10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2011           OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____ to ____

Commission file number 001-35009

Fortegra Financial Corporation

(Exact name of Registrant as specified in its charter)

Delaware	58-1461399
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10151 Deerwood Park Boulevard, Building 100, Suite 330 Jacksonville, FL	32256
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code:	(866)-961-9529

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o     Accelerated filer o Non-accelerated filer x Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of outstanding shares of the registrant's Common Stock, $0.01 par value, outstanding as of October 31, 2011 was 20,574,730.

FORTEGRA FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the Period Ended September 30, 2011

TABLE OF CONTENTS

	PART I - FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited)	3
	Consolidated Statements of Income (unaudited)
	Consolidated Statements of Changes in Stockholders' Equity (unaudited)
	Consolidated Statements of Cash Flows (unaudited)
	Notes to Consolidated Financial Statements (unaudited)
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Removed and Reserved	66
Item 5.	Other Information	66
Item 6	Exhibits	66
	Signatures	70

1

PART I - FINANCIAL INFORMATION

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q ("Form 10-Q") to "Fortegra Financial," "we," "us," "the Company" or similar terms refer to Fortegra Financial Corporation and its subsidiaries.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Such statements are subject to risks and uncertainties. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project,'' "plan," "intend," "believe," "may," "should," "can have," "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

The forward-looking statements contained in this Form 10-Q are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read this Form 10-Q, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under Item 1A. - "Risk Factors" and Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations." Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

The following Form 10-Q for the three and nine months ended September 30, 2011 should be read in conjunction with our Annual Report on Form 10-K ("Annual Report") for the year ended December 31, 2010.

2

ITEM 1. FINANCIAL STATEMENTS OF FORTEGRA FINANCIAL CORPORATION

FORTEGRA FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(All Amounts in Thousands Except Share Amounts)

	September 30, 2011			December 31, 2010
Assets:
Investments
Fixed maturity securities available-for-sale at fair value (amortized cost of $82,666 in 2011 and $82,124 in 2010)	$	85,169		$	85,786
Equity securities available-for-sale at fair value (cost of $1,227 in 2011 and $1,955 in 2010)	1,240			1,935
Short-term investments	1,070			1,170
Total investments	87,479			88,891
Cash and cash equivalents	23,114			43,389
Restricted cash	9,679			15,722
Accrued investment income	853			880
Notes receivable	2,604			1,485
Other receivables	25,284			25,473
Reinsurance receivables	169,908			169,382
Deferred acquisition costs	62,539			65,142
Property and equipment, net	15,140			11,996
Goodwill	108,418			74,047
Other intangibles, net	38,684			39,997
Other assets	4,993			5,505
Total assets	$	548,695		$	541,909
Liabilities:
Unpaid claims	$	30,397		$	32,693
Unearned premiums	216,988			210,430
Accrued expenses, accounts payable and other liabilities	27,182			41,844
Deferred revenue	22,494			25,611
Notes payable	64,000			36,713
Preferred trust securities	35,000			35,000
Redeemable preferred stock	100			11,040
Deferred income taxes	22,067			24,691
Total liabilities	418,228			418,022
Commitments and Contingencies (Note 15)
Stockholders' Equity:
Preferred stock, par value $0.01; 10,000,000 shares authorized; none issued	—			—
Common stock, par value $0.01; 150,000,000 shares authorized; 20,574,730 and 20,256,735 shares issued in 2011 and 2010, respectively	206			203
Treasury stock (44,578 shares in 2011 and 2010, respectively)	(176		)	(176		)
Additional paid-in capital	95,993			95,556
Accumulated other comprehensive (loss) income, net of tax (expense) of $385 and $(1,235), in 2011 and 2010, respectively	(716		)	2,293
Retained earnings	34,624			25,308
Stockholders' equity before non-controlling interest	129,931			123,184
Non-controlling interest	536			703
Total stockholders' equity	130,467			123,887
Total liabilities and stockholders' equity	$	548,695		$	541,909

See accompanying notes to these consolidated financial statements.

3

FORTEGRA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(All Amounts in Thousands Except Share and Per Share Amounts)

	For the Three Months Ended					For the Nine Months Ended
	September 30, 2011		September 30, 2010			September 30, 2011			September 30, 2010
Revenues:
Service and administrative fees	$	10,125	$	9,229		$	28,041		$	26,047
Brokerage commissions and fees	8,611		6,034			25,686			19,168
Ceding commission	7,027		9,455			21,428			22,468
Net investment income	801		865			2,636			2,799
Net realized gains	1,196		107			2,423			156
Net earned premium	28,673		28,255			84,646			83,417
Other income (loss)	18		(6		)	138			120
Total revenues	56,451		53,939			164,998			154,175
Expenses:
Net losses and loss adjustment expenses	9,714		10,993			28,338			27,086
Commissions	17,926		16,432			53,766			53,631
Personnel costs	10,945		9,526			33,365			27,939
Other operating expenses	7,171		6,500			23,331			17,527
Depreciation	886		431			2,283			990
Amortization of intangibles	998		788			3,428			2,346
Interest expense	1,906		2,246			5,862			6,122
Loss on sale of subsidiary	477		—			477			—
Total expenses	50,023		46,916			150,850			135,641
Income before income taxes and non-controlling interest	6,428		7,023			14,148			18,534
Income taxes	2,292		2,576			5,003			6,872
Income before non-controlling interest	4,136		4,447			9,145			11,662
Less: net income (loss) attributable to non-controlling interest	1		—			(171		)	(31		)
Net income	$	4,135	$	4,447		$	9,316		$	11,693
Earnings per share:
Basic	$	0.20	$	0.28		$	0.46		$	0.74
Diluted	$	0.19	$	0.26		$	0.44		$	0.69
Weighted average common shares outstanding:
Basic	20,404,441		15,742,336			20,355,057			15,742,336
Diluted	21,214,365		17,057,157			21,375,184			17,057,157

See accompanying notes to these consolidated financial statements.

4

FORTEGRA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(All Amounts in Thousands Except Share Amounts)

	Common Stock				Treasury Stock
	Shares	Amount			Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Non-controlling Interest			Total Stockholders' Equity
Balance, December 31, 2009	15,786,913	$	1,002		(44,578	)	$	(176	)	$	53,675		$	1,607		$	23,210		$	1,475		$	80,793
Net income	—	—			—		—			—			—			16,203			20			16,223
Change in unrealized gains, net of tax of ($370)	—	—			—		—			—			686			—			68			754
Comprehensive income	—	—			—		—			—			686			16,203			88			16,977
Change in par value	—	(844		)	—		—			844			—			—			—			—
Stock-based compensation	160,000	2			—		—			174			—			—			—			176
Redemption of minority interest	—	—			—		—			—			—			—			(860		)	(860		)
Options exercised	44,185	—			—		—			203			—			—			—			203
Conversion of Class A common stock	—	—			—		—			—			—			(14,105		)	—			(14,105		)
Issuance of common stock	4,265,637	43			—		—			40,660			—			—			—			40,703
Balance, December 31, 2010	20,256,735	$	203		(44,578	)	$	(176	)	$	95,556		$	2,293		$	25,308		$	703		$	123,887
Net income	—	—			—		—			—			—			9,316			(171		)	9,145
Change in unrealized loss on swap, net of tax of $1,155	—	—			—		—			—			(2,145		)	—			—			(2,145		)
Change in unrealized gains and losses, net of tax of $464	—	—			—		—			—			(864		)	—			4			(860		)
Comprehensive income	—	—			—		—			—			(3,009		)	9,316			(167		)	6,140
Stock-based compensation	—	—			—		—			615			—			—			—			615
Options exercised, net of forfeitures	317,995	3			—		—			648			—			—			—			651
Initial public offering costs	—	—			—		—			(826		)	—			—			—			(826		)
Balance, September 30, 2011	20,574,730	$	206		(44,578	)	$	(176	)	$	95,993		$	(716	)	$	34,624		$	536		$	130,467

See accompanying notes to these consolidated financial statements.

5

FORTEGRA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(All Amounts in Thousands Except Share Amounts)

	For the Nine Months Ended
	September 30, 2011			September 30, 2010
Operating Activities
Net income	$	9,316		$	11,693
Adjustments to reconcile net income to net cash flows provided by operating activities:
Change in deferred policy acquisition costs	2,921			(2,172		)
Depreciation and amortization	5,711			3,336
Deferred income tax expense	2,860			1,886
Net realized (gains) losses	(2,423		)	(156		)
Loss on sale of subsidiary	477			—
Stock-based compensation expense	615			119
Amortization of premiums and discounts on investments	408			238
Non-controlling interest	(171		)	68
Change in allowance for doubtful accounts	(106		)	(30		)
Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions
Accrued investment income	39			33
Other receivables	2,958			(2,483		)
Reinsurance recoverables	(527		)	6,946
Other assets	559			(1,406		)
Unpaid claims	(2,296		)	(2,705		)
Unearned premiums	6,558			(7,511		)
Accrued expenses, accounts payable and other liabilities	(20,964		)	(2,856		)
Deferred revenue	(5,595		)	—
Commissions payable	—			(2,156		)
Net cash flows (used in) provided by operating activities	340			2,844
Investing activities
Proceeds from maturities, calls and prepayments of available-for-sale investments	7,418			8,214
Proceeds from sales of available-for-sale investments	33,663			5,023
Proceeds from maturities of short term investments	100			50
Purchases of available-for-sale investments	(37,859		)	(19,660		)
Purchases of property and equipment	(5,411		)	(6,322		)
Net (paid) for acquisitions of subsidiaries, net of cash received	(40,611		)	(20,598		)
Sale of subsidiary, net of cash paid	(153		)	—
Net proceeds from notes receivable	24			542
Change in restricted cash	6,043			2,971
Net cash flows used in investing activities	(36,786		)	(29,780		)
Financing activities
Payments on notes payable	(64,263		)	(18,509		)
Proceeds from notes payable	91,550			35,035
Capitalized closing costs for notes payable	—			(1,587		)
Payments for initial public offering costs	(827		)	—
Payments on redeemable preferred stock	(10,940		)	(100		)
Net proceeds from exercise of stock options	651			—
Net cash flows provided by financing activities	16,171			14,839
Net decrease in cash and cash equivalents	(20,275		)	(12,097		)
Cash and cash equivalents, beginning of period	43,389			29,940
Cash and cash equivalents, end of period	$	23,114		$	17,843

See accompanying notes to these consolidated financial statements.

6

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

Nature of Operations

Fortegra Financial Corporation and its subsidiaries ("Fortegra" or the "Company") is a diversified insurance services company that provides distribution and administration services on a wholesale basis to insurance companies, insurance brokers and agents and other financial services companies primarily in the United States. The Company is traded on the New York Stock Exchange under the symbol FRF. In 2008, the Company changed its name from Life of the South Corporation to Fortegra Financial Corporation. Most of the Company's business is generated through networks of small to mid-sized community and regional banks, small loan companies and automobile dealerships. The consolidated financial statements include the Company and its majority-owned and controlled subsidiaries, including:

• LOTS Intermediate Company

• Bliss and Glennon, Inc.

• Creative Investigations Recovery Group, LLC, sold on July 1, 2011.

• CRC Reassurance Company, Ltd.

• Insurance Company of the South

• Life of the South Insurance Company and its subsidiary, Bankers Life of Louisiana

• LOTS Reassurance Company

• LOTSolutions, Inc.

• Lyndon Southern Insurance Company

• Southern Financial Life Insurance Company

• South Bay Acceptance Corporation

• Continental Car Club, Inc.

• United Motor Club of America, Inc.

• Auto Knight Motor Club, Inc.

• eReinsure.com, Inc.

The Company operates in three business segments: (i) Payment Protection, (ii) Business Process Outsourcing ("BPO") and (iii) Brokerage. Payment Protection specializes in protecting lenders and their consumers from death, disability or other events that could otherwise impair their ability to repay a debt. BPO provides an assortment of administrative services tailored to insurance and other financial services companies through a virtual insurance company platform. Brokerage uses a pure wholesale sell-through model to sell specialty casualty and surplus lines insurance and also provides web-hosted applications used by insurers, reinsurers and reinsurance brokers for the global reinsurance market.

1. Basis of Presentation and Significant Accounting Policies

The accompanying unaudited interim Consolidated Financial Statements of Fortegra Financial Corporation and its subsidiaries have been prepared in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP") promulgated by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" or "the guidance") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the Company's Annual Report for the year ended December 31, 2010.

Fortegra's interim Consolidated Financial Statements as of September 30, 2011 and 2010 are unaudited and have been prepared following the significant accounting policies disclosed in Note 2 of the Notes to the Consolidated Financial Statements of the Company's Annual Report for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission.

In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly Fortegra's financial position and results of operations for each of the interim periods presented. Results of operations for three and nine months ending September 30, 2011 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2011.

The Company has reviewed all material subsequent events that occurred up to the date the Company's Consolidated Financial Statements were issued to determine whether any event required recognition or disclosure in the financial statements and/or disclosure in the notes thereto.

There have been no material changes to the Company's significant accounting policies described in our Annual Report for the fiscal year ended December 31, 2010, except as noted below for the addition of the accounting policy for Derivative Financial Instruments attributable to the execution of a forward starting interest rate swap in April 2011.

Derivative Financial Instruments

The Company uses interest rate swaps to manage interest rate risk and cash flow risk that may arise in connection with

7

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

variable interest rate provisions of certain of the Company's debt obligations.  The fair values of the derivative instruments are recorded in other assets or other liabilities.  To the extent a derivative is an effective hedge of the cash flow risk of the hedged debt obligation, any change in the derivative's fair value is recorded in accumulated other comprehensive income, net of income tax.  To the extent the derivative is an ineffective hedge, that portion of the change in fair value is recorded in other operating expenses or interest expense as appropriate.

Principles of Consolidation

The unaudited Consolidated Financial Statements include the accounts of the Company and its majority-owned and controlled subsidiaries. All material intercompany account balances and transactions have been eliminated.

The third party ownership of 15% of the common stock of Southern Financial Life Insurance Company and 52% of the preferred stock of CRC Reassurance Company, Ltd. has been reflected as non-controlling interest on the Consolidated Balance Sheets. Income attributable to those companies' minority shareholders has been reflected on the Consolidated Statements of Income and accumulated other comprehensive income as income (loss) attributable to non-controlling interest.

The Company's investments in less than majority-owned companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method except when they qualify as Variable Interest Entities, ("VIE") and the Company is the primary beneficiary, in which case the investments are consolidated in accordance with ASC 810, "Consolidation." Investments that do not meet the above criteria are accounted for under the cost method.

On July 1, 2011, the Company sold its 100% interest in Creative Investigations Recovery Group, LLC ("CIRG"). The consideration included a $1.1 million note receivable with a first priority lien security interest in the assets of CIRG and other property of the buyers. The note receivable is included on the Consolidated Balance Sheets in Notes Receivable.

The Company performed a detailed analysis of the CIRG sale transaction and has determined that CIRG is considered a VIE as defined in ASC 810, in which the Company has an interest due to the note financing. The Company further determined that its maximum exposure to loss in the VIE is limited to the outstanding balance of the note receivable of $1.1 million as of September 30, 2011 and that the Company is not the primary beneficiary because the Company does not have the power to direct the activities of the VIE and has no right to receive the residual returns of CIRG. Therefore, CIRG is not consolidated in the Company's results.

Use of Estimates

Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation, which had no impact on net income, comprehensive income or loss, net cash provided by operating activities or stockholders' equity.

2. Recently Issued Accounting Standards

In September 2009, the FASB issued new guidance on multiple deliverable revenue arrangements. This new guidance requires entities to use their best estimate of the selling price of a deliverable within a multiple deliverable revenue arrangement if the entity and other entities do not sell the deliverable separate from the other deliverables within the arrangement. This new guidance requires both qualitative and quantitative disclosures. This new guidance is effective for new or materially modified arrangements in fiscal years beginning on or after June 15, 2010. The Company adopted this new guidance on January 1, 2011. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.

Recent Accounting Pronouncements - Not Yet Adopted

In September 2011, the FASB issued new accounting guidance intended to simplify goodwill impairment testing. Companies will be allowed to perform a qualitative assessment of goodwill impairment to determine whether a quantitative assessment is necessary. This guidance is effective for the Company’s interim and annual periods beginning January 1, 2012. Early adoption is permitted. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

In June 2011, the FASB issued changes to the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity was eliminated.

8

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

These changes become effective for the Company on January 1, 2012. Early adoption is permitted. Management is currently evaluating these changes to determine which option will be chosen for the presentation of comprehensive income. The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued an accounting pronouncement which amends the fair value measurement and disclosure requirements to achieve common disclosure requirements between U.S. GAAP and International Financial Reporting Standards ("IFRS"). The accounting pronouncement requires certain disclosures about transfers between Level 1 and Level 2 of the fair value hierarchy, sensitivity of fair value measurements categorized within Level 3 of the fair value hierarchy, and categorization by level of items that are reported at cost but are required to be disclosed at fair value. The disclosures are to be applied prospectively effective in the first interim and annual periods beginning after December 15, 2011. The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.

In October 2010, the FASB issued new guidance concerning the accounting for costs associated with acquiring or renewing insurance contracts. Under the new guidance, only direct incremental costs associated with successful insurance contract acquisitions or renewals would be deferrable. The guidance also states that advertising costs and indirect costs should be expensed as incurred. Although this guidance states that certain advertising costs that meet current accounting guidance could be deferred and treated as deferred acquisition costs ("DAC"), the Company does not currently record any new advertising costs in DAC. This guidance will be effective for fiscal years beginning after December 15, 2011 with earlier adoption permitted as of the first day of a company's fiscal year. The Company is currently evaluating the requirements of the pronouncement and the potential impact, if any, on the Company's financial position and results of operations.

3. Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding adjusted to include the effect of potentially dilutive common shares, which includes outstanding stock options and non-vested restricted stock awards, using the treasury stock method. Potentially dilutive common shares for which the exercise price was greater than the average market price of common shares are excluded from the computation of diluted earnings per share as the effect would be anti-dilutive. Earnings per share is calculated as follows:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Numerator for both basic and diluted earnings per share:
Net income available to common stockholders	$	4,135	$	4,447	$	9,316	$	11,693
Denominator:
Total average basic common shares outstanding	20,404,441		15,742,336		20,355,057		15,742,336
Effect of dilutive stock options and restricted stock awards	809,924		1,314,821		1,020,127		1,314,821
Total average diluted common shares outstanding	21,214,365		17,057,157		21,375,184		17,057,157
Earnings per share-basic	$	0.20	$	0.28	$	0.46	$	0.74
Earnings per share-diluted	$	0.19	$	0.26	$	0.44	$	0.69
Weighted average anti-dilutive common shares	512,298		—		283,762		—

4. Business Combinations and Dispositions

Acquisitions

On January 1, 2011, the Company acquired 100% of the outstanding stock ownership of Auto Knight Motor Club, Inc. ("Auto Knight"), of Palm Springs, CA. Auto Knight provides motor club memberships, vehicle service plans and tire and wheel programs, which are offered by automobile and truck dealerships and retailers in the United States and Canada. The acquisition expands the Company's geographic reach to Canada, where Auto Knight offers its products through retailers as a subscription benefit.

On March 3, 2011, the Company acquired 100% of the outstanding stock ownership of eReinsure.com, Inc. ("eReinsure"). eReinsure provides web-hosted applications for the reinsurance market by leveraging Internet technologies in application architecture,

9

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

network communication and information delivery to facilitate reinsurance transactions.

The values of certain assets and liabilities are preliminary in nature, and are subject to adjustment as additional information is obtained, including, but not limited to, valuation of separately identifiable intangibles, fixed assets, deferred taxes and loss reserves. The valuations will be finalized within 12 months of the close of the acquisition. When the valuations are finalized, any changes to the preliminary valuation of assets acquired or liabilities assumed may result in adjustments to separately identifiable intangible assets and goodwill.

The following table presents assets acquired, liabilities assumed and goodwill recorded for acquisitions made during 2011 based on their fair values as of their respective acquisition dates:

	Auto Knight			eReinsure
ASSETS:
Cash	$	—		$	3,662
Investments	1,216			1,212
Other receivables	613			2,266
Deferred policy acquisition costs	341			—
Property and equipment	—			142
Other intangibles	—			2,115
Other assets	—			54
Net deferred tax asset	576			1,686
LIABILITIES:
Accrued expenses and accounts payable	(325		)	(2,634		)
Commissions payable	(122		)	—
Deferred revenue	(1,729		)	(750		)
Net assets acquired	570			7,753
Purchase consideration	4,750			39,281
Goodwill	$	4,180		$	31,528

None of the goodwill attributable to the 2011 acquisitions is expected to be tax deductible.

The financial results of eReinsure have been included in the Company's results beginning March 3, 2011. Revenue and net income since eReinsure's acquisition date included in the Company's consolidated statement of income for the three and nine months ended September 30, 2011 are as follows:

	For the Three Months Ended		For the Nine Months Ended
	September 30, 2011		September 30, 2011
Revenue	$	2,473	$	5,768
Net income*	$	285	$	706
*-Transaction costs included for the respective acquisition.	$	—	$	101

The following unaudited pro forma summary presents the Company's consolidated financial information as if eReinsure had been acquired on January 1, 2010. These amounts have been calculated after applying the Company's accounting policies and adjusting the results of the acquired company to reflect the additional interest expense associated with the funding necessary to complete the acquisition and any amortization of intangibles that would have been charged to operations assuming the intangible assets would have existed on January 1, 2011 and 2010, excluding the transaction costs and the consequential tax effect.

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Revenue	$	2,473	$	3,081	$	7,223	$	7,743
Net income	$	285	$	612	$	822	$	872

10

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

On May 15, 2010, the Company purchased 100% of the stock for Continental Car Club, a Tennessee car club company, and initially recorded $11.8 million in goodwill associated with the transaction. On September 1, 2010, the Company purchased 100% of the stock of United Motor Club and initially recorded $8.5 million in goodwill associated with the transaction. The values of certain assets and liabilities were preliminary in nature, and were subject to adjustment within 12 months of the close of the acquisition as additional information is obtained, including, but not limited to, valuation of separately identifiable intangibles, fixed assets, deferred taxes and loss reserves.

A change to the acquisition date value of the identifiable net assets during the measurement period (up to one year from the acquisition date) affects the amount of the purchase price allocated to goodwill. Changes to the purchase price allocation are adjusted retrospectively to the consolidated financial results. During 2011, the Company determined the final valuations for Continental Car Club and United Motor Club. The values below include measurement period adjustments recorded through the quarter ended September 30, 2011. The Company reduced the amount of goodwill associated with the Continental Car Club and United Motor Club acquisitions by $6.4 million and $3.9 million, respectively, and increased other intangibles by $6.4 million and $4.3 million, respectively, and increased deferred tax liabilities associated with United Motor Club by $0.4 million, in order to reflect the final valuation of goodwill acquired in those transactions.

The measurement period adjustment was recorded based on information obtained subsequent to the acquisitions related to tradenames, agent relationships and non-compete agreements at the acquisition date. The December 31, 2010 balances for goodwill and other intangibles assets on the Consolidated Balance Sheets have been retrospectively adjusted to include the effect of the measurement period adjustments as required under ASC 805, "Business Combinations". The following table summarizes the assets acquired and liabilities assumed as of the respective acquisition date, including the effect of the measurement period adjustments recorded during 2011, as discussed above:

	Continental Car Club			United Motor Club
ASSETS:
Cash	$	961		$	660
Other receivables	1,140			730
Deferred policy acquisition costs	10,749			7,557
Property and equipment	3			52
Other intangibles	7,482			5,750
Other assets	29			10
Net deferred tax asset	915			247
LIABILITIES:
Accrued expenses and accounts payable	(506		)	(501		)
Commissions payable	(1,052		)	(356		)
Deferred revenue	(13,204		)	(9,226		)
Net deferred tax liability	—			—
Net assets acquired	6,517			4,923
Purchase consideration	11,944			9,504
Goodwill	$	5,427		$	4,581

Dispositions

In July 2011, the Company sold its wholly owned subsidiary, CIRG, for a sales price of $1.2 million, comprised of cash and a $1.1 million secured note receivable. For the three months ended September 30, 2011, the Company recorded a $0.5 million loss on the sale of CIRG.

5. Investments

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of fixed maturity securities and equity securities available-for-sale for the following periods are as follows:

11

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

	September 30, 2011
Description of Security	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of the U.S. Treasury and U.S. Government agencies	$	21,784	$	1,203	$	(6	)	$	22,981
Municipal securities	15,685		307		(5		)	15,987
Corporate securities	42,935		1,523		(646		)	43,812
Mortgage-backed securities	1,421		31		—			1,452
Asset-backed securities	841		96		—			937
Total fixed maturity securities	$	82,666	$	3,160	$	(657	)	$	85,169
Common stock - publicly traded	$	133	$	8	$	(2	)	$	139
Preferred stock - publicly traded	50		2		—			52
Common stock - non-publicly traded	43		5		—			48
Preferred stock - non-publicly traded	1,001		—		—			1,001
Total equity securities	$	1,227	$	15	$	(2	)	$	1,240

	December 31, 2010
Description of Security	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of the U.S. Treasury and U.S. Government agencies	$	24,220	$	887	$	(61	)	$	25,046
Municipal securities	10,416		212		(12		)	10,616
Corporate securities	41,906		2,488		(172		)	44,222
Mortgage-backed securities	3,619		117		—			3,736
Asset-backed securities	1,963		203		—			2,166
Total fixed maturity securities	$	82,124	$	3,907	$	(245	)	$	85,786
Common stock - publicly traded	$	475	$	12	$	(173	)	$	314
Preferred stock - publicly traded	199		3		(6		)	196
Common stock - non-publicly traded	280		153		(9		)	424
Preferred stock - non-publicly traded	1,001		—		—			1,001
Total equity securities	$	1,955	$	168	$	(188	)	$	1,935

Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets in custody accounts or insurance department safekeeping accounts. The Company is not permitted to remove invested assets from these accounts without prior approval of the contractual party or regulatory authority. At September 30, 2011 and December 31, 2010, the Company had restricted investments with carrying values of $16.5 million and $17.5 million, respectively, of which $9.6 million and $9.9 million, respectively, are related to special deposits required by various state insurance departments.

The amortized cost and fair value of fixed maturity securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2011				December 31, 2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	2,200	$	2,232	$	4,357	$	4,397
Due after one year through five years	40,089		41,000		30,825		31,944
Due after five years through ten years	24,737		25,407		25,546		27,109
Due after ten years through twenty years	2,732		2,937		4,223		4,296
Due after twenty years	10,646		11,204		11,591		12,137
Mortgage-backed securities	1,421		1,452		3,619		3,737
Asset-backed securities	841		937		1,963		2,166
Total fixed maturity securities	$	82,666	$	85,169	$	82,124	$	85,786

12

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

The aggregate amount of unrealized losses and the aggregate related fair values of investments with unrealized losses were segregated into the following time periods during which the investments had been in unrealized loss positions are as follows:

	September 30, 2011
	Less than Twelve Months					Twelve Months or Greater				Total
Description of Security	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of the U.S. Treasury
and U.S. government agencies	$	1,248	$	(6	)	$	—	$	—	$	1,248	$	(6	)
Municipal securities	1,628		(5		)	—		—		1,628		(5		)
Corporate securities	16,323		(646		)	—		—		16,323		(646		)
Mortgage-backed securities	—		—			—		—		—		—
Asset-backed securities	—		—			—		—		—		—
Total fixed maturity securities	$	19,199	$	(657	)	$	—	$	—	$	19,199	$	(657	)
Common stock - publicly traded	$	1	$	(2	)	$	—	$	—	$	1	$	(2	)
Preferred stock - publicly traded	—		—			—		—		—		—
Common stock - non-publicly traded	—		—			—		—		—		—
Preferred stock - non-publicly traded	—		—			—		—		—		—
Total equity securities	$	1	$	(2	)	$	—	$	—	$	1	$	(2	)

	December 31, 2010
	Less than Twelve Months					Twelve Months or Greater					Total
Description of Security	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Obligations of the U.S. Treasury
and U.S. government agencies	$	5,988	$	(61	)	$	—	$	—		$	5,988	$	(61	)
Municipal securities	472		(12		)	—		—			472		(12		)
Corporate securities	8,174		(172		)	—		—			8,174		(172		)
Mortgage-backed securities	—		—			—		—			—		—
Asset-backed securities	—		—			—		—			—		—
Total fixed maturity securities	$	14,634	$	(245	)	$	—	$	—		$	14,634	$	(245	)
Common stock - publicly traded	$	—	$	—		$	197	$	(173	)	$	197	$	(173	)
Preferred stock - publicly traded	142		(6		)	—		—			142		(6		)
Common stock - non-publicly traded	12		(9		)	—		—			12		(9		)
Preferred stock - non-publicly traded	—		—			—		—			—		—
Total equity securities	$	154	$	(15	)	$	197	$	(173	)	$	351	$	(188	)

Fixed maturity and equity securities are regularly assessed for other-than-temporarily impairment ("OTTI") when the decline in fair value is below the cost basis or amortized cost for the security and determined to be other-than-temporary by management. When, in the opinion of management, a decline in the estimated fair value of an investment is considered to be other-than-temporary, the investment is written down to its estimated fair value with the impairment loss included in net realized gains (losses). OTTI losses related to the credit component of the impairment on fixed maturity securities and equity securities are recorded in the consolidated statements of income as realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. Losses relating to the non-credit component of OTTI losses on fixed maturity securities are recorded in other comprehensive income. The determination of OTTI is a subjective process, and different judgments and assumptions could affect the fair value determination and the timing of loss realization.

As of September 30, 2011, there were 30 fixed maturity and 2 equity securities in unrealized loss positions. The Company does not intend to sell these investments and it is more likely than not that the Company will be able to hold these securities until full recovery of their amortized cost basis for fixed maturity securities or cost for equity securities. For the three months and nine months ended September 30, 2011 the Company deemed that 8 equity securities were other than temporarily impaired and recorded an impairment charge of $0.2 million. As of December 31, 2010, there were 21 fixed maturity and 13 equity securities in unrealized loss positions. During 2010, based on its quarterly review, management deemed 8 equity securities to be other-than-temporarily

13

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

impaired and an impairment charge of $0.1 million was recorded. For the three months and nine months ended September 30, 2010, no impairment write-downs were recorded by the Company.

The following table summarizes the proceeds from the sale of available-for-sale investment securities, the gross realized gains and gross realized losses for both fixed maturity and equity securities and realized losses for other-than-temporary impairments:

	For the Three Months Ended					For the Nine Months Ended
	September 30, 2011			September 30, 2010		September 30, 2011			September 30, 2010
Gross proceeds from sales	$	11,143		$	724	$	33,663		$	5,023
Gross realized gains	$	1,414		$	107	$	2,663		$	254
Gross realized losses	(68		)	—		(90		)	(98		)
Total net gains from sales	$	1,346		$	107	$	2,573		$	156
Impairment write-downs (other-than-temporary impairments)	$	(150	)	$	—	$	(150	)	$	—
Total realized investment gains	$	1,196		$	107	$	2,423		$	156

The following schedule details the components of net investment income:

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Fixed income securities	$	782		$	897		$	2,544		$	2,782
Cash on hand and on deposit	63			35			180			224
Common and preferred stock dividends	24			16			56			44
Notes receivable	34			44			123			124
Other income	23			—			107			—
Investment expenses	(125		)	(127		)	(374		)	(375		)
Net investment income	$	801		$	865		$	2,636		$	2,799

6. Reinsurance Receivables

The Company has various reinsurance agreements in place whereby the amount of risk in excess of the Company's retention is reinsured by unrelated domestic and foreign insurance companies. The Company remains liable to policyholders in the event that the assuming companies are unable to meet their obligations. The effects of reinsurance on premiums written and earned and losses and loss adjustment expenses ("LAE") incurred are presented in the tables below:

Premiums	For the Three Months Ended												For the Nine Months Ended
	September 30, 2011						September 30, 2010						September 30, 2011						September 30, 2010
	Written			Earned			Written			Earned			Written			Earned			Written			Earned
Direct and assumed	$	94,432		$	80,982		$	82,111		$	77,799		$	241,979		$	235,420		$	220,757		$	228,390
Ceded	(61,361		)	(52,309		)	(52,157		)	(49,544		)	(154,227		)	(150,774		)	(137,972		)	(144,973		)
Net	$	33,071		$	28,673		$	29,954		$	28,255		$	87,752		$	84,646		$	82,785		$	83,417

Losses and LAE incurred	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Direct and assumed	$	21,589		$	22,003		$	60,752		$	59,630
Ceded	(11,875		)	(11,010		)	(32,414		)	(32,544		)
Net losses and LAE incurred	$	9,714		$	10,993		$	28,338		$	27,086

Reinsurance receivables include amounts related to paid benefits, unpaid benefits and prepaid reinsurance premiums. The following table reflects the components of the reinsurance receivables at:

14

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

	September 30, 2011		December 31, 2010
Prepaid reinsurance premiums:
Life	$	41,289	$	48,342
Accident and health	29,925		29,289
Property	74,893		65,023
Total	146,107		142,654
Ceded claim reserves:
Life	1,672		1,421
Accident and health	9,533		9,376
Property	7,335		9,455
Total ceded claim reserves recoverable	18,540		20,252
Other reinsurance settlements recoverable	5,261		6,476
Reinsurance receivables	$	169,908	$	169,382

Reinsurance receivables are based upon estimates and are reported on the Consolidated Balance Sheets separately as assets, as reinsurance does not relieve the Company of its legal liability to policyholders. The Company is required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. Management continually monitors the financial condition and agency ratings of the Company's reinsurers and believes that the reinsurance receivables accrued are collectible. Included in reinsurance receivables at September 30, 2011 and December 31, 2010 are $121.1 million and $121.2 million recoverable from three unrelated reinsurers. The three unrelated reinsurers are: Munich American Reassurance Company (A. M. Best Rating-A+); London Life Reinsurance Company (A. M. Best Rating-A); and London Life International Reinsurance Corporation (A. M. Best Rating-NR-3). Since London Life International Reinsurance Corporation does not maintain an A.M. Best rating, the related receivables are collateralized by assets held in trust and letters of credit. At September 30, 2011, the Company does not believe there is a risk of loss as a result of the concentration of credit risk in the reinsurance program.

7. Goodwill

Goodwill resulting from the Company's acquisitions is carried as an asset on the Consolidated Balance Sheets and is not amortized, but is evaluated annually to determine whether any impairment exists. The Company uses an income approach to estimate the fair value of each reporting unit. The impairment review is highly judgmental and involves the use of significant estimates and assumptions. The estimates and assumptions may have a significant impact on the amount of any goodwill impairment charge, should one be required to be recorded. The Company completed its annual assessment of goodwill in December 2010 and concluded that the value of its goodwill was not impaired.

The Company completed the acquisition of Auto Knight on January 1, 2011 and eReinsure on March 3, 2011, recording goodwill of $4.2 million and $31.5 million, respectively. On May 15, 2010, the Company purchased 100% of the stock of Continental Car Club and initially recorded $11.8 million in goodwill associated with the transaction. On September 1, 2010, the Company purchased 100% of the stock of United Motor Club and initially recorded $8.5 million in goodwill associated with the transaction. The values of certain assets and liabilities were preliminary in nature, and were subject to adjustment within 12 months of the close of the acquisition as additional information is obtained, including, but not limited to, valuation of separately identifiable intangibles, fixed assets, deferred taxes and loss reserves. In July 2011, the Company sold CIRG, a part of its Brokerage segment, which reduced goodwill by $1.3 million at September 30, 2011.

During 2011, the Company determined the final valuations for Continental Car Club and United Motor Club. The Company reduced the amount of goodwill associated with the Continental Car Club and United Motor Club acquisitions by $6.4 million and $3.9 million, respectively, and increased other intangibles in order to reflect the final valuation of goodwill acquired in those transactions. The December 31, 2010 balances for goodwill, below, have been revised to include the effect of the measurement period adjustments. Changes in goodwill balances by segment are as follows:

	Payment Protection		BPO			Brokerage			Total
Balance at December 31, 2010	$	33,413	$	10,239		$	30,395		$	74,047
Segment reclassifications	—		(1,337		)	1,337			—
Goodwill disposed of during 2011	—		—			(1,337		)	(1,337		)
Goodwill acquired during 2011	4,180		—			31,528			35,708
Balance at September 30, 2011	$	37,593	$	8,902		$	61,923		$	108,418

15

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

8. Other Intangible Assets

Other intangible assets and their respective amortization periods are as follows:

		September 30, 2011							December 31, 2010
	Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer and agent relationships	7-15	$	23,732	$	(7,893	)	$	15,839	$	23,732	$	(5,982	)	$	17,750
Tradename	Indefinite	18,475		—			18,475		18,075		—			18,075
Software	10	5,471		(1,763		)	3,708		3,971		(1,390		)	2,581
Present value of future profits	0.3 to 0.75	763		(616		)	147		548		—			548
Non-compete agreements	1.5 - 3	2,755		(2,240		)	515		2,755		(1,712		)	1,043
Total		$	51,196	$	(12,512	)	$	38,684	$	49,081	$	(9,084	)	$	39,997

The Company recorded $2.1 million of other intangibles in conjunction with the eReinsure acquisition. Changes in other intangible assets are as follows:

December 31, 2010	$	39,997
Intangible assets of acquired businesses	2,115
Amortization	(3,428		)
September 30, 2011	$	38,684

In connection with the acquisitions of Continental Car Club and United Motor Club, the Company initially recorded $1.1 million and $1.4 million, respectively, in other intangibles assets. During 2011, the Company determined the final valuations for Continental Car Club and United Motor Club. The Company increased the amount of other intangibles associated with the Continental Car Club and United Motor Club acquisitions by $6.4 million and $4.3 million, respectively, and decreased goodwill in order to reflect the final valuation of goodwill acquired in those transactions. The December 31, 2010 balance for other intangible assets, above, has been revised to include the effect of the measurement period adjustments.

The Company recognized amortization expense on other intangibles of:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Total	$	998	$	788	$	3,428	$	2,346

The estimated amortization of other intangible assets for each of the next five years ending December 31 is as follows:

2011 (remaining three months)	$	1,066
2012	3,221
2013	3,013
2014	3,000
2015	2,992
Thereafter	6,917
Total	$	20,209

9. Notes Payable

Notes payable consist of the following at:	September 30, 2011		December 31, 2010
SunTrust Bank, revolving line of credit — $85.0 million at September 30, 2011 and $55.0 million at December 31, 2010, maturing June 2013	$	64,000	$	36,713
Total notes payable	$	64,000	$	36,713

Revolving Credit Agreement - The Company is party to an $85.0 million revolving credit agreement with SunTrust Bank, N.A., as administrative agent (the "Agent"), and certain lenders, which matures in June 2013 (the "Facility"). The Facility bears interest at a variable Base Rate determined based upon the higher of (i) the prime rate, (ii) the federal funds rate plus 0.50% or (iii) adjusted

16

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

LIBOR plus 1%, plus a margin tied to the Company's leverage ratio. The Company can select at its discretion to convert the interest rate for all or a portion of the outstanding balance for a period of up to six months to a fixed EURO Dollar Funding rate which is equal to the adjusted LIBOR rate for the elected interest period in effect at the time of election, plus a margin tied to the Company's leverage ratio.

The Company is required to pay a commitment fee of between 0.45% and 0.60% (based upon the Company's leverage ratio) on the unused portion of the Facility. The purpose of the line is for working capital and acquisitions. Interest on the line of credit is payable monthly. The Company's obligations under the Facility are guaranteed by substantially all of its domestic subsidiaries, other than South Bay Acceptance Corporation and the regulated insurance subsidiaries. Under the Facility, the Company may not assign, sell, transfer or dispose of any collateral or effect certain changes to its capital structure and the capital structure of its subsidiaries without the Agent's prior consent. The Company's obligations under the Facility may be accelerated or the commitments terminated upon the occurrence of an event of default under the Facility, including payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, cross defaults to other material indebtedness, defaults arising in connection with changes in control and other customary events of default.

On March 1, 2011, Wells Fargo Bank, N.A., entered into a joinder agreement (the "Wells Fargo Joinder") to the Facility and became a new lender under the Facility with a revolving commitment of $30.0 million, which increased the size of the Facility from $55.0 million to $85.0 million.

The following is a summary of the Company's more significant financial covenants related to the Facility:

	Covenant	September 30, 2011
Minimum debt service charge ratio	1.25	3.76
Maximum debt to EBITDA ratio	3.50	2.33

At September 30, 2011, the Company is in compliance with the above covenants on its line of credit.

Wells Fargo Capital Finance, LLC Line of Credit - On February 7, 2011, the Company terminated its existing revolving $40.0 million credit facility with Wells Fargo Capital Finance, LLC, which was never drawn upon. Upon termination, South Bay paid the fees and expenses owed under the Loan Agreement of $0.1 million, including interest on the Minimum Funding Amount (as defined in the Loan Agreement), unused line fees and monthly loan administration fees. The Company continues to amortize previously capitalized costs with a remaining balance of $0.3 million at September 30, 2011 associated with the Wells Fargo Capital Finance, LLC Line of Credit in connection with the Wells Fargo Joinder to the Facility.

The interest rates on notes payable at the end of the respective periods are as follows:

	September 30, 2011		December 31, 2010
Line of Credit — SunTrust	4.43	%	6.00	%
Line of Credit — Wells Fargo	N/A		3.30	%

10. Redeemable Preferred Stock

Redeemable preferred stock securities consist of the following as of:	September 30, 2011		December 31, 2010
Series A - matures 2034	$	—	$	7,140
Series B - matures 2034	—		2,000
Series C - matures 2035	100		1,900
Total redeemable preferred stock	$	100	$	11,040

In December 2010, the Company served notice to the holders of Series A, B and C redeemable preferred stock of its intent to redeem the entire amount of each class of redeemable preferred stock, totaling $11.0 million. The early redemption of all outstanding A, B and C redeemable preferred stock began in January 2011. In conjunction with the redemption, the Company recorded a total of $0.6 million redemption premium and previously capitalized deferred issuance costs were charged to operations for the nine months ended September 30, 2011. The Series A, B and C redeemable preferred stock ceased accruing dividends on the mandatory redemption date of January 26, 2011.

17

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

11. Derivative Financial Instruments - Interest Rate Swap

On April 21, 2011, the Company entered into a forward interest rate swap (the "Swap") with Wells Fargo Bank, N.A., pursuant to which the Company swapped the floating rate portion of its $35.0 million in outstanding preferred trust securities to a fixed rate of 3.47% per annum payable quarterly for an effective rate of 7.57% after adding the applicable margin on the trust preferred securities of 4.10%. The Swap, which has been designated a cash flow hedge, has a term of five years, commencing when the interest rate on the underlying trust preferred securities begins to float in June 2012 and expiring in June 2017. As of September 30, 2011, the Company recorded a $2.1 million unrealized loss, net of tax, on the fair value of the Swap in accumulated other comprehensive income and recorded $3.3 million in other liabilities and $1.2 million in deferred taxes.

12. Fair Value of Financial Instruments 

The guidance under US GAAP establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy and those investments included in each are as follows:

Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.

Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.

Level 3 - Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. These unobservable inputs are derived from the Company's internal calculations, estimates and assumptions and require significant management judgment or estimation.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and cash equivalents: The estimated fair value of the Company's cash and cash equivalents approximates their carrying value.

Fixed maturity securities: Fair values of fixed maturity securities were obtained from market value quotations provided by an independent pricing service.

Common and preferred stock: The fair value of publicly traded common and preferred stocks were obtained from market value quotations provided by an independent pricing service. The values of common stocks that are not publicly traded were based on prices obtained from an independent pricing service.

Notes receivable: The carrying amounts approximate fair value because the interest rates charged approximate current market rates for similar credit risks. These values are net of allowance for doubtful accounts.

Other receivables: The carrying amounts approximate fair value because of the short duration there is no associated interest rate charged.

Short-term investments:The carrying amounts approximate fair value because of the short maturities of these instruments.

Notes payable, preferred trust securities, redeemable preferred stock: The carrying amounts approximate fair value because the applicable interest rates approximate current rates offered to the Company for similar instruments.

Interest rate swap: The fair value of the Company's interest rate swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the interest rate swap. This analysis reflects the contractual terms of the interest rate swap, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

The following tables set forth the Company's financial assets and liabilities that were accounted for at fair value by level within the fair value hierarchy at September 30, 2011 and December 31, 2010:

18

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

			Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
September 30, 2011	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets
Fixed maturity securities	$	85,169	$	—	$	85,169	$	—
Common stock - publicly traded	139		101		—		38
Preferred stock - publicly traded	52		52		—		—
Common stock - non-publicly traded	48		—		—		48
Preferred stock - non-publicly traded	1,001		—		—		1,001
Short-term investments	1,070		1,070		—		—
Total assets	$	87,479	$	1,223	$	85,169	$	1,087
Liabilities
Interest rate swap contract	3,299		—		3,299		—
Total liabilities	$	3,299	$	—	$	3,299	$	—
December 31, 2010
Assets
Fixed maturity securities	$	85,786	—		$	85,786	$	—
Common stock - publicly traded	314		314		—		—
Preferred stock - publicly traded	196		53		143		—
Common stock - non-publicly traded	424		—		—		424
Preferred stock - non-publicly traded	1,001		—		—		1,001
Short-term investments	1,170		1,170		—		—
Total Assets	$	88,891	$	1,537	$	85,929	$	1,425

The Company's use of Level 3 unobservable inputs included 7 securities that accounted for 1.2% of total investments at September 30, 2011 and 5 securities that accounted for 1.6% of total investments at December 31, 2010. The following table summarizes the changes in Level 3 assets measured at fair value as of:

	September 30, 2011
Beginning balance	$	1,425
Total gains or losses (realized/unrealized):
Included in net income	372
Included in comprehensive (loss)	(148		)
Sales	(607		)
Net transfers into Level 3	45
Ending balance	$	1,087

The carrying value and fair value of financial instruments are presented in the following table:

19

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	23,114	$	23,114	$	43,389	$	43,389
Fixed maturity securities	85,169		85,169		85,786		85,786
Common stock - publicly traded	139		139		314		314
Preferred stock - publicly traded	52		52		196		196
Common stock - non-publicly traded	48		48		424		424
Preferred stock - non-publicly traded	1,001		1,001		1,001		1,001
Notes receivable	2,604		2,604		1,485		1,485
Other receivables	25,284		25,284		25,473		25,473
Short-term investments	1,070		1,070		1,170		1,170
Total financial assets	$	138,481	$	138,481	$	159,238	$	159,238
Financial liabilities:
Notes payable	$	64,000	$	64,000	$	36,713	$	36,713
Preferred trust securities	35,000		35,000		35,000		35,000
Redeemable preferred stock	100		100		11,040		11,040
Interest rate swap contract	3,299		3,299		—		—
Total financial liabilities	$	102,399	$	102,399	$	82,753	$	82,753

13. Income Taxes

Income taxes for interim periods have been computed using an estimated annual effective tax rate. This rate is revised, if necessary, at the end of each successive interim period to reflect the current estimate of the annual effective tax rate. At September 30, 2011, the Company estimates that its effective annual income tax rate for 2011 will approximate 36.9%.

14. Statutory Reporting and Dividend Restrictions

The Company's insurance subsidiaries may pay dividends to the Company, subject to statutory restrictions. Payments in excess of statutory restrictions (extraordinary dividends) to the Company are permitted only with prior approval of the insurance departments of the applicable state of domicile. For the nine months ended September 30, 2011, $1.4 million in ordinary dividends were paid. In 2010, Life of the South Insurance Company received approval from the insurance department of its state of domicile to pay extraordinary dividends of $1.3 million, to the Company. Also in 2010, Insurance Company of the South received approval from the insurance department of its state of domicile to pay an extraordinary dividend of $1.7 million, with 30% to Life of the South Insurance Company and 70% to the Company. All dividends from subsidiaries were eliminated in the consolidated financial statements.

The combined statutory capital and surplus of the Company's insurance subsidiaries was $49.7 million and $46.2 million as of September 30, 2011 and December 31, 2010, respectively. The combined amount available for ordinary dividends of the Company's insurance subsidiaries was $1.9 million and $1.6 million as of September 30, 2011 and December 31, 2010, respectively.

The Company's insurance subsidiaries are required by the laws of the states in which they are domiciled to maintain certain statutory capital and surplus levels. The required minimum statutory capital and surplus totaled $13.0 million as of September 30, 2011 and December 31, 2010, respectively.

Under the National Association of Insurance Commissioners ("NAIC") Risk-Based Capital Act of 1995, a company's risk-based capital ("RBC") is calculated by applying certain risk factors to various asset, claims and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds, regulatory intervention or oversight is required. The insurance companies' RBC level as calculated in accordance with the NAIC's RBC instructions exceeded all RBC thresholds as of September 30, 2011 and December 31, 2010.

15. Commitments and Contingencies

The Company is party to claims and litigation in the normal course of its operations. Management believes that the ultimate outcome of these matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

In the Company's Payment Protection business, it is currently a defendant in lawsuits that relate to marketing and/or pricing issues that involve claims for punitive, exemplary or extra-contractual damages in amounts substantially in excess of the covered claim.

20

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

Such litigation includes Lawson v. Life of the South Insurance Co., which was filed on March 13, 2006, in the Superior Court of Muscogee County, Georgia, and later moved to the United States District Court for the Middle District of Georgia, Columbus Division. The action is brought by the plaintiff, individually and on behalf of a class of all persons similarly situated. The allegations involve the Company's alleged duty to refund unearned premiums on credit insurance policies, even when the Company has not been informed of the payoff of the underlying finance contract. The action seeks an injunction requiring remedial action, as well as a variety of damages, including punitive damages, and attorney fees and costs. To date, a class has not been certified in this action.

The Company considers such litigation customary in its line of business. In the Company's opinion, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the Company's financial position, results of operations or cash flows. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business.

16. Segment Results

The Company conducts its business through three business segments: (i) Payment Protection; (ii) BPO; and (iii) Brokerage. The revenue for each segment is presented to reflect the operating characteristics of the segment. The Company allocates certain revenues and costs to the segments. These items primarily consist of corporate-related income, transaction related costs, executive stock compensation and other overhead expenses. The Company measures the profitability of its business segments with the allocation of Corporate income and expenses and without taking into account amortization, depreciation, interest expense and income taxes. The Company refers to these performance measures as segment EBITDA (earnings before interest, taxes, depreciation and amortization) and segment EBITDA margin (segment EBITDA divided by segment net revenues).

The following table reconciles segment information to the Company's consolidated results of operations and provides a summary of other key financial information for each of the Company's segments:

21

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Segment Net Revenue
Payment Protection
Service and administrative fees	$	5,695		$	3,449		$	14,704		$	8,572
Ceding commission	7,027			9,455			21,428			22,468
Net investment income	801			865			2,636			2,799
Net realized gains	1,196			107			2,423			156
Other income	18			(62		)	138			64
Net earned premium	28,673			28,255			84,646			83,417
Net losses and loss adjustment expenses	(9,714		)	(10,993		)	(28,338		)	(27,086		)
Commissions	(17,926		)	(16,432		)	(53,766		)	(53,631		)
Total Payment Protection	15,770			14,644			43,871			36,759
BPO	3,833			4,715			11,088			13,605
Brokerage
Brokerage commissions and fees	8,611			6,031			25,686			19,163
Service and administrative fees	597			1,124			2,249			3,931
Total Brokerage	9,208			7,155			27,935			23,094
Total	28,811			26,514			82,894			73,458
Operating Expenses
Payment Protection	8,349			6,435			25,409			17,720
BPO	2,717			2,588			8,164			7,997
Brokerage (1)	7,491			5,783			21,837			17,687
Corporate	36			1,220			1,763			2,062
Total	18,593			16,026			57,173			45,466
EBITDA
Payment Protection	7,421			8,209			18,462			19,039
BPO	1,116			2,127			2,924			5,608
Brokerage (1)	1,717			1,372			6,098			5,407
Corporate	(36		)	(1,220		)	(1,763		)	(2,062		)
Total	10,218			10,488			25,721			27,992
Depreciation and Amortization
Payment Protection	927			327			3,204			1,382
BPO	307			457			824			711
Brokerage	650			435			1,683			1,243
Total	1,884			1,219			5,711			3,336
Interest
Payment Protection	1,053			1,873			3,622			5,238
BPO	96			126			258			324
Brokerage	757			247			1,982			560
Total	1,906			2,246			5,862			6,122
Income before income taxes and non-controlling interest
Payment Protection	5,441			6,009			11,636			12,419
BPO	713			1,544			1,842			4,573
Brokerage (1)	310			690			2,433			3,604
Corporate	(36		)	(1,220		)	(1,763		)	(2,062		)
Total income before income taxes and non-controlling interest	6,428			7,023			14,148			18,534
Income Taxes	2,292			2,576			5,003			6,872
Less: net income (loss) attributable to non-controlling interest	1			—			(171		)	(31		)
Net income	$	4,135		$	4,447		$	9,316		$	11,693
(1) - Includes loss on sale of subsidiary of $477 for the three and nine months ended September 30, 2011, respectively.

As of January 1, 2011, certain BPO and Brokerage distribution channels were re-aligned to better reflect the segments business focus. The distribution channel results for the three months and nine months ended September 30, 2010 have been reclassified from their prior period segment presentation. The impact of these 2010 reclassifications were $0.9 million in revenues and $0.8 million in expenses being moved from the BPO segment into the Brokerage segment in order to conform to the presentation for

22

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

the three months ended September 30, 2011 and $3.3 million in revenues and $2.9 million in expenses being moved from the BPO segment into the Brokerage segment in order to conform to the presentation for the nine months ended September 30, 2011.

Reconciliation of Segment Net Revenue and EBITDA to Total Revenue and Net Income

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Revenue
Payment Protection	$	15,770		$	14,644		$	43,871		$	36,759
BPO	3,833			4,715			11,088			13,605
Brokerage	9,208			7,155			27,935			23,094
Segment revenue	28,811			26,514			82,894			73,458
Net losses and loss adjustment expenses	9,714			10,993			28,338			27,086
Commissions	17,926			16,432			53,766			53,631
Total revenue	56,451			53,939			164,998			154,175
Operating Expenses
Payment Protection	8,349			6,435			25,409			17,720
BPO	2,717			2,588			8,164			7,997
Brokerage (1)	7,491			5,783			21,837			17,687
Corporate	36			1,220			1,763			2,062
Total Operating Expenses	18,593			16,026			57,173			45,466
Net losses and loss adjustment expenses	9,714			10,993			28,338			27,086
Commissions	17,926			16,432			53,766			53,631
Total expenses before depreciation, amortization and interest	46,233			43,451			139,277			126,183
EBITDA
Payment Protection	7,421			8,209			18,462			19,039
BPO	1,116			2,127			2,924			5,608
Brokerage (1)	1,717			1,372			6,098			5,407
Corporate	(36		)	(1,220		)	(1,763		)	(2,062		)
Total	10,218			10,488			25,721			27,992
Depreciation and amortization
Payment Protection	927			327			3,204			1,382
BPO	307			457			824			711
Brokerage	650			435			1,683			1,243
Total	1,884			1,219			5,711			3,336
Interest
Payment Protection	1,053			1,873			3,622			5,238
BPO	96			126			258			324
Brokerage	757			247			1,982			560
Total	1,906			2,246			5,862			6,122
Income before income taxes and non-controlling interest
Payment Protection	5,441			6,009			11,636			12,419
BPO	713			1,544			1,842			4,573
Brokerage (1)	310			690			2,433			3,604
Corporate	(36		)	(1,220		)	(1,763		)	(2,062		)
Total Income before income taxes and non-controlling interest	6,428			7,023			14,148			18,534
Income taxes	2,292			2,576			5,003			6,872
Less: net income (loss) attributable to non-controlling interest	1			—			(171		)	(31		)
Net income	$	4,135		$	4,447		$	9,316		$	11,693
(1) - Includes loss on sale of subsidiary of $477 for the three and nine months ended September 30, 2011, respectively.

23

FORTEGRA FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(All Amounts in Thousands Except Share Amounts, Per Share Amounts or Unless Otherwise Noted)

17. Related Party Transactions

In connection with the Summit Partners acquisition of the Company on June 20, 2007, $20.0 million of subordinated debentures were issued to affiliates of Summit Partners, a related party, and reported in the notes payable line of the Consolidated Balance Sheets. The subordinated debentures had an original maturity of June 20, 2012, which was subsequently amended to mature in June 2013, and bore interest at 14% per annum on the principal amount of such subordinated debentures, payable quarterly. In December 2010, the Company utilized a portion of the proceeds received from its IPO to pay off the entire $20.0 million of outstanding subordinated debentures for $20.6 million, which included accrued but unpaid interest to the redemption date.

The following details interest expense paid to related parties for the respective periods:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Related party interest expense	$	—	$	715	$	—	$	2,123

18. Subsequent Events

On October 3, 2011, the Company acquired Pacific Benefits Group Northwest, LLC ("PBG"), a leading U.S. independent insurance

agency. PBG markets and sells health, accident, critical illness and life insurance policies. Headquartered in Beaverton, OR, PBG has 48 full and part time employees and is licensed as an agent in 42 states.

In November 2011, The Board of Directors authorized a share repurchase program for purchasing up to $10.0 million of the Company's common stock from time to time through open market or private transactions.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis represents an overview of our results of operations and financial condition and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Part I, Item 1 of this Form 10-Q.

Overview

We are an insurance services company that provides distribution and administration services and insurance-related products to insurance companies, insurance brokers and agents and other financial services companies primarily in the United States. We sell our services and products directly to businesses rather than directly to consumers.

We began nearly 30 years ago as a provider of credit insurance products and, through our transformational efforts, have evolved into a diversified insurance services company. We now leverage our proprietary technology infrastructure, internally developed best practices and access to specialty insurance markets to provide our clients with distribution and administration services and insurance-related products. Our services and products complement consumer credit offerings, provide outsourcing solutions designed to reduce the costs associated with the administration of insurance and other financial products and facilitate the distribution of excess and surplus lines insurance products through insurance companies, brokers and agents. These services and products are designed to increase revenues, improve customer value and loyalty and reduce costs for our clients.

We intend to take advantage of embedded growth opportunities and new market development through geographic expansion, expanding our products and service presence with existing clients and acquiring complementary businesses. To support our growth initiatives, we continue to focus on adding enhanced features to our existing information systems and developing new processes to enhance efficiency, drive economies of scale and provide additional competitive advantages.

We operate in three business segments: (i) Payment Protection, (ii) Business Process Outsourcing ("BPO") and (iii) Brokerage.

• Our Payment Protection segment, marketed under our Life of the South, Continental Car Club, United Motor Club and Auto Knight brands, delivers credit insurance, debt protection, warranty and service contracts and car club solutions to consumer finance companies, regional banks, community banks, retailers, small loan companies, warranty administrators, automobile dealers, vacation ownership developers and credit unions. Our clients then offer these products to their customers in conjunction with consumer financial transactions. Our Payment Protection segment specializes principally in providing products that protect consumer lenders and their borrowers from death, disability or other events that could otherwise impair their borrowers' ability to repay a debt. We typically maintain long-term business relationships with our clients.

• Our BPO segment, marketed under the Consecta brand, provides a broad range of administrative services tailored to insurance and other financial services companies. Our BPO business is our most technology-driven segment. Through our operating platform, which utilizes our proprietary technology, we provide sales and marketing support, premium billing and collections,

24

policy administration, claims adjudication and call center management services on behalf of our clients.

• Our Brokerage segment is marketed under our Bliss & Glennon, eReinsure and South Bay Acceptance brands. We acquired eReinsure in March 2011. The acquisition of eReinsure allows us to broaden our relationships with major insurers, reinsurers and brokers worldwide who use the eReinsure system to assist in the management of facultative reinsurance transactions. Bliss & Glennon, acquired in April 2009, is one of the largest surplus lines brokers in California according to the Surplus Line Association of California, and ranked in the top 10 wholesale brokers in the United States in 2010 by premium volume according to Business Insurance, an industry publication. The Brokerage segment uses a wholesale model to sell specialty property and casualty ("P&C") and surplus lines insurance through retail insurance brokers and agents and insurance companies, as well the placement of reinsurance risks on reinsurers. We believe that our emphasis on customer service, rapid responsiveness to submissions and underwriting integrity in this segment has resulted in high customer satisfaction among retail insurance brokers and agents and insurance companies.

Corporate History

We were incorporated in 1981 and initially provided credit life and disability insurance for financial institutions, primarily small community banks in Georgia, and their customers under our Life of the South brand. From 1994 to 2003, through a series of strategic acquisitions and organic growth, we expanded our payment protection client or producer base to include consumer finance companies, retailers, automobile dealers, credit card issuers, credit unions and regional and community banks throughout the United States. During this period, we expanded our product and service offerings to include credit property, debt cancellation and warranty products. In 2008, we changed our name from Life of the South Corporation to Fortegra Financial Corporation.

In 2003, we continued the expansion of our administrative capabilities for insurance and payment protection products to customers of financial institutions. We utilized our proprietary technology enhancements to support mass marketing and began providing fulfillment of life and health insurance products. We previously operated our BPO business under the LOTSolutions brand. In 2007, we expanded our BPO segment to provide services to finance companies owned by industrial equipment manufacturers. We entered into the asset recovery business in December 2008 through our acquisition of CIRG (sold on July 1, 2011), a third-party administrator serving commercial lending institutions for pre-collections, recovery, deficiency collections, dealer inventory seizures and management of asset portfolio run-off. Our asset recovery business is part of our Brokerage segment.

In March 2008, we acquired Gulfco Life Insurance Company to expand the presence of our Payment Protection segment in the Louisiana market. In December 2008, we acquired Darby & Associates, a wholesale provider of payment protection products in North Carolina. This acquisition expanded our Payment Protection segment in North Carolina, which is that segment's third largest state in terms of 2010 revenues and an important foothold with our consumer finance company clients (our largest distribution channel within the Payment Protection segment). In April 2009, we acquired Bliss & Glennon, an excess and surplus lines wholesale insurance broker, and entered into the brokerage business, which continued our strategic expansion of specialized and administration services for insurance carriers and other financial services businesses.

In 2010, we commenced marketing our BPO segment under the Consecta brand. Through our February 2010 acquisition of South Bay Acceptance Corporation, we expanded into premium finance to support our Brokerage segment. In May 2010, we acquired Continental Car Club, which provides car club memberships through consumer finance companies, to enable our Payment Protection segment to expand into the roadside assistance market. In September 2010, we acquired United Motor Club, which also provides car club memberships through consumer finance companies.

In January 2011, we acquired Auto Knight. Auto Knight provides motor club memberships, vehicle service plans and tire and wheel programs, which are offered by automobile and truck dealerships and retailers in the United States and Canada. The acquisition expands the Company's geographic reach to Canada, where Auto Knight offers its products through retailers as a subscription benefit.

In March 2011, we acquired eReinsure.com, Inc. eReinsure has developed and markets the eReinsure negotiation platform which is the leading online system enabling collaboration between domestic and international companies buying and selling facultative reinsurance. eReinsure has offices in Salt Lake City, Utah and London, England.

We historically have used a combination of borrowings under our credit facilities and cash on hand to pay the purchase price of our acquisitions. The following table summarizes our acquisition activity through September 30, 2011:

(in thousands, except number of acquisitions closed)	September 30, 2011
Number of acquisitions closed	2
Total cash consideration	$	44,031

25

Summit Partners Transactions

In June 2007, entities affiliated with Summit Partners, a global growth equity investment firm, acquired 91.2% of our capital stock. The acquisition was financed through (i) $20.0 million of subordinated debentures maturing in 2013 issued to affiliates of Summit Partners, (ii) $35.0 million of preferred trust securities maturing in 2037 and (iii) an equity investment of $43.1 million by affiliates of Summit Partners. We refer to the foregoing transactions collectively as the "Summit Partners Transactions." In connection with our 2010 Initial Public Offering ("IPO"), we paid off the entire $20.0 million in outstanding subordinated debentures in December 2010.

In April 2009, in connection with our acquisition of Bliss and Glennon, Inc., affiliates of Summit Partners acquired additional shares of our capital stock for $6.0 million. In connection with the IPO, Summit Partners sold 1,548,675 shares of common stock. At September 30, 2011, affiliates of Summit Partners beneficially owned 60.5% of our common stock.

Critical Accounting Policies

Fortegra's critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of September 30, 2011 are unchanged from the disclosures presented in Fortegra's Annual Report for the year ended December 31, 2010 in Item 7 - "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Revenues

Service and Administrative Fees. We earn service and administrative fees from our Payment Protection and BPO business segments. Such fees are typically positively correlated with transaction volume and are recognized as revenue as they become both realized and earned. We earn service and administrative fees from a variety of activities, including the administration of credit insurance, the administration of debt cancellation programs, the administration of warranty programs and the administration of collateral tracking and asset recovery programs. Fees are typically positively correlated to transaction volume and are recognized as revenue as they become both realized and earned.

Payment Protection.  Our Payment Protection products are sold as complementary products to consumer retail and credit transactions and are thus subject to the volatility of volume of consumer purchase and credit activities. We receive service and administrative fees for administering Payment Protection products that are sold by our clients, such as credit insurance, debt protection, car club and warranty solutions. We earn administrative fees for administering debt cancellation plans, facilitating the distribution and administration of warranty or extended service contracts, providing car club membership benefits and providing related services for our clients. For credit insurance products, our clients typically retain the risk associated with credit insurance products that they sell to their customers through economic arrangements with us. Our Payment Protection revenue includes revenue earned from reinsurance arrangements with producer owned reinsurance companies owned by our clients. Our clients own producer owned reinsurance companies ("PORCs") that assume the credit insurance premiums and associated risk that they originate in exchange for fees paid to us for ceding the premiums. In addition, our Payment Protection revenue includes administrative fees charged by us under retrospective commission arrangements with producers, where the commissions paid are adjusted based on actual losses incurred compared to premium earned after a specified net allowance retained by us. Under these arrangements, our insurance companies receive the insurance premiums and administer the policies that are distributed by our clients. The producer of the credit insurance policies receives a retrospective commission if the premium generated by that producer in the accounting period exceeds the costs associated with those polices, which includes our administrative fees, incurred claims, reserves and premium taxes. If the net result is negative, we either offset that negative amount against future retrospective commission payments, reduce the producer's up-front commission on a prospective basis to increase the likelihood that it will return to a positive position or request payment of the negative amount from the producer. Revenues in our Payment Protection business may fluctuate seasonally based on consumer spending trends, where consumer spending has historically been higher in September and December, corresponding to back-to-school and the holiday season. Accordingly, our Payment Protection revenues may reflect higher third and fourth quarters than in the first half of the year.

BPO.  Our BPO revenues consist exclusively of service and administrative fees for providing a broad set of administrative services tailored to insurance and other financial services companies including ongoing sales and marketing support, premium billing and collections, policy administration, claims adjudication, call center management services and the development of web-hosted applications for the reinsurance market. Our BPO revenues are based on the volume of business that we manage on behalf of our clients. Our BPO segment typically charges fees on a per-unit of service basis as a percentage of our client's insurance premiums.

Brokerage Commissions and Fees.  Brokerage commissions and fees consist of commissions paid to us by insurance companies, net of the portion of the commissions we share with retail insurance brokers and agents. The commissions we receive from insurance carriers are typically calculated as a percentage of the premiums paid for the specialized and complex insurance products (commonly known as "surplus lines") we distribute. We typically earn our commissions on the later of the effective date of the policy or the

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date coverage is bound. We pay our retail insurance agent and broker clients a portion of the gross commissions we receive from insurance carriers for placing insurance. In certain cases, our Brokerage segment also charges fees for policy issuance, inspections and other types of transactions. Our Brokerage fees also consist of revenues generated by eReinsure for licensed users and for the transactions completed through its platform.

Brokerage commissions and fees are generally affected by fluctuations in the amount of premium charged by insurance carriers. The premiums charged fluctuate based on, among other factors, the amount of capital available in the insurance marketplace, the type of risk being insured, the nature of the insured party and the terms of the insurance purchased. If premiums increase or decrease, our revenues are typically affected in a corresponding fashion. In a declining premium rate environment, the resulting decline in our revenue may be offset, in whole or in part, by an increase in commission rates from insurance carriers and by an increased likelihood that insured parties may use the savings generated by the reduction in premium rates to purchase greater coverage. In an increasing pricing environment, the resulting increase in our revenue may be offset, in whole or in part, by a decrease in commission rates by insurance carriers and by an increased likelihood that insured parties may determine to reduce the amount of coverage they purchase. The market for P&C insurance products is cyclical from a capacity and pricing perspective. We refer to a period of reduced capacity and rising premium rates as a "hard" market and a period of increased capacity and declining premium rates as a "soft" market.

Gross commission rates for the products that we distribute in our Brokerage segment, whether acting as a wholesale broker or as a Managing General Agent ("MGA"), generally range from 15% to 25% of the annual premium for the policy. Brokerage commissions and fees net of commissions paid to our retail insurance agent and broker clients typically approximate 10%.

Demand for surplus lines insurance products also affects our premium volume and net commissions. State regulations generally require a buyer of insurance to have been turned down by three or more traditional carriers before being eligible to purchase the surplus lines distributed by us. As standard insurance carriers eliminate non-core lines of business and implement more conservative risk selection techniques, demand for excess and surplus lines insurance improves.

Our Brokerage commission and fee revenues fluctuate seasonally based on policy renewal dates. Our Brokerage commissions and fees in the first two calendar quarters of any year historically have been higher than in the last two calendar quarters. In addition, our quarterly Brokerage revenues may be affected by new placements and cancellations or non-renewals of large insurance policies as the revenue stream related to this policy is recognized once per year, as opposed to ratably throughout the year. Seasonal fluctuations may be impacted by the addition of eReinsure, where transaction fees are generally higher in the second and fourth quarters.

We also receive profit commissions for certain arrangements with certain insurance carriers on binding authority business. These profit commissions are based on the profitability of the business that we underwrite or broker on the insurance carrier's behalf. Profit commissions typically range from 0.6% to 1.7% of the annual premium and are paid periodically based on the terms of the individual carrier contract.

Ceding Commissions. Ceding commission earned under coinsurance agreements are based on contractual formulas that take into account, in part, underwriting performance and investment returns experienced by assuming companies. As experience changes, adjustments to the ceding commissions are reflected in the period incurred.

We elect to cede to reinsurers under coinsurance arrangements a significant portion of the credit insurance that we distribute on behalf of our clients. We continue to provide all policy administration for credit insurance that we cede to reinsurers. Ceding commissions consist of commissions paid to us by our reinsurers to reimburse us for costs related to the acquisition, administration and servicing of policies and premium that we cede to reinsurers. In addition, a portion of the ceding commission is determined based on the underwriting profits of the ceded credit insurance. The credit insurance that we distribute has historically generated attractive underwriting profits. Furthermore, some reinsurers pay to us a portion or all of the investment income earned on reserves that are maintained in trust accounts.

Ceding commissions are generally positively correlated with our credit insurance transaction and premium volumes. The portion of our ceding commissions that is related to the underwriting profits of the ceded credit insurance also fluctuates based on the claims made on such policies. The portion of our ceding commissions that is related to investment income can be impacted by the amount of reserves that are maintained in trust accounts and changes in interest rates. Ceding commissions are earned over the life of the policy. Ceding commissions are generated by the Payment Protection segment only for credit insurance.

Net Earned Premium.  Net earned premium consists of revenue generated from the direct sale of Payment Protection insurance policies by our distributors or premiums written for Payment Protection insurance policies by another carrier and assumed by us. Whether direct or assumed, the premium is earned over the term of the respective policy. Premiums earned are offset by earned

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premiums ceded to our reinsurers, including PORCs. The amount ceded is proportional to the amount of risk assumed by the reinsurer.

The principal factors affecting earned premiums are: (i) the proportion of the risk assumed by the reinsurer as defined in the reinsurance treaty; (ii) increases and decreases in written premium; (iii) increases and decreases in policy cancellation rates; (iv) the average duration of the policies written; and (v) changes in regulation that would modify the earning patterns for the policies underwritten and administered.

We limit the underwriting risk we take in our Payment Protection insurance policies. When we do assume risk in our Payment Protection insurance policies, we utilize both reinsurance (e.g., quota share and excess of loss) and retrospective commission agreements to manage and mitigate our risk.

Net Investment Income. We earn net investment income from interest payments and dividends received from our investment portfolio, and interest earned on our cash accounts and notes receivable, less portfolio management expenses. Our investment portfolio is primarily invested in fixed maturity securities which tend to produce consistent levels of investment income. The fair market value of the fixed maturity securities in our portfolio and the investment income from these securities fluctuate depending on general economic and market conditions. The fair market value generally increases or decreases in an inverse relationship with fluctuations in interest rates. Investment income can be significantly impacted by changes in interest rates. Interest rate volatility can increase or reduce unrealized gains or unrealized losses in our portfolios. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, fixed maturity and short-term investments.

We also have investments that carry prepayment risk, such as mortgage-backed and asset-backed securities. Actual net investment income and/or cash flows from investments that carry prepayment risk may differ from estimates at the time of investment as a result of interest rate fluctuations. In periods of declining interest rates, mortgage prepayments generally increase and mortgage-backed securities, commercial mortgage obligations and bonds are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates. Therefore, we may be required to reinvest those funds in lower interest-bearing investments. Conversely, in times of rising interest rates, prepayments slow as borrowers tend to be less likely to refinance borrowings at higher interest rates, which tends to increase the duration of our investment holdings. With the increase in investment duration, we will have less cash flows from prepayments to invest at higher prevailing market rates.

Net Realized Gains (Losses). We realize gains when invested assets are sold for an amount greater than the amortized cost in the case of fixed maturity securities and recognize realized losses for invested assets sold for an amount less than their carrying cost or when investment securities are written down as a result of an other-than-temporary impairment, ("OTTI").

Other Income.  Other income primarily consists of miscellaneous fees generated by our Brokerage and Payment Protection segments.

Expenses

Net Losses and Loss Adjustment Expenses. Net losses and loss adjustment expenses include actual paid claims and the change in unpaid claim reserves and consist of direct and assumed losses less ceded losses. Our profitability depends in part on accurately predicting net loss and loss adjustment expenses. Incurred claims are impacted by loss frequency, which is the measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Factors affecting loss frequency and loss severity include changes in claims reporting patterns, claims settlement patterns, judicial decisions, legislation, economic conditions, morbidity patterns and the attitudes of claimants towards settlements.

Actual claims paid are claims payments made to the policyholder or beneficiary during the accounting period. The change in unpaid claim reserve is an increase or reduction to the unpaid claim reserve in the accounting period to maintain the unpaid claim reserve at the levels evaluated by our actuaries.

Unpaid claims are reserve estimates that are established in accordance with GAAP using generally accepted actuarial methods. Credit life and AD&D unpaid claims reserves include claims in the course of settlement and incurred but not reported ("IBNR"). Credit disability unpaid claims reserves also include continuing claim reserves for open disability claims. For all other product lines, unpaid claims reserves are bulk reserves and are entirely IBNR. We use a number of algorithms in establishing our unpaid claims reserves. These algorithms are used to calculate unpaid claims as a function of paid losses, earned premium, target loss ratios, in force amounts, unearned premium reserves, industry recognized morbidity tables or a combination of these factors.

In accordance with applicable statutory insurance company regulations, our unpaid claims reserves are evaluated by appointed actuaries. The appointed actuaries perform this function in compliance with the Standards of Practice and Codes of Conduct of

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the American Academy of Actuaries. The appointed actuaries perform their actuarial analyses each year and prepare opinions, statements and reports documenting their determinations.

The appointed actuaries conduct their actuarial analysis on a basis gross of reinsurance. The same estimates used as a basis in calculating the gross unpaid claims reserves are then used as the basis for calculating the net unpaid claims reserves, which take into account the impact of reinsurance. Anticipated future loss development patterns form a key assumption underlying these analyses. Our claims are generally reported and settled quickly, resulting in a consistent historical loss development pattern. From the anticipated loss development patterns, a variety of actuarial loss projection techniques are employed, such as the chain ladder method, the Bornhuetter-Ferguson method and expected loss ratio method.

Our unpaid claims reserves do not represent an exact calculation of exposure, but instead represent our best estimates, generally involving actuarial projections at a given time. The process used in determining our unpaid claims reserves cannot be exact since actual claim costs are dependent upon a number of complex factors such as changes in doctrines of legal liabilities and damage awards. These factors are not directly quantifiable, particularly on a prospective basis. We periodically review and update our methods of making such unpaid claims reserve estimates and establishing the related liabilities based on our actual experience. We have not made any changes to our methodologies for determining unpaid claims reserves in the periods presented.

Commissions. Commissions include the commissions paid to distributors selling credit insurance policies offered by our Payment Protection division. Commission rates, in many instances, are set by state regulators and are also impacted by market conditions. In certain instances, our commissions are subject to retrospective adjustment based on the profitability of the related policies. These retrospective commission adjustments are payments made or adjustments to future commission expense based on claims experience. Under these retrospective commission arrangements, the producer of the credit insurance policies, which is typically our client, receives a retrospective commission if the premium generated by that producer in the accounting period exceeds the costs associated with those policies, which includes our administrative fees, claims, reserves, and premium taxes. If the net result is negative, we either offset that negative amount against future retrospective commission payments, reduce the producer's up-front commission on a prospective basis to increase the likelihood that it will return to a positive position or request payment of the negative amount from the producer.

Personnel Costs. Personnel costs represent the amounts attributable to wages, salaries, bonuses and benefits for our full and part-time employees, as well as expense related to our stock-based compensation. In addition to our general personnel costs, some of the employees in our Brokerage and Payment Protections segments are paid a percentage of revenues they generate. Accordingly, compensation for brokers in our Brokerage segment is predominantly variable. Bonuses for the remaining employees are discretionary and are based on an evaluation of their individual performance and the performance of their particular business segment, as well as our entire company.

Other Operating Expenses. Other operating expenses consist primarily of rent, insurance, investigation fees, transaction expenses, professional fees, technology costs, travel and entertainment and advertising, and may include variable costs based on the volume of business we process. Other operating expenses are a significant portion of our expenses.

Depreciation. Depreciation expense is the allocation of the capitalized cost of property and equipment over the periods benefited by the use of the asset.

Amortization of Intangibles. Amortization of intangibles is an expense recorded to allocate the cost of intangible assets, such as purchased customer accounts and non-compete agreements acquired as part of our business acquisitions, over their estimated useful lives.

Interest Expense. Interest expense includes interest payable on our credit facilities, mainly our notes payable, preferred trust securities and redeemable preferred stock, and is directly correlated to the levels of and the prevailing interest rates on these debt instruments.

Income Taxes.Income taxes are comprised of federal and state taxes based on income in multiple jurisdictions and changes in uncertain tax positions, if any.

EXECUTIVE SUMMARY

Net income for the three months ended September 30, 2011 decreased $0.3 million or 7.0% to $4.1 million compared to $4.4 million for the same period in 2010. Earnings per share on a fully diluted basis was $0.19 for the three months ended September 30, 2011 compared to $0.26 for the same prior period. The decrease in net income was attributable principally to the loss associated with the sale of CIRG, higher commission expense and personnel costs which were partially offset by lower net losses and loss adjustment expense and realized investment sale gains. Overall our revenues for the three months ended September 30, 2011

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increased $2.5 million or 4.7% to $56.5 million from $53.9 million for the same prior period, resulting from higher brokerage fees of $2.6 million and net realized gains of $1.1 million, partially offset by lower ceding commissions of $2.4 million. Total expenses increased $3.1 million or 6.6% to $50.0 million for the three months ended September 30, 2011 from $46.9 million for the same prior period. The increase was attributable to a $1.5 million increase in commission expense, a $1.4 million increase in personnel costs and a $0.5 million loss on the sale of our subsidiary CIRG, while net losses and loss adjustment expenses decreased $1.3 million.

Net income for the nine months ended September 30, 2011 decreased $2.4 million or 20.3% to $9.3 million from $11.7 million for the same prior period. Earnings per share on a fully diluted basis was $0.44 for the nine months ended September 30, 2011 compared to $0.69 for the same period in 2010. Overall our revenues for the nine months ended September 30, 2011 increased $10.8 million or 7.0% to $165.0 million from $154.2 million for the same period in 2010 with brokerage commissions, net earned premiums and net realized gains contributing to the majority of the increase. Total expenses increased $15.2 million or 11.2% to $150.9 million for the nine months ended September 30, 2011 from $135.6 million for the same period in 2010. The majority of the increase was associated with our own internal expansion and acquired businesses and included $5.4 million in additional personnel costs, $5.8 million in higher other operating expenses and a $2.4 million increase in depreciation and amortization of intangibles.

Results of Operations

The following tables set forth our Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010:

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(in thousands, except shares and per share amounts)	For the Three Months Ended
	September 30, 2011		Change from 2010			% Change from 2010		September 30, 2010
Revenues:
Service and administrative fees	$	10,125	$	896		9.7	%	$	9,229
Brokerage commissions and fees	8,611		2,577			42.7		6,034
Ceding commission	7,027		(2,428		)	(25.7	)	9,455
Net investment income	801		(64		)	(7.4	)	865
Net realized gains	1,196		1,089			1,017.8		107
Net earned premium	28,673		418			1.5		28,255
Other income	18		24			(400.0	)	(6		)
Total Revenues	56,451		2,512			4.7		53,939
Expenses:
Net losses and loss adjustment expenses	9,714		(1,279		)	(11.6	)	10,993
Commissions	17,926		1,494			9.1		16,432
Personnel costs	10,945		1,419			14.9		9,526
Other operating expenses	7,171		671			10.3		6,500
Depreciation	886		455			105.6		431
Amortization of intangibles	998		210			26.6		788
Interest expense	1,906		(340		)	(15.1	)	2,246
Loss on sale of subsidiary	477		477			100.0		—
Total Expenses	50,023		3,107			6.6		46,916
Income before income taxes and non-controlling interest	6,428		(595		)	(8.5	)	7,023
Income Taxes	2,292		(284		)	(11.0	)	2,576
Income before non-controlling interest	4,136		(311		)	(7.0	)	4,447
Less: net income (loss) attributable to non-controlling interest	1		1			100.0		—
Net income	$	4,135	$	(312	)	(7.0	)%	$	4,447
Earnings per share:
Basic	$	0.20						$	0.28
Diluted	$	0.19						$	0.26
Weighted average common shares outstanding:
Basic	20,404,441							15,742,336
Diluted	21,214,365							17,057,157

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(in thousands, except shares and per share amounts)	For the Nine Months Ended
	September 30, 2011			Change from 2010			% Change from 2010		September 30, 2010
Revenues:
Service and administrative fees	$	28,041		$	1,994		7.7	%	$	26,047
Brokerage commissions and fees	25,686			6,518			34.0		19,168
Ceding commission	21,428			(1,040		)	(4.6	)	22,468
Net investment income	2,636			(163		)	(5.8	)	2,799
Net realized gains	2,423			2,267			1,453.2		156
Net earned premium	84,646			1,229			1.5		83,417
Other income	138			18			15.0		120
Total Revenues	164,998			10,823			7.0		154,175
Expenses:
Net losses and loss adjustment expenses	28,338			1,252			4.6		27,086
Commissions	53,766			135			0.3		53,631
Personnel costs	33,365			5,426			19.4		27,939
Other operating expenses	23,331			5,804			33.1		17,527
Depreciation	2,283			1,293			130.6		990
Amortization of intangibles	3,428			1,082			46.1		2,346
Interest expense	5,862			(260		)	(4.2	)	6,122
Loss on sale of subsidiary	477			477			100.0		—
Total Expenses	150,850			15,209			11.2		135,641
Income before income taxes and non-controlling interest	14,148			(4,386		)	(23.7	)	18,534
Income Taxes	5,003			(1,869		)	(27.2	)	6,872
Income before non-controlling interest	9,145			(2,517		)	(21.6	)	11,662
Less: net income (loss) attributable to non-controlling interest	(171		)	(140		)	451.6		(31		)
Net income	$	9,316		$	(2,377	)	(20.3	)%	$	11,693
Earnings per share:
Basic	$	0.46							$	0.74
Diluted	$	0.44							$	0.69
Weighted average common shares outstanding:
Basic	20,355,057								15,742,336
Diluted	21,375,184								17,057,157

Revenues

Service and Administrative Fees

Service and administrative fees for the three months ended September 30, 2011 increased 9.7% to $10.1 million compared to the three months ended September 30, 2010. This increase resulted from a $2.2 million increase in administrative fees in our Payment Protection segment. This resulted principally from a $1.8 million increase from our 2011 acquisition of Auto Knight and the full impact of our 2010 acquisitions, which mostly occurred in the latter part of 2010, and growth in our core business of $0.4 million. These increases were offset by a $0.9 million reduction in our BPO segment revenues and $0.5 million of lower debt collection and collection recovery fees.

Service and administrative fees for the nine months ended September 30, 2011increased 7.7%, or $2.0 million to $28.0 million from $26.0 million for the nine months ended September 30, 2010. The increase resulted from a $6.1 million increase in administrative fees in our Payment Protection segment. This resulted principally from a $5.6 million increase from our 2011 acquisition of Auto Knight and the full impact of our 2010 acquisitions, which mostly occurred in the latter part of 2010, and growth in our core business of $0.5 million. These increases were partially offset by a $2.5 million reduction in our BPO segment revenues and $1.6 million of lower debt collection and collection recovery fees.

Brokerage Commissions and Fees

Brokerage commissions and fees for the three months ended September 30, 2011increased $2.6 million or 42.7%, to $8.6 million

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from $6.0 million for the three months ended September 30, 2010. The acquisition of eReinsure in March 2011 contributed $2.5 million in fees and Bliss & Glennon contributed an increase of $0.1 million in both contingent commissions and net commissions and fees.

Brokerage commissions and fees for the nine months ended September 30, 2011 increased $6.5 million or 34.0%, to $25.7 million from $19.2 million for the nine months ended September 30, 2010. The acquisition of eReinsure in March 2011 contributed $5.8 million in fees and Bliss & Glennon contributed an increase of $0.7 million in both contingent commissions and net commissions and fees.

Ceding Commissions

Ceding commissions for the three months ended September 30, 2011 decreased $2.4 million, or 25.7%, to $7.0 million from $9.5 million for the three months ended September 30, 2010. This decrease was largely due to a third quarter 2010 realized gain of $2.0 million on the sale of assets held in trust for our benefit that was not repeated in the third quarter of 2011. For the three months ended September 30, 2011, ceding commissions included $5.1 million in service and administrative fees, $1.7 million in underwriting profits from positive underwriting performance and $0.2 million in net investment income.

Ceding commissions for the nine months ended September 30, 2011 decreased $1.0 million, or 4.6%, to $21.4 million from $22.5 million for the nine months ended September 30, 2010. This decrease was due to lower net gains of $2.0 million on the sale of assets held in trust for our benefit that was not repeated in 2011 offset by additional service and administrative fees of $0.5 million from increased insurance production in the first nine months of 2011. In addition, underwriting profits increased $0.9 million due to positive underwriting performance. Net investment income from assets held in trust by our reinsurers decreased $0.4 million during the period. For the nine months ended September 30, 2011, ceding commissions included $15.5 million in service and administrative fees, $5.4 million in underwriting profits from positive underwriting performance and $0.5 million in net investment income.

Net Investment Income

Net investment income for the three months ended September 30, 2011 was $0.8 million compared to $0.9 million for the three months ended September 30, 2010. The decrease was principally due to lower income on fixed income securities which was partially offset by higher income earned on cash.

Net investment income for the nine months ended September 30, 2011 was $2.6 million and $2.8 million for the nine months ended September 30, 2010. The decrease was principally due to lower income earned on fixed income securities and to a lesser extent a lower amount of income earned on cash.

Net Realized Gains

Net realized gains for the three months ended September 30, 2011 increased $1.1 million for the three months ended September 30, 2011 from the sale of approximately $11.1 million in securities during the quarter compared to $0.7 million sold for the same period in 2010.

Net realized gains for the nine months ended September 30, 2011 increased $2.3 million from the sale of approximately $33.7 million in securities during the year compared to $5.0 million sold for the same period in 2010.

Net Earned Premium

Net earned premium for the three months ended September 30, 2011 increased $0.4 million, or 1.5%, to $28.7 million from $28.3 million for the three months ended September 30, 2010. Direct and assumed earned premium increased $3.2 million resulting from growth in net written premium due to new customers distributing our credit insurance and warranty products. Because of this increase, ceded earned premiums increased $2.8 million or 5.6%. On average, we maintained a 65% overall cession rate of direct and assumed earned premium for the three months ended September 30, 2011, up from the 64% for the same period in 2010.

Net earned premium for the nine months ended September 30, 2011 increased $1.2 million, or 1.5%, to $84.6 million from $83.4 million for the nine months ended September 30, 2010. Direct and assumed earned premium increased $7.0 million resulting from growth in net written premium due to new customers distributing our credit insurance and warranty products. Because of this increase, ceded earned premiums increased $5.8 million or 4.0%. On average, we maintained a 64% overall cession rate of direct and assumed earned premium for the nine months ended September 30, 2011, up from 63% for the same period in 2010.

Expenses

Net Losses and Loss Adjustment Expenses

Net losses and loss adjustment expenses for the three months ended September 30, 2011 decreased $1.3 million, or 11.6% to $9.7

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million, from $11.0 million for the three months ended September 30, 2010.  For the three months ended September 30, 2011, our direct and assumed losses decreased by $0.4 million, or 1.9%, as compared with the same period in 2010 due to favorable loss experience in the third quarter of 2011.  For the three months ended September 30, 2011 our losses ceded to reinsurers, which decrease our net losses and loss adjustment expenses, were higher by $0.9 million, or 7.9%, compared with the three months ended September 30, 2010, thereby decreasing our net losses and loss adjustment expenses by the corresponding amount. Our overall cession rate, which measures the amount of losses with reinsurance coverage, on average was 55% of direct and assumed losses and loss adjustment expenses for the three months ended September 30, 2011, compared to 50% for the three months ended September 30, 2010.

Net losses and loss adjustment expenses for the nine months ended September 30, 2011 increased $1.3 million, or 4.6% to $28.3 million, from $27.1 million for the nine months ended September 30, 2010.  For the nine months ended September 30, 2011, our direct and assumed losses increased by $1.1 million, or 1.9%, as compared with the same period in 2010 due to unfavorable loss experience for the nine months of 2011.  However, for the nine months ended September 30, 2011, our ceded losses were lower by $0.1 million, or 0.4%, compared with the nine months ended September 30, 2010, thereby increasing our net losses and loss adjustment expenses by the corresponding amount. On average, we maintained a 53% overall cession rate of direct and assumed losses and loss adjustment expenses for the nine months ended September 30, 2011, compared to 55% for the nine months ended September 30, 2010.

Commissions

Commissions for the three months ended September 30, 2011 increased $1.5 million, or 9.1%, to $17.9 million for the three months ended September 30, 2011, from $16.4 million for the three months ended September 30, 2010. The increase in commission expense resulted from a $2.2 million increase in net commissions due to growth in net written premiums. Retrospective commission expense increased $0.6 million due to favorable underwriting results and deferred policy acquisition cost amortization increased by $1.4 million.

Commissions for the nine months ended September 30, 2011increased $0.1 million, or 0.3%, to $53.8 million, from $53.6 million for the nine months ended September 30, 2010. The increase in commission expense resulted from a $2.0 million increase in net commissions due to growth in net written premiums. Retrospective commission expense decreased $1.0 million due to unfavorable underwriting results and deferred policy acquisition cost amortization increased by $0.8 million.

Personnel Costs

Personnel costs for the three months ended September 30, 2011 increased $1.4 million, or 14.9%, to $10.9 million, from $9.5 million for the three months ended September 30, 2010. The increase resulted predominantly from our 2011 and 2010 acquisitions, which increased personnel costs by $1.4 million.

Personnel costs for the nine months ended September 30, 2011 increased $5.4 million, or 19.4%, to $33.4 million from $27.9 million for the nine months ended September 30, 2010. The majority of the increase resulted from our 2011 and 2010 acquisitions, which increased personnel costs by $4.7 million.

Other Operating Expenses

Other operating expenses for the three months ended September 30, 2011 increased $0.7 million, or 10.3%, to $7.2 million from $6.5 million for the three months ended September 30, 2010. The increase in other operating expenses is principally attributable to our 2011 and 2010 acquisitions, while cost control measures kept expense levels in other areas of our business relatively consistent with the prior year period.

Other operating expenses for the nine months ended September 30, 2011 increased $5.8 million, or 33.1%, to $23.3 million from $17.5 million for the nine months ended September 30, 2010. The additional increase in other operating expenses is primarily due to $1.3 million in non-recurring charges, which included $0.8 million in costs related to contemplated acquisitions, $0.2 million in costs for corporate governance matters, $0.2 million for office relocation expenses, and $0.1 million in non-recurring statutory audits related to expanded licensing activities. In addition, $1.5 million of the increase is attributable to public company costs, including increased auditing and professional fees, corporate insurance and director fees. Also, our 2011 and 2010 acquisitions increased other operating expenses by $1.9 million.

Depreciation

Depreciation expense for the three months ended September 30, 2011 increased $0.5 million, or 105.6%, to $0.9 million for the three months ended September 30, 2011 from $0.4 million for the three months ended September 30, 2010. Depreciation expense for the nine months ended September 30, 2011 increased $1.3 million, or 130.6%, to $2.3 million from $1.0 million for the nine months ended September 30, 2010. The increase for both periods was primarily due to higher levels of depreciable assets in service at September 30, 2011 compared to September 30, 2010.

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Amortization of Intangibles

Amortization expense for the three months ended September 30, 2011 increased $0.2 million, or 26.6%, to $1.0 million from $0.8 million for the three months ended September 30, 2010. Amortization expense increased $1.1 million, or 46.1%, to $3.4 million for the nine months ended September 30, 2011 from $2.3 million for the nine months ended September 30, 2010. The increase for both periods presented was primarily due to the 2010 and 2011 acquisitions which increased the level of amortizable intangibles.

Interest Expense

Interest expense for the three months ended September 30, 2011 decreased $0.3 million, or 15.1%, to $1.9 million from $2.2 million for the three months ended September 30, 2010. Interest expense for the three months ended September 30, 2011 continues to benefit from our efforts to eliminate higher rate debt late in 2010. In mid-September 2011, we changed the base rate for our line of credit to a EURO Dollar Funding thereby reducing our interest rate from 6.00% to 4.10% on $53.0 million in outstanding borrowings for a period of three months. After three months the Company will determine its cash funding needs and select the borrowing term and rate that best fits its interest rate risk profile.

Interest expense for the nine months ended September 30, 2011 decreased $0.3 million, or 4.2%, to $5.9 million from $6.1 million for the nine months ended September 30, 2010. Interest expense for the nine months ended September 30, 2011 included the write off of $0.3 million during the first quarter of 2011 for capitalized issuance costs associated with the redemption of preferred stock. Interest expense for the nine months ended September 30, 2011 was positively impacted by the use of our IPO funds to eliminate higher rate debt late in 2010 as well as the previously mentioned lower rate associated with the base rate changing to a EURO Dollar Funding, as described above. Additionally, interest expense benefited from the redemption of our redeemable preferred stock on January 26, 2011. The reduction in higher rate borrowings was partially offset by the addition of approximately $41.8 million on our credit facility to fund the Auto Knight and eReinsure acquisitions in the first quarter of 2011.

Loss on sale of subsidiary

On July 1, 2011, we sold our wholly owned subsidiary, Creative Investigations Recovery Group, LLC, ("CIRG"), for a sales price of $1.2 million, for cash and a $1.1 million secured note receivable. For the three months ended September 30, 2011 we recorded a $0.5 million loss on the sale of this subsidiary.

Income Taxes

Income taxes for the three months ended September 30, 2011 decreased $0.3 million, or 11.0%, to $2.3 million compared with $2.6 million for 2010 due primarily to lower income before income taxes. Our effective tax rate was 35.7% for the three months ended September 30, 2011 compared to 36.7% for the same period in 2010.

Income taxes for the nine months ended September 30, 2011 decreased $1.9 million, or 27.2%, to $5.0 million compared with $6.9 million for 2010 due primarily to lower income before income taxes. Our effective tax rate was 35.4% for the nine months ended September 30, 2011 compared to 37.1% for the same period in 2010.

Our effective income tax rate differs from the Federal statutory income tax rate due primarily to the effects of state income taxes, other adjustments, such as tax exempt interest, the small life insurance company deduction and other permanent differences between our financial statements and our Federal income tax return. The lower effective income tax rates for the three and nine months ended September 30, 2011, as compared to the same periods in 2010, resulted primarily from variations in state income taxes and other adjustments in relation to income before income taxes.

Results of Operations - Segments

We conduct our business through three business segments: (i) Payment Protection; (ii) BPO; and (iii) Brokerage. The revenue for each segment is presented to reflect the operating characteristics of the segment. We do allocate certain revenues and costs to our segments. These items primarily consist of corporate-related income, transaction related costs, executive stock compensation and other overhead expenses. We measure the profitability of our business segments with the allocation of Corporate income and expenses and without taking into account amortization, depreciation, interest expense and income taxes. We refer to these performance measures as segment EBITDA (earnings before interest, taxes, depreciation and amortization) and segment EBITDA margin (segment EBITDA divided by segment net revenues).

Our measures of segment EBITDA and segment EBITDA margin, meet the definition of Non-GAAP financial measures. These measures are not in accordance with, or an alternative to, the GAAP information provided in this Form 10-Q.  We believe that these presentations provide useful information to management, analysts and investors regarding financial and business trends relating to our results of operations and financial condition. Our industry peers provide similar supplemental non-GAAP information, although they may not use the same or comparable terminology and may not make identical adjustments. The non-GAAP information we provide should be used in addition to, but not as a substitute for, the GAAP information provided. The

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variability of our segment EBITDA and segment EBITDA margin is significantly affected by our segment net revenues because a large portion of our operating expenses are fixed. For additional information regarding segment net revenues and operating expenses, please see the footnote, "Segment Results" in the Notes to the Consolidated Financial Statements included in this Form 10-Q.

The following tables reconcile segment information to our consolidated statements of income and provides a summary of other key financial information for each of our segments for the three and nine months ended September 30, 2011 and 2010:

36

(in thousands)	For the Three Months Ended
	September 30, 2011			Change from 2010			% Change from 2010		September 30, 2010
Payment Protection:
Service and administrative fees	$	5,695		$	2,246		65.1	%	$	3,449
Ceding commission	7,027			(2,428		)	(25.7	)	9,455
Net investment income	801			(64		)	(7.4	)	865
Net realized gains (losses)	1,196			1,089			1,017.8		107
Other income	18			80			(129.0	)	(62		)
Net earned premium	28,673			418			1.5		28,255
Net losses and loss adjustment expenses	(9,714		)	1,279			(11.6	)	(10,993		)
Commissions	(17,926		)	(1,494		)	9.1		(16,432		)
Payment Protection revenue	15,770			1,126			7.7		14,644
Operating expenses - Payment Protection	8,349			1,914			29.7		6,435
EBITDA	7,421			(788		)	(9.6	)	8,209
EBITDA margin	47.1		%						56.1		%
Depreciation and amortization	927			600			183.5		327
Interest	1,053			(820		)	(43.8	)	1,873
Income before income taxes and non-controlling interest	5,441			(568		)	(9.5	)	6,009
BPO:
BPO revenue	3,833			(882		)	(18.7	)	4,715
Operating expenses	2,717			129			5.0		2,588
EBITDA	1,116			(1,011		)	(47.5	)	2,127
EBITDA margin	29.1		%						45.1		%
Depreciation and amortization	307			(150		)	(32.8	)	457
Interest	96			(30		)	(23.8	)	126
Income before income taxes and non-controlling interest	713			(831		)	(53.8	)	1,544
Brokerage:
Brokerage revenue	9,208			2,053			28.7		7,155
Operating expenses (1)	7,491			1,708			29.5		5,783
EBITDA (1)	1,717			345			25.1		1,372
EBITDA margin	18.6		%						19.2		%
Depreciation and amortization	650			215			49.4		435
Interest	757			510			206.5		247
Income before income taxes and non-controlling interest (1)	310			(380		)	(55.1	)	690
Corporate:
Corporate revenue	—			—			—		—
Operating expenses	36			(1,184		)	(97.0	)	1,220
EBITDA	(36		)	1,184			(97.0	)	(1,220		)
EBITDA margin	—		%						—		%
Depreciation and amortization	—			—			—		—
Interest	—			—			—		—
Income before income taxes and non-controlling interest	(36		)	1,184			(97.0	)	(1,220		)
Segment revenue	28,811			2,297			8.7		26,514
Net losses and loss adjustment expenses	9,714			(1,279		)	(11.6	)	10,993
Commissions	17,926			1,494			9.1		16,432
Total revenue	56,451			2,512			4.7		53,939
Segment operating expenses	18,593			2,567			16.0		16,026
Net losses and loss adjustment expenses	9,714			(1,279		)	(11.6	)	10,993
Commissions	17,926			1,494			9.1		16,432
Total expenses before depreciation, amortization and interest	46,233			2,782			6.4		43,451
Total EBITDA	10,218			(270		)	(2.6	)	10,488
Depreciation and amortization	1,884			665			54.6		1,219
Interest	1,906			(340		)	(15.1	)	2,246
Total income before taxes and non-controlling interest	6,428			(595		)	(8.5	)	7,023
Income taxes	2,292			(284		)	(11.0	)	2,576
Less: non-controlling interest	1			1			100.0		—
Net income	$	4,135		$	(312	)	(7.0	)%	$	4,447
(1) - Includes loss on sale of subsidiary of $477 for the three months ended September 30, 2011.

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(in thousands)	For the Nine Months Ended
	September 30, 2011			Change from 2010			% Change from 2010		September 30, 2010
Payment Protection:
Service and administrative fees	14,704			$	6,132		71.5	%	$	8,572
Ceding commission	21,428			(1,040		)	(4.6	)	22,468
Net investment income	2,636			(163		)	(5.8	)	2,799
Net realized gains (losses)	2,423			2,267			1,453.2		156
Other income	138			74			115.6		64
Net earned premium	84,646			1,229			1.5		83,417
Net losses and loss adjustment expenses	(28,338		)	(1,252		)	4.6		(27,086		)
Commissions	(53,766		)	(135		)	0.3		(53,631		)
Payment Protection revenue	43,871			7,112			19.3		36,759
Operating expenses - Payment Protection	25,409			7,689			43.4		17,720
EBITDA	18,462			(577		)	(3.0	)	19,039
EBITDA margin	42.1		%						51.8		%
Depreciation and amortization	3,204			1,822			131.8		1,382
Interest	3,622			(1,616		)	(30.9	)	5,238
Income before income taxes and non-controlling interest	11,636			(783		)	(6.3	)	12,419
BPO:
BPO revenue	11,088			(2,517		)	(18.5	)	13,605
Operating expenses	8,164			167			2.1		7,997
EBITDA	2,924			(2,684		)	(47.9	)	5,608
EBITDA margin	26.4		%						41.2		%
Depreciation and amortization	824			113			15.9		711
Interest	258			(66		)	(20.4	)	324
Income before income taxes and non-controlling interest	1,842			(2,731		)	(59.7	)	4,573
Brokerage:
Brokerage revenue	27,935			4,841			21.0		23,094
Operating expenses (1)	21,837			4,150			23.5		17,687
EBITDA (1)	6,098			691			12.8		5,407
EBITDA margin	21.8		%						23.4		%
Depreciation and amortization	1,683			440			35.4		1,243
Interest	1,982			1,422			253.9		560
Income before income taxes and non-controlling interest (1)	2,433			(1,171		)	(32.5	)	3,604
Corporate:
Corporate revenue	—			—			—		—
Operating expenses	1,763			(299		)	(14.5	)	2,062
EBITDA	(1,763		)	299			(14.5	)	(2,062		)
EBITDA margin	—		%						—		%
Depreciation and amortization	—			—			—		—
Interest	—			—			—		—
Income before income taxes and non-controlling interest	(1,763		)	299			(14.5	)	(2,062		)
Segment revenue	82,894			9,436			12.8		73,458
Net losses and loss adjustment expenses	28,338			1,252			4.6		27,086
Commissions	53,766			135			0.3		53,631
Total revenue	164,998			10,823			7.0		154,175
Segment operating expenses	57,173			11,707			25.7		45,466
Net losses and loss adjustment expenses	28,338			1,252			4.6		27,086
Commissions	53,766			135			0.3		53,631
Total expenses before depreciation, amortization and interest	139,277			13,094			10.4		126,183
Total EBITDA	25,721			(2,271		)	(8.1	)	27,992
Depreciation and amortization	5,711			2,375			71.2		3,336
Interest	5,862			(260		)	(4.2	)	6,122
Total income before taxes and non-controlling interest	14,148			(4,386		)	(23.7	)	18,534
Income taxes	5,003			(1,869		)	(27.2	)	6,872
Less: non-controlling interest	(171		)	(140		)	451.6		(31		)
Net income	$	9,316		$	(2,377	)	(20.3	)%	$	11,693
(1) - Includes loss on sale of subsidiary of $477 for the nine months ended September 30, 2011.

As of January 1, 2011, certain BPO and Brokerage distribution channels were re-aligned to better reflect the segments business focus. The distribution channel results for the three months and nine months ended September 30, 2010 have been reclassified from their prior period segment presentation. The impact of these 2010 reclassifications were $0.9 million in revenues and $0.8 million in expenses being moved from the BPO segment into the Brokerage segment in order to conform to the presentation for

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the three months ended September 30, 2011 and $3.3 million in revenues and $2.9 million in expenses being moved from the BPO segment into the Brokerage segment in order to conform to the presentation for the nine months ended September 30, 2011.

We present EBITDA and Adjusted EBITDA in this Form 10-Q to provide investors with a supplemental measure of our operating performance and, in the case of Adjusted EBITDA, information utilized in the calculation of the financial covenants under our revolving credit facility and in the determination of compensation. EBITDA, as used in this Form 10-Q is defined as net income before interest expense, income taxes, non-controlling interest and depreciation and amortization. Adjusted EBITDA differs from the term "EBITDA" as it is commonly used. Adjusted EBITDA, as used in this Form 10-Q, means "Consolidated Adjusted EBITDA" as that term is defined under our revolving credit facility, which is generally consolidated net income before consolidated interest expense, consolidated amortization expense, consolidated depreciation expense and consolidated tax expense, in each case as defined more fully in the agreement governing our revolving credit facility. The other items excluded in this calculation include, but are not limited to, specified acquisition costs and unusual or non-recurring charges. The calculation below does not give effect to certain additional adjustments that are permitted under our revolving credit facility which, if included, would increase the amount of Adjusted EBITDA reflected in this table.

In addition to the financial covenant requirements under our revolving credit facility, management uses EBITDA and Adjusted EBITDA as measures of operating performance for planning purposes, including the preparation of budgets and projections, the determination of bonus compensation for our executive officers and the analysis of the allocation of resources and to evaluate the effectiveness of business strategies. Further, we believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in industries similar to ours. Adjusted EBITDA is also used by management to measure operating performance and by investors to measure a company's ability to service its debt and other cash needs. Management believes the inclusion of the adjustments to EBITDA and Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future.

EBITDA and Adjusted EBITDA are not recognized terms under accounting principles generally accepted in the United States, or GAAP. Accordingly, they should not be used as an indicator of, or alternative to, net income as a measure of operating performance. Although we use EBITDA and Adjusted EBITDA as measures to assess the operating performance of our business, EBITDA and Adjusted EBITDA have significant limitations as analytical tools because they exclude certain material costs. For example, they do not include interest expense, which has been a necessary element of our costs. Since we use capital assets, depreciation expense is a necessary element of our costs and ability to generate service revenues. In addition, the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of this measure. EBITDA and Adjusted EBITDA also do not include the payment of taxes, which is also a necessary element of our operations. Because EBITDA and Adjusted EBITDA do not account for these expenses, its utility as a measure of our operating performance has material limitations. Due to these limitations, management does not view EBITDA and Adjusted EBITDA in isolation or as a primary performance measure and also uses other measures, such as net income. Because the definitions of EBITDA and Adjusted EBITDA (or similar measures) may vary among companies and industries, they may not be comparable to other similarly titled measures used by other companies. 

The table below presents a reconciliation of net income to EBITDA and Adjusted EBITDA for the following periods:

	For the Three Months Ended				For the Nine Months Ended
(in thousands)	September 30, 2011		September 30, 2010		September 30, 2011			September 30, 2010
Net income	$	4,135	$	4,447	$	9,316		$	11,693
Depreciation	886		431		2,283			990
Amortization of intangibles	998		788		3,428			2,346
Interest expense	1,906		2,246		5,862			6,122
Income taxes	2,292		2,576		5,003			6,872
Net income (loss) attributable to non-controlling interest	1		—		(171		)	(31		)
EBITDA	10,218		10,488		25,721			27,992
Transaction costs (a)	36		14		829			388
Corporate governance study	—		—		248			—
Relocation expenses	—		—		207			—
Statutory audits	—		—		98			—
Loss on sale of subsidiary	477		—		477			—
Re-audit expenses	—		1,078		—			1,528
Adjusted EBITDA	$	10,731	$	11,580	$	27,580		$	29,908
(a) Represents transaction costs associated with acquisitions.

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Payment Protection Segment

Revenues for the three months ended September 30, 2011increased $1.1 million, or 7.7%, to $15.8 million from $14.6 million for the three months ended September 30, 2010. The 2011 and 2010 acquisitions contributed $1.8 million of revenue and our core business added services fees of $0.4 million. Net realized gains on the sale of investments increased by $1.1 million. Net underwriting revenue (net earned premium less net losses and loss adjustment expenses less commissions) increased $0.2 million due to favorable underwriting results. These increases were partially offset by a decrease in ceding commission revenue of $2.4 million due to the third quarter 2010 realized gain of $2.0 million on the sale of assets held in trust for our benefit that was not repeated in the third quarter of 2011.

Revenues for the nine months ended September 30, 2011 increased $7.1 million, or 19.3%, to $43.9 million from $36.8 million for the nine months ended September 30, 2010. The 2011 results include a full nine months of revenues from the acquisitions of Auto Knight, Continental Car Club and United Motor Club, which added $5.6 million of revenue. Net realized gains on the sale of investments increased by $2.3 million.

Operating expenses for the three months ended September 30, 2011 increased $1.9 million, or 29.7%, to $8.3 million from $6.4 million for the three months ended September 30, 2010. This increase resulted primarily from additional costs associated with being a public company and operating expenses associated with the 2011 and 2010 acquisitions which contributed $0.4 million of personnel costs and $0.1 million of other operating expense.

Operating expenses for the nine months ended September 30, 2011 increased $7.7 million, or 43.4%, to $25.4 million from $17.7 million for the nine months ended September 30, 2010. This increase resulted primarily from $4.9 million in expenses associated with being a public company and additional stock-based compensation expense. Also contributing to this increase was $2.6 million of expense from the acquisitions of Auto Knight, Continental Car Club and United Motor Club.

EBITDA for the three months ended September 30, 2011 decreased $0.8 million, or 9.6%, to $7.4 million from $8.2 million for the three months ended September 30, 2010. As a result, EBITDA margin for the three months ended September 30, 2011 was 47.1% compared with 56.1% for the three months ended September 30, 2010. The margin decrease resulted from incremental growth in operating expenses in relation to the growth in revenues.

EBITDA for the nine months ended September 30, 2011 decreased $0.6 million, or 3.0%, to $18.5 million from $19.0 million for the nine months ended September 30, 2010. As a result, EBITDA margin for the nine months ended September 30, 2011 was 42.1% compared with 51.8% for the nine months ended September 30, 2010. The margin decrease resulted from incremental growth in operating expenses in relation to the growth in revenues.

BPO Segment

Revenues for the three months ended September 30, 2011 decreased $0.9 million or 18.7%, to $3.8 million from $4.7 million for the three months ended September 30, 2010. The decrease was driven by lower service and administrative fees of $1.0 million on our insurance company clients due to regulatory changes that slowed the production for one of our main customers in 2011.

Revenues for the nine months ended September 30, 2011 decreased $2.5 million or 18.5%, to $11.1 million from $13.6 million for the nine months ended September 30, 2010. The decrease was driven by lower service and administrative fees of $0.3 million on debt cancellation programs of credit card companies. In addition, service and administration for our insurance company clients decreased $2.2 million due to regulatory changes that slowed the production for one of our main customers in 2011.

Operating expenses for the three months ended September 30, 2011 increased $0.1 million or 5.0%, to $2.7 million from $2.6 million for the three months ended September 30, 2010. This increase primarily resulted from the higher expense related to being a public company which was offset by lower personnel costs of $0.2 million.

Operating expenses for the nine months ended September 30, 2011 increased $0.2 million or 2.1%, to $8.2 million from $8.0 million for the nine months ended September 30, 2010. This primarily resulted from higher expenses related to being a public company which was offset by lower personnel costs and variable costs for processing and fulfillment associated with the decline in revenue.

EBITDA for the three months ended September 30, 2011decreased $1.0 million, or 47.5%, to $1.1 million from $2.1 million for the three months ended September 30, 2010. As a result, EBITDA margin for the three months ended September 30, 2011 was 29.1% compared to 45.1% for the three months ended September 30, 2010.

EBITDA for the nine months ended September 30, 2011 decreased $2.7 million, or 47.9%, to $2.9 million from $5.6 million for the nine months ended September 30, 2010. As a result, EBITDA margin for the nine months ended September 30, 2011 was

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26.4% compared to 41.2% for the nine months ended September 30, 2010.

Brokerage Segment

The Brokerage segment includes the results of the eReinsure acquisition from March 3, 2011 and six months of results from CIRG, which was sold in July 2011.

Revenues for the three months ended September 30, 2011 of $9.2 million were comprised primarily of $5.8 million in standard commissions and fees, $0.3 million in profit commissions, $2.5 million in fees from eReinsure, $0.3 million in premium financing and $0.3 million in collateral recovery fees. Revenues for the three months ended September 30, 2010 were $7.2 million and were comprised primarily of $5.9 million of standard commissions and fees, $0.1 million of profit commission revenue and $1.2 million of debt collection, premium financing and collateral recovery fees.

Revenues for the nine months ended September 30, 2011 of $27.9 million were comprised primarily of $18.0 million in standard commissions and fees, $1.9 million in profit commissions, $5.8 million in fees from eReinsure, $0.8 million in premium financing and $1.4 million in collateral recovery fees. Revenues for the nine months ended September 30, 2010 were $23.1 million and were comprised primarily of $17.9 million of standard commissions and fees, $1.3 million of profit commission revenue and $4.1 million of debt collection, premium financing and collateral recovery fees

Operating expenses for the three months ended September 30, 2011 were $7.5 million compared to $5.8 million for the same period in 2010. For the three months ended September 30, 2011, the majority of our expenses were personnel costs, which totaled $4.8 million, or 67.8%, of total operating expenses excluding the loss on sale of CIRG. eReinsure accounted for $1.0 million and $0.4 million of the personnel costs and operating expenses, respectively. For the three months ended September 30, 2010, the majority of our operating expenses were personnel costs, which totaled $4.1 million or 64.1% of total operating expenses.

Operating expenses for the nine months ended September 30, 2011 were $21.8 million compared to $17.7 million for the same period in 2010. For the nine months ended September 30, 2011, the majority of our expenses were personnel costs, which totaled $14.9 million, or 69.7%, of total operating expenses excluding the loss on sale of CIRG. eReinsure accounted for $2.3 million and $0.9 million of the personnel costs and operating expenses, respectively. For the nine months ended September 30, 2010, the majority of our operating expenses were personnel costs, which totaled $12.4 million or 70.2% of total operating expenses.

EBITDA, excluding the loss on the sale of subsidiary of $0.5 million, for the three months ended September 30, 2011 was $2.2 million compared to $1.4 million for the three months ended September 30, 2010. As a result, EBITDA margin for Brokerage segment was 23.8% and 19.2% for the three months ended September 30, 2011 and 2010, respectively.

EBITDA , excluding the loss on the sale of subsidiary of $0.5 million, for the nine months ended September 30, 2011 was $6.6 million compared to $5.4 million for the nine months ended September 30, 2010. As a result, EBITDA margin for Brokerage segment was 23.5% and 23.4% for the three months ended September 30, 2011 and 2010, respectively.

Corporate Segment

We did not attribute any revenues to the Corporate segment during all periods presented.

Operating expenses for the three months ended September 30, 2011 were $36.0 thousand compared to $1.2 million for the same period in 2010. The decrease was attributable to relatively high acquisition costs, re-audit professional fees and travel costs incurred in the three months ended September 30, 2010.

Operating expenses for the nine months ended September 30, 2011 were $1.8 million compared to $2.1 million for the same period in 2010. The expenses for the nine months ended September 30, 2011 included professional fees, transaction costs and costs associated with the moving of our corporate headquarters. Segment operating expenses for the nine months ended September 30, 2010 were attributable to acquisition costs and re-audit professional fees and travel costs.

Goodwill by Business Segment

The following table illustrates the amount of goodwill assigned to each business segment as of September 30, 2011:

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(in thousands)	Goodwill Assigned by Segment
Payment Protection:
Summit Partners Transactions	$	22,763
Darby & Associates	642
Continental Car Club	5,427
United Motor Club	4,581
Auto Knight	4,180
Total Payment Protection	37,593
BPO:
Summit Partners Transactions	8,902
Total BPO	8,902
Brokerage:
Bliss & Glennon	29,917
South Bay Acceptance Corporation	478
eReinsure	31,528
Total Brokerage	61,923
Total Goodwill	$	108,418

On July 1, 2011 we sold CIRG, which reduced goodwill by approximately $1.3 million at September 30, 2011.

During 2011, we determined the final valuations for Continental Car Club and United Motor Club. Accordingly, we reduced the amount of goodwill associated with the Continental Car Club and United Motor Club acquisitions by $6.4 million and $3.9 million, respectively, in order to reflect the final valuation of goodwill acquired in those transactions.

Liquidity and Capital Resources

Liquidity

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, capital expenditures, debt service, acquisitions and other commitments and contractual obligations. We historically have derived our liquidity from our invested assets, cash flow from operations, ordinary and extraordinary dividend capacity from Fortegra's insurance companies, credit facility and additional equity investments. When considering our liquidity, it is important to note that we hold cash in a fiduciary capacity as a result of premiums received from insured parties that have not yet been paid to insurance carriers. The fiduciary cash is recorded as an asset on our Consolidated Balance Sheets with a corresponding liability, net of our commissions, to insurance carriers.

Our primary cash requirements include the payment of our operating expenses, interest and principal payments on our debt, capital expenditures, acquisitions and dividend payments to our non-controlling interest stockholder. We may also incur unexpected costs and operating expenses related to any unforeseen disruptions to our facilities and equipment, the loss of key personnel or changes in the credit markets and interest rates, which could increase our immediate cash requirements or otherwise impact our liquidity. Dividends and other distributions from our subsidiaries are our principal sources of cash to meet these obligations.

Our primary sources of liquidity are our total investments, cash and cash equivalent balances and availability under our revolving credit facility. At September 30, 2011, we had total investments of $87.5 million, cash and cash equivalents of $23.1 million and $21.0 million of available capacity on our revolving credit facility. At December 31, 2010, we had total investments of $88.9 million, cash and cash equivalents of $43.4 million and $18.3 million of available capacity on our revolving credit facilities. Our total indebtedness, which includes notes payable, redeemable preferred stock and preferred trust securities, was $99.1 million at September 30, 2011 compared to $82.8 million at December 31, 2010. As of September 30, 2011, we paid approximately $10.9 million of the total $11.0 million principal amount and premium of redeemable preferred stock redeemed in the first quarter, and anticipate paying the remaining $0.1 million in 2011. We believe that our cash flow from operations and our availability under our credit facility, combined with our low capital expenditure requirements will provide us with sufficient capital to continue to grow our business over the next several years. We intend to use a portion of our available cash flow to pay interest on our outstanding debt, thus limiting the amount available for working capital, capital expenditures and other general corporate purposes. As we continue to expand our business and make acquisitions, we may in the future require additional working capital to meet our future business needs. This additional working capital may be in the form of additional debt or equity. Although we believe we have sufficient liquidity under our revolving credit facility, as discussed above, under extreme market conditions or in the event of a

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default under our revolving credit facility, there can be no assurance that such funds would be available or sufficient, and in such a case, we may not be able to successfully obtain additional financing on favorable terms, or at all, or replace our existing facility which matures in June of 2013.

Regulatory Requirements

We are a holding company and have limited direct operations. Our holding company assets consist primarily of the capital stock of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends and other payments from our subsidiaries, including statutorily permissible payments from our insurance company subsidiaries, as well as payments under our tax allocation agreement and management agreements with our subsidiaries. The ability of our insurance company subsidiaries to pay such dividends and to make such other payments will be limited by applicable laws and regulations of the states in which our subsidiaries are domiciled, which vary from state to state and by type of insurance provided by the applicable subsidiary. These laws and regulations require, among other things, our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company. Along with solvency regulations, the primary factor in determining the amount of capital available for potential dividends is the level of capital needed to maintain desired financial strength ratings from A.M. Best for our insurance company subsidiaries. Given recent economic events that have affected the insurance industry, both regulators and rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for our insurance subsidiaries which, in turn, could negatively affect our capital resources. The following table sets forth the dividends paid to us by our insurance company subsidiaries for the following periods:

(in thousands)	September 30, 2011		December 31, 2010
Ordinary dividends	$	1,381	$	8,380
Extraordinary dividends	—		2,974
Total dividends	$	1,381	$	11,354

Revolving Credit Facilities

Revolving Credit Agreement - In June 2010, we entered into an $85.0 million revolving credit agreement with SunTrust Bank, as administrative agent (the "Agent"), and certain lenders, which matures in June 2013 (the "Facility").The Facility bears interest at a variable Base Rate determined based upon the higher of (i) the prime rate, (ii) the federal funds rate plus 0.50% or (iii) adjusted LIBOR plus 1%, plus a margin tied to the Company's leverage ratio. The Company can select at its discretion to convert the interest rate for all or a portion of the outstanding balance for a period of up to six months to a fixed EURO Dollar Funding rate which is equal to the adjusted LIBOR rate for the elected interest period in effect at the time of election, plus a margin tied to the Company's leverage ratio.

We are required to pay a commitment fee of between 0.45% and 0.60% (based upon our leverage ratio) on the unused portion of the Facility. The purpose of the line is for working capital and acquisitions. Interest on the line of credit is payable monthly. Our obligations under the Facility are guaranteed by substantially all of our domestic subsidiaries, other than South Bay Acceptance Corporation and the regulated insurance subsidiaries. Under the Facility, we may not assign, sell, transfer or dispose of any collateral or effect certain changes to its capital structure and the capital structure of our subsidiaries without the Agent's prior consent. Our obligations under the Facility may be accelerated or the commitments terminated upon the occurrence of an event of default under the Facility, including payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, cross defaults to other material indebtedness, defaults arising in connection with changes in control and other customary events of default.

On March 1, 2011, Wells Fargo Bank, N.A., entered into a joinder agreement (the "Wells Fargo Joinder") to the Facility to become a new lender under the Facility with a revolving commitment of $30.0 million, thereby increasing the size of the Facility from $55.0 million to $85.0 million.

Wells Fargo Capital Finance, LLC Line of Credit - On February 7, 2011, we terminated our existing revolving $40.0 million credit facility with Wells Fargo Capital Finance, LLC, which was never drawn down upon.

Preferred Trust Securities

In connection with the Summit Partners Transactions, LOTS Intermediate Co. issued $35.0 million of fixed/floating rate preferred trust securities due 2037. The preferred trust securities bear interest at a rate of 9.61% per annum until the June 2012 interest payment date. Thereafter, interest on the preferred trust securities will be at a rate of 3-month LIBOR plus 4.10% for each interest rate period. We are not permitted to redeem the preferred trust securities until after the June 2012 interest payment date. After such date, we may redeem the preferred trust securities, in whole or in part, at a price equal to 100% of the principal amount of such preferred trust securities outstanding plus accrued and unpaid interest. Interest is payable quarterly. On April 21, 2011, we entered into a forward interest rate swap with Wells Fargo Bank, N.A., pursuant to which we swapped the floating rate portion of our

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$35.0 million in outstanding preferred trust securities to a fixed rate of 3.47% per annum payable quarterly resulting in an effective rate of 7.57% after adding the applicable margin of 4.10%. The swap has a term of five years, commencing when the interest rate on the underlying preferred trust securities begins to float in June 2012 and terminating in June 2017.

Subordinated Debentures

In connection with the Summit Partners Transactions, LOTS Intermediate Co. also issued $20.0 million of subordinated debentures to affiliates of Summit Partners, a related party, maturing December 2013 with an interest rate of 14% per annum on the principal amount of such subordinated debentures. In December 2010, we utilized a portion of the proceeds from the IPO to repay the entire $20.0 million of subordinated debentures for $20.6 million, which included accrued but unpaid interest to the redemption date.

Redeemable Preferred Stock

At September 30, 2011 and December 31, 2010, we had $0.1 million and $11.0 million outstanding of each of our Series A, B and C redeemable preferred stock, respectively. In December 2010, the Company served notice to the holders of Series A, B and C redeemable preferred stock of the intent to redeem the entire amount of each class of redeemable preferred stock, totaling $11.0 million. The early redemption of all outstanding A, B and C redeemable preferred stock began in January 2011. In conjunction with the redemption, the Company recorded a $0.2 million redemption premium during the three months ended March 31, 2011. In addition, the Series A, B and C redeemable preferred stock ceased accruing dividends on January 26, 2011.

Invested Assets

Our invested assets consist mainly of high quality investments (with a minimum overall rating of "A+") in fixed maturity securities, short-term investments, and a smaller allocation of common and preferred equity securities. We believe that prudent levels of investments in equity securities within our investment portfolio are likely to enhance long term after-tax total returns without significantly increasing the risk profile of the portfolio. We regularly review our entire portfolio in the context of macroeconomic and capital market conditions.

Regulatory Requirements

Our investments must comply with applicable laws and regulations which prescribe the kind, quality and concentration of investments. In general, these laws and regulations permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate and other investments.

Investment Strategy

Our investment policy and strategy is reviewed and approved by the board of directors of each of our insurance subsidiaries on a regular basis in order to review and consider investment activities, tactics and new investment opportunities. Our investment strategy seeks long-term returns through disciplined security selection, portfolio diversity and an integrated approach to risk management. We select and monitor investments to balance the goals of safety, stability, liquidity, growth and after-tax total return with the need to comply with regulatory investment requirements. Our investment portfolio is managed by a third-party provider of asset management services, which specializes in the insurance sector. Asset liability management is accomplished by setting an asset target duration range that is influenced by the following factors: (i) the estimated reserve payout pattern, (ii) the inclusion of our tactical capital market views into the investment decision making process and (iii) our overall risk tolerance. We aim to achieve a relatively safe and stable income stream by maintaining a broad-based portfolio of investment grade fixed maturity securities. These holdings are supplemented by investments in additional asset types with the objective of further enhancing the portfolio's diversification and expected returns. These additional asset types include common and redeemable preferred stock. We manage our investment risks through consideration of duration of liabilities, diversification, credit limits, careful analytic review of each investment decision, and comprehensive risk assessments of the overall portfolio.

Cash Flows

We monitor cash flows at the consolidated, holding company and subsidiary levels. Cash flow forecasts at the consolidated and subsidiary levels are provided on a monthly basis using trend and variance analysis to project future cash needs, with adjustments made as needed. The table below shows our cash flows for the periods presented:

(in thousands)	For the Nine Months Ended
Cash provided by (used in):	September 30, 2011			September 30, 2010
Operating activities	$	340		$	2,844
Investing activities	(36,786		)	(29,780		)
Financing activities	16,171			14,839
Net change in cash and cash equivalents	$	(20,275	)	$	(12,097	)

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Operating Activities

Net cash used by operating activities was $0.3 million for the nine months ended September 30, 2011 compared to net cash provided by operating activities of $2.8 million, for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, our net cash used by operating activities was attributable to the decrease in unpaid claims, deferred revenues and payments made for accrued expenses, accounts payable and other liabilities partially offset by our net income and decreases in unearned premiums. For the nine months ended September 30, 2010, our net cash provided from operating activities was principally from our net income and collections of reinsurance receivables which was partially offset by decreases in unearned premiums, accrued expenses, unpaid claims and other receivables.

Investing Activities

Net cash used in investing activities was $36.8 million for the nine months ended September 30, 2011 and $29.8 million for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, net cash used in investing activities primarily reflected cash used for the acquisitions of Auto Knight and eReinsure and the purchases of fixed maturity securities, partially offset by the sale and maturity of fixed maturity investments. For the nine months ended September 30, 2010, net cash used in investing activities was primarily for the acquisition of South Bay Acceptance Corporation, Continental Car Club and United Motor Club, purchases of investment securities and purchases of property and equipment, which was partially offset by proceeds received from the maturities and sales of investment securities.

Financing Activities

Net cash provided by financing activities was $16.2 million for the nine months ended September 30, 2011 and $14.8 million for the nine months ended September 30, 2010. For the nine months ended September 30, 2011, net cash provided by financing activities reflected additional borrowings under our lines of credit of $91.6 million, of which approximately $41.8 million was used to to complete the acquisitions of Auto Knight and eReinsure, which was partially offset by $64.3 million used to pay-down our credit facilities and $10.9 million used for the redemption of our redeemable preferred stock. For the nine months ended September 30, 2010, cash provided by financing activities was attributable to $35.0 million of borrowings on our credit facilities primarily for the acquisition of Continental Car Club and United Motor Club partially offset by pay-downs of $18.5 million.

Contractual Obligations and Other Commitments

We have obligations and commitments to third parties as a result of our operations. These obligations and commitments, as of September 30, 2011, are detailed in the table below by maturity date as of the dates indicated (in thousands):

(in thousands)	Payments due by period
			Less than						After
	Total		1 Year		1-3 Years		4-5 Years		5 Years
Notes payable	$	64,000	$	—	$	64,000	$	—	$	—
Preferred trust securities	35,000		—		—		—		35,000
Redeemable preferred stock (1)	100		100		—		—		—
Unpaid claims (2)	30,397		27,564		2,742		83		8
Total	$	129,497	$	27,664	$	66,742	$	83	$	35,008

⁽¹⁾ We redeemed our Redeemable Preferred Stock in January 2011, thus it is estimated that all remaining amounts will be paid out in less than one year.

⁽²⁾ Estimated. See "-Unpaid Claims." Net unpaid claims are: total $9,367; less than 1 year $8,494; 1-3 years $845; 3-5 years $26; and more than 5 years $2.

As previously disclosed in our Annual Report for the year ended December 31, 2010, we have certain obligations under operating lease agreements to which we are a party. In accordance with GAAP, these operating lease obligations and the related leased assets are not reported on our Consolidated Balance Sheets. Other than reductions to the lease obligations resulting from scheduled lease payments, our obligations under these operating lease agreements have not changed materially since December 31, 2010.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a material effect on our financial condition, results of operations, liquidity, or capital resources.

Effects of Inflation

Inflation risk is the possibility that a change in domestic price levels produces an adverse effect on earnings. This typically happens when either invested assets or liabilities, but not both are indexed to inflation. Inflation has not had a material impact on our results of operations in the periods presented in our Consolidated Financial Statements.

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Recently Issued Accounting Standards

For a discussion on recently issued accounting standards please see Note 2 of the Notes to the Consolidated Financial Statements of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Effective risk management is fundamental to our ability to protect both our customers' and stockholders' interests. We are exposed to potential loss from various market risks, in particular interest rate risk and credit risk. Additionally, we are exposed to inflation risk, and concentration risk.

Interest Rate Risk

Interest rate risk is the possibility that the fair value of liabilities will change more or less than the market value of investments in response to changes in interest rates, including changes in the slope or shape of the yield curve and changes in spreads due to credit risks and other factors.

Interest rate risk arises as we invest substantial funds in interest-sensitive fixed income assets, such as fixed maturity securities, mortgage-backed and asset-backed securities primarily in the United States. There are two forms of interest rate risk: price risk and reinvestment risk. Price risk occurs when fluctuations in interest rates have a direct impact on the market valuation of these investments. As interest rates rise, the market value of these investments fall, and conversely, as interest rates fall, the market value of these investments rises. Reinvestment risk occurs when fluctuations in interest rates have a direct impact on expected cash flows from mortgage-backed and asset-backed securities. As interest rates fall, an increase in prepayments on these assets results in earlier than expected receipt of cash flows forcing us to reinvest the proceeds in an unfavorable lower interest rate environment. Conversely, as interest rates rise, a decrease in prepayments on these assets results in later than expected receipt of cash flows forcing us to forgo reinvesting in a favorable higher interest rate environment.

We manage interest rate risk by selecting investments with characteristics such as duration, yield, currency and liquidity tailored to the anticipated cash outflow characteristics of our insurance and reinsurance liabilities. Increases or decreases in interest rates could also impact interest payable under our variable rate indebtedness and redeemable preferred stock. As of September 30, 2011, we had $64.0 million outstanding under our revolving facility with SunTrust at an interest rate of 4.43%, which is based on an adjusted LIBOR rate. On March 1, 2011, Wells Fargo, N.A. became a new lender under the revolving credit facility with Sun Trust which increased the existing credit facility by an additional $30.0 million, to a maximum borrowing capacity of $85.0 million.

In mid-September 2011, we changed the base rate for our line of credit to a EURO Dollar Funding thereby reducing our interest rate from 6.00% to 4.10% on $53.0 million in outstanding borrowings for a period of three months. After three months the Company will determine its cash funding needs and select the borrowing term and rate that best fits its interest rate risk profile.

We have the ability to manage interest rate risk by entering into interest rate swap transactions to mitigate the impact of interest rate changes on our debt obligations. In April 2011, we entered into a forward starting interest rate swap transaction to convert the floating rate portion of our preferred trust securities to a fixed rate, commencing in June 2012 and expiring in June 2017.

Credit Risk

Credit risk is the possibility that counterparties may not be able to meet payment obligations when they become due. We assume counterparty credit risk in many forms. A counterparty is any person or entity from which cash or other forms of consideration are expected to extinguish a liability or obligation to us. Primarily, our credit risk exposure is concentrated in our fixed maturity investment portfolio and, to a lesser extent, in our reinsurance receivables.

We have exposure to credit risk primarily from customers, as a holder of fixed maturity securities and by entering into reinsurance cessions. Our risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to any one issuer. We attempt to limit our credit exposure by imposing fixed maturity portfolio limits on individual issuers based upon credit quality.

We are also exposed to the credit risk of our reinsurers. When we reinsure, we are still liable to our insureds regardless of whether we get reimbursed by our reinsurer. As part of our overall risk and capacity management strategy, we purchase reinsurance for certain risks underwritten by our various business segments.

At September 30, 2011, approximately 79.8% of our $169.9 million of reinsurance receivables were protected from credit risk by using various types of risk mitigation mechanisms such as collateral trusts, letters of credit or by withholding the assets in a modified coinsurance or co-funds-withheld arrangement, compared to $169.4 million or 73.0% at December 31, 2010. For recoverables that are not protected by these mechanisms, we are dependent solely on the ability of the reinsurer to satisfy claims. Occasionally, the creditworthiness of the reinsurer becomes questionable. The majority of our reinsurance exposure has been ceded

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to companies rated A- or better by A.M. Best.

Concentration Risk

Concentration risk is the risk that results from a lack of diversification due to a concentrated exposure on a small number of clients, limited market penetration, or reduced geographic coverage.

A significant portion, 80.6% at September 30, 2011 compared to 66.8% at December 31, 2010, of our BPO revenues are attributable to one client, National Union Fire Insurance Company of Pittsburgh, PA. Any loss of business from or change in our relationship with this client could have a material adverse effect on our business. To mitigate this risk, we intend to expand our BPO client base.

We have two additional forms of concentration risk: (a) geographic (almost two-thirds of our Brokerage segment is in California) and (b) channel distribution risk (almost half of our Payment Protection revenue is in the consumer finance distribution channel). Our risk mitigation strategies are to continue to expand geographically (in our Brokerage segment) and to continue to increase the volume of business through other distribution channels (in our Payment Protection segment).

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2011 our disclosure controls and procedures were effective to provide reasonable assurance that information the Company is required to disclose in its reports under the Exchange Act is recorded, processed, summarized and reported accurately including, without limitation, ensuring that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

In 2010, we implemented several significant measures to improve our internal control over financial reporting, including (i) the hiring of a chief financial officer and a vice president of internal audit and SOX compliance effective October 2010; (ii) increasing the headcount of qualified financial reporting and audit personnel, including hiring an SEC reporting manager, effective December 2010, and hiring two additional audit staff members in November 2010; (iii) improving the capabilities of existing financial reporting personnel through training and education in the reporting requirements and deadlines set under U.S. GAAP, SEC rules and regulations and SOX; and (iv) transitioning to an Oracle platform for our general ledger, purchasing and accounts payable systems. In connection with our IPO on December 17, 2010, the Corporation established an Audit Committee comprised entirely of independent directors. The Corporation's Board of Directors determined that the chairman of the Audit Committee is a "financial expert" as such term has been defined by the Securities and Exchange Commission in Item 407(d)(5) of Regulation S-K.

In 2011, we continued to implement additional measures to improve our internal control over financial reporting, including (i) reviewing, developing and adopting policies and procedures to document our internal controls; (ii) the hiring of one additional audit staff member in February 2011; (iii) additional training of financial reporting personnel; and (iv) continued enhancements to our Oracle platform.

During the remainder of 2011, we will continue to improve our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

Except as otherwise discussed above, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially effect, our internal control over financial reporting.

Inherent Limitations of Internal Control Over Financial Reporting

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

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The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 are the Certifications of the CEO and the CFO, respectively, required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the "Section 302 Certifications"). The Evaluation of Disclosure Controls and Procedures Item 4(above) is the Evaluation referred to in the Section 302 Certifications, and accordingly, the above information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a party to claims and litigation in the normal course of our operations. We believe that the ultimate outcome of these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

In our Payment Protection business, we are currently a defendant in lawsuits that relate to marketing and/or pricing issues that involve claims for punitive, exemplary or extra-contractual damages in amounts substantially in excess of the covered claim. Such litigation includes Lawson v. Life of the South Insurance Co., which was filed on March 13, 2006, in the Superior Court of Muscogee County, Georgia, and later moved to the United States District Court for the Middle District of Georgia, Columbus Division. The action is brought by the plaintiff, individually and on behalf of a class of all persons similarly situated. The allegations involve our alleged duty to refund unearned premiums on credit insurance policies, even when we have not been informed of the payoff of the underlying finance contract. The action seeks an injunction requiring remedial action, as well as a variety of damages, including punitive damages, and attorney fees and costs. To date, a class has not been certified in this action.

We consider such litigation customary in our line of business. In our opinion, the ultimate resolution of such litigation, which we are vigorously defending, should not be materially adverse to our financial position, results of operations or cash flows. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business.

ITEM 1A. RISK FACTORS

The following are certain risks that management believes are specific to our business. This should not be viewed as an all-inclusive list of risks or presenting the risk factors listed in any particular order. You should carefully consider the risks described below, together with the other information contained in this Quarterly Report on Form 10-Q and in our other filings with the SEC when evaluating our Company. Should any of the events discussed in the risk factors below occur, our business, results of operations or financial condition could be materially affected. Additional risks unknown at this time, or risks we currently deem immaterial, may also impact our financial condition or results of operations.

Risks Related to our Business and Industries

General economic and financial market conditions may have a material adverse effect on the business, results of operations, cash flows and financial condition of all of our business segments.

General economic and financial market conditions, including the availability and cost of credit, the loss of consumer confidence, reduction in consumer or business spending, inflation, unemployment, energy costs and geopolitical issues, have contributed to increased uncertainty and volatility as well as diminished expectations for the U.S. economy and the financial markets. These conditions could materially and adversely affect each of our businesses. Adverse economic and financial market conditions could result in:

• a reduction in the demand for, and availability of, consumer credit, which could result in reduced demand by consumers for our Payment Protection products and our Payment Protection clients opting to no longer make such products available:

• higher than anticipated loss ratios on our Payment Protection products due to rising unemployment or disability claims;

• higher risk of increased fraudulent insurance claims;

• individuals terminating loans or canceling credit insurance policies, thereby reducing our revenues;

• businesses reducing the amount of coverage under surplus lines and specialty admitted insurance policies or allowing such policies to lapse thereby reducing our premium or commission income in our Brokerage business;

• a reduction in demand for new surplus lines and specialty insurance policies from retail insurance brokers and agents or retail insurance brokers and agents and insurance companies ceasing to offer our surplus lines and specialty insurance

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products and related services from our Brokerage business;

• a contraction in the reinsurance market caused by reduced demand by major insurers, reduced supply by reinsurers or other factors or reduced reinsurance demand by our insurance customers due to market conditions;

• our clients being more likely to experience financial distress or declare bankruptcy or liquidation, which could have an adverse impact on demand for our services and products and the remittance of premiums from such customers, as well as the collection of receivables from such clients for items such as unearned premiums, commissions or BPO-related accounts receivable, which could make the collection of receivables from our clients more difficult;

• increased pricing sensitivity or reduced demand for our services and products;

• increased costs associated with, or the inability to obtain, debt financing to fund acquisitions or the expansion of our businesses; and

• defaults in our fixed income investment portfolio or lower than anticipated rates of return as a result of low interest rate environments.

If we are unable to successfully anticipate changing economic or financial market conditions, we may be unable to effectively plan for or respond to such changes, and our business, results of operations and financial condition could be materially and adversely affected.

We face significant competitive pressures in each of our businesses, which could materially and adversely affect our business, results of operations and financial condition.

We face significant competition in each of our businesses. Competition in our businesses is based on many factors, including price, industry knowledge, quality of client service, the effectiveness of our sales force, technology platforms and processes, the security and integrity of our information systems, the financial strength ratings of our insurance subsidiaries, office locations, breadth of services and products and brand recognition and reputation. Some competitors may offer a broader array of services and products, may have a greater diversity of distribution resources, may have better brand recognition, may have lower cost structures or, with respect to insurers, may have higher financial strength or claims paying ratings. Some competitors also have larger client bases than we do. In addition, new competitors could enter our markets in the future. The competitive landscape for each of our businesses is described below.

• Payment Protection - In our Payment Protection business, we compete with insurance companies, financial institutions and other insurance service providers. The principal competitors for our Payment Protection business include Aon Corporation, Assurant, Inc., Asurion Corporation and smaller regional companies. As a result of state and federal regulatory developments and changes in prior years, certain financial institutions are able to offer debt cancellation plans and are also able to affiliate with other insurance companies in order to offer services similar to those in our Payment Protection business. This has resulted in new competitors, some of whom have significant financial resources, entering some of our markets. As financial institutions gain experience with payment protection programs, their reliance on our services and products may diminish.

• BPO - Our BPO business competes with a variety of companies, including large multinational firms that provide consulting, technology and/or business process services, off-shore business process service providers in low-cost locations like India, and in-house captives of potential clients. Our principal business process outsourcing competitors include Aon Corporation, Computer Sciences Corporation, Direct Response Insurance Administration Services, Inc., Marsh & McLennan Companies, Inc., Perot Systems Corporation (a subsidiary of Dell, Inc.) and EXL Service. The trend toward outsourcing and technological changes may also result in new and different competitors entering our markets. There could also be newer competitors with strong competitive positions as a result of consolidation of smaller competitors or of companies that each provide different services or serve different industries.

• Brokerage - Our Brokerage business competes for retail insurance clients with numerous firms, including AmWINS Group, Inc., Arthur J. Gallagher & Co., Brown & Brown, Inc. and The Swett & Crawford Group, Inc. Many of our Brokerage competitors have relationships with insurance companies or have a significant presence in niche insurance markets that may give them an advantage over us. Because relationships between insurance intermediaries and insurance companies or clients are often local or regional in nature, this potential competitive disadvantage is particularly pronounced outside of California. This could also impact our ability to compete effectively in any new states or regions that we enter. A number of standard market insurance companies are engaged in the sale of products that compete with those products we offer. These carriers sell their products directly through retail agents and brokers without the involvement of a wholesale broker, which may yield higher commissions to retail agents and brokers and may impact our ability to compete.

We expect competition to intensify in each of our businesses. Increased competition may result in lower prices and volumes, higher personnel and sales and marketing costs, increased technology expenditures and lower profitability. We may not be able to supply clients with services that they deem superior and at competitive prices and we may lose business to our competitors. If we are unable to compete effectively in any of our business segments, it would have a material adverse effect on our business, results of operations and financial condition.

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Our results of operations may fluctuate significantly, which makes our future results of operations difficult to predict. If our results of operations fall below expectations, the price of our common stock could decline.

Our annual and quarterly results of operations have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, many of which are beyond our control. In addition, our expenses as a percentage of revenues may be significantly different than our historical rates. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. Factors that may cause our results of operations to fluctuate from period-to-period include:

• demand for our services and products;

• the length of our sales cycle;

• the amount of sales to new clients:

• the timing of implementations of our services and products with new clients;

• pricing and availability of surplus lines and other specialty insurance products coverages;

• seasonality;

• the timing of acquisitions;

• competitive factors;

• prevailing interest rates;

• pricing changes by us or our competitors;

• transaction volumes in our clients' businesses;

• the introduction of new services and products by us and our competitors;

• changes in regulatory and accounting standards; and

• our ability to control costs.

In addition, our Payment Protection revenues can vary depending on the level of consumer activity and the success of our clients in selling payment protection products. In our Brokerage business, our commission and fee income can vary due to the timing of policy renewals, as well as the timing and amount of the receipt of profit commission payments and fees and the net effect of new and lost business production. We do not control the factors that cause these variations. Specifically, customers' demand for insurance products can influence the timing of renewals, new business, lost business (which includes policies that are not renewed) and cancellations. In addition, we rely on retail insurance brokers and agents and insurance companies for the payment of certain commissions. Because these payments are processed internally by these companies, we may not receive a payment that is otherwise expected from a particular firm in one period until after the end of that period, which can adversely affect our ability to budget for such period.

Our results of operations could be materially and adversely affected if we fail to retain our existing clients, cannot sell additional services and products to our existing clients, do not introduce new or enhanced services and products or are not able to attract and retain new clients.

Our revenue and revenue growth are dependent on our ability to retain clients, to sell them additional services and products, to introduce new services and products and to attract new clients in each of our businesses. Our ability to increase revenues will depend on a variety of factors, including:

• the quality and perceived value of our product and service offerings by existing and new clients;

• the effectiveness of our sales and marketing efforts;

• the speed with which our Brokerage business can respond to requests for price quotes from retail insurance agents and brokers, and the availability of competitive services and products from our carriers;

• the successful installation and implementation of our services and products for new and existing Payment Protection and BPO clients;

• availability of capital to complete investments in new or complementary products, services and technologies;

• the availability of adequate reinsurance for us and our clients, including the ability of our clients to form, capitalize and operate captive reinsurance companies;

• our ability to find suitable acquisition candidates, successfully complete such acquisitions and effectively integrate such acquisitions;

• our ability to integrate technology into our services and products to avoid obsolescence and provide scalability;

• the reliability, execution and accuracy of our services, particularly our BPO services; and

• client willingness to accept any price increases for our services and products.

In addition, we are subject to risks of losing clients due to consolidation in each of the markets we serve. Our inability to retain existing clients, sell additional services and products, or successfully develop and implement new and enhanced services and products and attract new clients and, accordingly, increase our revenues could have a material adverse effect on our results of operations.

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We typically face a long selling cycle to secure new clients in each of our businesses as well as long implementation periods that require significant resource commitments, which result in a long lead time before we receive revenues from new client relationships.

The industries in which we compete generally consist of mature businesses and markets and the companies that participate in these industries have well-established business operations, systems and relationships. Accordingly, each of our businesses typically faces a long selling cycle to secure a new client. Even if we are successful in obtaining a new client engagement, that is generally followed by a long implementation period in which the services are planned in detail and we demonstrate to the client that we can successfully integrate our processes and resources with their operations. We also typically negotiate and enter into a contractual relationship with the new client during this period. There is then a long implementation period in order to commence providing the services.

We typically incur significant business development expenses during the selling cycle. We may not succeed in winning a new client's business, in which case we receive no revenues and may receive no reimbursement for such expenses. Even if we succeed in developing a relationship with a potential client and begin to plan the services in detail, such potential client may choose a competitor or decide to retain the work in-house prior to the time a final contract is signed. If we enter into a contract with a client, we will typically receive no revenues until implementation actually begins. In addition, a significant portion of our revenue is based upon the success of our clients' marketing programs, which may not generate the transaction volume we anticipate. Our clients may also experience delays in obtaining internal approvals or delays associated with technology or system implementations, thereby further lengthening the implementation cycle. If we are not successful in obtaining contractual commitments after the selling cycle, in maintaining contractual commitments after the implementation cycle or in maintaining or reducing the duration of unprofitable initial periods in our contracts, it may have a material adverse effect on our business, results of operations and financial condition. Furthermore, the time and effort required to complete the implementation phases of new contracts makes it difficult to accurately predict the timing of revenues from new clients as well as our costs.

Acquisitions are a significant part of our growth strategy and we may not be successful in identifying suitable acquisition candidates, completing such acquisitions or integrating the acquired businesses, which could have a material adverse effect on our business, results of operations, financial condition or growth.

Historically, acquisitions have played a significant role in our expansion into new businesses and in the growth of some of our businesses. Acquiring complementary businesses is a significant component of our growth strategy. Accordingly, we frequently evaluate possible acquisition transactions for our business. However, we may not be able to identify suitable acquisitions, and such transactions may not be financed and completed on acceptable terms. We may incur significant expenses in evaluating such acquisitions. Furthermore, any future acquisitions may not be successful. In addition, we may be competing with larger competitors with substantially greater resources for acquisition targets. Any deficiencies in the process of integrating companies we may acquire could have a material adverse effect on our results of operations and financial condition. Acquisitions entail a number of risks including, among other things:

• failure to achieve anticipated revenues, earnings or cash flow;

• increased expenses;

• diversion of management time and attention;

• failure to retain customers or personnel;

• difficulties in realizing projected efficiencies:

• ability to realize synergies and cost savings;

• difficulties in integrating systems and personnel; and

• inaccurate assessment of liabilities.

Our failure to adequately address these acquisition risks could have a material adverse effect on our business, results of operations, financial condition and growth. Future acquisitions may reduce our cash resources available to fund our operations and capital expenditures and could result in increased amortization expense related to any intangible assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt, which could increase our interest expense.

Our business, results of operations, financial condition or liquidity may be materially and adversely affected by errors and omissions and the outcome of certain actual and potential claims, lawsuits and proceedings.

We are subject to various actual and potential claims, lawsuits and other proceedings relating principally to alleged errors and omissions in connection with our conduct in each of our businesses, including the handling and adjudicating of claims and the placement of insurance. Because such placement of insurance and handling claims can involve substantial amounts of money, clients may assert errors and omissions claims against us alleging potential liability for all or part of the amounts in question. Claimants may seek large damage awards, and these claims may involve potentially significant legal costs. Such claims, lawsuits and other proceedings could, for example, include claims for damages based on allegations that our employees or sub-agents improperly failed to procure coverage, report claims on behalf of clients, provide insurance companies with complete and accurate

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information relating to the risks being insured or appropriately apply funds that we hold for our clients on a fiduciary basis.

While we would expect most of the errors and omissions claims made against us (subject to our self-insured deductibles) to be covered by our professional indemnity insurance, our results of operations, financial condition and liquidity may be materially and adversely affected if, in the future, our insurance coverage proves to be inadequate or unavailable, or if there is an increase in liabilities for which we self-insure. Our ability to obtain professional indemnity insurance in the amounts and with the deductibles we desire in the future may be materially and adversely impacted by general developments in the market for such insurance or our own claims experience. In addition, claims, lawsuits and other proceedings may harm our reputation or divert management resources away from operating our business.

We may lose clients or business as a result of consolidation within the financial services industry.

There has been considerable consolidation in the financial services industry, driven primarily by the acquisition of small and mid-size organizations by larger entities. We expect this trend to continue. As a result, we may lose business or suffer decreased revenues from retail insurance brokerage firms that are acquired by other firms. Similarly, we may lose business or suffer decreased revenues if one or more of our Payment Protection clients or distributors consolidate or align themselves with other companies. To date, our business has not been materially affected by consolidation. However, we may be affected by industry consolidation that occurs in the future, particularly if any of our significant clients are acquired by organizations that already possess the operations, services and products that we provide.

Our ability to implement and execute our strategic plans may not be successful and, accordingly, we may not be successful in achieving our strategic goals, which may materially and adversely affect our business.

We may not be successful in developing and implementing our strategic plans for our businesses or the operational plans that have been or need to be developed to implement these strategic plans. If the development or implementation of such plans is not successful, we may not produce the revenue, margins, earnings or synergies that we need to be successful. We may also face delays or difficulties in implementing product, process and system improvements, which could adversely affect the timing or effectiveness of margin improvement efforts in our businesses and our ability to successfully compete in the markets we serve. The execution of our strategic and operating plans will, to some extent, also be dependent on external factors that we cannot control. In addition, these strategic and operational plans need to continue to be assessed and reassessed to meet the challenges and needs of our businesses in order for us to remain competitive. The failure to implement and execute our strategic and operating plans in a timely manner or at all, realize the cost savings or other benefits or improvements associated with such plans, have financial resources to fund the costs associated with such plans or incur costs in excess of anticipated amounts, or sufficiently assess and reassess these plans could have a material and adverse effect on our business or results of operations.

We may not effectively manage our growth, which could materially harm our business.

The growth of our business has placed and may continue to place significant demands on our management, personnel, systems and resources. To manage our growth, we must continue to improve our operational and financial systems and managerial controls and procedures, and we will need to continue to expand, train and manage our personnel. We must also maintain close coordination among our technology, compliance, legal, risk management, accounting, finance, marketing and sales organizations. We may not manage our growth effectively, and if we fail to do so, our business could be materially and adversely harmed.

If we continue to grow, we may be required to increase our investment in facilities, personnel and financial and management systems and controls. Continued growth, especially in connection with expansion into new business lines, may also require expansion of our procedures for monitoring and assuring our compliance with applicable regulations and that we recruit, integrate, train and manage a growing employee base. The expansion of our existing businesses, our expansion into new businesses and the resulting growth of our employee base increase our need for internal audit and monitoring processes that are more extensive and broader in scope than those we have historically required. We may not be successful in implementing all of the processes that are necessary. Further, unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our operating margins and profitability will be materially and adversely affected.

As a holding company, we depend on the ability of our subsidiaries to transfer funds to us to pay dividends and to meet our obligations.

We act as a holding company for our subsidiaries and do not have any significant operations of our own. Dividends from our subsidiaries are our principal sources of cash to meet our obligations and pay dividends, if any, on our common stock. These obligations include our operating expenses and interest and principal payments on our current and any future borrowings. The agreements governing our revolving credit facilities restrict our subsidiaries' ability to pay dividends or otherwise transfer cash to us. Under our revolving credit facility, our subsidiaries are permitted to make distributions to us if no default or event of default has occurred and is continuing at the time of such distribution. If the cash we receive from our subsidiaries pursuant to dividends or otherwise is insufficient for us to fund any of these obligations, or if a subsidiary is unable to pay dividends to us, we may be required to raise cash through the incurrence of additional debt, the issuance of additional equity or the sale of assets.

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The payment of dividends and other distributions to us by each of the regulated insurance company subsidiaries in our Payment Protection segment is regulated by insurance laws and regulations of the states in which they operate. In general, dividends in excess of prescribed limits are deemed "extraordinary" and require insurance regulatory approval. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by a formula, which varies by state. Some states have an additional stipulation that dividends may only be paid out of earned surplus. States also regulate transactions between our insurance company subsidiaries and our other subsidiaries, such as those relating to the shared services, and in some instances, require prior approval of such transactions within the holding company structure. If insurance regulators determine that payment of an ordinary dividend or any other payments by our insurance subsidiaries to us (such as payments for employee or other services) would be adverse to policyholders or creditors, the regulators may block or otherwise restrict such payments that would otherwise be permitted without prior approval. In addition, there could be future regulatory actions restricting the ability of our insurance subsidiaries to pay dividends or share services.

Our success is dependent upon the retention and acquisition of talented people and the skills and abilities of our management team and key personnel.

Our business depends on the efforts, abilities and expertise of our senior executives, particularly our Chairman, President and Chief Executive Officer, Richard S. Kahlbaugh. Mr. Kahlbaugh and our other senior executives are important to our success because they have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel, maintaining relationships with our clients, and identifying business opportunities. The loss of one or more of these key individuals could impair our business and development until qualified replacements are found. We may not be able to replace these individuals quickly or with persons of equal experience and capabilities. Although we have employment agreements with certain of these individuals, we cannot prevent them from terminating their employment with us. In addition, our non-compete agreements with such individuals may not be enforced by the courts. We do not maintain key man life insurance policies on any of our executive officers except for Mr. Kahlbaugh. If we are unable to attract and retain talented employees, it could have a material adverse effect on our business, operating results and financial condition.

We may need to raise additional capital in the future, but there is no assurance that such capital will be available on a timely basis, on acceptable terms or at all.

We may need to raise additional funds in order to grow our businesses or fund our strategy or acquisitions. Additional financing may not be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders if raised through additional equity offerings. A significant portion of our funding is under our revolving credit facility, which matures in June 2013. Additionally, any securities issued to raise such funds may have rights, preferences and privileges senior to those of our existing stockholders. If adequate funds are not available on a timely basis or on acceptable terms, our ability to expand, develop or enhance our services and products, enter new markets, consummate acquisitions or respond to competitive pressures could be materially limited.

Risks Related to Our Payment Protection Business

Our Payment Protection business relies on independent financial institutions, lenders and retailers to distribute its services and products, and the loss of these distribution sources, or the failure of our distribution sources to sell our Payment Protection products could materially and adversely affect our business and results of operations.

We distribute our Payment Protection products through financial institutions, lenders and retailers. Although our contracts with these clients are typically exclusive, they can be canceled on relatively short notice. In addition, the distributors typically do not have any minimum performance or sales requirements and our Payment Protection revenue is dependent on the level of business conducted by the distributor as well as the effectiveness of their sales efforts for our Payment Protection products, each of which is beyond our control. The impairment of our distribution relationships, the loss of a significant number of our distribution relationships, the failure to establish new distribution relationships, the increase in sales of competitors' services and products by these distributors or the decline in their overall business activity or the effectiveness of their sales of our Payment Protection products could materially reduce our Payment Protection sales and revenues. Also, the growth of our Payment Protection business is dependent in part on our ability to identify, attract and retain new distribution relationships and successfully implement our information systems with those of our new distributors.

Reinsurance may not be available or adequate to protect us against losses, and we are subject to the credit risk of reinsurers.

As part of our overall risk and capacity management strategy, we purchase reinsurance for a substantial portion of the risks underwritten by our Payment Protection business through captive reinsurance companies owned by our Payment Protection clients as well as third party reinsurance companies. Market conditions beyond our control determine the availability and cost of the reinsurance protection we seek to renew or purchase. Our clients may face difficulties forming, capitalizing and operating captive reinsurance companies, which could impact their ability to reinsure future business that we typically cede to them. States also could impose restrictions on these reinsurance arrangements, such as requiring the insurance company subsidiary to retain a

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minimum amount of underwriting risk, which could affect our profitability and results of operations. Reinsurance for certain types of catastrophes generally could become unavailable or prohibitively expensive for some of our businesses. Such changes could substantially increase our exposure to the risk of significant losses from natural or man-made catastrophes and could hinder our ability to write future business.

Although the reinsurer is liable to the respective insurance subsidiary to the extent of the ceded reinsurance, the insurance company remains liable to the insured as the direct insurer on all risks reinsured. Ceded reinsurance arrangements, therefore, do not eliminate our insurance company obligation to pay claims. While the captive reinsurance companies owned by our clients are generally required to maintain trust accounts with sufficient assets to cover the reinsurance liabilities and we manage these trust accounts on behalf of these reinsurance companies, we are subject to credit risk with respect to our ability to recover amounts due from reinsurers. The inability to collect amounts due from reinsurers could have a material adverse effect on our results of operations and our financial position.

Our reinsurance facilities are generally subject to annual renewal. We may not be able to maintain our current reinsurance facilities and our clients may not be able to continue to operate their captive reinsurance companies. As a result, even where highly desirable or necessary, we may not be able to obtain other reinsurance facilities in adequate amounts and at favorable rates. If we are unable to renew our expiring facilities or to obtain or structure new reinsurance facilities, either our net exposures would increase or, if we are unwilling to bear an increase in net exposures, we may have to reduce the level of our underwriting commitments. Either of these potential developments could have a material adverse effect on our results of operations and financial condition.

Due to the structure of some of our commissions, we are exposed to risks related to the creditworthiness of some of our agents.

We are subject to the credit risk of some of the agents with which we contract within our Payment Protection business. We typically advance agents' commissions as part of our product offerings. These advances are a percentage of the premium charged. If we over-advance such commissions to agents, they may not be able to fulfill their payback obligations, and it could have a material adverse effect on our results of operations and financial condition.

A downgrade in the ratings of our insurer subsidiaries may materially and adversely affect relationships with clients and adversely affect our results of operations.

Claims paying ability and financial strength ratings are each a factor in establishing the competitive position of our insurance company subsidiaries. A ratings downgrade, or the potential for such a downgrade, could, among other things, materially and adversely affect relationships with clients, brokers and other distributors of our services and products, thereby negatively impacting our results of operations, and materially and adversely affect our ability to compete in our markets. Rating agencies can be expected to continue to monitor our financial strength and claims paying ability, and no assurances can be given that future ratings downgrades will not occur, whether due to changes in our performance, changes in rating agencies' industry views or ratings methodologies, or a combination of such factors.

Our actual claims losses may exceed our reserves for claims, which may require us to establish additional reserves that may materially and adversely reduce our business results of operations and financial condition.

We maintain reserves to cover our estimated ultimate exposure for claims with respect to reported claims and incurred but not reported claims as of the end of each accounting period. Reserves, whether calculated under accounting principles generally accepted in the United States or statutory accounting principles, do not represent an exact calculation of exposure. Instead, they represent our best estimates, generally involving actuarial projections, of the ultimate settlement and administration costs for a claim or group of claims, based on our assessment of facts and circumstances known at the time of calculation. The adequacy of reserves will be impacted by future trends in claims severity, frequency, judicial theories of liability and other factors. These variables are affected by external factors such as changes in the economic cycle, unemployment, changes in the social perception of the value of work, emerging medical perceptions regarding physiological or psychological causes of disability, emerging health issues, new methods of treatment or accommodation, inflation, judicial trends, legislative changes, as well as changes in claims handling procedures. Many of these items are not directly quantifiable, particularly on a prospective basis. Reserve estimates are refined as experience develops. Adjustments to reserves, both positive and negative, are reflected in the statement of income of the period in which such estimates are updated. Because establishment of reserves is an inherently uncertain process involving estimates of future losses, there can be no certainty that ultimate losses will not exceed existing claims reserves. In general, future loss development could require reserves to be increased, which could have a material adverse effect on our earnings in the periods in which such increases were made.

Our investment portfolio is subject to several risks that may diminish the value of our invested assets and cash and may materially and adversely affect our business and profitability.

Investment returns are an important part of our overall profitability and significant interest rate fluctuations, or prolonged periods of low interest rates, could impair our profitability. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. We have a

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significant portion of our investments in cash and highly liquid short-term investments. Accordingly, during prolonged periods of declining or low market interest rates, such as those we have been experiencing since 2008, the interest we receive on such investments decreases and affects our profitability. In addition, certain factors affecting our business, such as volatility of claims experience, could force us to liquidate securities prior to maturity, causing us to incur capital losses. If we do not structure our investment portfolio so that it is appropriately matched with our insurance liabilities, we may be forced to liquidate investments prior to maturity at a significant loss to cover such liabilities.

The fair market value of the fixed maturity securities in our portfolio and the investment income from these securities fluctuate depending on general economic and market conditions. Because all of our fixed maturity securities are classified as available for sale, changes in the market value of these securities are reflected on our Consolidated Balance Sheets. The fair market value generally increases or decreases in an inverse relationship with fluctuations in interest rates, while net investment income realized by us from future investments in fixed maturity securities will generally increase or decrease with interest rates. In addition, actual net investment income and/or cash flows from investments that carry prepayment risk may differ from those anticipated at the time of investment as a result of interest rate fluctuations.

We employ asset/liability management strategies to reduce the adverse effects of interest rate volatility and to increase the likelihood that cash flows are available to pay claims as they become due. Our asset/liability management strategies may fail to eliminate or reduce the adverse effects of interest rate volatility, and significant fluctuations in the level of interest rates may therefore have a material adverse effect on our results of operations and financial condition.

We are subject to credit risk in our investment portfolio, primarily from our investments in corporate bonds and municipal bonds. Defaults by third parties in the payment or performance of their obligations could reduce our investment income and realized investment gains or result in the recognition of investment losses. The value of our investments may be materially and adversely affected by increases in interest rates, downgrades in the corporate bonds included in the portfolio and by other factors that may result in the recognition of other-than-temporary impairments. Each of these events may cause us to reduce the carrying value of our investment portfolio.

Further, the value of any particular fixed maturity security is subject to impairment based on the creditworthiness of a given issuer. Our fixed maturity portfolio may include below investment grade securities (rated "BB" or lower by nationally recognized securities rating organizations). These investments generally provide higher expected returns, but present greater risk and can be less liquid than investment grade securities. A significant increase in defaults and impairments on our fixed maturity investment portfolio could have a material adverse effect on our results of operations and financial condition.

Risks Related to Our BPO Business

A significant portion of our BPO revenues are attributable to one client, and any loss of business from, or change in our relationship with this client could materially and adversely affect our business, results of operations and financial condition.

We have derived and are likely to continue to derive a significant portion of our BPO revenues from a limited number of clients, specifically, in our BPO business, services provided to National Union Fire Insurance Company of Pittsburgh, PA ("NUFIC"). See - Part I, Item 3,"QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK-Concentration Risk, regarding our concentration risk. The loss of business or a reduction in the fees or other change in relationship with any of our significant clients, particularly NUFIC, could have a material adverse effect on our business, results of operations and financial condition.

The profitability of our BPO business will suffer if we are not able to price our outsourcing services appropriately, maintain asset utilization levels and control our costs.

The profitability of our BPO business is largely a function of the efficiency with which we utilize our assets and the pricing that we are able to obtain for our services. Our utilization rates are affected by a number of factors, including hiring and assimilating new employees, forecasting demand for our services and our need to devote time and resources to training, professional development and other typically non-chargeable activities. The prices we are able to charge for our services are affected by a number of factors, including our clients' perceptions of our ability to add value through our services, competition, the introduction of new services or products by us or our competitors and general economic conditions. Our ability to accurately estimate, attain and sustain revenues over increasingly longer contract periods could negatively impact our margins and cash flows. Therefore, if we are unable to price appropriately or manage our asset utilization levels, there could be a material adverse effect on our business, results of operations and financial condition. The profitability of our BPO business is also a function of our ability to control our costs and improve our efficiency. As we increase the number of our employees and grow our business, we may not be able to manage the significantly larger workforce that may result and our profitability may not improve.

We enter into fixed-term contracts and per-unit priced contracts with our BPO clients, and our failure to correctly price these

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contracts may negatively affect our profitability.

The pricing of our services is usually included in contracts entered into with our clients, many of which are for terms of between one and three years. In certain cases, we have committed to pricing over this period with only limited sharing of risk regarding inflation. If we fail to estimate accurately future wage inflation rates or our costs, or if we fail to accurately estimate the productivity benefits we can achieve under a contract, it could have a material adverse effect on our business, results of operations and financial condition.

Some of our BPO contracts contain provisions which, if triggered, could result in the payment of penalties or lower future revenues and could materially and adversely affect our business, results of operations and financial condition.

Many of our BPO contracts contain service level and performance provisions, including standards relating to the quality of our services, that would provide our clients with the right to terminate their contract if we do not meet pre-agreed service level requirements and in the case of our contract with NUFIC, require us to pay penalties. Our contract with NUFIC also provides that, during the term of the contract and for 18 months thereafter, we may not develop or service products for NUFIC's competitors that are substantially similar to those we administer on behalf of NUFIC. Failure to meet these requirements could result in the payment of significant penalties by us to our clients which, in turn, could have a material adverse effect on our business, results of operations and financial condition.

Risks Related to our Brokerage Business

We may not be able to accurately forecast our brokerage commissions and fees revenues because our commissions and fees depend on premiums charged by insurance companies, which historically have varied and, as a result, have been difficult to predict.

Our Brokerage business derives revenue principally from commissions and fees paid by insurance companies. Commissions and fees are based upon a percentage of premiums paid by customers for insurance products. The amount of such commissions and fees are therefore highly dependent on premium rates charged by insurance companies. We do not determine insurance premium rates. Premium rates are determined by insurance companies based on a fluctuating market and in many cases are regulated by the states in which they operate. We have generally encountered declining rates for property and casualty insurance since late 2006.

Premium pricing within the commercial property and casualty insurance market in which we operate historically has been cyclical based on the underwriting capacity of the insurance carriers operating in this market and has been impacted by general economic conditions. In a period of decreasing insurance capacity, insurance carriers typically raise premium rates. This type of market frequently is referred to as a "hard" market. In a period of increasing insurance capacity, insurance carriers tend to reduce premium rates. This type of market frequently is referred to as a "soft" market, which the commercial P&C market has been experiencing since 2006. Because our commission rates usually are calculated as a percentage of the gross premium charged for the insurance products that we place, our revenues are affected by the pricing cycle of the market and the amount of risk that is insured. General economic conditions may impact the amount of risk that is insured by companies by affecting the value of the insured properties, the size of company workforces and the willingness of companies to self-insure certain risks to reduce insurance expenses. The frequency and severity of natural disasters and other catastrophic events can affect the timing, duration and extent of industry cycles for many of the product lines we distribute. It is very difficult to predict the severity, timing or duration of these cycles. The cyclical nature of premium pricing in the commercial property and casualty insurance market may make our results of operations volatile and unpredictable. To the extent that an economic downturn and/or "soft" market persist for an extended period of time, our Brokerage commissions and fees, financial condition and results of operations may be materially and adversely affected.

We may experience reductions in the commission revenues we receive from risk-bearing insurance companies as these insurance companies seek to reduce their expenses by reducing commission rates payable to non-affiliated brokers or agents such as us, which may significantly affect the profitability of our Brokerage business.

As traditional risk-bearing insurance companies continue to outsource the production of premium revenues to non-affiliated brokers or agents such as us, those insurance companies may seek to reduce further their expenses by reducing the commission rates payable to those insurance agents or brokers. The reduction of these commission rates, along with general volatility and/or declines in premiums, may significantly affect the profitability of our Brokerage business. Because we do not determine the timing or extent of premium pricing changes, we may not be able to accurately forecast our commission revenues, including whether they will significantly decline. As a result, we may have to adjust our budgets to account for unexpected changes in revenues, and any decreases in premium rates may have a material adverse effect on our results of operations.

The loss of the services of any of our highly qualified brokers could harm our business and operating results.

Our future performance depends on our ability to recruit and retain highly qualified brokers, including brokers who work in the businesses that we have acquired or may acquire in the future. Competition for productive brokers is intense, and our inability to recruit or retain these brokers could harm our business and operating results. While many of our senior brokers own an equity

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interest in us and many have entered into employment agreements with us, these brokers may not serve the term of their employment agreements or renew their employment agreements upon expiration. Moreover, any of the brokers who leave our firm may not comply with the provisions of their employment agreements that preclude them from competing with us or soliciting our customers and employees, or these provisions may not be enforceable under applicable law or sufficient to protect us from the loss of any business. In addition, we do not have employment, non-competition or non-solicitation agreements with all of our brokers. We may not be able to retain or replace the business generated by a broker who leaves our firm or replace that broker with an equally qualified broker who is acceptable to our clients.

Because our Brokerage business is highly concentrated in California, adverse economic conditions or regulatory changes in that state could materially and adversely affect our financial condition.

A significant portion of our Brokerage business is concentrated in California. We believe the regulatory environment for insurance intermediaries in this state currently is no more restrictive than in other states. The insurance business is a state-regulated industry, and therefore, state legislatures may enact laws, and state insurance regulators may adopt regulations, that adversely affect the profitability of insurance industries in their states. Because our Brokerage business is concentrated in a few states, we face greater exposure to unfavorable changes in regulatory conditions in those states than insurance intermediaries whose operations are more diversified through a greater number of states. In addition, the occurrence of adverse economic conditions, natural or other disasters, or other circumstances specific to or otherwise significantly impacting these states could have a material adverse effect on our financial condition, results of operations and cash flows.

If insurance carriers begin to transact business without relying on wholesale insurance brokers, our business, results of operations, financial condition and cash flows could suffer.

Our Brokerage business acts as an intermediary between retail agents and insurance carriers that, in some cases, will not transact business directly with retail insurance brokers and agents. If insurance carriers change the way they conduct business and begin to transact business with retail agents without including us or if retail agents are enabled to transact business directly with insurance carriers as a result of changes in the surplus lines and specialty insurance markets, technological advancements or other factors, our role in the distribution of surplus lines and specialty insurance products could be eliminated or substantially reduced, and our business, results of operations, financial condition and cash flows could suffer. If insurers retain more risk or cede risks that have traditionally been placed facultatively to treaty reinsurance arrangements, then revenue and cash flow attributable to eReinsure could suffer.

Our growth strategy may involve opening or acquiring new offices and expanding internationally and will involve hiring new brokers and underwriters for our Brokerage business, which will require substantial investment by us and may materially and adversely affect our results of operations and cash flows in a particular period.

Our ability to grow our Brokerage business organically depends in part on our ability to open or acquire new offices, expand internationally and recruit new brokers and underwriters. We may not be successful in any efforts to open new offices, expand internationally or hire new brokers or underwriters. The costs of opening a new office, expanding internationally and hiring the necessary personnel to staff the office can be substantial, and we often are required to commit to multi-year, non-cancelable lease agreements. It has been our experience that our new Brokerage offices may not achieve profitability on a stand-alone basis until they have been in operation for at least three years. In addition, we often hire new brokers and underwriters with the expectation that they will not become profitable until 12 months after they are hired. The cost of investing in new offices, brokers and underwriters may have a material adverse effect on our results of operations and cash flows in future periods. Moreover, we may not be able to recover our investments or these offices, brokers and underwriters may not achieve profitability.

Our financial results may be materially and adversely affected by the occurrence of catastrophes.

Portions of our Brokerage business involve the placement of insurance policies that cover losses from unpredictable events such as hurricanes, windstorms, hailstorms, earthquakes, fires, industrial explosions, freezes, riots, floods and other man-made or natural disasters, including acts of terrorism. The incidence and severity of these catastrophes in any given period are inherently unpredictable, and climate change could further exacerbate the severity and frequency of weather-related events. We are generally eligible to earn profit commissions, which are commissions we receive from carriers based upon the ultimate profitability of the business that we place with those carriers. The occurrence and severity of catastrophes could impair the amount of profit commissions that we receive in the future which could have a material adverse effect on our results of operations and financial condition. Capacity in the reinsurance market is adversely impacted by catastrophes, which can adversely impact our results of operations.

We are subject to risks related to our profit commission arrangements and other compensation arrangements.

We derive a portion of our Brokerage revenues from profit commissions based on the profitability of the insurance business we place with a carrier. Due to the inherent uncertainty of loss in our industry and changes in underwriting criteria due in part to the high loss ratios experienced by some carriers, we cannot predict the receipt of these profit commissions and the amount of such profit commissions may be less than we anticipated. Because profit commissions affect our revenues, any decrease in such amounts

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could have a material adverse effect on our results of operations and financial condition.

In addition, other companies have been the subject of investigations regarding profit commission arrangements by various governmental authorities within the past several years. Some of these investigations have focused on whether retail insurance brokers have adequately disclosed to their customers the receipt of profit commissions that are paid by insurance carriers to brokers based on the volume of business placed by the broker with the insurance carrier and other factors. We have not been subject to any investigations that are focused on our disclosure of profit commissions. The legislatures of various states may adopt new laws addressing profit commission arrangements, including laws limiting or prohibiting such arrangements, and adding new or different disclosure of such arrangements to insureds. Various state departments of insurance may also adopt new regulations addressing these matters. While we cannot predict the outcome of future governmental actions regarding commission payment practices or the responses by the market and government regulators, any unfavorable resolution of these matters could have a material adverse effect on our results of operations.

Risks Related to Regulatory and Legal Matters

We are subject to extensive governmental laws and regulations, which increase our costs and could restrict the conduct of our business.

Our operating subsidiaries are subject to extensive regulation and supervision in the jurisdictions in which they do business. Such regulation or compliance could reduce our profitability or limit our growth by increasing the costs of compliance, limiting or restricting the products or services we sell, or the methods by which we sell our services and products, or subjecting our businesses to the possibility of regulatory actions or proceedings. In all jurisdictions, the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities have broad discretion to grant, renew or revoke licenses and approvals and to implement new regulations. We may be precluded or temporarily suspended from carrying on some or all of our activities or otherwise fined or penalized in any jurisdiction in which we operate. No assurances can be made that our businesses can continue to be conducted in each jurisdiction as they have been in the past. Such regulation is generally designed to protect the interests of policyholders. To that end, the laws of the various states establish insurance departments with broad powers with respect to matters, such as:

• licensing and authorizing companies and agents to transact business;

• regulating capital and surplus and dividend requirements;

• regulating underwriting limitations;

• regulating the ability of companies to enter and exit markets;

• imposing statutory accounting requirements and annual statement disclosures;

• approving changes in control of insurance companies;

• regulating premium rates, including the ability to increase or maintain premium rates;

• regulating trade and claims practices;

• regulating certain transactions between affiliates;

• regulating reinsurance arrangements, including the balance sheet credit that may be taken by the ceding or direct insurer;

• mandating certain insurance benefits;

• regulating the content of disclosures to consumers;

• regulating the type, amounts and valuation of investments;

• mandating assessments or other surcharges for guaranty funds and the ability to recover such assessments in the future through premium increases;

• regulating market conduct and sales practices of insurers and agents, including compensation arrangements; and

• regulating a variety of other financial and non-financial components of an insurer's business.

Our non-insurance operations and certain aspects of our insurance operations are subject to various federal and state regulations, including state and federal consumer protection, privacy and other laws. An insurer's ability to write new business is partly a function of its statutory surplus. Maintaining appropriate levels of surplus as measured by Statutory Accounting Principles is considered important by insurance regulatory authorities and the private agencies that rate insurers' claims-paying abilities and financial strength. Failure to maintain certain levels of statutory surplus could result in increased regulatory scrutiny, a downgrade by rating agencies or enforcement action by regulatory authorities.

We may be unable to maintain all required licenses and approvals and, despite our best efforts, our business may not fully comply with the wide variety of applicable laws and regulations or the relevant regulators' interpretation of such laws and regulations. Also, some regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals or to limit or restrain operations in their jurisdiction. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend us from operating, limit some or all of our activities or financially penalize us. These types of actions could have a material adverse effect on our results of operations and financial condition.

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Failure to protect our clients' confidential information and privacy could result in the loss of reputation and customers, reduction in our profitability and subject us to fines, penalties and litigation.

We retain confidential information in our information systems, and we are subject to a variety of privacy regulations and confidentiality obligations. For example, some of our activities are subject to the privacy regulations of the Gramm-Leach-Bliley Act. We also have contractual obligations to protect confidential information we obtain from our clients. These obligations generally require us, in accordance with applicable laws, to protect such information to the same extent that we protect our own confidential information. We have implemented physical, administrative and logical security systems with the intent of maintaining the physical security of our facilities and systems and protecting our, our clients' and their customers' confidential information and personally-identifiable information against unauthorized access through our information systems or by other electronic transmission or through the misdirection, theft or loss of data. Despite such efforts, we are subject to a breach of our security systems which may result in unauthorized access to our facilities and/or the information we are trying to protect. Anyone who is able to circumvent our security measures and penetrate our information systems could access, view, misappropriate, alter, or delete any information in the systems, including personally identifiable customer information and proprietary business information. In addition, most states require that customers be notified if a security breach results in the disclosure of personally-identifiable customer information. Any compromise of the security of our information systems that results in inappropriate disclosure of such information could result in, among other things, unfavorable publicity and damage to our reputation, governmental inquiry and oversight, difficulty in marketing our services, loss of clients, significant civil and criminal liability and the incurrence of significant technical, legal and other expenses, any of which may have a material adverse effect on our results of operations and financial condition.

Changes in regulation may reduce our profitability and limit our growth.

Legislation or other regulatory reform that increases the regulatory requirements imposed on us or that changes the way we are able to do business may significantly harm our business or results of operations in the future. If we were unable for any reason to comply with these requirements, it could result in substantial costs to us and may have a material adverse effect on our results of operations and financial condition. Legislative or regulatory changes that could significantly harm us and our subsidiaries include, but are not limited to:

• prohibiting retailers from providing debt cancellation policies;

• prohibiting insurers from fronting captive reinsurance arrangements;

• placing or reducing interest rate caps on the consumer finance products our clients offer;

• limitations or imposed reductions on premium levels or the ability to raise premiums on existing policies;

• increases in minimum capital, reserves and other financial viability requirements;

• impositions of increased fines, taxes or other penalties for improper licensing, the failure to promptly pay claims, however defined, or other regulatory violations;

• increased licensing requirements;

• restrictions on the ability to offer certain types of products;

• new or different disclosure requirements on certain types of products; and

• imposition of new or different requirements for coverage determinations.

In recent years, the state insurance regulatory framework has come under increased federal scrutiny and some state legislatures have considered or enacted laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. Further, the National Association of Insurance Commissioners ("NAIC") and state insurance regulators are re-examining existing laws and regulations, specifically focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws and regulations. Additionally, there have been attempts by the NAIC and several states to limit the use of discretionary clauses in policy forms. The elimination of discretionary clauses could increase our costs under our Payment Protection products. New interpretations of existing laws and the passage of new legislation may harm our ability to sell new services and products and increase our claims exposure on policies we issued previously. In addition, the NAIC's proposed expansion of the Market Conduct Annual Statement could increase the likelihood of examinations of insurance companies operating in niche markets. Court decisions that impact the insurance industry could result in the release of previously protected confidential and privileged information by departments of insurance, which could increase the risk of litigation.

Traditionally, the U.S. federal government has not directly regulated the business of insurance. However, federal legislation and administrative policies in several areas can significantly and adversely affect insurance companies. These areas include financial services regulation, securities regulation, privacy, tort reform legislation and taxation. In view of recent events involving certain financial institutions and the financial markets, Congress passed and the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), which provides for the enhanced federal supervision of financial institutions, including insurance companies in certain circumstances, and financial activities that represent a systemic risk to financial stability or the U.S. economy.

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Under the Dodd-Frank Act, the Federal Insurance Office will be established within the U.S. Treasury Department to monitor all aspects of the insurance industry and its authority would likely extend to all lines of insurance that our insurance subsidiaries write. The director of the Federal Insurance Office will serve in an advisory capacity to the Financial Stability Oversight Council and have the ability to recommend that an insurance company or an insurance holding company be subject to heightened prudential standards by the Federal Reserve, if it is determined that financial distress at the company could pose a threat to the financial stability of the U.S. economy. The Dodd-Frank Act also provides for the preemption of state laws when inconsistent with certain international agreements and would streamline the regulation of reinsurance and surplus lines insurance. At this time, we cannot assess whether any other proposed legislation or regulatory changes will be adopted, or what impact, if any, the Dodd-Frank Act or any other legislation or changes could have on our results of operations, financial condition or liquidity.

Further, in a time of financial uncertainty or a prolonged economic downturn, regulators may choose to adopt more restrictive insurance laws and regulations. For example, insurance regulators may choose to restrict the ability of insurance subsidiaries to make payments to their parent companies or reject rate increases due to the economic environment.

With respect to the property and casualty insurance policies our Payment Protection business underwrites, federal legislative proposals regarding National Catastrophe Insurance, if adopted, could reduce the business need for some of the related products we provide. Additionally, as the U.S. Congress continues to respond to the recent housing foreclosure crisis, it could enact legislation placing additional barriers on creditor-placed insurance.

With regard to payment protection products, there are federal and state laws and regulations that govern the disclosures related to lenders' sales of those products. Our ability to administer those products on behalf of financial institutions is dependent upon their continued ability to sell those products. To the extent that federal or state laws or regulations change to restrict or prohibit the sale of these products, our administration services and fees revenues would be adversely affected. The Dodd-Frank Act created a new Bureau of Consumer Financial Protection within the Federal Reserve, which will add new regulatory oversight for these lender products. The full impact of this oversight cannot be determined until the Bureau has been established and implementing regulations are put in place.

In recent years, several large organizations became subjects of intense public scrutiny due to high-profile data security breaches involving sensitive financial and health information. These events focused national attention on identity theft and the duty of organizations to notify impacted consumers in the event of a data security breach. Existing legislation in most states requires customer notification in the event of a data security breach. In addition, some states are adopting laws and regulations requiring minimum information security practices with respect to the collection and storage of personally-identifiable consumer data, and several bills before Congress contain provisions directed to national information security standards and breach notification requirements. Several significant legal, operational and reputational risks exist with regard to a data breach and customer notification. A breach of data security requiring public notification can result in regulatory fines, penalties or sanctions, civil lawsuits, loss of reputation, loss of clients and reduction of our profitability.

Our business is subject to risks related to litigation and regulatory actions.

We may be materially and adversely affected by judgments, settlements, unanticipated costs or other effects of legal and administrative proceedings now pending or that may be instituted in the future, or from investigations by regulatory bodies or administrative agencies. From time to time, we have had inquiries from regulatory bodies and administrative agencies relating to the operation of our business. Such inquiries may result in various audits, reviews and investigations. An adverse outcome of any investigation by, or other inquiries from, such bodies or agencies could have a material adverse effect on us and result in the institution of administrative or civil proceedings, sanctions and the payment of fines and penalties, changes in personnel, and increased review and scrutiny of us by our clients, regulatory authorities, potential litigants, the media and others.

In particular, our insurance-related operations are subject to comprehensive regulation and oversight by insurance departments in jurisdictions in which we do business. These insurance departments have broad administrative powers with respect to all aspects of the insurance business and, in particular, monitor the manner in which an insurance company offers, sells and administers its products. Therefore, we may from time to time be subject to a variety of legal and regulatory actions relating to our current and past business operations, including, but not limited to:

• disputes over coverage or claims adjudication;

• disputes over claim payment amounts and compliance with individual state regulatory requirements;

• disputes regarding sales practices, disclosures, premium refunds, licensing, regulatory compliance, underwriting and compensation arrangements;

• disputes with taxation and insurance authorities regarding our tax liabilities;

• periodic examinations of compliance with applicable federal and state laws; and

• industry-wide investigations regarding business practices including, but not limited to, the use of finite reinsurance and

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the marketing and refunding of insurance policies or certificates of insurance.

The prevalence and outcomes of any such actions cannot be predicted, and such actions or any litigation may have a material adverse effect on our results of operations and financial condition. In addition, if we were to experience difficulties with our relationship with a regulatory body in a given jurisdiction, it could have a material adverse effect on our ability to do business in that jurisdiction.

In addition, plaintiffs continue to bring new types of legal claims against insurance and related companies. Current and future court decisions and legislative activity may increase our exposure to these types of claims. Multi-party or class action claims may present additional exposure to substantial economic, non-economic and/or punitive damage awards. The success of even one of these claims, if it resulted in a significant damage award or a detrimental judicial ruling could have a material adverse effect on our results of operations and financial condition. This risk of potential liability may make reasonable settlements of claims more difficult to obtain. We cannot determine with any certainty what new theories of liability or recovery may evolve or what their impact may be on our businesses.

We cannot predict at this time the effect that current litigation, investigations and regulatory activity will have on the industries in which we operate or our business. In light of the regulatory and judicial environments in which we operate, we will likely become subject to further investigations and lawsuits from time to time in the future. Our involvement in any investigations and lawsuits would cause us to incur legal and other costs and, if we were found to have violated any laws, we could be required to pay fines and damages, perhaps in material amounts. In addition, we could be materially and adversely affected by the negative publicity for the insurance and other financial services industries related to any such proceedings and by any new industry-wide regulations or practices that may result from any such proceedings.

Risks Related to Our Indebtedness

Our indebtedness may limit our financial and operating activities and may materially and adversely affect our ability to incur additional debt to fund future needs.

Our debt service obligations vary annually based on the amount of our indebtedness and the associated fixed and floating interest rates. See "Management Discussion & Analysis -- Liquidity and Capital Resources -- Liquidity" regarding the amount of outstanding debt and our annual debt service. Our total indebtedness, which includes notes payable, redeemable preferred stock and preferred trust securities, was $99.1 million at September 30, 2011 compared to $82.8 million at December 31, 2010. Although we believe that our current cash flow will be sufficient to cover our annual interest expense, any increase in our indebtedness or any decline in the amount of cash available increases the possibility that we could not pay, when due, the principal of, interest on or other amounts due with respect to our indebtedness. In addition, our indebtedness and any future indebtedness we may incur could:

• make it more difficult for us to satisfy our obligations with respect to our indebtedness, including financial and other restrictive covenants, which could result in an event of default under the agreements governing our indebtedness;

• make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

• require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flows to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• place us at a competitive disadvantage compared to competitors that have less debt; and

• limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other purposes.

Any of the above-listed factors could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Increases in interest rates could increase interest payable under our variable rate indebtedness and a portion of our redeemable preferred stock.

We are subject to interest rate risk in connection with our variable rate indebtedness. See Part I, Item 3,-"QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK- Interest Rate Risk, regarding our interest rate risk and "Management Discussion & Analysis -- Liquidity and Capital Resources -- Liquidity" regarding the amount of outstanding variable rate debt. Interest rate changes could increase the amount of our interest payments and thus negatively impact our future earnings and cash flows. If we do not have sufficient earnings, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or sell more securities, none of which we can guarantee we will be able to do.

We may enter into hedging transactions that may become ineffective.

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Part of our interest rate risk strategy involves entering into hedging transactions to mitigate the risk of variable interest rate instruments by converting the variable interest rate to a fixed interest rate. Each hedging item must be regularly evaluated for hedge effectiveness. If it is determined that a hedging transaction is ineffective, we may be require to record losses reflected in our results of operations which could adversely impact our financial condition.

Despite our indebtedness levels, we and our subsidiaries may still be able to incur more indebtedness, which could further exacerbate the risks described above.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future subject to the limitations contained in the agreements governing our indebtedness. If we or our subsidiaries incur additional debt, the risks that we and they now face as a result of our indebtedness could intensify.

Restrictive covenants in the agreements governing our indebtedness may restrict our ability to pursue our business strategies.

The agreements governing our indebtedness contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to pursue our business strategies or undertake actions that may be in our best interests. The agreements governing our indebtedness include covenants restricting, among other things, our ability to:

• incur or guarantee additional debt;

• incur liens;

• complete mergers, consolidations and dissolutions;

• sell certain of our assets that have been pledged as collateral; and

• undergo a change in control.

Our assets have been pledged to secure some of our existing indebtedness.

Our revolving credit facility with SunTrust Bank is secured by substantially all of our property and assets and property and assets owned by LOTS Intermediate Co. and certain of our subsidiaries that act as guarantors of our existing indebtedness. Such assets include the stock of LOTS Intermediate Co. and the right, title and interest of the borrowers and each guarantor in their respective material real estate property, fixtures, accounts, equipment, investment property, inventory, instruments, general intangibles, money, cash or cash equivalents, software and other assets and, in each case, the proceeds thereof, subject to certain exceptions. In the event of a default under our indebtedness, the lender could foreclose against the assets securing such obligations. A foreclosure on these assets could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Risks Related to Our Technology and Intellectual Property

Our information systems may fail or their security may be compromised, which could damage our business and materially and adversely affect our results of operations and financial condition.

Our business is highly dependent upon the effective operation of our information systems and our ability to store, retrieve, process and manage significant databases and expand and upgrade our information systems. We rely on these systems throughout our businesses for a variety of functions, including marketing and selling our Payment Protection products, providing our BPO services, providing eReinsure's services to the reinsurance market, managing our operations, processing claims and applications, providing information to clients, performing actuarial analyses and maintaining financial records. The interruption or loss of our information processing capabilities through the loss of stored data, programming errors, the breakdown or malfunctioning of computer equipment or software systems, telecommunications failure or damage caused by weather or natural disasters or any other significant disruptions could harm our business, ability to generate revenues, client relationships, competitive position and reputation. Although we have additional data processing locations in Jacksonville, Florida and Atlanta, Georgia, disaster recovery procedures and insurance to protect against certain contingencies, such measures may not be effective or insurance may not continue to be available at reasonable prices, cover all such losses or be sufficient to compensate us for the loss of business that may result from any failure of our information systems. In addition, our information systems may be vulnerable to physical or electronic intrusions, computer viruses or other attacks which could disable our information systems and our security measures may not prevent such attacks. The failure of our systems as a result of any security breaches, intrusions or attacks could cause significant interruptions to our operations, which could result in a material adverse effect on our business, results of operations and financial condition.

The failure to effectively maintain and modernize our systems to keep up with technological advances could materially and adversely affect our business.

Our businesses are dependent upon our ability to ensure that our information systems keep up with technological advances. Our ability to keep our systems integrated with those of our clients is critical to the success of our businesses. If we do not effectively maintain our systems and update them to address technological advancements, our relationships and ability to do business with our clients may be materially and adversely affected. Our businesses depend significantly on effective information systems, and we have many different information systems for our various businesses. We must commit significant resources to maintain and enhance existing information systems and develop new systems that allow us to keep pace with continuing changes in information

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processing technology, evolving industry, regulatory and legal standards and changing client preferences. A failure to maintain effective and efficient information systems, or a failure to efficiently and effectively consolidate our information systems and eliminate redundant or obsolete applications, could have a material adverse effect on our results of operations and financial condition or our ability to do business in particular jurisdictions. If we do not effectively maintain adequate systems, we could experience adverse consequences, including:

• the inability to effectively market and price our services and products and make underwriting and reserving decisions;

• the loss of existing clients;

• difficulty attracting new clients;

• regulatory problems, such as a failure to meet prompt payment obligations;

• internal control problems;

• exposure to litigation;

• security breaches resulting in loss of data; and

• increases in administrative expenses.

Our success will depend, in part, on our ability to protect our intellectual property rights and our ability not to infringe upon the intellectual property rights of third parties.

The success of our business will depend, in part, on preserving our trade secrets, maintaining the security of our know-how and data and operating without infringing upon patents and proprietary rights held by third parties. Failure to protect, monitor and control the use of our intellectual property rights could cause us to lose a competitive advantage and incur significant expenses. We rely on a combination of contractual provisions, confidentiality procedures and copyright, trademark, service mark and trade secret laws to protect the proprietary aspects of our brands, technology and data. These legal measures afford only limited protection, and competitors or others may gain access to our intellectual property and proprietary information.

Our trade secrets, data and know-how could be subject to unauthorized use, misappropriation, or disclosure. Our trademarks could be challenged, forcing us to re-brand our services or products, resulting in loss of brand recognition and requiring us to devote resources to advertising and marketing new brands or licensing. If we are found to have infringed upon the intellectual property rights of third parties, we may be subject to injunctive relief restricting our use of affected elements of intellectual property used in the business, or we may be required to, among other things, pay royalties or enter into licensing agreements in order to obtain the rights to use necessary technologies, which may not be possible on commercially reasonable terms, or redesign our systems, which may not be feasible.

Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. The intellectual property laws and other statutory and contractual arrangements we currently depend upon may not provide sufficient protection in the future to prevent the infringement, use or misappropriation of our trademarks, data, technology and other services and products. Policing unauthorized use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available. Any future litigation, regardless of outcome, could result in substantial expense and diversion of resources with no assurance of success and could have a material adverse effect on our business, results of operation and financial condition.

Risks Related to Our Common Stock

There may not be an active, liquid trading market for our common stock.

Prior to the Company's Initial Public Offering, there had been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the New York Stock Exchange or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you purchase.

As a public company, we are subject to additional financial and other reporting and corporate governance requirements that may be difficult for us to satisfy.

We have historically operated our business as a private company. Since the completion of our IPO we have been required to file with the SEC annual and quarterly information and other reports that are specified the Exchange Act. We are required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. We are subject to other reporting and corporate governance requirements, including the requirements of the New York Stock Exchange, and certain provisions of the Sarbanes-Oxley Act of 2002, ("SOX") and the regulations promulgated thereunder, which impose significant compliance obligations upon us. As a public company, we are required to:

• prepare and distribute periodic public reports and other stockholder communications in compliance with our obligations under the federal securities laws and New York Stock Exchange rules;

• create or expand the roles and duties of our board of directors and committees of the board;

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• institute more comprehensive financial reporting and disclosure compliance functions;

• supplement our internal accounting and auditing function, including hiring additional staff with expertise in accounting and financial reporting for a public company;

• enhance and formalize closing procedures at the end of our accounting periods;

• enhance our internal audit and tax functions;

• enhance our investor relations function;

• establish new internal policies, including those relating to disclosure controls and procedures; and

• involve and retain to a greater degree outside counsel and accountants in the activities listed above.

Our internal control over financial reporting has not been tested and may not meet the standards required by Section 404 of SOX and the failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of SOX could materially and adversely affect us.

Prior to our IPO, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures over financial reporting. Our internal control over financial reporting may not currently meet the standards required by Section 404, standards that we will be required to meet in the course of preparing our 2011 financial statements. We are currently documenting our internal controls, and evaluating the design effectiveness of our processes and have begun evaluating the operating effectiveness of our controls in accordance with Section 404.

We are still in the process of addressing our internal control procedures to satisfy the requirements of Section 404, which requires an annual management assessment of the effectiveness of our internal control over financial reporting. We implemented several measures to improve our internal control over financial reporting that are discussed in Part I, Item 4. Controls and Procedures.

If, as a public company, we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to attest to the effectiveness of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules and may breach the covenants under our credit facilities. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.

If we are unable to comply we would incur additional costs in order to improve our internal control over financial reporting and comply with Section 404, including increased auditing and legal fees and costs associated with hiring additional accounting and administrative staff.

Our principal stockholder has substantial control over us.

Affiliates of Summit Partners collectively and beneficially own approximately 60.5% of our outstanding common stock at September 30, 2011. As a consequence, Summit Partners or its affiliates continue to be able to exert a significant degree of influence or actual control over our management and affairs and matters requiring stockholder approval, including the election of directors, a merger, consolidation or sale of all or substantially all of our assets, and any other significant transaction. The interests of this stockholder may not always coincide with our interests or the interests of our other stockholders. For instance, this concentration of ownership may have the effect of delaying or preventing a change in control of us otherwise favored by our other stockholders and could depress our stock price.

We expect that our stock price will fluctuate significantly, which could cause a decline in the stock price, and holders of our common stock may not be able to resell shares at or above the cost of such shares.

Securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common stock regardless of our operating performance. The trading price of our common stock may be volatile and subject to wide price fluctuations in response to various factors, including:

• market conditions in the broader stock market;

• actual or anticipated fluctuations in our quarterly financial and operating results;

• introduction of new products or services by us or our competitors;

• issuance of new or changed securities analysts' reports or recommendations;

• investor perceptions of us and the industries in which we operate;

• sales, or anticipated sales, of large blocks of our stock;

• additions or departures of key personnel;

• regulatory or political developments;

• litigation and governmental investigations; and

• changing economic conditions.

64

These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.

At September 30, 2011 we had 20,574,730 shares of common stock outstanding, with our directors, executive officers and affiliates holding a significant majority of these shares. If our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depress the market price of our common stock. A decline in the market price of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

If securities or industry analysts do not publish research or reports about our business, publish research or reports containing negative information about our business, adversely change their recommendations regarding our stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.

Some provisions of Delaware law and our amended and restated certificate of incorporation and bylaws may deter third parties from acquiring us and diminish the value of our common stock.

Our amended and restated certificate of incorporation and bylaws provide for, among other things:

• restrictions on the ability of our stockholders to call a special meeting and the business that can be conducted at such meeting;

• restrictions on the ability of our stockholders to remove a director or fill a vacancy on the board of directors;

• our ability to issue preferred stock with terms that the board of directors may determine, without stockholder approval;

• the absence of cumulative voting in the election of directors;

• a prohibition of action by written consent of stockholders unless such action is recommended by all directors then in office; and

• advance notice requirements for stockholder proposals and nominations.

These provisions in our amended and restated certificate of incorporation and bylaws may discourage, delay or prevent a transaction involving a change in control of our company that is in the best interest of our non-controlling stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.

Applicable insurance laws may make it difficult to effect a change in control of us.

State insurance regulatory laws contain provisions that require advance approval, by the state insurance commissioner, of any change in control of an insurance company that is domiciled, or, in some cases, having such substantial business that it is deemed to be commercially domiciled, in that state. We own, directly or indirectly, all of the shares of stock of insurance companies domiciled in Delaware, Georgia and Louisiana, and 85% of the shares of stock of an insurance company domiciled in Kentucky. Because any purchaser of shares of our common stock representing 10% or more of the voting power of our capital stock generally will be presumed to have acquired control of these insurance company subsidiaries, the insurance change in control laws of Delaware, Georgia, Louisiana and Kentucky would apply to such a transaction.

In addition, the laws of many states contain provisions requiring pre-notification to state agencies prior to any change in control of a non-domestic insurance company subsidiary that transacts business in that state. While these pre-notification statutes do not authorize the state agency to disapprove the change in control, they do authorize issuance of cease and desist orders with respect to the non-domestic insurer if it is determined that conditions, such as undue market concentration, would result from the change in control.

These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of our company,

65

including through transactions, and in particular unsolicited transactions, that some or all of our shareholders might consider to be desirable.

We do not anticipate paying any cash dividends for the foreseeable future.

We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and for general corporate purposes. We do not intend to pay any dividends to holders of our common stock. As a result, capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

For the three and nine months ended September 30, 2011, the Company did not have any purchases of its stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

	EXHIBIT INDEX
EXHIBIT NUMBER	DESCRIPITON	EXHIBIT LOCATION
1.1	Form of Underwriting Agreement.	**
2.1	Agreement and Plan of Merger, dated as of March 7, 2007, by and among, Summit Partners Private Equity Fund VII-A, L.P., Summit Partners Private Equity Fund VII-B, L.P., Summit Subordinated Debt Fund III-A, L.P., Summit Subordinated Debt Fund III-B, L.P., Summit Investors VI, L.P., LOS Acquisition Co., the signing stockholders and Life of the South Corporation and N.G. Houston III, as Stockholder Representative.	**
2.2	First Amendment to Merger Agreement, dated as of June 20, 2007 by and among Summit Partners Private Equity Fund VII-A, L.P., Summit Partners Private Equity Fund VII-B, L.P., Summit Subordinated Debt Fund III-A, L.P., Summit Subordinated Debt Fund III-B, L.P., Summit Investors VI, L.P., LOS Acquisition Co. and N.G. Houston, III, as Stockholder Representative.	**
2.3	Stock Purchase Agreement, dated as of April 15, 2009, by and among Willis HRH, Inc., Bliss and Glennon, Inc., LOTS Intermediate Co., Willis North America Inc. and Fortegra Financial Corporation.	**
2.4	Agreement and Plan of Merger, dated March 3, 2011 by and among eReinsure.com, Inc., a Delaware corporation, Alpine Acquisition Sub., Inc., a Delaware corporation, and Century Capital Partners III, L.P., as Agent solely for the purposes of Section 10.02, and LOTS Intermediate Co., a Delaware corporation.	(3)
3.1	Third Amended and Restated Certificate of Incorporation of Fortegra Financial Corporation.	**
3.3	Amended and Restated Bylaws of Fortegra Financial Corporation.	**
4.1	Form of Common Stock Certificate.	**
4.2	Stockholders Agreement, dated as of March 7, 2007, among Life of the South Corporation, the Rollover Stockholders (as defined therein), Employee Stockholders (as defined therein) and Investors (as defined therein).	**
10.1	Indenture, dated as of June 20, 2007, between LOTS Intermediate Co. and Wilmington Trust Company.	**
10.2	Form of Fixed/Floating Rate Senior Debenture (included in Exhibit 10.1).	**
10.3	Subordinated Debenture Purchase Agreement, dated as of June 20, 2007, among Summit Subordinated Debt Fund III-A, L.P., Summit Subordinated Debt Fund III-B, L.P., Summit Investors VI, L.P. and LOTS Intermediate Co.	**
10.4	Form of Subordinated Debenture (included in Exhibit 10.3).	**

66

	EXHIBIT INDEX
EXHIBIT NUMBER	DESCRIPITON	EXHIBIT LOCATION
10.5	Amended Subordinated Debenture Purchase Agreement, dated June 16, 2010, among Summit Subordinated Debt Fund III-A, L.P., Summit Subordinated Debt Fund III-B, L.P., Summit Investors VI, L.P. and LOTS Intermediate Co.	**
10.6	Revolving Credit Agreement, dated June 16, 2010, among Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers, and the lenders from time to time a party thereto and SunTrust Bank, as administrative agent.	**
10.6.1	First Amendment to Credit Agreement, dated as of October 6, 2010, by and among Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers, and the lenders from time to time a party thereto and SunTrust Bank, as administrative agent.	**
10.6.2	Joinder Agreement, dated November 30, 2010, by CB&T, a division of Synovus Bank, Suntrust Bank, as Administrative Agent and Fortegra Financial Corporation and LOTS Intermediate Co., as Borrowers.	**
10.6.3	Joinder Agreement, dated March 1, 2011, by Wells Fargo Bank, N.A., Suntrust Bank, as Administrative Agent and Fortegra Financial Corporation and LOTS Intermediate Co., as Borrowers	(3)
10.7	Revolving Credit Note, dated June 16, 2010, among Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers, and SunTrust Bank, as lender.	**
10.8	Subsidiary Guaranty Agreement, dated June 16, 2010, among Bliss and Glennon, Inc., LOTSolutions, Inc., as guarantors and SunTrust Bank, as administrative agent.	**
10.9	Security Agreement, dated June 16, 2010, by Fortegra Financial Corporation and LOTS Intermediate Co., as borrowers and SunTrust Bank, as administrative agent.	**
10.10	Pledge Agreement, dated June 16, 2010 by and among Fortegra Financial Corporation, as pledgor and SunTrust Bank, as administrative agent.	**
10.11	Line of Credit Note of Fortegra Financial Corporation, dated April 6, 2009, issued to Columbus Bank and Trust Company.	**
10.12	Stock Pledge and Security Agreement, dated as of April 6, 2009, by and between Fortegra Financial Corporation and Columbus Bank and Trust Company.	**
10.13	Loan and Security Agreement, dated as of June 10, 2010, by and between South Bay Acceptance Corporation, as borrower and Wells Fargo Capital Finance, LLC, as lender.	**
10.14	General Continuing Guaranty, dated as of June 10, 2010, by Fortegra Financial Corporation, as guarantor, in favor of Wells Fargo Capital Finance, LLC	**
10.15	Servicing and Management Agreement, dated as of June 10, 2010, by and between South Bay Acceptance Corporation, and Wells Fargo Capital Finance, LLC.	**
10.16	Line of Credit Agreement, dated as of April 6, 2009, by and among Columbus Bank and Trust Company, Fortegra Financial Corporation and LOTS Intermediate Co.	**
10.17	Modification Agreement, dated as of April 27, 2010, by and among Fortegra Financial Corporation, LOTS Intermediate Co. and Columbus Bank and Trust Company.	**
10.18	Form of Fortegra Financial Corporation Director Indemnification Agreement for John R. Carroll and J.J. Kardwell.	**
10.19	Form of Fortegra Financial Corporation Director Indemnification Agreement for Alfred R. Berkeley, III, Francis M. Colalucci, Frank P. Filipps and Ted W. Rollins.	**
10.20	Form of Fortegra Financial Corporation Officer Indemnification Agreement.	**
10.21	Form of Indemnity Agreement between Fortegra Financial Corporation and the executive officers serving as plan committee members for the Fortegra Financial Corporation 401(k) Savings Plan.	**
10.22	Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and Richard S. Kahlbaugh.	** (1)
10.22.1	Amendment No. 1 to Executive Employment and Non-Competition Agreement, dated as of November 1, 2010, by and between Fortegra Financial Corporation and Richard S. Kahlbaugh.	** (1)
10.23	Executive Employment and Non-Competition Agreement, dated as of January 1, 2009, by and between Life of the South Corporation and Michael Vrban.	** (1)
10.24	Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and W. Dale Bullard.	** (1)

67

	EXHIBIT INDEX
EXHIBIT NUMBER	DESCRIPITON	EXHIBIT LOCATION
10.25	Executive Employment and Non-Competition Agreement, dated as of March 7, 2007, by and between Life of the South Corporation and Robert S. Fullington.	** (1)
10.26	Executive Employment and Non-Competition Agreement, dated as of October 1, 2010, by and between Fortegra Financial Corporation and Walter P. Mascherin.	** (1)
10.27	2005 Equity Incentive Plan.	** (1)
10.28	Key Employee Stock Option Plan (1995) Agreement.	** (1)
10.29	Stock Option Agreement by and between Life of the South Corporation and Richard S. Kahlbaugh, dated as of November 18, 2005, as amended on March 7, 2007 and June 20, 2007.	**
10.30	Stock Option Agreement by and between Life of the South Corporation and Richard Kahlbaugh, dated as of October 25, 2007.	**
10.31	2010 Omnibus Incentive Plan.	** (1)
10.32	Employee Stock Purchase Plan.	** (1)
10.33	Deferred Compensation Agreement, dated as of May 1, 2005 between Life of the South Corporation and W. Dale Bullard.	** (1)
10.34	Deferred Compensation Agreement, dated January 1, 2006 between Life of the South Corporation and Richard S. Kahlbaugh.	** (1)
10.35	Deferred Compensation Agreement, dated January 1, 2006 between Life of the South Corporation and Robert S. Fullington.	** (1)
10.36	Administrative Services Agreement, dated August 1, 2002, by and between Life of the South Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA., as amended on February 1, 2003, October 1, 2003 and August 1, 2008.	** (2)
10.37	Claims Services Agreement, dated December 1, 2008, by and between LOTSolutions, Inc. and National Union Fire Insurance Company of Pittsburgh, PA., as amended on August 1, 2010.	** (2)
10.38	Incentive Stock Option Agreement by and between Life of the South Corporation and W. Dale Bullard, dated as of February 28, 2001, as amended on March 7, 2007 and June 20, 2007.	** (1)
10.39	Stock Option Agreement by and between Life of the South Corporation and W. Dale Bullard, dated as of November 18, 2005, as amended on March 7, 2007 and June 20, 2007.	** (1)
10.40	Stock Option Agreement by and between Life of the South Corporation and Dale Bullard, dated as of October 25, 2007.	** (1)
10.41	Incentive Stock Option Agreement by and between Life of the South Corporation and Robert S. Fullington, dated as of February 28, 2001, as amended on March 7, 2007 and June 20, 2007.	** (1)
10.42	Stock Option Agreement by and between Life of the South Corporation and Robert S. Fullington, dated as of November 18, 2005, as amended on March 7, 2007 and June 20, 2007.	** (1)
10.43	Stock Option Agreement by and between Life of the South Corporation and Robert Fullington, dated as of October 25, 2007.	** (1)
10.44	Stock Option Agreement by and between Life of the South Corporation and Michael Vrban, dated as of October 25, 2007.	** (1)
10.45	Form of Restricted Stock Award Agreement for Directors.	** (1)
10.46	Form of Restricted Stock Award Agreement for Employees.	** (1)
10.47	Form of Restricted Stock Award Agreement (Bonus Pool).	** (1)
10.48	Form of Nonqualified Stock Option Award Agreement.	** (1)
10.49	Form of Nonqualified Stock Option Award Agreement for Walter P. Mascherin.	** (1)
11.1	Statement Regarding Computation of Per Share Earnings (incorporated by reference to Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on form 10-Q).
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed Herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed Herewith
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed Herewith

68

	EXHIBIT INDEX
EXHIBIT NUMBER	DESCRIPITON	EXHIBIT LOCATION
32.1	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed Herewith
101	The following materials from Fortegra Financial Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets (Unaudited) at September 30, 2011 and December 31, 2010, (ii) the Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2011 and 2010, (iii) the Consolidated Statements of Stockholders' Equity (Unaudited) for the nine months ended September 30, 2011 and twelve months ended December 31, 2010, (iv) the Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2011 and 2010, and (v) the Notes to Consolidated Financial Statements (Unaudited), tagged as blocks of text.	Submitted electronically herewith (4)
**	Incorporated by reference from the related exhibit number to the Registrant's Registration Statement on Form S-1 (File No.  333-16955) and amendments thereto, originally filed on September 23, 2010.
(1)	Management contract or compensatory plan or arrangement.
(2)	Confidential treatment requested as to certain portions, which portions have been filed separately with the Securities and Exchange Commission.
(3)	Incorporated by reference from the related exhibit number to the Registrant's Form 8-K, filed on March 7, 2011.
(4)	In accordance with Rule 406T of SEC Regulation S-T, the XBRL related documents in Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these Sections.

69

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly

caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Fortegra Financial Corporation
Date: November 14, 2011	By:	/s/ Richard S. Kahlbaugh
		Richard S. Kahlbaugh
		Chairman, President and Chief Executive Officer
Date: November 14, 2011	By:	/s/ Walter P. Mascherin
		Walter P. Mascherin
		Executive Vice President and Chief Financial Officer

70

EX-31.1

Exhibit 31.1

CERTIFICATIONS

SECTION 302 CERTIFICATION FOR THE CHIEF EXECUTIVE OFFICER

I,Richard S. Kahlbaugh, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Fortegra Financial Corporation (Registrant);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: November 14, 2011	/s/ Richard S. Kahlbaugh
	Richard S. Kahlbaugh
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION FOR THE CHIEF FINANCIAL OFFICER

I, Walter P. Mascherin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Fortegra Financial Corporation (Registrant);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.

Date: November 14, 2011	/s/ Walter P. Mascherin
	Walter P. Mascherin
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Fortegra Financial Corporation on Form 10-Q, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of Fortegra Financial Corporation.

Date: November 14, 2011	By:	/s/ Richard S. Kahlbaugh
		Richard S. Kahlbaugh
		Chairman, President and Chief Executive Officer
Date: November 14, 2011	By:	/s/ Walter P. Mascherin
		Walter P. Mascherin
		Executive Vice President and Chief Financial Officer

The forgoing certifications are being furnished solely pursuant to Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Consolidated Balance Sheets Parentheticals (USD $) In Thousands, except Share data	9 Months Ended	12 Months Ended
	Sep. 30, 2011	Dec. 31, 2010
Investments
Fixed maturity securities available-for-sale amortized cost basis	$ 82,666	$ 82,124
Equity securities available-for-sale amortized cost basis	1,227	1,955
Stockholders' Equity:
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	20,574,730	20,256,735
Common stock, shares outstanding	20,574,730	20,256,735
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Treasury stock, shares	44,578	44,578
Accumulated other comprehensive income, tax (expense)	$ 385	$ (1,235)

XML

Consolidated Statements of Income (USD $) In Thousands, except Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenues:
Service and administrative fees	$ 10,125	$ 9,229	$ 28,041	$ 26,047
Brokerage commissions and fees	8,611	6,034	25,686	19,168
Ceding commission	7,027	9,455	21,428	22,468
Net investment income	801	865	2,636	2,799
Net realized gains	1,196	107	2,423	156
Net earned premium	28,673	28,255	84,646	83,417
Other income	18	(6)	138	120
Total revenues	56,451	53,939	164,998	154,175
Expenses:
Net losses and loss adjustment expenses	9,714	10,993	28,338	27,086
Commissions	17,926	16,432	53,766	53,631
Personnel costs	10,945	9,526	33,365	27,939
Other operating expenses	7,171	6,500	23,331	17,527
Depreciation	886	431	2,283	990
Amortization of intangibles	998	788	3,428	2,346
Interest expense	1,906	2,246	5,862	6,122
Loss on sale of subsidiary	477	0	477	0
Total expenses	50,023	46,916	150,850	135,641
Income before income taxes and non-controlling interest	6,428	7,023	14,148	18,534
Income taxes	2,292	2,576	5,003	6,872
Income before non-controlling interest	4,136	4,447	9,145	11,662
Less: net (loss) income attributable to non-controlling interest	1	0	(171)	(31)
Net income	$ 4,135	$ 4,447	$ 9,316	$ 11,693
Earnings per share:
Basic	$ 0.20	$ 0.28	$ 0.46	$ 0.74
Diluted	$ 0.19	$ 0.26	$ 0.44	$ 0.69
Weighted average common shares outstanding:
Basic	20,404,441	15,742,336	20,355,057	15,742,336
Diluted	21,214,365	17,057,157	21,375,184	17,057,157

XML

Segment Results

9 Months Ended

Sep. 30, 2011

Segment Results [Abstract]

Segment Reporting Disclosure [Text Block]

Segment Results

The Company conducts its business through three business segments: (i) Payment Protection; (ii) BPO; and (iii) Brokerage. The revenue for each segment is presented to reflect the operating characteristics of the segment. The Company allocates certain revenues and costs to the segments. These items primarily consist of corporate-related income, transaction related costs, executive stock compensation and other overhead expenses. The Company measures the profitability of its business segments with the allocation of Corporate income and expenses and without taking into account amortization, depreciation, interest expense and income taxes. The Company refers to these performance measures as segment EBITDA (earnings before interest, taxes, depreciation and amortization) and segment EBITDA margin (segment EBITDA divided by segment net revenues).

The following table reconciles segment information to the Company's consolidated results of operations and provides a summary of other key financial information for each of the Company's segments:

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Segment Net Revenue
Payment Protection
Service and administrative fees	$	5,695		$	3,449		$	14,704		$	8,572
Ceding commission	7,027			9,455			21,428			22,468
Net investment income	801			865			2,636			2,799
Net realized gains	1,196			107			2,423			156
Other income	18			(62		)	138			64
Net earned premium	28,673			28,255			84,646			83,417
Net losses and loss adjustment expenses	(9,714		)	(10,993		)	(28,338		)	(27,086		)
Commissions	(17,926		)	(16,432		)	(53,766		)	(53,631		)
Total Payment Protection	15,770			14,644			43,871			36,759
BPO	3,833			4,715			11,088			13,605
Brokerage
Brokerage commissions and fees	8,611			6,031			25,686			19,163
Service and administrative fees	597			1,124			2,249			3,931
Total Brokerage	9,208			7,155			27,935			23,094
Total	28,811			26,514			82,894			73,458
Operating Expenses
Payment Protection	8,349			6,435			25,409			17,720
BPO	2,717			2,588			8,164			7,997
Brokerage (1)	7,491			5,783			21,837			17,687
Corporate	36			1,220			1,763			2,062
Total	18,593			16,026			57,173			45,466
EBITDA
Payment Protection	7,421			8,209			18,462			19,039
BPO	1,116			2,127			2,924			5,608
Brokerage (1)	1,717			1,372			6,098			5,407
Corporate	(36		)	(1,220		)	(1,763		)	(2,062		)
Total	10,218			10,488			25,721			27,992
Depreciation and Amortization
Payment Protection	927			327			3,204			1,382
BPO	307			457			824			711
Brokerage	650			435			1,683			1,243
Total	1,884			1,219			5,711			3,336
Interest
Payment Protection	1,053			1,873			3,622			5,238
BPO	96			126			258			324
Brokerage	757			247			1,982			560
Total	1,906			2,246			5,862			6,122
Income before income taxes and non-controlling interest
Payment Protection	5,441			6,009			11,636			12,419
BPO	713			1,544			1,842			4,573
Brokerage (1)	310			690			2,433			3,604
Corporate	(36		)	(1,220		)	(1,763		)	(2,062		)
Total income before income taxes and non-controlling interest	6,428			7,023			14,148			18,534
Income Taxes	2,292			2,576			5,003			6,872
Less: net income (loss) attributable to non-controlling interest	1			—			(171		)	(31		)
Net income	$	4,135		$	4,447		$	9,316		$	11,693
(1) - Includes loss on sale of subsidiary of $477 for the three and nine months ended September 30, 2011, respectively.

As of January 1, 2011, certain BPO and Brokerage distribution channels were re-aligned to better reflect the segments business focus. The distribution channel results for the three months and nine months ended September 30, 2010 have been reclassified from their prior period segment presentation. The impact of these 2010 reclassifications were $0.9 million in revenues and $0.8 million in expenses being moved from the BPO segment into the Brokerage segment in order to conform to the presentation for the three months ended September 30, 2011 and $3.3 million in revenues and $2.9 million in expenses being moved from the BPO segment into the Brokerage segment in order to conform to the presentation for the nine months ended September 30, 2011.

Reconciliation of Segment Net Revenue and EBITDA to Total Revenue and Net Income

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Revenue
Payment Protection	$	15,770		$	14,644		$	43,871		$	36,759
BPO	3,833			4,715			11,088			13,605
Brokerage	9,208			7,155			27,935			23,094
Segment revenue	28,811			26,514			82,894			73,458
Net losses and loss adjustment expenses	9,714			10,993			28,338			27,086
Commissions	17,926			16,432			53,766			53,631
Total revenue	56,451			53,939			164,998			154,175
Operating Expenses
Payment Protection	8,349			6,435			25,409			17,720
BPO	2,717			2,588			8,164			7,997
Brokerage (1)	7,491			5,783			21,837			17,687
Corporate	36			1,220			1,763			2,062
Total Operating Expenses	18,593			16,026			57,173			45,466
Net losses and loss adjustment expenses	9,714			10,993			28,338			27,086
Commissions	17,926			16,432			53,766			53,631
Total expenses before depreciation, amortization and interest	46,233			43,451			139,277			126,183
EBITDA
Payment Protection	7,421			8,209			18,462			19,039
BPO	1,116			2,127			2,924			5,608
Brokerage (1)	1,717			1,372			6,098			5,407
Corporate	(36		)	(1,220		)	(1,763		)	(2,062		)
Total	10,218			10,488			25,721			27,992
Depreciation and amortization
Payment Protection	927			327			3,204			1,382
BPO	307			457			824			711
Brokerage	650			435			1,683			1,243
Total	1,884			1,219			5,711			3,336
Interest
Payment Protection	1,053			1,873			3,622			5,238
BPO	96			126			258			324
Brokerage	757			247			1,982			560
Total	1,906			2,246			5,862			6,122
Income before income taxes and non-controlling interest
Payment Protection	5,441			6,009			11,636			12,419
BPO	713			1,544			1,842			4,573
Brokerage (1)	310			690			2,433			3,604
Corporate	(36		)	(1,220		)	(1,763		)	(2,062		)
Total Income before income taxes and non-controlling interest	6,428			7,023			14,148			18,534
Income taxes	2,292			2,576			5,003			6,872
Less: net income (loss) attributable to non-controlling interest	1			—			(171		)	(31		)
Net income	$	4,135		$	4,447		$	9,316		$	11,693
(1) - Includes loss on sale of subsidiary of $477 for the three and nine months ended September 30, 2011, respectively.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Oct. 31, 2011
Document Information [Line Items]
Entity Registrant Name	Fortegra Financial Corp
Entity Central Index Key	0001495925
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		20,574,730

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Investments

9 Months Ended

Sep. 30, 2011

Investments [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Investments

The amortized cost, gross unrealized gains, gross unrealized losses and fair values of fixed maturity securities and equity securities available-for-sale for the following periods are as follows:

	September 30, 2011
Description of Security	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of the U.S. Treasury and U.S. Government agencies	$	21,784	$	1,203	$	(6	)	$	22,981
Municipal securities	15,685		307		(5		)	15,987
Corporate securities	42,935		1,523		(646		)	43,812
Mortgage-backed securities	1,421		31		—			1,452
Asset-backed securities	841		96		—			937
Total fixed maturity securities	$	82,666	$	3,160	$	(657	)	$	85,169
Common stock - publicly traded	$	133	$	8	$	(2	)	$	139
Preferred stock - publicly traded	50		2		—			52
Common stock - non-publicly traded	43		5		—			48
Preferred stock - non-publicly traded	1,001		—		—			1,001
Total equity securities	$	1,227	$	15	$	(2	)	$	1,240

	December 31, 2010
Description of Security	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Obligations of the U.S. Treasury and U.S. Government agencies	$	24,220	$	887	$	(61	)	$	25,046
Municipal securities	10,416		212		(12		)	10,616
Corporate securities	41,906		2,488		(172		)	44,222
Mortgage-backed securities	3,619		117		—			3,736
Asset-backed securities	1,963		203		—			2,166
Total fixed maturity securities	$	82,124	$	3,907	$	(245	)	$	85,786
Common stock - publicly traded	$	475	$	12	$	(173	)	$	314
Preferred stock - publicly traded	199		3		(6		)	196
Common stock - non-publicly traded	280		153		(9		)	424
Preferred stock - non-publicly traded	1,001		—		—			1,001
Total equity securities	$	1,955	$	168	$	(188	)	$	1,935

Pursuant to certain reinsurance agreements and statutory licensing requirements, the Company has deposited invested assets in custody accounts or insurance department safekeeping accounts. The Company is not permitted to remove invested assets from these accounts without prior approval of the contractual party or regulatory authority. At September 30, 2011 and December 31, 2010, the Company had restricted investments with carrying values of $16.5 million and $17.5 million, respectively, of which $9.6 million and $9.9 million, respectively, are related to special deposits required by various state insurance departments.

The amortized cost and fair value of fixed maturity securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2011				December 31, 2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	2,200	$	2,232	$	4,357	$	4,397
Due after one year through five years	40,089		41,000		30,825		31,944
Due after five years through ten years	24,737		25,407		25,546		27,109
Due after ten years through twenty years	2,732		2,937		4,223		4,296
Due after twenty years	10,646		11,204		11,591		12,137
Mortgage-backed securities	1,421		1,452		3,619		3,737
Asset-backed securities	841		937		1,963		2,166
Total fixed maturity securities	$	82,666	$	85,169	$	82,124	$	85,786

The aggregate amount of unrealized losses and the aggregate related fair values of investments with unrealized losses were segregated into the following time periods during which the investments had been in unrealized loss positions are as follows:

	September 30, 2011
	Less than Twelve Months					Twelve Months or Greater				Total
Description of Security	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of the U.S. Treasury
and U.S. government agencies	$	1,248	$	(6	)	$	—	$	—	$	1,248	$	(6	)
Municipal securities	1,628		(5		)	—		—		1,628		(5		)
Corporate securities	16,323		(646		)	—		—		16,323		(646		)
Mortgage-backed securities	—		—			—		—		—		—
Asset-backed securities	—		—			—		—		—		—
Total fixed maturity securities	$	19,199	$	(657	)	$	—	$	—	$	19,199	$	(657	)
Common stock - publicly traded	$	1	$	(2	)	$	—	$	—	$	1	$	(2	)
Preferred stock - publicly traded	—		—			—		—		—		—
Common stock - non-publicly traded	—		—			—		—		—		—
Preferred stock - non-publicly traded	—		—			—		—		—		—
Total equity securities	$	1	$	(2	)	$	—	$	—	$	1	$	(2	)

	December 31, 2010
	Less than Twelve Months					Twelve Months or Greater					Total
Description of Security	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Obligations of the U.S. Treasury
and U.S. government agencies	$	5,988	$	(61	)	$	—	$	—		$	5,988	$	(61	)
Municipal securities	472		(12		)	—		—			472		(12		)
Corporate securities	8,174		(172		)	—		—			8,174		(172		)
Mortgage-backed securities	—		—			—		—			—		—
Asset-backed securities	—		—			—		—			—		—
Total fixed maturity securities	$	14,634	$	(245	)	$	—	$	—		$	14,634	$	(245	)
Common stock - publicly traded	$	—	$	—		$	197	$	(173	)	$	197	$	(173	)
Preferred stock - publicly traded	142		(6		)	—		—			142		(6		)
Common stock - non-publicly traded	12		(9		)	—		—			12		(9		)
Preferred stock - non-publicly traded	—		—			—		—			—		—
Total equity securities	$	154	$	(15	)	$	197	$	(173	)	$	351	$	(188	)

Fixed maturity and equity securities are regularly assessed for other-than-temporarily impairment ("OTTI") when the decline in fair value is below the cost basis or amortized cost for the security and determined to be other-than-temporary by management. When, in the opinion of management, a decline in the estimated fair value of an investment is considered to be other-than-temporary, the investment is written down to its estimated fair value with the impairment loss included in net realized gains (losses). OTTI losses related to the credit component of the impairment on fixed maturity securities and equity securities are recorded in the consolidated statements of income as realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. Losses relating to the non-credit component of OTTI losses on fixed maturity securities are recorded in other comprehensive income. The determination of OTTI is a subjective process, and different judgments and assumptions could affect the fair value determination and the timing of loss realization.

As of September 30, 2011, there were 30 fixed maturity and 2 equity securities in unrealized loss positions. The Company does not intend to sell these investments and it is more likely than not that the Company will be able to hold these securities until full recovery of their amortized cost basis for fixed maturity securities or cost for equity securities. For the three months and nine months ended September 30, 2011 the Company deemed that 8 equity securities were other than temporarily impaired and recorded an impairment charge of $0.2 million. As of December 31, 2010, there were 21 fixed maturity and 13 equity securities in unrealized loss positions. During 2010, based on its quarterly review, management deemed 8 equity securities to be other-than-temporarily impaired and an impairment charge of $0.1 million was recorded. For the three months and nine months ended September 30, 2010, no impairment write-downs were recorded by the Company.

The following table summarizes the proceeds from the sale of available-for-sale investment securities, the gross realized gains and gross realized losses for both fixed maturity and equity securities and realized losses for other-than-temporary impairments:

	For the Three Months Ended					For the Nine Months Ended
	September 30, 2011			September 30, 2010		September 30, 2011			September 30, 2010
Gross proceeds from sales	$	11,143		$	724	$	33,663		$	5,023
Gross realized gains	$	1,414		$	107	$	2,663		$	254
Gross realized losses	(68		)	—		(90		)	(98		)
Total net gains from sales	$	1,346		$	107	$	2,573		$	156
Impairment write-downs (other-than-temporary impairments)	$	(150	)	$	—	$	(150	)	$	—
Total realized investment gains	$	1,196		$	107	$	2,423		$	156

The following schedule details the components of net investment income:

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Fixed income securities	$	782		$	897		$	2,544		$	2,782
Cash on hand and on deposit	63			35			180			224
Common and preferred stock dividends	24			16			56			44
Notes receivable	34			44			123			124
Other income	23			—			107			—
Investment expenses	(125		)	(127		)	(374		)	(375		)
Net investment income	$	801		$	865		$	2,636		$	2,799

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Subsequent Events

9 Months Ended

Sep. 30, 2011

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Subsequent Events

On October 3, 2011, the Company acquired Pacific Benefits Group Northwest, LLC ("PBG"), a leading U.S. independent insurance

agency. PBG markets and sells health, accident, critical illness and life insurance policies. Headquartered in Beaverton, OR, PBG has 48 full and part time employees and is licensed as an agent in 42 states.

In November 2011, The Board of Directors authorized a share repurchase program for purchasing up to $10.0 million of the Company's common stock from time to time through open market or private transactions.

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Redeemable Preferred Stock

9 Months Ended

Sep. 30, 2011

Preferred Stock Redeemable [Abstract]

Preferred Stock [Text Block]

Redeemable Preferred Stock

Redeemable preferred stock securities consist of the following as of:	September 30, 2011		December 31, 2010
Series A - matures 2034	$	—	$	7,140
Series B - matures 2034	—		2,000
Series C - matures 2035	100		1,900
Total redeemable preferred stock	$	100	$	11,040

In December 2010, the Company served notice to the holders of Series A, B and C redeemable preferred stock of its intent to redeem the entire amount of each class of redeemable preferred stock, totaling $11.0 million. The early redemption of all outstanding A, B and C redeemable preferred stock began in January 2011. In conjunction with the redemption, the Company recorded a total of $0.6 million redemption premium and previously capitalized deferred issuance costs were charged to operations for the nine months ended September 30, 2011. The Series A, B and C redeemable preferred stock ceased accruing dividends on the mandatory redemption date of January 26, 2011.

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Basis of Presentation and Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Basis of Presentation and Significant Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

Basis of Presentation and Significant Accounting Policies

The accompanying unaudited interim Consolidated Financial Statements of Fortegra Financial Corporation and its subsidiaries have been prepared in conformity with generally accepted accounting principles in the United States of America ("U.S. GAAP") promulgated by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" or "the guidance") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the Company's Annual Report for the year ended December 31, 2010.

Fortegra's interim Consolidated Financial Statements as of September 30, 2011 and 2010 are unaudited and have been prepared following the significant accounting policies disclosed in Note 2 of the Notes to the Consolidated Financial Statements of the Company's Annual Report for the fiscal year ended December 31, 2010 filed with the Securities and Exchange Commission.

In the opinion of management, the accompanying unaudited interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly Fortegra's financial position and results of operations for each of the interim periods presented. Results of operations for three and nine months ending September 30, 2011 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2011.

The Company has reviewed all material subsequent events that occurred up to the date the Company's Consolidated Financial Statements were issued to determine whether any event required recognition or disclosure in the financial statements and/or disclosure in the notes thereto.

There have been no material changes to the Company's significant accounting policies described in our Annual Report for the fiscal year ended December 31, 2010, except as noted below for the addition of the accounting policy for Derivative Financial Instruments attributable to the execution of a forward starting interest rate swap in April 2011.

Derivative Financial Instruments

The Company uses interest rate swaps to manage interest rate risk and cash flow risk that may arise in connection with variable interest rate provisions of certain of the Company's debt obligations.  The fair values of the derivative instruments are recorded in other assets or other liabilities.  To the extent a derivative is an effective hedge of the cash flow risk of the hedged debt obligation, any change in the derivative's fair value is recorded in accumulated other comprehensive income, net of income tax.  To the extent the derivative is an ineffective hedge, that portion of the change in fair value is recorded in other operating expenses or interest expense as appropriate.

Principles of Consolidation

The unaudited Consolidated Financial Statements include the accounts of the Company and its majority-owned and controlled subsidiaries. All material intercompany account balances and transactions have been eliminated.

The third party ownership of 15% of the common stock of Southern Financial Life Insurance Company and 52% of the preferred stock of CRC Reassurance Company, Ltd. has been reflected as non-controlling interest on the Consolidated Balance Sheets. Income attributable to those companies' minority shareholders has been reflected on the Consolidated Statements of Income and accumulated other comprehensive income as income (loss) attributable to non-controlling interest.

The Company's investments in less than majority-owned companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method except when they qualify as Variable Interest Entities, ("VIE") and the Company is the primary beneficiary, in which case the investments are consolidated in accordance with ASC 810, "Consolidation." Investments that do not meet the above criteria are accounted for under the cost method.

On July 1, 2011, the Company sold its 100% interest in Creative Investigations Recovery Group, LLC ("CIRG"). The consideration included a $1.1 million note receivable with a first priority lien security interest in the assets of CIRG and other property of the buyers. The note receivable is included on the Consolidated Balance Sheets in Notes Receivable.

The Company performed a detailed analysis of the CIRG sale transaction and has determined that CIRG is considered a VIE as defined in ASC 810, in which the Company has an interest due to the note financing. The Company further determined that its maximum exposure to loss in the VIE is limited to the outstanding balance of the note receivable of $1.1 million as of September 30, 2011 and that the Company is not the primary beneficiary because the Company does not have the power to direct the activities of the VIE and has no right to receive the residual returns of CIRG. Therefore, CIRG is not consolidated in the Company's results.

Use of Estimates

Preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation, which had no impact on net income, comprehensive income or loss, net cash provided by operating activities or stockholders' equity.

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Goodwill

9 Months Ended

Sep. 30, 2011

Goodwill [Abstract]

Goodwill Disclosure [Text Block]

Goodwill

Goodwill resulting from the Company's acquisitions is carried as an asset on the Consolidated Balance Sheets and is not amortized, but is evaluated annually to determine whether any impairment exists. The Company uses an income approach to estimate the fair value of each reporting unit. The impairment review is highly judgmental and involves the use of significant estimates and assumptions. The estimates and assumptions may have a significant impact on the amount of any goodwill impairment charge, should one be required to be recorded. The Company completed its annual assessment of goodwill in December 2010 and concluded that the value of its goodwill was not impaired.

The Company completed the acquisition of Auto Knight on January 1, 2011 and eReinsure on March 3, 2011, recording goodwill of $4.2 million and $31.5 million, respectively. On May 15, 2010, the Company purchased 100% of the stock of Continental Car Club and initially recorded $11.8 million in goodwill associated with the transaction. On September 1, 2010, the Company purchased 100% of the stock of United Motor Club and initially recorded $8.5 million in goodwill associated with the transaction. The values of certain assets and liabilities were preliminary in nature, and were subject to adjustment within 12 months of the close of the acquisition as additional information is obtained, including, but not limited to, valuation of separately identifiable intangibles, fixed assets, deferred taxes and loss reserves. In July 2011, the Company sold CIRG, a part of its Brokerage segment, which reduced goodwill by $1.3 million at September 30, 2011.

During 2011, the Company determined the final valuations for Continental Car Club and United Motor Club. The Company reduced the amount of goodwill associated with the Continental Car Club and United Motor Club acquisitions by $6.4 million and $3.9 million, respectively, and increased other intangibles in order to reflect the final valuation of goodwill acquired in those transactions. The December 31, 2010 balances for goodwill, below, have been revised to include the effect of the measurement period adjustments. Changes in goodwill balances by segment are as follows:

	Payment Protection		BPO			Brokerage			Total
Balance at December 31, 2010	$	33,413	$	10,239		$	30,395		$	74,047
Segment reclassifications	—		(1,337		)	1,337			—
Goodwill disposed of during 2011	—		—			(1,337		)	(1,337		)
Goodwill acquired during 2011	4,180		—			31,528			35,708
Balance at September 30, 2011	$	37,593	$	8,902		$	61,923		$	108,418

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2011

Fair Value of Financial Instruments [Abstract]

Fair Value Disclosures [Text Block]

Fair Value of Financial Instruments 

The guidance under US GAAP establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy and those investments included in each are as follows:

Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.

Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.

Level 3 - Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. These unobservable inputs are derived from the Company's internal calculations, estimates and assumptions and require significant management judgment or estimation.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and cash equivalents: The estimated fair value of the Company's cash and cash equivalents approximates their carrying value.

Fixed maturity securities: Fair values of fixed maturity securities were obtained from market value quotations provided by an independent pricing service.

Common and preferred stock: The fair value of publicly traded common and preferred stocks were obtained from market value quotations provided by an independent pricing service. The values of common stocks that are not publicly traded were based on prices obtained from an independent pricing service.

Notes receivable: The carrying amounts approximate fair value because the interest rates charged approximate current market rates for similar credit risks. These values are net of allowance for doubtful accounts.

Other receivables: The carrying amounts approximate fair value because of the short duration there is no associated interest rate charged.

Short-term investments:The carrying amounts approximate fair value because of the short maturities of these instruments.

Notes payable, preferred trust securities, redeemable preferred stock: The carrying amounts approximate fair value because the applicable interest rates approximate current rates offered to the Company for similar instruments.

Interest rate swap: The fair value of the Company's interest rate swap is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the interest rate swap. This analysis reflects the contractual terms of the interest rate swap, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

The following tables set forth the Company's financial assets and liabilities that were accounted for at fair value by level within the fair value hierarchy at September 30, 2011 and December 31, 2010:

			Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
September 30, 2011	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets
Fixed maturity securities	$	85,169	$	—	$	85,169	$	—
Common stock - publicly traded	139		101		—		38
Preferred stock - publicly traded	52		52		—		—
Common stock - non-publicly traded	48		—		—		48
Preferred stock - non-publicly traded	1,001		—		—		1,001
Short-term investments	1,070		1,070		—		—
Total assets	$	87,479	$	1,223	$	85,169	$	1,087
Liabilities
Interest rate swap contract	3,299		—		3,299		—
Total liabilities	$	3,299	$	—	$	3,299	$	—
December 31, 2010
Assets
Fixed maturity securities	$	85,786	—		$	85,786	$	—
Common stock - publicly traded	314		314		—		—
Preferred stock - publicly traded	196		53		143		—
Common stock - non-publicly traded	424		—		—		424
Preferred stock - non-publicly traded	1,001		—		—		1,001
Short-term investments	1,170		1,170		—		—
Total Assets	$	88,891	$	1,537	$	85,929	$	1,425

The Company's use of Level 3 unobservable inputs included 7 securities that accounted for 1.2% of total investments at September 30, 2011 and 5 securities that accounted for 1.6% of total investments at December 31, 2010. The following table summarizes the changes in Level 3 assets measured at fair value as of:

	September 30, 2011
Beginning balance	$	1,425
Total gains or losses (realized/unrealized):
Included in net income	372
Included in comprehensive (loss)	(148		)
Sales	(607		)
Net transfers into Level 3	45
Ending balance	$	1,087

The carrying value and fair value of financial instruments are presented in the following table:

	September 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	23,114	$	23,114	$	43,389	$	43,389
Fixed maturity securities	85,169		85,169		85,786		85,786
Common stock - publicly traded	139		139		314		314
Preferred stock - publicly traded	52		52		196		196
Common stock - non-publicly traded	48		48		424		424
Preferred stock - non-publicly traded	1,001		1,001		1,001		1,001
Notes receivable	2,604		2,604		1,485		1,485
Other receivables	25,284		25,284		25,473		25,473
Short-term investments	1,070		1,070		1,170		1,170
Total financial assets	$	138,481	$	138,481	$	159,238	$	159,238
Financial liabilities:
Notes payable	$	64,000	$	64,000	$	36,713	$	36,713
Preferred trust securities	35,000		35,000		35,000		35,000
Redeemable preferred stock	100		100		11,040		11,040
Interest rate swap contract	3,299		3,299		—		—
Total financial liabilities	$	102,399	$	102,399	$	82,753	$	82,753

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Other Intangible Assets

9 Months Ended

Sep. 30, 2011

Other Intangible Assets [Abstract]

Intangible Assets Disclosure [Text Block]

Other Intangible Assets

Other intangible assets and their respective amortization periods are as follows:

		September 30, 2011							December 31, 2010
	Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer and agent relationships	7-15	$	23,732	$	(7,893	)	$	15,839	$	23,732	$	(5,982	)	$	17,750
Tradename	Indefinite	18,475		—			18,475		18,075		—			18,075
Software	10	5,471		(1,763		)	3,708		3,971		(1,390		)	2,581
Present value of future profits	0.3 to 0.75	763		(616		)	147		548		—			548
Non-compete agreements	1.5 - 3	2,755		(2,240		)	515		2,755		(1,712		)	1,043
Total		$	51,196	$	(12,512	)	$	38,684	$	49,081	$	(9,084	)	$	39,997

The Company recorded $2.1 million of other intangibles in conjunction with the eReinsure acquisition. Changes in other intangible assets are as follows:

December 31, 2010	$	39,997
Intangible assets of acquired businesses	2,115
Amortization	(3,428		)
September 30, 2011	$	38,684

In connection with the acquisitions of Continental Car Club and United Motor Club, the Company initially recorded $1.1 million and $1.4 million, respectively, in other intangibles assets. During 2011, the Company determined the final valuations for Continental Car Club and United Motor Club. The Company increased the amount of other intangibles associated with the Continental Car Club and United Motor Club acquisitions by $6.4 million and $4.3 million, respectively, and decreased goodwill in order to reflect the final valuation of goodwill acquired in those transactions. The December 31, 2010 balance for other intangible assets, above, has been revised to include the effect of the measurement period adjustments.

The Company recognized amortization expense on other intangibles of:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Total	$	998	$	788	$	3,428	$	2,346

The estimated amortization of other intangible assets for each of the next five years ending December 31 is as follows:

2011 (remaining three months)	$	1,066
2012	3,221
2013	3,013
2014	3,000
2015	2,992
Thereafter	6,917
Total	$	20,209

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Reinsurance Receivables

9 Months Ended

Sep. 30, 2011

Reinsurance Receivables [Abstract]

Reinsurance [Text Block]

Reinsurance Receivables

The Company has various reinsurance agreements in place whereby the amount of risk in excess of the Company's retention is reinsured by unrelated domestic and foreign insurance companies. The Company remains liable to policyholders in the event that the assuming companies are unable to meet their obligations. The effects of reinsurance on premiums written and earned and losses and loss adjustment expenses ("LAE") incurred are presented in the tables below:

Premiums	For the Three Months Ended												For the Nine Months Ended
	September 30, 2011						September 30, 2010						September 30, 2011						September 30, 2010
	Written			Earned			Written			Earned			Written			Earned			Written			Earned
Direct and assumed	$	94,432		$	80,982		$	82,111		$	77,799		$	241,979		$	235,420		$	220,757		$	228,390
Ceded	(61,361		)	(52,309		)	(52,157		)	(49,544		)	(154,227		)	(150,774		)	(137,972		)	(144,973		)
Net	$	33,071		$	28,673		$	29,954		$	28,255		$	87,752		$	84,646		$	82,785		$	83,417

Losses and LAE incurred	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Direct and assumed	$	21,589		$	22,003		$	60,752		$	59,630
Ceded	(11,875		)	(11,010		)	(32,414		)	(32,544		)
Net losses and LAE incurred	$	9,714		$	10,993		$	28,338		$	27,086

Reinsurance receivables include amounts related to paid benefits, unpaid benefits and prepaid reinsurance premiums. The following table reflects the components of the reinsurance receivables at:

	September 30, 2011		December 31, 2010
Prepaid reinsurance premiums:
Life	$	41,289	$	48,342
Accident and health	29,925		29,289
Property	74,893		65,023
Total	146,107		142,654
Ceded claim reserves:
Life	1,672		1,421
Accident and health	9,533		9,376
Property	7,335		9,455
Total ceded claim reserves recoverable	18,540		20,252
Other reinsurance settlements recoverable	5,261		6,476
Reinsurance receivables	$	169,908	$	169,382

Reinsurance receivables are based upon estimates and are reported on the Consolidated Balance Sheets separately as assets, as reinsurance does not relieve the Company of its legal liability to policyholders. The Company is required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement. Management continually monitors the financial condition and agency ratings of the Company's reinsurers and believes that the reinsurance receivables accrued are collectible. Included in reinsurance receivables at September 30, 2011 and December 31, 2010 are $121.1 million and $121.2 million recoverable from three unrelated reinsurers. The three unrelated reinsurers are: Munich American Reassurance Company (A. M. Best Rating-A+); London Life Reinsurance Company (A. M. Best Rating-A); and London Life International Reinsurance Corporation (A. M. Best Rating-NR-3). Since London Life International Reinsurance Corporation does not maintain an A.M. Best rating, the related receivables are collateralized by assets held in trust and letters of credit. At September 30, 2011, the Company does not believe there is a risk of loss as a result of the concentration of credit risk in the reinsurance program.

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Consolidated Statements of Stockholders' Equity Parentheticals (USD $) In Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2011	Dec. 31, 2010
Change in unrealized gains (losses), tax	$ 464	$ (370)
Unrealized loss on swap, tax	$ 1,155	$ 0

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Recently Issued Accounting Standards

9 Months Ended

Sep. 30, 2011

New Accounting Standards [Abstract]

Recently Issued Accounting Standards Adopted and Not Yet Adopted [Text Block]

Recently Issued Accounting Standards

In September 2009, the FASB issued new guidance on multiple deliverable revenue arrangements. This new guidance requires entities to use their best estimate of the selling price of a deliverable within a multiple deliverable revenue arrangement if the entity and other entities do not sell the deliverable separate from the other deliverables within the arrangement. This new guidance requires both qualitative and quantitative disclosures. This new guidance is effective for new or materially modified arrangements in fiscal years beginning on or after June 15, 2010. The Company adopted this new guidance on January 1, 2011. The adoption of this standard did not have a material impact on the Company's financial position, results of operations and cash flows.

Recent Accounting Pronouncements - Not Yet Adopted

In September 2011, the FASB issued new accounting guidance intended to simplify goodwill impairment testing. Companies will be allowed to perform a qualitative assessment of goodwill impairment to determine whether a quantitative assessment is necessary. This guidance is effective for the Company’s interim and annual periods beginning January 1, 2012. Early adoption is permitted. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

In June 2011, the FASB issued changes to the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity was eliminated. These changes become effective for the Company on January 1, 2012. Early adoption is permitted. Management is currently evaluating these changes to determine which option will be chosen for the presentation of comprehensive income. The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued an accounting pronouncement which amends the fair value measurement and disclosure requirements to achieve common disclosure requirements between U.S. GAAP and International Financial Reporting Standards ("IFRS"). The accounting pronouncement requires certain disclosures about transfers between Level 1 and Level 2 of the fair value hierarchy, sensitivity of fair value measurements categorized within Level 3 of the fair value hierarchy, and categorization by level of items that are reported at cost but are required to be disclosed at fair value. The disclosures are to be applied prospectively effective in the first interim and annual periods beginning after December 15, 2011. The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.

In October 2010, the FASB issued new guidance concerning the accounting for costs associated with acquiring or renewing insurance contracts. Under the new guidance, only direct incremental costs associated with successful insurance contract acquisitions or renewals would be deferrable. The guidance also states that advertising costs and indirect costs should be expensed as incurred. Although this guidance states that certain advertising costs that meet current accounting guidance could be deferred and treated as deferred acquisition costs ("DAC"), the Company does not currently record any new advertising costs in DAC. This guidance will be effective for fiscal years beginning after December 15, 2011 with earlier adoption permitted as of the first day of a company's fiscal year. The Company is currently evaluating the requirements of the pronouncement and the potential impact, if any, on the Company's financial position and results of operations.

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Earnings Per Share

9 Months Ended

Sep. 30, 2011

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding adjusted to include the effect of potentially dilutive common shares, which includes outstanding stock options and non-vested restricted stock awards, using the treasury stock method. Potentially dilutive common shares for which the exercise price was greater than the average market price of common shares are excluded from the computation of diluted earnings per share as the effect would be anti-dilutive. Earnings per share is calculated as follows:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Numerator for both basic and diluted earnings per share:
Net income available to common stockholders	$	4,135	$	4,447	$	9,316	$	11,693
Denominator:
Total average basic common shares outstanding	20,404,441		15,742,336		20,355,057		15,742,336
Effect of dilutive stock options and restricted stock awards	809,924		1,314,821		1,020,127		1,314,821
Total average diluted common shares outstanding	21,214,365		17,057,157		21,375,184		17,057,157
Earnings per share-basic	$	0.20	$	0.28	$	0.46	$	0.74
Earnings per share-diluted	$	0.19	$	0.26	$	0.44	$	0.69
Weighted average anti-dilutive common shares	512,298		—		283,762		—

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2011

Interest Rate Derivatives [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Financial Instruments - Interest Rate Swap

On April 21, 2011, the Company entered into a forward interest rate swap (the "Swap") with Wells Fargo Bank, N.A., pursuant to which the Company swapped the floating rate portion of its $35.0 million in outstanding preferred trust securities to a fixed rate of 3.47% per annum payable quarterly for an effective rate of 7.57% after adding the applicable margin on the trust preferred securities of 4.10%. The Swap, which has been designated a cash flow hedge, has a term of five years, commencing when the interest rate on the underlying trust preferred securities begins to float in June 2012 and expiring in June 2017. As of September 30, 2011, the Company recorded a $2.1 million unrealized loss, net of tax, on the fair value of the Swap in accumulated other comprehensive income and recorded $3.3 million in other liabilities and $1.2 million in deferred taxes.

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Business Combinations

9 Months Ended

Sep. 30, 2011

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Business Combinations and Dispositions

Acquisitions

On January 1, 2011, the Company acquired 100% of the outstanding stock ownership of Auto Knight Motor Club, Inc. ("Auto Knight"), of Palm Springs, CA. Auto Knight provides motor club memberships, vehicle service plans and tire and wheel programs, which are offered by automobile and truck dealerships and retailers in the United States and Canada. The acquisition expands the Company's geographic reach to Canada, where Auto Knight offers its products through retailers as a subscription benefit.

On March 3, 2011, the Company acquired 100% of the outstanding stock ownership of eReinsure.com, Inc. ("eReinsure"). eReinsure provides web-hosted applications for the reinsurance market by leveraging Internet technologies in application architecture, network communication and information delivery to facilitate reinsurance transactions.

The values of certain assets and liabilities are preliminary in nature, and are subject to adjustment as additional information is obtained, including, but not limited to, valuation of separately identifiable intangibles, fixed assets, deferred taxes and loss reserves. The valuations will be finalized within 12 months of the close of the acquisition. When the valuations are finalized, any changes to the preliminary valuation of assets acquired or liabilities assumed may result in adjustments to separately identifiable intangible assets and goodwill.

The following table presents assets acquired, liabilities assumed and goodwill recorded for acquisitions made during 2011 based on their fair values as of their respective acquisition dates:

	Auto Knight			eReinsure
ASSETS:
Cash	$	—		$	3,662
Investments	1,216			1,212
Other receivables	613			2,266
Deferred policy acquisition costs	341			—
Property and equipment	—			142
Other intangibles	—			2,115
Other assets	—			54
Net deferred tax asset	576			1,686
LIABILITIES:
Accrued expenses and accounts payable	(325		)	(2,634		)
Commissions payable	(122		)	—
Deferred revenue	(1,729		)	(750		)
Net assets acquired	570			7,753
Purchase consideration	4,750			39,281
Goodwill	$	4,180		$	31,528

None of the goodwill attributable to the 2011 acquisitions is expected to be tax deductible.

The financial results of eReinsure have been included in the Company's results beginning March 3, 2011. Revenue and net income since eReinsure's acquisition date included in the Company's consolidated statement of income for the three and nine months ended September 30, 2011 are as follows:

	For the Three Months Ended		For the Nine Months Ended
	September 30, 2011		September 30, 2011
Revenue	$	2,473	$	5,768
Net income*	$	285	$	706
*-Transaction costs included for the respective acquisition.	$	—	$	101

The following unaudited pro forma summary presents the Company's consolidated financial information as if eReinsure had been acquired on January 1, 2010. These amounts have been calculated after applying the Company's accounting policies and adjusting the results of the acquired company to reflect the additional interest expense associated with the funding necessary to complete the acquisition and any amortization of intangibles that would have been charged to operations assuming the intangible assets would have existed on January 1, 2011 and 2010, excluding the transaction costs and the consequential tax effect.

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Revenue	$	2,473	$	3,081	$	7,223	$	7,743
Net income	$	285	$	612	$	822	$	872

On May 15, 2010, the Company purchased 100% of the stock for Continental Car Club, a Tennessee car club company, and initially recorded $11.8 million in goodwill associated with the transaction. On September 1, 2010, the Company purchased 100% of the stock of United Motor Club and initially recorded $8.5 million in goodwill associated with the transaction. The values of certain assets and liabilities were preliminary in nature, and were subject to adjustment within 12 months of the close of the acquisition as additional information is obtained, including, but not limited to, valuation of separately identifiable intangibles, fixed assets, deferred taxes and loss reserves.

A change to the acquisition date value of the identifiable net assets during the measurement period (up to one year from the acquisition date) affects the amount of the purchase price allocated to goodwill. Changes to the purchase price allocation are adjusted retrospectively to the consolidated financial results. During 2011, the Company determined the final valuations for Continental Car Club and United Motor Club. The values below include measurement period adjustments recorded through the quarter ended September 30, 2011. The Company reduced the amount of goodwill associated with the Continental Car Club and United Motor Club acquisitions by $6.4 million and $3.9 million, respectively, and increased other intangibles by $6.4 million and $4.3 million, respectively, and increased deferred tax liabilities associated with United Motor Club by $0.4 million, in order to reflect the final valuation of goodwill acquired in those transactions.

The measurement period adjustment was recorded based on information obtained subsequent to the acquisitions related to tradenames, agent relationships and non-compete agreements at the acquisition date. The December 31, 2010 balances for goodwill and other intangibles assets on the Consolidated Balance Sheets have been retrospectively adjusted to include the effect of the measurement period adjustments as required under ASC 805, "Business Combinations". The following table summarizes the assets acquired and liabilities assumed as of the respective acquisition date, including the effect of the measurement period adjustments recorded during 2011, as discussed above:

	Continental Car Club			United Motor Club
ASSETS:
Cash	$	961		$	660
Other receivables	1,140			730
Deferred policy acquisition costs	10,749			7,557
Property and equipment	3			52
Other intangibles	7,482			5,750
Other assets	29			10
Net deferred tax asset	915			247
LIABILITIES:
Accrued expenses and accounts payable	(506		)	(501		)
Commissions payable	(1,052		)	(356		)
Deferred revenue	(13,204		)	(9,226		)
Net deferred tax liability	—			—
Net assets acquired	6,517			4,923
Purchase consideration	11,944			9,504
Goodwill	$	5,427		$	4,581

Dispositions

In July 2011, the Company sold its wholly owned subsidiary, CIRG, for a sales price of $1.2 million, comprised of cash and a $1.1 million secured note receivable. For the three months ended September 30, 2011, the Company recorded a $0.5 million loss on the sale of CIRG.

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Statutory Reporting and Dividend Restrictions

9 Months Ended

Sep. 30, 2011

Statutory Reporting and Dividend Restrictions [Abstract]

Statutory Reporting and Dividend Restrictions Disclosure [Table Text Block]

Statutory Reporting and Dividend Restrictions

The Company's insurance subsidiaries may pay dividends to the Company, subject to statutory restrictions. Payments in excess of statutory restrictions (extraordinary dividends) to the Company are permitted only with prior approval of the insurance departments of the applicable state of domicile. For the nine months ended September 30, 2011, $1.4 million in ordinary dividends were paid. In 2010, Life of the South Insurance Company received approval from the insurance department of its state of domicile to pay extraordinary dividends of $1.3 million, to the Company. Also in 2010, Insurance Company of the South received approval from the insurance department of its state of domicile to pay an extraordinary dividend of $1.7 million, with 30% to Life of the South Insurance Company and 70% to the Company. All dividends from subsidiaries were eliminated in the consolidated financial statements.

The combined statutory capital and surplus of the Company's insurance subsidiaries was $49.7 million and $46.2 million as of September 30, 2011 and December 31, 2010, respectively. The combined amount available for ordinary dividends of the Company's insurance subsidiaries was $1.9 million and $1.6 million as of September 30, 2011 and December 31, 2010, respectively.

The Company's insurance subsidiaries are required by the laws of the states in which they are domiciled to maintain certain statutory capital and surplus levels. The required minimum statutory capital and surplus totaled $13.0 million as of September 30, 2011 and December 31, 2010, respectively.

Under the National Association of Insurance Commissioners ("NAIC") Risk-Based Capital Act of 1995, a company's risk-based capital ("RBC") is calculated by applying certain risk factors to various asset, claims and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds, regulatory intervention or oversight is required. The insurance companies' RBC level as calculated in accordance with the NAIC's RBC instructions exceeded all RBC thresholds as of September 30, 2011 and December 31, 2010.

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Consolidated Statements of Stockholders' Equity (USD $) In Thousands, except Share data	Total	Common Stock [Member]	Treasury Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Retained Earnings [Member]	Noncontrolling Interest [Member]
Balance at Dec. 31, 2009	$ 80,793	$ 1,002	$ (176)	$ 53,675	$ 1,607	$ 23,210	$ 1,475
Common Stock, Shares at Dec. 31, 2009		15,786,913
Treasury Stock, Shares at Dec. 31, 2009			(44,578)
Net income	16,223	0	0		0	16,203	20
Change in unrealized gains (losses), net of tax	754	0	0	0	686	0	68
Comprehensive income	16,977	0	0	0	686	16,203	88
Change in par value		(844)		844
Stock-based compensation shares		160,000
Stock-based compensation	176	2	0	174	0	0	0
Redemption of minority interest	(860)	0	0	0	0	0	(860)
Options exercised, net of forfeitures, shares		44,185
Options exercised, net of forfeitures	203	0	0	203	0	0	0
Conversion of Class A common stock	(14,105)	0	0	0	0	(14,105)	0
Issuance of common stock, shares		4,265,637
Issuance of common stock	40,703	43	0	40,660	0	0	0
Balance at Dec. 31, 2010	123,887	203	(176)	95,556	2,293	25,308	703
Common Stock, Shares at Dec. 31, 2010	20,256,735	20,256,735
Treasury Stock, Shares at Dec. 31, 2010	(44,578)		(44,578)
Net income	9,145	0	0	0	0		(171)
Net Income (Loss) Attributable to Parent	9,316					9,316
Unrealized gain (loss) on swap, net of tax	(2,145)	0	0	0	(2,145)	0	0
Change in unrealized gains (losses), net of tax	(860)	0	0	0	(864)	0	4
Comprehensive income	6,140	0	0	0	(3,009)	9,316	(167)
Stock-based compensation	615	0	0	615	0	0	0
Options exercised, net of forfeitures, shares		317,995
Options exercised, net of forfeitures	651	3	0	648	0	0	0
Initial public offering costs	(826)	0	0	(826)	0	0	0
Balance at Sep. 30, 2011	$ 130,467	$ 206	$ (176)	$ 95,993	$ (716)	$ 34,624	$ 536
Common Stock, Shares at Sep. 30, 2011	20,574,730	20,574,730
Treasury Stock, Shares at Sep. 30, 2011	(44,578)		(44,578)

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Commitments and Contingencies

The Company is party to claims and litigation in the normal course of its operations. Management believes that the ultimate outcome of these matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

In the Company's Payment Protection business, it is currently a defendant in lawsuits that relate to marketing and/or pricing issues that involve claims for punitive, exemplary or extra-contractual damages in amounts substantially in excess of the covered claim. Such litigation includes Lawson v. Life of the South Insurance Co., which was filed on March 13, 2006, in the Superior Court of Muscogee County, Georgia, and later moved to the United States District Court for the Middle District of Georgia, Columbus Division. The action is brought by the plaintiff, individually and on behalf of a class of all persons similarly situated. The allegations involve the Company's alleged duty to refund unearned premiums on credit insurance policies, even when the Company has not been informed of the payoff of the underlying finance contract. The action seeks an injunction requiring remedial action, as well as a variety of damages, including punitive damages, and attorney fees and costs. To date, a class has not been certified in this action.

The Company considers such litigation customary in its line of business. In the Company's opinion, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the Company's financial position, results of operations or cash flows. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business.

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Related Party Transactions

9 Months Ended

Sep. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Related Party Transactions

In connection with the Summit Partners acquisition of the Company on June 20, 2007, $20.0 million of subordinated debentures were issued to affiliates of Summit Partners, a related party, and reported in the notes payable line of the Consolidated Balance Sheets. The subordinated debentures had an original maturity of June 20, 2012, which was subsequently amended to mature in June 2013, and bore interest at 14% per annum on the principal amount of such subordinated debentures, payable quarterly. In December 2010, the Company utilized a portion of the proceeds received from its IPO to pay off the entire $20.0 million of outstanding subordinated debentures for $20.6 million, which included accrued but unpaid interest to the redemption date.

The following details interest expense paid to related parties for the respective periods:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Related party interest expense	$	—	$	715	$	—	$	2,123

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Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Operating Activities
Net income	$ 9,316	$ 11,693
Adjustments to reconcile net income to net cash flows provided by operating activities:
Change in deferred policy acquisition costs	2,921	(2,172)
Depreciation and amortization	5,711	3,336
Deferred income tax expense	2,860	1,886
Net realized (gains) losses	(2,423)	(156)
Loss on sale of subsidiary	477	0
Stock-based compensation expense	615	119
Amortization of premiums and discounts on investments	408	238
Non-controlling interest	(171)	68
Change in allowance for doubtful accounts	(106)	(30)
Changes in operating assets and liabilities, net of the effects of acquisitions
Accrued investment income	39	33
Other receivables	2,958	(2,483)
Reinsurance recoverables	(527)	6,946
Other assets	559	(1,406)
Unpaid claims	(2,296)	(2,705)
Unearned premiums	6,558	(7,511)
Accrued expenses, accounts payable and other liabilities	(20,964)	(2,856)
Deferred revenue	(5,595)	0
Commissions payable	0	(2,156)
Net cash flows (used in) provided by operating activities	340	2,844
Investing activities
Proceeds from maturities, calls and prepayments of available-for-sale investments	7,418	8,214
Proceeds from sales of available-for-sale investments	33,663	5,023
Proceeds from maturities of short term investments	100	50
Purchases of available-for-sale investments	(37,859)	(19,660)
Purchases of property and equipment	(5,411)	(6,322)
Net (paid) for acquisitions of subsidiaries, net of cash received	(40,611)	(20,598)
Sale of subsidiary, net of cash paid	(153)	0
Proceeds from notes receivable	24	542
Change in restricted cash	6,043	2,971
Net cash flows used in investing activities	(36,786)	(29,780)
Financing activities
Payments on notes payable	(64,263)	(18,509)
Proceeds from notes payable	91,550	35,035
Capitalized closing costs for notes payable	0	(1,587)
Payments for intial public offering costs	(827)	0
Payments on redeemable preferred stock	(10,940)	(100)
Net proceeds from exercise of stock options	651	0
Net cash flows provided by financing activities	16,171	14,839
Net decrease in cash and cash equivalents	(20,275)	(12,097)
Cash and cash equivalents, beginning of period	43,389	29,940
Cash and cash equivalents, end of period	$ 23,114	$ 17,843

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Notes Payable

9 Months Ended

Sep. 30, 2011

Notes Payable [Abstract]

Debt Disclosure [Text Block]

Notes Payable

Notes payable consist of the following at:	September 30, 2011		December 31, 2010
SunTrust Bank, revolving line of credit — $85.0 million at September 30, 2011 and $55.0 million at December 31, 2010, maturing June 2013	$	64,000	$	36,713
Total notes payable	$	64,000	$	36,713

Revolving Credit Agreement - The Company is party to an $85.0 million revolving credit agreement with SunTrust Bank, N.A., as administrative agent (the "Agent"), and certain lenders, which matures in June 2013 (the "Facility"). The Facility bears interest at a variable Base Rate determined based upon the higher of (i) the prime rate, (ii) the federal funds rate plus 0.50% or (iii) adjusted LIBOR plus 1%, plus a margin tied to the Company's leverage ratio. The Company can select at its discretion to convert the interest rate for all or a portion of the outstanding balance for a period of up to six months to a fixed EURO Dollar Funding rate which is equal to the adjusted LIBOR rate for the elected interest period in effect at the time of election, plus a margin tied to the Company's leverage ratio.

The Company is required to pay a commitment fee of between 0.45% and 0.60% (based upon the Company's leverage ratio) on the unused portion of the Facility. The purpose of the line is for working capital and acquisitions. Interest on the line of credit is payable monthly. The Company's obligations under the Facility are guaranteed by substantially all of its domestic subsidiaries, other than South Bay Acceptance Corporation and the regulated insurance subsidiaries. Under the Facility, the Company may not assign, sell, transfer or dispose of any collateral or effect certain changes to its capital structure and the capital structure of its subsidiaries without the Agent's prior consent. The Company's obligations under the Facility may be accelerated or the commitments terminated upon the occurrence of an event of default under the Facility, including payment defaults, defaults in the performance of affirmative and negative covenants, the inaccuracy of representations or warranties, bankruptcy and insolvency related defaults, cross defaults to other material indebtedness, defaults arising in connection with changes in control and other customary events of default.

On March 1, 2011, Wells Fargo Bank, N.A., entered into a joinder agreement (the "Wells Fargo Joinder") to the Facility and became a new lender under the Facility with a revolving commitment of $30.0 million, which increased the size of the Facility from $55.0 million to $85.0 million.

The following is a summary of the Company's more significant financial covenants related to the Facility:

	Covenant	September 30, 2011
Minimum debt service charge ratio	1.25	3.76
Maximum debt to EBITDA ratio	3.50	2.33

At September 30, 2011, the Company is in compliance with the above covenants on its line of credit.

Wells Fargo Capital Finance, LLC Line of Credit - On February 7, 2011, the Company terminated its existing revolving $40.0 million credit facility with Wells Fargo Capital Finance, LLC, which was never drawn upon. Upon termination, South Bay paid the fees and expenses owed under the Loan Agreement of $0.1 million, including interest on the Minimum Funding Amount (as defined in the Loan Agreement), unused line fees and monthly loan administration fees. The Company continues to amortize previously capitalized costs with a remaining balance of $0.3 million at September 30, 2011 associated with the Wells Fargo Capital Finance, LLC Line of Credit in connection with the Wells Fargo Joinder to the Facility.

The interest rates on notes payable at the end of the respective periods are as follows:

	September 30, 2011		December 31, 2010
Line of Credit — SunTrust	4.43	%	6.00	%
Line of Credit — Wells Fargo	N/A		3.30	%

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Income Taxes

9 Months Ended

Sep. 30, 2011

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

Income taxes for interim periods have been computed using an estimated annual effective tax rate. This rate is revised, if necessary, at the end of each successive interim period to reflect the current estimate of the annual effective tax rate. At September 30, 2011, the Company estimates that its effective annual income tax rate for 2011 will approximate 36.9%.

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Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Investments
Fixed maturity securities available-for-sale at fair value (amortized cost of $82,666 in 2011 and $82,124 in 2010)	$ 85,169	$ 85,786
Equity securities available-for-sale at fair value (cost of $1,227 in 2011 and $1,955 in 2010)	1,240	1,935
Short-term investments	1,070	1,170
Total investments	87,479	88,891
Cash and cash equivalents	23,114	43,389
Restricted cash	9,679	15,722
Accrued investment income	853	880
Notes receivable	2,604	1,485
Other receivables	25,284	25,473
Reinsurance receivables	169,908	169,382
Deferred acquisition costs	62,539	65,142
Property and equipment, net	15,140	11,996
Goodwill	108,418	74,047
Other intangibles, net	38,684	39,997
Other assets	4,993	5,505
Total assets	548,695	541,909
Liabilities:
Unpaid claims	30,397	32,693
Unearned premiums	216,988	210,430
Accrued expenses, accounts payable and other liabilities	27,182	41,844
Deferred revenue	22,494	25,611
Notes payable	64,000	36,713
Preferred trust securities	35,000	35,000
Redeemable preferred stock	100	11,040
Deferred income taxes	22,067	24,691
Total liabilities	418,228	418,022
Commitments and Contingencies (Note 15)
Stockholders' Equity:
Preferred stock, par value $0.01; 10,000,000 shares authorized; none issued	0	0
Common stock, par value $0.01; 150,000,000 shares authorized; 20,574,730 and 20,256,735 shares issued in 2011 and 2010, respectively	206	203
Treasury stock (44,578 shares in 2011 and 2010, respectively)	(176)	(176)
Additional paid-in capital	95,993	95,556
Accumulated other comprehensive (loss) income, net of tax (expense) of $385 and $(1,235), in 2011 and 2010, respectively	(716)	2,293
Retained earnings	34,624	25,308
Stockholders' equity before non-controlling interest	129,931	123,184
Non-controlling interest	536	703
Total stockholders' equity	130,467	123,887
Total liabilities and stockholders' equity	$ 548,695	$ 541,909