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD(S) USING THE ENCLOSED PROXY REPLY ENVELOPE. THIS WILL ASSURE THAT YOUR VOTE(S) WILL BE COUNTED, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING. VOTING IN FAVOR OF THE PLAN WILL NOT OBLIGATE YOU TO PURCHASE COMMON STOCK IN THE OFFERING. IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT AT PENN MILLERS MUTUAL AT (800) XXX-XXXX, BETWEEN THE HOURS OF 10:00 A.M. AND 4:00 P.M.

PENN MILLERS MUTUAL HOLDING COMPANY

PROXY STATEMENT

YOUR PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PENN MILLERS MUTUAL INSURANCE COMPANY FOR USE AT A SPECIAL MEETING OF ITS MEMBERS TO BE HELD ON OCTOBER 15, 2009, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING.

THE BOARD OF DIRECTORS URGES YOU TO VOTE “FOR” THE PLAN OF CONVERSION FROM MUTUAL TO STOCK ORGANIZATION OF PENN MILLERS MUTUAL.

INTRODUCTION

Purpose of Meeting. A Special Meeting of Members (the “Special Meeting”) of Penn Millers Mutual Holding Company (“Penn Millers Mutual” or the “Company”) will be held at , , on October 15, 2009, at , Eastern Time. The purpose of the Special Meeting is to consider and vote upon a Plan of Conversion from Mutual to Stock Organization (the “Plan”) (enclosed herein). The Plan was adopted by the Company’s Board of Directors and, if approved by a majority of members at the Special Meeting who are the named insureds under policies of insurance issued by the Company that were in force at the close of business on July 10, 2009 (“the Voting Record Date”), will permit the Company to convert from a Pennsylvania mutual holding company to a Pennsylvania stock holding company (the “Conversion”) and become a wholly-owned subsidiary of Penn Millers Holding Corporation (the “Holding Company”) pursuant to the provisions of the Pennsylvania Business Corporation Law (the “Act”). The Holding Company is a Pennsylvania corporation formed by Penn Millers Mutual for the purpose of becoming its holding company upon the completion of the Conversion. All statements made in this Proxy Statement regarding the Plan are qualified in their entirety by reference to the Plan, a copy of which is attached hereto as Exhibit A.

The Plan and the Amended and Restated Articles of Incorporation are available at from the Company’s website, www.pennmillers.com.

INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING

The Board of Directors of the Company has determined that, in accordance with the Bylaws of the Company and the terms of the Plan, each named insured under an insurance policy issued by Penn Millers Insurance Company, its property and casualty insurance company subsidiary, that was in force at the close of business on the Voting Record Date is a member who is entitled to notice of and to vote at the Special Meeting (a “Record Date Member”). Each Record Date Member will be entitled at the Special Meeting to cast only one vote if such member of the Company is the named insured as of the Voting Record Date. Thus, a Record Date Member under more than one insurance policy in force as of the Voting Record Date will have only one vote. If there is more than one Record Date Member under an insurance policy in force as of the Voting Record Date, those Record Date Members will collectively have only one vote with respect to such insurance policy.

Twenty-five Record Date Members must be present, in person or by proxy, to constitute a quorum at the Special Meeting. Approval of the Plan will require the affirmative vote, either in person or by proxy, of at least a majority of the Record Date Members at the Special Meeting. As of the Voting Record Date, the Company had policies outstanding with respect to which the Record Date Members would be entitled to cast a total of votes at the Special Meeting.

Record Date Members may vote at the Special Meeting or any adjournment thereof in person or by proxy. If no contrary instructions are given, signed proxies will be voted in favor of the Plan. If any other matters are properly presented before the Special Meeting, the proxies solicited hereby will be voted on such matters by the proxyholders according to their discretion. Any member giving a proxy will have the right to revoke his or her proxy at any time before it is voted by delivering written notice or a duly executed proxy bearing a later date to the Secretary of the Company, or by attending the Special Meeting and voting in person.

In the event of more than one Record Date Member under an insurance policy, only one signature is required on the proxy. In the event that conflicting proxies are received from more than one Record Date Member with respect to the same policy or in the case of a tie,

the proxyholders will vote in accordance with the instructions set forth in the latest proxy to be filed.

The Company has retained Griffin Financial Group, LLC (“Griffin Financial”) to act as a best efforts underwriter in connection with the offering related to this Conversion. Independent agents of the Company, as the primary contact between the Company and members, frequently can be expected to be the initial contact with members and, as a result, may obtain proxies for or against the Plan. The Company expects to reimburse agents for their reasonable expenses. Proxies also may be solicited by officers, directors or other employees of the Company, in person, by telephone or through other forms of communication. Such persons will be reimbursed by the Company only for their expenses incurred in connection with this solicitation.

The proxies solicited hereby will be used only at the Special Meeting and at any adjournment thereof; they will not be used at any other meeting.

PENN MILLERS HOLDING CORPORATION

Penn Millers Holding Corporation was incorporated under the laws of the Commonwealth of Pennsylvania at the direction of the Board of Directors of Penn Millers Mutual for the purpose of serving as a holding company of Penn Millers Mutual upon the acquisition of all of the capital stock issued by Penn Millers Mutual in the Conversion. Prior to the Conversion, the Holding Company has not engaged, and will not engage, in any material operations. Upon completion of the Conversion, the Holding Company will have no significant assets other than the outstanding capital stock of Penn Millers Mutual and between approximately $37.3 million and $57.4 million of the net proceeds from the offering. The Holding Company’s principal business will be to hold the stock of Penn Millers Mutual. The Holding Company also may provide management services to Penn Millers Mutual, and its insurance company subsidiary, Penn Millers Insurance Company.

The holding company structure will permit the Holding Company to expand the services currently offered through Penn Millers Insurance Company, although there are no definitive plans or arrangements for expansion at present. The Holding Company will have greater flexibility than Penn Millers Mutual to diversify its business activities through existing or

newly-formed subsidiaries or through acquisition or merger with other insurance companies or financial service institutions. After the Conversion, the Holding Company will be subject to regulation by the Pennsylvania Insurance Department (the “Department”).

The Holding Company’s executive offices are located at 72 North Franklin Street, Wilkes-Barre, Pennsylvania, and its telephone number is (800) XXX-XXXX.

PENN MILLERS MUTUAL HOLDING COMPANY

Penn Millers Mutual is a Pennsylvania-domiciled mutual holding company formed in 1999 when Penn Millers Insurance Company converted from mutual to stock form and reorganized in a mutual holding structure. Pursuant to the Department’s 1998 order approving Penn Millers Mutual was formed and each of the policyholders of Penn Millers Insurance Company became members of Penn Millers Mutual.

PENN MILLERS INSURANCE COMPANY

Penn Millers Insurance Company was originally formed as a mutual insurance company in 1887 and offers a wide array of property and casualty insurance products designed to meet the insurance needs of certain segments of the agricultural industry and small commercial businesses. Our agribusiness insurance product includes fire and allied lines, inland marine, general liability, commercial automobile, workers’ compensation and umbrella liability insurance. Our commercial product insurance product combines property, liability, business interruption, and crime coverage for small businesses; workers’ compensation; commercial automobile; and umbrella liability coverage. Penn Millers Insurance Company primarily markets its products through a network of over 450 independent producers in 33 states. Penn Millers Insurance Company has been assigned a “A-” (Excellent) rating by A.M. Best Company, Inc., which is the fourth highest out of fifteen ratings. The latest rating evaluation by A.M. Best Company, Inc. occurred on June 23, 2009.

Penn Millers Insurance Company and its affiliates are, and after the Conversion will continue to be, subject to examination and comprehensive regulation by the Department. The principal offices of Penn Millers Mutual and Penn Millers Insurance Company are located at 72 North Franklin Street, Wilkes-Barre, Pennsylvania 18773, and the telephone number for this office is (800) 233-8347.

DESCRIPTION OF THE PLAN OF CONVERSION

General

Effective as of April 22, 2009, Penn Millers Mutual adopted a Plan of Conversion to convert from a mutual to a stock form of organization. Pursuant to the Plan, Penn Millers Mutual will: (i) convert from a Pennsylvania-chartered mutual holding company to a Pennsylvania-chartered stock holding company, which will be accomplished by the amendment of its Articles of Incorporation to authorize the issuance of capital stock and to comply with the requirements of a Pennsylvania stock corporation, and (ii) issue all of its authorized capital stock to the Holding Company. The Holding Company will offer for sale between 4,505,000 and 6,095,000 shares of Holding Company common stock at a price of $10.00 per share (provided that, the maximum number of shares sold may be increased to 6,772,221 shares solely to accommodate the 9.99% interest being purchased by the ESOP, as discussed in more detail below). This amount was determined based upon an independent valuation of the consolidated pro forma market value of Penn Millers Mutual as a subsidiary of the Holding Company. The valuation was performed by Curtis Financial Group, LLC (“Curtis Financial”).

The Conversion is contingent upon approval of the Plan by the Record Date Members of the Company. The Department is expected to approve the Plan subject to the satisfaction of certain other conditions imposed by the Department, including the Plan’s approval by the Record Date Members of the Company.

Background and Reasons for the Conversion

The Plan of Conversion was adopted by Penn Millers Mutual on April 22, 2009. The Company adopted the Plan of Conversion because it believes that growth is critical to Penn Millers Mutual’s success. Penn Millers Mutual believes that completion of the Conversion will

provide it with strategic flexibility. With increased capital the Company will be positioned to grow as an independent company and achieve its operational goals. Penn Millers believes this ability to continue as a separate, independent company is a desirable strategic position.

Operationally, Penn Millers Insurance Company is primarily a commercial property and casualty insurer and it expects that its agribusiness and commercial business will remain its focus. Penn Millers Insurance Company will use the capital generated by the Conversion and related stock offering to strengthen this core competency. Specifically, Penn Millers Insurance Company goals are to:

•		Take advantage of growth opportunities when and if a hard market cycle market returns. During a “hard market” cycle price competition is less severe in the property and casualty insurance industry and insurers are able to increase premiums, maintain underwriting discipline, and earn higher profit margins. During such hard market cycles, Penn Millers Insurance Company has historically experienced growth that exceeded industry growth rates. Therefore, Penn Millers Insurance Company wants to ensure it has sufficient capital to support the additional premium growth and growth opportunities that it may experience in the next hard market cycle.

•		Attract and retain high-quality insurance producers. Penn Millers Insurance Company’s policies are sold through select independent insurance producers. There producers significantly influence the insured’s decision to choose Penn Millers Insurance Company’s products over those of its competitors. Penn Millers Insurance Company will need capital to continue to differentiate itself and attracting producers through by providing responsive and consistent communications and services from Penn Millers Insurance Company loss control, claim adjustment, and management representatives.

•		Continue to develop and market products for niche businesses and industries. Penn Millers Insurance Company has been a niche player in the agribusiness market for over 120 years. In 2009, we introduced our PennEdge product that will enable us to write customized coverages for mid-size commercial accounts. The PennEdge product is designed for niche industry segments, such as dry cleaners, manufacturing, hospitality, and printers. Penn Millers Insurance Company will need capital to continue to develop and market these niche products by growing its producer network and entering into select strategic alliances.

The Offering of Holding Company Common Stock

In connection with the Plan, the Holding Company is concurrently offering for sale Holding Company common stock through the issuance of nontransferable subscription rights (the “Subscription Offering”), first, to the members of Penn Millers Mutual, who are policyholders of Penn Millers Insurance Company, as of April 22, 2009 (the “Eligible Members”), second, to the Holding Company’s employee stock ownership plan (the “ESOP”), and third, to the directors, officers and employees of the Company. Subscription rights received in any of the foregoing categories will be subordinated to the subscription rights of those in a prior category, except that the ESOP shall have the right to purchase in the aggregate up to 9.99% of the number of shares of Holding Company common stock issued in the Conversion.

This Proxy Statement does not constitute an offer to sell shares of Holding Company common stock. Such offer shall be made only by means of the prospectus that accompanies this Proxy Statement. Please review the prospectus carefully before investing. The prospectus contains detailed information concerning the Subscription Offering, including:

	•		a discussion of the risks of investing in shares of Holding Company common stock;

	•		historical financial data for Penn Millers Mutual;

	•		pro forma financial data for the Holding Company;

	•		a discussion of Penn Millers Mutual’s business, financial condition and results of operations;

	•		a review of certain tax consequences of the Conversion to Penn Millers Mutual and its members;

	•		information concerning management and management compensation; and

	•		a discussion of the Holding Company’s articles of incorporation and bylaws.

If Penn Millers Mutual receives subscriptions in the Subscription Offering for more than 6,095,000 shares, which is the maximum number being offered to Eligible Members and directors, officers and employees of Penn Millers Mutual, the subscription of such Eligible Members, directors, officers and employees of Penn Millers Mutual may be reduced. In that event, no shares will be sold in the Community Offering (as defined below), and the shares of common stock will be allocated first to Eligible Members and then to directors, officers and employees of Penn Millers Mutual. The maximum number of shares being offered will be increased to the extent necessary to allow the ESOP to purchase 9.99% of the shares issued in the Conversion.

If Eligible Members subscribe for more than 6,095,000 shares, no shares of common stock will be sold to directors, officers and employees of Penn Millers Mutual (except in his or her capacity as an Eligible Member). The shares of common stock will be allocated so as to permit each subscribing Eligible Members to purchase up to 1,000 shares (unless the magnitude of subscriptions does not permit such an allocation). Any remaining shares will be allocated among the Eligible Members who subscribe for more than 1,000 shares in proportion to the respective amounts of shares for which they subscribe.

To the extent that shares remain available after satisfaction of all subscriptions in the Subscription Offering, shares of Holding Company common stock may be offered to the general public in a community offering (the “Community Offering”). The Community Offering, if any, will commence at the same time as, during, or promptly after the Subscription Offering and will not continue for more than ___days after the end of the Subscription Offering, unless extended by us with the approval of the Department.

In the Community Offering, the Holding Company, in its sole and absolute discretion, may give preference to subscriptions received from the following categories of subscribers before proceeding to accept subscriptions from the general public:

•

licensed insurance agencies that have been appointed by or otherwise are under contract with Penn Millers Mutual to market and distribute policies of insurance;

	•		members under policies of insurance issued by Penn Millers Mutual after April 22, 2009; and

	•		natural persons and trusts of natural persons (including individual retirement and Keogh retirement accounts and personal trusts in which such natural persons have substantial interests) who are residents of Lackawanna or Luzerne Counties, Pennsylvania; and

Subject to the priority categories described in the preceding paragraph, the Holding Company common stock offered in the Community Offering will be offered and sold in a manner designed to achieve a wide distribution of the common stock. Unlike the Subscription Offering, purchasers in the Community Offering do not have any right to purchase shares in the Offering, and their orders are subordinate to the rights of the eligible subscribers in the Subscription Offering.

If the number of shares purchased in the Subscription and Community Offerings are collectively less than 4,505,000, then Penn Millers Mutual may choose to return all funds received in the Offerings promptly to purchasers, with any interest earned on such funds. Alternatively, Penn Millers Mutual may cause a new valuation of the pro forma market value of Penn Millers Mutual, as a subsidiary of LMI Holdings, to be performed, and based on this valuation commence a new offering of the common stock. In that event, people who submitted orders will be permitted to cancel, modify, or confirm their orders.

The Subscription Offering and the Community Offering (collectively, the “Conversion Offerings”) will be managed by Griffin Financial. Any shares of Holding Company Common Stock not purchased in the Conversion Offerings may, in the absolute discretion of the Holding Company, be offered for sale to the general public through a syndicate of registered broker-dealers to be formed and managed by Griffin Financial on the Holding Company’s behalf (the “Syndicated Community Offering”). The Conversion Offerings and the Syndicated Community Offering, if any, are hereinafter collectively referred to as the “Offerings.”

The common stock issued in the Offerings will be freely transferable under the 1933 Act; provided, however that shares issued to directors and officers of Penn Millers Mutual or of the Holding Company will be restricted as to transfer for a period of six months from the

effective date of the Conversion pursuant to the provisions of the Act, and will be subject to additional transfer restrictions under the 1933 Act.

Valuation of the Company

The Act requires that the aggregate purchase price of the Holding Company common stock to be issued in the Conversion be equal to the fair market value of such shares based upon an independent valuation of the estimated consolidated pro forma market value of Penn Millers Mutual. Curtis Financial, a firm experienced in corporate valuations, has made an independent appraisal of the estimated consolidated pro forma market value of Penn Millers Mutual (the “Valuation”) as a subsidiary of the Holding Company and has determined that, as of June 5, 2009, such estimated consolidated pro forma market value ranged from $45,050,000 to $60,950,000 (the “Estimated Valuation Range”). The Holding Company, in consultation with its advisors, has determined to offer the shares in the Conversion at a price of $10.00 per share (the “Purchase Price”). Accordingly, the Holding Company will offer between 4,505,000 and 6,095,000 shares of Holding Company common stock in the Offerings, except that the Holding Company may issue up to 6,772,221 shares if necessary to satisfy the ESOP’s subscription rights to purchase 9.99% of the shares issued in the Conversion.

The Valuation is not intended and must not be construed as a recommendation of any kind as to the advisability of purchasing shares or as any form of assurance that, after the Conversion, the shares can be resold at or above the Purchase Price. The Valuation considered a number of factors and was based upon estimates derived from those factors, all of which are subject to change from time to time. In preparing the Valuation, Curtis Financial relied upon and assumed the accuracy and completeness of financial and statistical information provided by Penn Millers Mutual. Curtis Financial did not verify the audited financial statements of Penn Millers Mutual as of and for the years ended December 31, 2008, 2007, 2006 and 2005, or independently value the assets of Penn Millers Mutual. The Valuation will be further updated immediately prior to the completion of the Conversion.

The total number of shares to be issued in the Conversion may be increased or decreased without a resolicitation of subscribers if the aggregate purchase price is not less than the minimum or more than the maximum of the Estimated Valuation Range, which maximum

may be increased if necessary to satisfy the subscription rights of the ESOP. Based on the Purchase Price and excluding shares issued to the ESOP, the total number of shares of Holding Company Common Stock that may be issued without a resolicitation of subscribers is from 4,505,000 to 6,095,000 shares. If, subsequent to re-solicitation, if any, less than the minimum number of shares offered is sold, all subscriptions will be canceled and all funds will be returned to subscribers with any interest earned on such funds.

Amendment of Articles of Incorporation.

The Conversion will be accomplished by the filing of amended and restated articles of incorporation for Penn Millers Mutual. These amended and restated articles will, among other things, create and authorize the issuance of shares of capital stock of the converted company. After issuance of the shares of capital stock to the Holding Company, Penn Millers Mutual will become a wholly owned stock subsidiary of the Holding Company. The Conversion will be effected only if subscriptions are received for at least 4,505,000 shares of common stock. The Conversion will be accounted for as a simultaneous reorganization, recapitalization and share offering that will not change the historical accounting basis of Penn Millers Mutual’s financial statements.

Effect of the Conversion on Members

General. Each member of Penn Millers Mutual is a policyholder of Penn Millers Insurance Company, and as such has certain interests in Penn Milers Mutual, including the right to vote for the election of directors and certain other corporate transactions, and the right to receive dividends if, as and when declared by the board of directors of the Company.

Mutual members also have rights in the unlikely event of a solvent dissolution of a mutual company. Under Pennsylvania law, it is unclear how mutual members are treated in this case. One provision of Pennsylvania law applies to all nonstock corporations. Under this provision, unless otherwise provided in the articles, bylaws or the documents evidencing membership in the nonstock corporation, upon a solvent dissolution, members have the right to receive a pro rata distribution of any surplus remaining after the satisfaction of all claims and other liabilities of the company. A more recent provision of Pennsylvania law, specifically applicable to mutual insurance companies, states that any surplus of a mutual insurance company

remaining after satisfaction of all claims and liabilities escheats to the Commonwealth of Pennsylvania. In the view of the Department, the more recent statute is controlling.

A member of Penn Millers Mutual, a mutual company must have an effective insurance policy issued by its insurance subsidiary, Penn Millers Insurance Company. However, this membership interest has no market value because it cannot be separated from the underlying policy and in any event is not transferable. A policyholder whose policy is terminated loses the membership interest. As of the completion of the Conversion, all member interests in Penn Millers Mutual described herein will terminate. However, the termination of your membership interest will not change your insurance coverage or premiums.

If the Plan of Conversion is not approved by Penn Millers Mutual’s Record Date Members or if the Conversion fails to be completed for any other reason, Penn Millers Mutual will continue as a mutual holding company. In this case, the Record Date Members will retain the rights described above.

Continuity of Insurance Coverage and Business Operations. The Conversion will not change the insurance protection or premiums under individual insurance policies with Penn Millers Insurance Company. During and after the Conversion, the normal business of Penn Millers Insurance Company of issuing insurance policies in exchange for premium payments and processing and paying claims will continue without change or interruption. After the Conversion, Penn Millers Insurance Company will continue to provide services for members under current policies and by its present management and staff.

The Board of Directors serving Penn Millers Mutual at the time of the Conversion will serve as the Board of Directors of Penn Millers Mutual after the Conversion. The Board of Directors of the Holding Company will consist of the following persons, each of whom is an existing director of Penn Millers Mutual: Heather M. Acker, F. Kenneth Ackerman, Jr., Dorrance R. Belin, John L. Churnetski, John M. Coleman, Douglas A. Gaudet, Kim E. Michelstein, Robert A. Nearing, Jr., Donald A. Pizer, James M. Revie, J. Harvey Sproul, Jr. All officers of Penn Millers Mutual at the time of the Conversion will retain their positions with Penn Millers Mutual after the Conversion.

Voting Rights. After the Conversion, the voting rights of all members in Penn Millers Mutual will cease. Members will no longer have the right to elect the directors of Penn Millers Mutual or approve transactions involving Penn Millers Mutual. Instead, voting rights in Penn Millers Mutual will be held by the Holding Company, which will own all the capital stock of Penn Millers Mutual. Voting rights in the Holding Company will be held by the shareholders of the Holding Company. Each holder of common stock will be entitled to vote on any matter to be considered by the shareholders of the Holding Company, subject to the terms of the Holding Company’s articles of incorporation and bylaws and to the provisions of Pennsylvania and federal law.

Dividends. The Conversion will not affect the reasonable expectation of a member to receive dividends from Penn Millers Mutual. Currently, dividends will be paid only if, as and when declared by the board of directors of Penn Millers Mutual. Penn Millers Mutual has never declared a member dividend. Regarding the Holding Company, its shareholders will have the exclusive right to receive any dividends paid by the Holding Company.

Rights Upon Dissolution. As discussed above, it is unclear what right members would have if there were a solvent dissolution of Penn Millers Mutual. However, it is clear that after the Conversion, members will no longer have the right to receive a pro rata distribution of any remaining surplus of Penn Millers Mutual. Instead, this right will vest in the Holding Company as the sole shareholder of Penn Millers Mutual. In the event of a liquidation, dissolution or winding up of the Holding Company, shareholders of the Holding Company would be entitled to receive, after payment of all debts and liabilities of the Holding Company, a pro rata portion of all assets of the Holding Company.

Tax Effects.

In General.

Penn Millers Mutual has obtained from Stevens & Lee an opinion concerning certain material tax consequences of the Conversion and the Subscription Offering to Penn Millers Mutual and the Eligible Members to the effect that, on the basis of certain facts and customary representations and assumptions that are set forth or referred to in such opinion and

must be consistent with the facts existing at the closing date of the Conversion, for federal income tax purposes:

	•		the Conversion of Penn Millers Mutual from mutual to stock form will constitute a reorganization within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the “Code”);

	•		no gain or loss will be recognized by Penn Millers Mutual in its pre-Conversion mutual or post-Conversion stock form solely as a result of the reorganization;

	•		Penn Millers Mutual’s basis in its assets, holding period for its assets, earnings and profits and accounting methods will not be affected by the reorganization, nor will Penn Millers Mutual’s net operating loss carryforward, if any, and capital loss carryforward, if any, be affected by the reorganization, except for possible limitations on the rate at which such carryforwards may be used after the reorganization;

	•		as discussed below, Eligible Members will be required to recognize gain upon the receipt of subscription rights if and to the extent that the subscription rights that are allocated to an Eligible Member are determined to have fair market value;

	•		the basis of the common stock purchased by an Eligible Member pursuant to the exercise of subscription rights will equal the sum of the purchase price of the stock, plus the gain, if any, recognized by the Eligible Member on the subscription rights that are exercised; and

	•		the holding period of the common stock purchased by an Eligible Member through the exercise of subscription rights will begin on the date on which the subscription rights are exercised. In all other cases, the holding period of common stock purchased by an Eligible Member will begin on the date following the date on which the stock is purchased.

Subscription Rights.

Generally, the federal income tax consequences of the receipt, exercise and lapse of subscription rights are uncertain. They present novel issues of tax law that are not addressed by any direct authorities. Nevertheless, Stevens & Lee has opined that:

	•		any gain realized by an Eligible Member as a result of the receipt of subscription rights with a fair market value must be recognized, whether or not such rights are exercised; and

	•		the amount of gain recognized by each Eligible Member should equal the fair market value of subscription rights received by the Eligible Member.

Although not free from doubt, if an Eligible Member is required to recognize gain on the receipt of subscription rights and does not exercise some or all of such subscription rights, the Eligible Member should recognize a corresponding loss upon the expiration or lapse of his or her unexercised subscription rights. The amount of that loss should equal the gain previously recognized upon receipt of the unexercised subscription rights, although the loss may not have the same character as the corresponding gain.

Although not free from doubt, if the membership interests in Penn Millers Mutual that are held by an Eligible Member are capital assets in the hands of that Eligible Member on the effective date of the Conversion, then any gain resulting from the receipt of the subscription rights should constitute a capital gain. If the common stock that an Eligible Member would have received upon exercise of the lapsed subscription rights would have constituted a capital asset in the hands of that Eligible Member, the resulting loss upon expiration of the subscription rights should constitute a capital loss. For purposes of determining gain, it is unclear how the subscription rights should be valued or how to determine the number of subscription rights that may be allocated to each Eligible Member during the Subscription Offering.

In the opinion of Curtis Financial, the subscription rights do not have any fair market value, for a number of reasons. These rights are nontransferable, personal rights of short duration. They are provided without charge, and give the holder only the right to purchase shares of common stock in the Subscription Offering at a price equal to its estimated fair market

value. This price is the same price at which such stock will be sold to purchasers in the Community Offering or the Syndicated Community Offering, if any. Nevertheless, Eligible Members are encouraged to consult with their tax advisors about the tax consequences of the Conversion and the Subscription Offering.

THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT PURPORT TO CONSIDER ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO EACH ELIGIBLE POLICYHOLDER, INCLUDING MEMBERS THAT MAY BE SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT PLANS, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS AND ELIGIBLE MEMBERS WHO ARE EMPLOYEES OF AN INSURANCE COMPANY OR WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH ELIGIBLE POLICYHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX AND FINANCIAL ADVISOR AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS, HER OR ITS OWN PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING THE RECEIPT, EXERCISE AND LAPSE OF SUBSCRIPTION RIGHTS, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE CONVERSION.

Interpretation of the Plan of Conversion

All interpretations of the Plan by a majority of the board of directors of Penn Millers Mutual and the board of directors of the Holding Company will be final, subject to the limitations of applicable law.

Amendment and Termination

This Plan may be substantively amended at any time by the Board of Directors of Penn Millers Mutual as a result of comments from regulatory authorities, including the Pennsylvania Insurance Department, or for any other reason. This Plan may be terminated at any time by and in the sole discretion of the Board of Directors of Penn Millers Mutual

Certain Benefits to Employees & Directors

The ESOP is expected to purchase 9.99% of the shares of Holding Company common stock sold in the Conversion, which will be awarded to substantially all employees without payment by such persons of cash consideration. Under the ESOP, shares of Holding Company common stock will be allocated annually to employees of the Company and its

subsidiaries over a 10 year period on the basis of their respective annual wages. Employees must be employed at least 1,000 hours in a calendar year in order to receive an allocation. In addition, the Holding Company intends to adopt a Stock-Based Incentive Plan pursuant to which the Holding Company intends: (i) to award to employees and directors of the Holding Company and its affiliates up to 4% of the number of shares of Holding Company common stock sold in the Conversion without payment, and (ii) grant options to acquire Holding Company common stock to employees and directors of the Holding Company and its affiliates, in an amount up to 10% of the number of shares of Holding Company common stock sold in the Conversion. The Stock-Based Incentive Plan is subject to approval by the Holding Company’s shareholders at the first meeting of shareholders to be held no sooner than six months after the consummation of the Conversion. No decisions concerning the number of shares to be awarded or options to be granted to any director or employee have been made at this time. For a more detailed description of the benefits to employees and directors, see the accompanying prospectus.

AMENDED AND RESTATED ARTICLES OF INCORPORATION OF COMPANY

The following is a summary of certain provisions of the Amended and Restated Articles of Incorporation of Penn Millers Mutual attached hereto as Exhibit B. The amended and restated articles of incorporation will become effective upon the completion of the Conversion.

Penn Millers Mutual’s Amended and Restated Articles of Incorporation will authorize Penn Millers Mutual to issue shares of common stock, $___ par value per share. All of Penn Millers Mutual’s outstanding common stock will be issued to and owned by the Holding Company. Accordingly, exclusive voting rights with respect to the affairs of Penn Millers Mutual after the Conversion will be vested in the Board of Directors of the Holding Company. Penn Millers Mutual’s Amended and Restated Articles of Incorporation will provide that such Articles may be amended only if such amendment is approved by the Board of Directors of Penn Millers Mutual, and, if and to the extent required by law, approved by the Department and the shareholders of Penn Millers Mutual (i.e., the Holding Company).

A vote in favor of the Plan also will constitute a vote to approve the Amended and Restated Articles of Incorporation of Penn Millers Mutual.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS OF PENN MILLERS MUTUAL UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE PLAN AND THE RELATED AMENDED AND RESTATED ARTICLES OF INCORPORATION. VOTING IN FAVOR OF THE PLAN WILL NOT OBLIGATE YOU TO PURCHASE COMMON STOCK IN THE OFFERING.

ADDITIONAL INFORMATION

YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE SECRETARY OF PENN MILLERS MUTUAL AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.

THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE HOLDING COMPANY COMMON STOCK. SUCH OFFERS MAY BE MADE ONLY BY THE PROSPECTUS.


	BY ORDER OF THE BOARD OF DIRECTORS

	Douglas A. Gaudet
	President, Chief Executive Officer and Director

, 2009
Wilkes-Barre, Pennsylvania

PENN MILLERS MUTUAL HOLDING COMPANY

I/We hereby appoint , or any one of them acting in the absence of the other, as proxyholders, each with the power to appoint his or her substitute, and hereby authorize them to represent me/us and to vote for me/us as designated on the reverse side, at the Special Meeting of Members to be held on October 15, 2009, or any adjournment thereof.

This proxy, if properly signed, will be voted in the manner directed on the reverse side. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE APPROVAL OF THE PLAN OF CONVERSION AND THE RELATED AMENDMENT AND RESTATEMENT OF PENN MILLERS MUTUAL’S ARTICLES OF INCORPORATION. VOTING IN FAVOR OF THE PLAN WILL NOT OBLIGATE YOU TO PURCHASE COMMON STOCK IN THE OFFERING. This proxy will be voted, in the discretion of the proxyholders, upon such other business as may properly come before the Special Meeting of Members or any adjournment thereof.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PENN MILLERS MUTUAL.

Please vote and sign on the other side.

þ Please mark your vote as in this example.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE FOLLOWING:

Approval of the Plan of Conversion and the related Amendment and Restatement of Penn Millers Mutual’s Articles of Incorporation.

FOR o AGAINST o

[Penn Millers Mutual Holding Company]

A REQUEST THAT YOU VOTE

Dear Member:

As a follow-up to our recent mailing, this is to remind you that your vote is very important.

The Board of Directors of Penn Millers Mutual Holding Company has voted unanimously in favor of a plan to convert from a Pennsylvania mutual holding company to a Pennsylvania stock holding company. As part of this plan, we have formed Penn Millers Holding Corporation, which will become the parent holding company of Penn Millers Mutual, and Penn Millers Mutual will become the stock holding company of Penn Millers Insurance Company. We are converting Penn Millers Mutual so that we may obtain capital to support and grow our operations and so that members/policyholders, directors, officers and employees may purchase our stock and share in our success.

To accomplish the conversion, your participation is extremely important. On behalf of the Board, I ask that you help us meet our goal by casting your vote in favor of the plan of conversion and mailing your signed proxy card immediately in the enclosed [COLOR] postage-paid envelope marked “PROXY RETURN.” Should you choose to attend the special meeting of members and vote in person, you may do so by giving written notice of revocation to the Secretary of Penn Millers Mutual. If you have multiple policies at Penn Millers Insurance Company, you may receive more than one mailing. If you do receive more than one proxy card, please vote, sign and return each one.

If the plan of conversion is approved let me assure you that:

	•		Existing insurance coverage under your policy with Penn Millers Insurance Company will not undergo any change as a result of the conversion.

	•		Voting for approval of the plan will not obligate you to buy any shares of common stock.

If you have any questions after reading the enclosed material, please call our Stock Information Center at (xxx) xxx-xxxx, Monday through Friday, between the hours of 10:00 a.m. and 4:00 p.m.

Sincerely,

Douglas A. Gaudet
President and Chief Executive Officer

PROXY REQUEST

WE NEED YOUR VOTE

Dear Member:

Your vote on our plan of conversion has not yet been received. Your vote is very important to us. Please vote, sign and mail the enclosed proxy card today.

Remember: Voting does not obligate you to buy shares of common stock. Your Board of Directors has approved the plan of conversion and urges you to vote in favor of the plan of conversion. Your existing insurance coverage under your policy will not undergo any change as a result of the conversion.

A postage-paid envelope is enclosed with the proxy card. If you have any questions, please call our conversion center at (xxx) xxx-xxxx.

Sincerely,

Douglas A. Gaudet
President and Chief Executive Officer

Please vote today by returning all proxy cards received.


	The undersigned hereby acknowledges receipt of the Proxy Statement dated ___________, 2009 and hereby revokes any proxy or proxies heretofore given to vote at said meeting or any adjournment thereof. (PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED PROXY REPLY ENVELOPE)