SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended	Commission File No.
June 30, 2001	0-671
PRESERVER GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
New Jersey	22-0747730
(State of Incorporation)	(I.R.S. Employer Identification No.)
95 Route 17 South, Paramus, New Jersey                  07653
(Address of principal executive offices)                        Zip Code

             Registrant's telephone number, including area code (201) 291-2000

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 ý.      No o.

2,124,387 shares of Common Stock were outstanding as of August 10, 2001.

PRESERVER GROUP, INC.
FORM 10-Q
JUNE 30, 2001

PART I
ITEM     1.	FINANCIAL STATEMENTS
ITEM     2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II
ITEM     6.	EXHIBITS AND REPORTS ON FORM 8-K

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

PRESERVER GROUP, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		June 30,			December 31,
		2001			2000
ASSETS
Investments		$	100,345,993		$	104,992,429
Cash and cash equivalents		7,025,285			3,607,076
Premiums receivable		49,170,283			39,749,090
Reinsurance recoverable on paid & unpaid losses and loss expenses		35,293,717			32,883,564
Notes and accounts receivable		319,681			124,111
Deferred policy acquisition costs		19,131,839			14,505,569
Fixed assets - at cost, less accumulated depreciation		3,129,859			2,993,229
Prepaid reinsurance premiums		4,187,739			4,324,915
Federal income tax recoverable		12,413			12,413
Deferred tax asset		1,609,415			1,828,706
Goodwill, less accumulated amortization		1,466,804			1,509,152
Other assets		2,933,850			2,358,988
	Total Assets	$	224,626,878		$	208,889,242
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Losses and loss expenses		$	95,854,559		$	90,392,486
Unearned premiums		63,900,065			53,409,659
Other liabilities		12,956,768			13,594,670
Convertible subordinated debentures		10,000,000			10,000,000
Notes payable		11,500,000			11,500,000
	Total Liabilities	194,211,392			178,896,815
Shareholders' Equity:
Common stock, par value $.50 per share (Authorized - 10,000,000 shares; issued and outstanding - 2,124,387 2001 and 2000)		1,062,194			1,062,194
Paid in additional capital		2,066,089			2,066,089
Accumulated other comprehensive loss		(2,244,702		)	(2,774,148		)
Retained earnings		29,531,905			29,638,292
	Total Shareholders' Equity	30,415,486			29,992,427
	Total Liabilities and Shareholders' Equity	$	224,626,878		$	208,889,242

(Financial statements should be read in
conjunction with the accompanying notes)

PRESERVER GROUP, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		For the Six Months Ended					For the Three Months Ended
		June 30, 2001			June 30, 2000		June 30, 2001		June 30, 2000
					(Restated)				(Restated)
	Revenues:
Insurance premiums (net of premiums ceded totaling $7,283,244, $9,340,353, $3,797,076 and $6,989,835)		$	45,100,053		$	39,067,248	$	23,177,839	$	20,807,821
Net investment income		3,322,845			2,977,990		1,667,409		1,578,704
Realized gains on sales of investments		220,479			4,524		218,955		4,524
Other revenues		62,793			102,176		40,799		62,457
	Total revenues	48,706,170			42,151,938		25,105,002		22,453,506
	Losses and Expenses:
Insurance losses and loss expenses incurred (net of reinsurance recoveries totaling $8,156,829, $8,142,651, $3,458,418 and $5,457,950)		33,469,760			26,095,143		16,995,380		13,613,138
Amortization of deferred policy acquisition costs		12,345,551			11,116,776		6,449,930		5,920,892
Other operating expenses		1,977,915			2,786,293		998,045		1,388,251
Interest expense		1,031,788			841,010		515,894		517,403
Amortization of goodwill		42,348			42,348		21,174		21,174
	Total losses and expenses	48,867,362			40,881,570		24,980,423		21,460,858
Income (loss) before Federal income taxes		(161,192		)	1,270,368		124,579		992,648
Provision (benefit) for Federal income taxes		(54,805		)	440,339		44,731		344,075
Net income (loss)		$	(106,387	)	$	830,029	$	79,848	$	648,573
Net income (loss) per common share:
Basic		$	(0.05	)	$	0.40	$	0.04	$	0.31
Diluted		$	(0.05	)	$	0.37	$	0.04	$	0.28
Weighted average common and potential common shares outstanding:
Basic		2,124,387			2,124,387		2,124,387		2,124,387
Diluted		2,124,387			2,124,387		2,124,387		2,769,965

(Financial statements should be read in
conjunction with the accompanying notes)

PRESERVER GROUP, INC.
AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

		For the Six Months Ended
		June 30,2001			June 30, 2000
					(Restated)
Operating activities:
Net income (loss)		$	(106,387	)	$	830,029
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization	588,756			419,790
	Gain on sale of investments	(220,479		)	(4,524		)
Changes in:
	Deferred policy acquisition costs	(4,626,270		)	(571,500		)
	Premiums receivable	(9,421,193		)	1,283,188
	Notes and accounts receivable	(195,570		)	(82,432		)
	Other assets	(577,487		)	(61,691		)
	Losses and loss expenses	5,462,073			3,481,196
	Unearned premiums	10,490,406			(702,575		)
	Federal income tax – current	-			21,979
	Federal income tax – deferred	(54,805		)	478,254
	Other liabilities	(637,902		)	(1,810,721		)
	Reinsurance recoverable on paid and unpaid losses	(2,410,153		)	457,954
	Prepaid reinsurance premium	137,176			949,295
Net cash provided by (used in) operating activities		(1,571,835		)	$	4,688,242
Investing activities:
	Investments purchased	(40,067,529		)	(68,671,834		)
	Fixed assets purchased	(616,065		)	(991,811		)
	Acquisition of Mountain Valley, net of cash acquired	-			(3,962,753		)
	Proceeds from sales and maturities of investments	45,673,638			58,481,305
Net cash provided by (used in) investing activities		4,990,044			(15,145,093		)
Financing activities:
	Proceeds from notes payable	-			11,500,000
Net cash provided by financing activities		-			11,500,000
Net increase in cash and cash equivalents		3,418,209			1,043,149
Cash and cash equivalents at beginning of period		3,607,076			443,733
Cash and cash equivalents at end of period		$	7,025,285		$	1,486,882

Supplemental Disclosures of Cash Flow Information

(1)	Total interest paid was $837,017 (2001) and $717,720 (2000).
(2)	Total Federal income taxes paid was $0 in 2001 and 2000, respectively.
(3)	The Company purchased all of the common stock of Mountain Valley in 2000. Cash acquired in connection with the purchase of Mountain Valley was $3,537,247.  In conjunction with the acquisition, liabilities were assumed as follows:

	2000
Fair value of assets acquired	$	14,944,762
Cash paid for the capital stock	7,500,000
Equity paid for the capital stock	-
Liabilities assumed	$	7,444,762

Non Cash Investing Activities:
Invested assets and shareholders' equity increased by $529,446 in 2001 and decreased by $48,812 in 2000, as a result of changes in market value, net of taxes, pertaining to the Registrant's application of SFAS No. 115 - Accounting for Certain Investments in Debt and Equity Securities.

(Financial statements should be read in
conjunction with the accompanying notes)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

				For the Six Months Ended						For the Three Months Ended
				June 30, 2001			June 30, 2000			June 30, 2001			June 30, 2000
							(Restated)						(Restated)
Net income (loss)				$	(106,387	)	$	830,029		$	79,848		$	648,573
	Other comprehensive income (loss):
		Unrealized gains (losses) on securities, net of tax:
		Unrealized holding gains (losses) during the period (net of taxes of $274,096, $1,863, $382,936 and $31,354)		674,962			(45,826		)	(570,409		)	(4,403		)
		Less: reclassification adjustment for gains included in earnings		(145,516		)	(2,986		)	(144,510		)	(2,986		)
	Other comprehensive income (loss)			529,446			(48,812		)	(714,919		)	(7,389		)
			Comprehensive income (loss)	$	423,059		$	781,217		($635,071		)	$	641,184

(Financial statements should be read in
conjunction with the accompanying notes)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.          Basis of Preparation and Presentation

             The accompanying condensed consolidated financial statements of Preserver Group, Inc. (the "Company") include its accounts and those of its directly or indirectly wholly-owned subsidiary companies, and, in the opinion of management, contain all adjustments necessary to present fairly the Company's consolidated financial position, results of operations and cash flows, in accordance with generally accepted accounting principles.  On July 1, 2001, the Company changed its name from Motor Club of America to Preserver Group, Inc., after shareholder approval at the Company’s Annual Meeting of Shareholders on June 6, 2001.  The Company changed its stock symbol, from “MOTR” to “PRES”, on that date as well.

             The preparation of financial statements in conformity with these practices 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 period.  Actual results could differ from those estimates.

             The Company’s insurance subsidiaries, Preserver Insurance Company (“Preserver”), Mountain Valley Indemnity Company (“Mountain Valley”), North East Insurance Company (“North East”), its subsidiary American Colonial Insurance Company (“American Colonial”) and Motor Club of America Insurance Company (“Motor Club”), are collectively referred to as the “Insurance Companies”.  Preserver and Mountain Valley are also collectively known as the Preserver Insurance Group.

             All material intercompany items and transactions have been eliminated in consolidation.  Certain amounts in prior years have been reclassified to conform to the current presentation.

             These statements should be read in conjunction with the Summary of Significant Accounting Policies and other notes included in the Notes to Financial Statements in the Company's 2000 Annual Report on Form 10–K.  The second quarter and six months 2000 financial statements have been restated from amounts previously reported for certain tax benefits that should not have been recognized and certain deferred tax liabilities that had not been recorded.  The principal effects of these items on the accompanying financial statements are presented in Note O and V in the Notes to Consolidated Financial Statements in the Company’s 2000 Annual Report on Form 10-K.

2.          Per Share Data

             Basic earnings per share are computed based upon the weighted average number of common shares outstanding during each year.  Diluted earnings per share are computed based upon the weighted average number of common shares outstanding including outstanding stock options and convertible subordinated debentures.

             The Company believes it is more likely than not that it will generate future taxable income to realize the benefits of the net deferred tax asset, including those net deferred tax assets attributable to North East only.

3.          Financial Accounting Pronouncements

             The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities”, on January 1, 2001.  SFAS 133 requires that all derivative financial instruments, such as convertible debt, convertible preferred stock, interest rate swap contracts and foreign exchange contracts, be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them.  Changes in the fair market value of derivative financial instruments are either recognized periodically in income or shareholders’ equity (as a component of comprehensive income), depending on whether the derivative is being used to hedge changes in fair value or cash flows.  The adoption of SFAS 133 had no impact on the consolidated results of operations, financial position or cash flows of the Company because the Company does not have derivative financial instrument activity.

             In July 2001, the FASB issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 requires the purchase method of accounting to be used for all future business combinations and contains provisions for the accounting for goodwill and intangible assets.  SFAS No. 142 is effective January 1, 2002 and will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead evaluated for impairment.

             At June 30, 2001, the Company has unamortized goodwill in the amount of $1,467,000 which will be subject to transition provisions of SFAS No. 141 and 142.  Amortization expense related to goodwill was $42,000 for both the six month periods ended June 30, 2001 and 2000.  The Company has not yet determined an estimate of the impact of adopting SFAS No. 141 and 142 on its financial statements at the date of this report.

4.          Reportable Segments

             The Company’s operations are presently conducted through four basic segments using independent agents: Preserver; Mountain Valley; North East and Motor Club. The Preserver segment consists of small commercial insurance featuring package, automobile and workers’ compensation coverage, along with personal property and liability coverage in the State of New Jersey. Mountain Valley provides small and medium sized commercial insurance in New England and New York. The North East segment consists of private passenger automobile and small commercial insurance in the State of Maine and the results of its inactive subsidiary, American Colonial.   The Motor Club segment consists of New Jersey private passenger automobile.

             The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies. Summary financial information about the Company’s operating segments is presented in the following table. Income before income taxes by segment consists of revenues less expense related to the respective segment’s operations. These amounts include realized gains (losses) where applicable. Assets are not allocated to the individual segments, and are reviewed in total by management for purposes of decision making. The Company operates only in the United States, and no single customer or agent provides ten percent or more of revenues. Financial data by segment for the six months ended June 30, 2001 and 2000 are as follows:

			Mountain			North			Motor
Six months ended June 30, 2001	Preserver		Valley			East			Club			Total
Insurance premiums	$	8,810,363	$	8,428,123		$	8,757,357		$	19,104,210		$	45,100,053
Net investment income	1,038,291		317,345			521,073			1,436,229			3,312,938
Realized investment gains (losses)	-		174,664			47,120			(1,305		)	220,479
Total revenues	9,848,654		8,920,132			9,325,550			20,539,134			48,633,470
Loss and loss expenses incurred	5,292,797		6,695,397			6,220,805			15,260,761			33,469,760
Acquisitions costs and other operating expenses	2,622,403		2,649,571			3,404,484			5,864,941			14,541,399
Total expenses	7,915,200		9,344,968			9,625,289			21,125,702			48,011,159
Income (loss) before Federal income taxes	$	1,933,454	$	(424,836	)	$	(299,739	)	$	(586,568	)	622,311
Other corporate, net												290,633
Interest expense												(1,031,788		)
Merger-related expenses												-
Amortization of goodwill												(42,348		)
Income tax benefit												54,805
Net loss												$	(106,387	)

	(Restated)			Mountain		North		Motor
Six months ended June 30, 2000		Preserver		Valley		East		Club			Total
Insurance premiums		$	7,503,235	$	5,379,870	$	8,924,393	$	17,259,750		$	39,067,248
Net investment income		841,821		130,084		474,306		1,485,049			2,931,260
Realized investment gains		4,524		-		-		-			4,524
Other income		-		-		-		32,454			32,454
Total revenues		8,349,580		5,509,954		9,398,699		18,777,253			42,035,486
Loss and loss expenses incurred		4,042,552		3,496,916		6,527,875		12,027,800			26,095,143
Acquisitions costs and other operating expenses		2,168,517		1,904,601		2,856,009		6,770,142			13,699,269
Total expenses		6,211,069		5,401,517		9,383,884		18,797,942			39,794,412
Income (loss) before Federalincome taxes		$	2,138,511	$	108,437	$	14,815	$	(20,689	)	2,241,074
Other corporate, net											266,749
Interest expense											(841,010		)
Merger-related expenses											(354,097		)
Amortization of goodwill											(42,348		)
Income tax expense											(440,339		)
Net income											$	830,029

             Financial data by segment for the three months ended June 30, 2001 and 2000 are as follows:

			Mountain			North			Motor
Three months ended June 30, 2001	Preserver		Valley			East			Club			Total
Insurance premiums	$	4,581,720	$	4,267,315		$	4,407,783		$	9,921,021		$	23,177,839
Net investment income	535,591		169,340			255,488			698,888			1,659,307
Realized investment gains (losses)	-		174,664			45,596			(1,305		)	218,955
Other income	-		-			-			-			-
Total revenues	5,117,311		4,611,319			4,708,867			10,618,604			25,056,101
Loss and loss expenses incurred	2,111,521		3,906,556			2,928,256			8,049,047			16,995,380
Acquisitions costs and other operating expenses	1,391,465		1,246,016			1,920,917			3,009,381			7,567,779
Total expenses	3,502,986		5,152,572			4,849,173			11,058,428			24,563,159
Income (loss) before Federal income taxes	$	1,614,325	$	(541,253	)	$	(140,306	)	$	(439,824	)	492,942
Other corporate, net												168,705
Interest expense												(515,894		)
Merger-related expenses												-
Amortization of goodwill												(21,174		)
Income tax expense												(44,731		)
Net income												$	79,848

	(Restated)			Mountain		North		Motor
Three months ended June 30, 2000		Preserver		Valley		East		Club			Total
Insurance premiums		$	3,731,946	$	3,948,924	$	4,595,180	$	8,531,771		$	20,807,821
Net investment income		481,867		94,207		240,041		728,297			1,544,412
Realized investment gains		4,524		-		-		-			4,524
Other income		-		-		-		32,454			32,454
Total revenues		4,218,337		4,043,131		4,835,221		9,292,522			22,389,211
Loss and loss expenses incurred		1,976,922		2,501,804		3,157,269		5,977,143			13,613,138
Acquisitions costs and other operating expenses		1,114,397		1,411,485		1,470,597		3,352,210			7,348,689
Total expenses		3,091,319		3,913,289		4,627,866		9,329,353			20,961,827
Income (loss) before Federal income taxes		$	1,127,018	$	129,842	$	207,355	$	(36,831	)	1,427,384
Other corporate, net											143,841
Interest expense											(517,403		)
Merger-related expenses											(40,000		)
Amortization of goodwill											(21,174		)
Income tax expense											(344,075		)
Net income											$	648,573

5.          New Statutory Accounting Principles

             The NAIC has adopted the Codification of Statutory Accounting Principles with an effective date of January 1, 2001.  The codification principles are intended to provide a basis of accounting recognized and adhered to in the absence of, conflict with, or silence of, state statutes and regulations.  The impact of the codified principles on the statutory capital and surplus of the individual Insurance Company subsidiaries ranges from 0% to increases of 10% of statutory capital and surplus and, on a consolidated basis, increases statutory capital and surplus by approximately 8%.

6.          New Jersey Private Passenger Automobile Insurance

             The Motor Club unit is capitalized separate and apart from the Preserver Insurance Group and all other subsidiaries, and writes only personal automobile insurance in New Jersey.  No other subsidiary writes such business.

             On April 30, 2001, Motor Club filed for relief with the New Jersey Department of Banking and Insurance (“NJ DOBI”) from the take-all comers laws in New Jersey personal automobile insurance.  That separate subsidiary’s premium to surplus ratio was 3.18 to 1 for the twelve months ended December 31, 2000, thereby qualifying it for such relief under New Jersey laws, and subsequently increased to 3.45 to 1 for the twelve months ended March 31, 2001.

             On May 15, 2001, the Company was advised by the NJ DOBI that its application for relief had been denied.  Motor Club requested reconsideration of the decision, based on what it viewed as an incomplete evaluation of the facts and circumstances regarding its application by the NJ DOBI, including Motor Club’s first quarter results.

             On July 18, 2001, Motor Club was granted certain relief by the NJ DOBI with regard to its private passenger automobile operations, which is designed to improve Motor Club's deteriorating financial condition. Motor Club's premium to surplus ratio no longer meets industry standards, its share of urban enterprise zone ("UEZ") business (where it writes double its required amount) is disproportionately high, and A.M. Best recently downgraded Motor Club. The relief includes the immediate cessation of accepting new business in UEZ's, the non-renewal of a number of UEZ risks and relief from assigned risk business. For the twelve months ended June 30, 2001, Motor Club’s premium to surplus ratio increased to 4.05 to 1.

7.          Restatement

             The Company has restated its tax provision for the three and six months ended June 30, 2000.  Please refer to Note O and V in the Notes to Consolidated Financial Statements in the Company’s 2000 Annual Report on Form 10-K.  The reconciliation of previously reported to restated net income and per share information for the three and six months ended June 30, 2000 is as follows:

		Period Ended June 30, 2000
		Three Months		Six Months
Net income:
	Previously reported	$	639,511	$	889,023
	Effect of tax adjustment	9,062		(58,994		)
	As restated	$	648,573	$	830,029
Per share information:
Basic:
Previously reported		$	0.30	$	0.42
Effect of tax adjustment		0.01		(0.02		)
As restated		$	0.31	$	0.40
Diluted:
Previously reported		$	0.28	$	0.40
Effect of tax adjustment		-		(0.03		)
As restated		$	0.28	$	0.37

Item 2. Management's Discussion and Analysis of Financial Condition and Results of  Operations

             On July 1, 2001, we changed the name of the Company to Preserver Group, Inc., after approval by our shareholders at our annual meeting on June 6, 2001.  We own and operate five regionally focused property and casualty insurance companies, including companies that specialize in small and mid-sized commercial insurance through the Preserver Insurance Group.

             The Preserver Insurance Group consists of Preserver, which writes small commercial and homeowners insurance in New Jersey, and Mountain Valley, which writes small and mid-sized commercial insurance in New England and New York. The Preserver Insurance Group is rated B++ (Very Good) by A.M. Best Company (“Best”). American Colonial plans to commence operations in New York in 2001, writing commercial lines in tandem with Mountain Valley.

             Motor Club writes private passenger automobile insurance (“PPA”) in New Jersey and is rated B (Fair) by Best. On July 18, 2001, Motor Club’s received certain relief from its New Jersey’s PPA requirements.  North East writes PPA and small commercial lines insurance in the State of Maine and is rated B (Fair) by Best.

             We are pursuing a strategy to: (1) increase our identification as a provider of small and mid-sized commercial lines insurance and have continued to expand our product lines in support of this objective; and (2) expand and diversify our insurance operations outside the State of New Jersey. We believe that both of these objectives can be attained through the acquisition of other insurance companies that present opportunities to write these product lines in different geographic areas. We expect to continue to follow this strategy although we do not anticipate any additional acquisition activity in 2001.

             Mountain Valley was acquired on March 1, 2000; North East was acquired on September 24, 1999. We believe that these acquisitions establish us as a regional commercial lines company in the New England and Mid-Atlantic regions. As evidence of this, only 42% of our consolidated revenues emanated from NJ PPA in 2001. This percentage is expected to decline in the future.

             Historically, the Insurance Companies’ results of operations have been influenced by factors affecting the property and casualty insurance industry in general and the NJ PPA market in particular. The operating results of the U.S. property and casualty insurance industry have generally been subject to significant variations due to competition, weather, catastrophic events, regulation, general economic conditions, judicial trends, fluctuations in interest rates and other changes in the investment environment.

Results of Operations

             The Company's book value decreased to $14.32 per share at June 30, 2001 from $14.62 per share at March 31, 2001.  Book value was $14.12 per share at December 31, 2000.  The sources of the net decrease in the three months ended June 30 were a decrease of $725,000 or $0.34 (net of deferred taxes) for unrealized gains on fixed maturity investments, offset by the net income of $.04 per share.

             Significantly lower income before Federal income taxes from the Insurance Companies as a result of higher loss ratios, combined with higher interest expense (in the six-month period) reduced earnings in 2001 as compared to the same periods in 2000.

             Income before Federal income taxes from the Insurance Companies was $493,000 in the three months ended June 30, 2001 as compared to $1,427,000 in the same period in 2000; loss ratio was 73.3% in 2001 as compared to 65.4% in 2000. The increased loss ratio was due to an involuntary increase in writings of unprofitable business by Motor Club, the continuing impact of NJ PPA reforms on that segment, and in the second quarter, a significantly higher loss ratio in the Mountain Valley segment as a result of a number of severe losses. This offset continuing excellent results in Preserver in the 2001 second quarter.

             Income before Federal income taxes from the Insurance Companies was $622,000 in the six months ended June 30, 2001 as compared to $2,241,000 in the same period in 2000; loss ratio was 74.2% in 2001 as compared to 66.8% in 2000. The increased loss ratio was principally due to the aforementioned issues impacting the Motor Club segment, and higher year to date loss ratios in the other segments, particularly the Preserver (in the first quarter) and Mountain Valley (in the second quarter) segments, as a result of a number of severe losses.

Segments

             We are organized into four segments – Preserver, Mountain Valley, North East and Motor Club, along with a corporate segment.

Preserver

             The following table summarizes the income before Federal income taxes for this segment, before the effects of the intercompany pooling agreement with Mountain Valley:

	For the six months				For the three months				Percent change in the period
	ended June 30,				ended June 30,				ended June 30, 2001 vs. 2000
	2001		2000		2001		2000		Six months		Three months
Insurance premiums	$	8,810,363	$	7,503,235	$	4,581,720	$	3,731,946	17.4	%	22.8	%
Net investment income	1,038,291		841,821		535,591		481,867		23.3	%	11.1	%
Realized investment gains	-		4,524		-		4,524		-100.0	%	-100.0	%
Total revenue	9,848,654		8,349,580		5,117,311		4,218,337		18.0	%	21.3	%
Loss & loss expenses incurred	5,292,797		4,042,552		2,111,521		1,976,922		30.9	%	6.8	%
Acquisition & operating expenses	2,622,403		2,168,517		1,391,465		1,114,397		20.9	%	24.9	%
Total expenses	7,915,200		6,211,069		3,502,986		3,091,319		27.4	%	13.3	%
Income before FIT	$	1,933,454	$	2,138,511	$	1,614,325	$	1,127,018	-9.6	%	43.2	%

             Strong premium growth and low loss ratios resulted in sharply higher second quarter 2001 results as compared to 2000.  The excellent premium growth year to date was offset by higher loss ratios, resulting in somewhat lower income before tax comparisons in the six month period. The following table presents the underwriting ratios for this segment for each of the six months ended June 30:

	For the six months				For the three months
	ended June 30,				ended June 30,
	2001		2000		2001		2000
Loss ratio	60.1	%	53.9	%	46.1	%	53.0	%
Expense ratio	29.8	%	28.9	%	30.4	%	29.9	%
Combined ratio	89.8	%	82.8	%	76.5	%	82.7	%

             The growth in insurance premiums in the three and six month periods was led by Preserver’s Commercial Lines business, which grew 32% and 25% in those periods, respectively, in 2001 as compared to 2000, consistent with our overall growth strategy. Commercial lines policy count grew 11%, and the average premium continued to increase as Preserver wrote larger accounts by virtue of its higher Best rating, complete product line offering and competitive pricing. In addition, Preserver was able to increase premiums on certain renewed accounts, as market circumstances were more favorable to do so. We anticipate that such premium increases will continue to be available to Preserver on a selective basis in 2001, without adversely impacting retention.

             The 5% increase in Preserver’s Personal Property insurance premiums reflects modest amounts of new business written, along with adjustments in the values of properties insured, offset by a 4% decline in policy count as compared to 2000.

             Net investment income in 2001 reflects the strong operations and the $3 million surplus contribution we made in March 2000.  Invested assets continued to grow strongly, reflecting the growth in premium, increasing by approximately $1,635,000 or 5% in 2001 as compared to 2000.

             The increase in losses and LAE incurred largely reflects the growth of Preserver’s operations.   Most of the changes in Preserver’s net loss ratios in recent years (including the first six months of 2001) have been caused by fluctuations in recoveries from its reinsurance coverage. Preserver’s direct loss ratios have generally steadily improved in recent years as its book matures, retentions improve and pricing in Commercial Lines becomes more favorable.  The following table depicts direct and net loss ratios in 2001 and 2000:

	2001		2000
Direct loss ratio	57.4	%	57.6	%
Ceded loss ratio	47.5	%	72.7	%
Net loss ratio	60.1	%	53.9	%

             Given the relatively small size of the Preserver book of business, a limited number of severe losses can cause relatively wide fluctuations in Preserver’s net loss ratio results, depending on whether these losses were severe enough to generate a reinsurance recovery. This occurred in the 2001 first quarter.  There have been no trends or indications in the last three years that Preserver’s reinsurance programs have been ineffective or that loss experience was adverse. We believe the severe losses in 2001 are aberrant and that the continuing stability and profitable levels of Preserver’s direct loss ratio remains a positive indicator of the quality of its book of business. Expenses reflect the continuing growth of Preserver’s business.

Mountain Valley

             Mountain Valley is included from March 1, 2000, its date of acquisition.  The following table summarizes the income (loss) before Federal income taxes for this segment, before the effects of its intercompany pooling agreement with Preserver:

	For the six months					For the three months					Percent change in the period
	ended June 30,					ended June 30,					ended June 30, 2001 vs. 2000
	2001			2000 (1)		2001			2000		Six months		Three months
Insurance premiums	$	8,428,123		$	5,379,870	$	4,267,315		$	3,948,924	56.7	%	8.1	%
Net investment income	317,345			130,084		169,340			94,207		144.0	%	79.8	%
Realized investment gains	174,664			-		174,664			-		N/M		N/M
Total revenue	8,920,132			5,509,954		4,611,319			4,043,131		61.9	%	14.1	%
Loss & loss expenses incurred	6,695,397			3,496,916		3,906,556			2,501,804		91.5	%	56.1	%
Acquisition & operating expenses	2,649,571			1,904,601		1,246,016			1,411,485		39.1	%	-11.7	%
Total expenses	9,344,968			5,401,517		5,152,572			3,913,289		73.0	%	31.7	%
Income (loss) before FIT	$	(424,836	)	$	108,437	$	(541,253	)	$	129,842	-491.8	%	-516.9	%

             (1) For the four months ending June 30, 2000

N/M= Not Meaningful

             The following table presents Mountain Valley’s underwriting ratios for 2001 and 2000:

	For the six months				For the three months
	ended June 30,				ended June 30,
	2001		2000 (1)		2001		2000
Loss ratio	79.4	%	65.0	%	91.5	%	63.4	%
Expense ratio	31.4	%	35.4	%	29.2	%	35.7	%
Combined ratio	110.8	%	100.4	%	120.7	%	99.1	%

             (1) For the four months ending June 30, 2000

             Mountain Valley’s second quarter (and resulting six-month) loss was attributable to a series of severe losses (greater than $25,000) incurred during that period.  No meaningful trends of such losses had occurred prior to then, nor were such losses concentrated in any one state or product line.  After deducting applicable reinsurance, such losses accounted for $2,262,000 or 58% of Mountain Valley’s losses incurred for the three-month period ended June 30, 2001.

             Given the relatively small size of the Mountain Valley’s book of business, a limited number of severe losses can cause relatively wide fluctuations in Mountain Valley’s net loss ratio results, depending on whether these losses were severe enough to generate a reinsurance recovery. We are reviewing the underwriting of the accounts which had these losses occur, to ensure that unacceptable risks are not retained or whether any adverse underwriting trends can be identified.  Neither circumstance has been identified as of this report. Expenses reflect the continuing growth of  Mountain Valley’s business.

             As described previously in the Company’s 2000 Annual Report on Form 10-K, Mountain Valley has terminated the 100% quota share it maintained.  As noted: 1) there is no loss development, adverse or favorable, net of third party reinsurance, that we retain on loss occurrences prior to March 1, 2000; and 2) only Mountain Valley loss occurrences on or after March 1, 2000 will be retained, net of reinsurance, by us.

             Because Mountain Valley has a limited amount of loss experience, ultimate losses and reserves are being provided for based upon reviews of Mountain Valley’s historical loss development patterns, prior to application of the quota share, combined with reviews of Preserver’s and general industry loss development patterns.

             For comparison purposes, Mountain Valley’s recurring direct premiums written have grown $10,271,000 or 192% in 2001 as compared to 2000, the majority of which are attributable to premiums with policy terms greater than twelve months, which to date has helped improve Mountain Valley’s retention.  However, given the rapid changes that are occurring in the Commercial Lines market place, including improved pricing opportunities and risk retention, Mountain Valley anticipates ceasing use of such multiple year policies in the third quarter 2001.  Direct premium earned (which is a better indication of underlying growth, given Mountain Valley’s use of multiple year policies) increased $1,339,000 or 15% in 2001 as compared to 2000.  The majority of Mountain Valley’s premium written growth is being experienced in the States of New York, Massachusetts and Maine. Growth has been fairly uniform in its distribution among the various commercial package, commercial auto and supporting commercial lines products that Mountain Valley offers.

             As Accident Years 2000, 2001 and subsequent years’ losses become more prevalent in relation to older accident years, Mountain Valley’s income before Federal taxes should begin to reflect its underwriting operations, in addition to the expenses related to the deployment of technology platforms described in the Liquidity and Capital Resources section.

North East

             The following table summarizes the income (loss) before Federal income taxes for this segment:

	For the six months					For the three months					Percent change in the period
	ended June 30,					ended June 30,					ended June 30, 2001 vs. 2000
	2001			2000		2001			2000		Six months		Three months
Insurance premiums	$	8,757,357		$	8,924,393	$	4,407,783		$	4,595,180	-1.9	%	-4.1	%
Net investment income	521,073			474,306		255,488			240,041		9.9	%	6.4	%
Realized investment gains	47,120			-		45,596			-		N/M		N/M
Total revenue	9,325,550			9,398,699		4,708,867			4,835,221		-0.8	%	-2.6	%
Loss & loss expenses incurred	6,220,805			6,527,875		2,928,256			3,157,269		-4.7	%	-7.3	%
Acquisition & operating expenses	3,404,484			2,856,009		1,920,917			1,470,597		19.2	%	30.6	%
Total expenses	9,625,289			9,383,884		4,849,173			4,627,866		2.6	%	4.8	%
Income (loss) before FIT	$	(299,739	)	$	14,815	$	(140,306	)	$	207,355	-2123.2	%	-167.7	%

N/M= Not Meaningful

             The following table presents North East’s underwriting ratios for 2001 and 2000:

	For the six months				For the three months
	ended June 30,				ended June 30,
	2001		2000		2001		2000
Loss ratio	71.0	%	73.1	%	66.4	%	68.7	%
Expense ratio	38.9	%	32.0	%	43.6	%	32.0	%
Combined ratio	109.9	%	105.1	%	110.0	%	100.7	%

             The first quarter is typically North East’s poorest of the year, due to the prevalent winter weather conditions experienced in Maine. Second quarter loss ratio results typically begin to improve.  North East’s loss ratio results in both 2001 and 2000 were representative of this experience. North East’s expense ratio increased in 2001 compared to 2000 due to slower premium growth and slightly higher acquisition costs, including higher reinsurance costs effective April 1.

             Both the premium and acquisition cost developments are due to North East’s increased emphasis on Commercial Lines insurance. North East has reviewed considerable amounts of its existing Commercial Lines book and certain risks have been deemed unacceptable for North East’s revised Commercial Lines underwriting criteria, resulting in their non-renewal. In many instances, such risks deemed unacceptable are of a higher average premium than the new business being written, resulting in slower net growth rates in Commercial Lines than that previously experienced. In addition, North East has tightened its underwriting criteria in Personal Lines as well, resulting in lower net premium written growth rates. In 2001, net premium written has actually decreased $546,000 or 6% compared to 2000.

             North East has also utilized commission enhancements with certain producers to increase the level and type of Commercial Lines insurance these producers submit, resulting in higher acquisition costs. Despite the 6% decrease in net premium written, acquisition costs incurred in 2001 were largely unchanged compared to 2000, thus increasing its expense ratio. North East is reinforcing its program to reduce its expense and expense ratio further during 2001, particularly with regard to overhead expenses. North East anticipates higher reinsurance costs over the remainder of 2001 which will place additional pressure on the expense ratio.

             Investment income continues to improve as a result of higher operating cash flows due to lower overall expenses.

Motor Club

             The following table summarizes the loss before Federal income taxes for this segment:

	For the six months						For the three months						Percent change in the period
	ended June 30,						ended June 30,						ended June 30, 2001 vs. 2000
	2001			2000			2001			2000			Six months		Three months
Insurance premiums	$	19,104,210		$	17,259,750		$	9,921,021		$	8,531,771		10.7	%	16.3	%
Net investment income	1,436,229			1,485,049			698,888			728,297			-3.3	%	-4.0	%
Realized investment gains  (losses)	(1,305		)	-			(1,305		)	-			N/M		N/M
Other income	-			32,454			-			32,454			-100.0	%	-100.0	%
Total revenue	20,539,134			18,777,253			10,618,604			9,292,522			9.4	%	14.3	%
Loss & loss expenses incurred	15,260,761			12,027,800			8,049,047			5,977,143			26.9	%	34.7	%
Acquisition & operating expenses	5,864,941			6,770,142			3,009,381			3,352,210			-13.4	%	-10.2	%
Total expenses	21,125,702			18,797,942			11,058,428			9,329,353			12.4	%	18.5	%
Loss before FIT	$	(586,568	)	$	(20,689	)	$	(439,824	)	$	(36,831	)	2735.2	%	1094.2	%

N/M= Not Meaningful

             The continuing decline in Motor Club’s results was due to higher loss ratios, which were insufficient to offset expense ratio reductions it gained, via economies of scale resulting from the acquisition of Mountain Valley and North East and its own rapid premium growth.  The increase in PPA writings is being caused by a number of companies, comprising nearly 25% of the market, announcing plans to withdraw or reduce their writings in the State of New Jersey.  This has caused significant disruption in the marketplace, as consumers are forced to seek new carriers in an insurance marketplace with dramatically reduced capacity.  Certain of these companies had appointed producers wherein Motor Club and that company was either the only option to place coverage with or were among a limited number of options for those producers. As a result of this and New Jersey’s restrictive take-all-comers laws, Motor Club has been forced to write this business, particularly in the second quarter of 2001, in urban enterprise zones (“UEZ’s”) that it otherwise would not have written.  Policy count increased by 8% in 2001 as compared to 2000.

             The continuing increase in loss ratios, largely due to the impact of AICRA, and higher submissions of this business that is generally less profitable, continue to reduce the profitability of this segment.  The following table presents the underwriting ratios for each of the six and three months ended June 30:

	For the six months				For the three months
	ended June 30,				ended June 30,
	2001		2000		2001		2000
Loss ratio	79.9	%	69.7	%	81.1	%	70.1	%
Expense ratio	30.7	%	39.2	%	30.3	%	39.3	%
Combined ratio	110.6	%	108.9	%	111.4	%	109.4	%

             Net investment income declined due to lower invested assets as a result of AICRA’s impact on the segment, in the form of higher paid losses which were offset by the growth in premium.

             Overall losses and LAE incurred for Motor Club increased $3,233,000 or 27% in 2001 as compared to 2000, causing the increase in the loss ratios. The higher loss ratio was due to continuing increases in first party medical or PIP claims in Accident Year 2001, consistent with the successive increases experienced in Accident Year 2000 and 1999 after the AICRA rate rollback and related reforms were implemented. Physical damage loss ratios in 2001 were higher than in 2000, largely due to poor winter weather in New Jersey.

             As stated, we believe that claimants filing more severe PIP claims on an accelerated basis than previously continue to cause this increase.  We further believe that this acceleration is being caused by the implementation of regulations tightening the fee schedule, allowing pre-certification methodologies and permitting a revised arbitration system, all of which should serve ultimately to reduce PIP claim costs.

             While this acceleration increased the level of reported PIP losses incurred by Motor Club in Accident Years 2001, 2000  and 1999, we have reserved for their projected ultimate losses for those Accident Years generally using historical loss development patterns which indicate longer development patterns than those that may occur in these Accident Years.

             During the first six months of 2001, the loss ratio was increased further by higher loss ratios for Bodily Injury (“BI”) or third party liability claims.  Prior to 2001, the BI loss ratio had been improving slightly, due to the impact of the AICRA reforms on this coverage (including reduced litigation), consistent with the stated objectives of AICRA.  The increased BI loss ratio in 2001 appears to be a function of the increased writings of unprofitable business that Motor Club has been required to write, as opposed to the adverse effect of AICRA.  However, we do think it remains premature to conclude that the favorable BI development prior to 2001 will continue in future Accident Years, or that Accident Years 2001 or 2000 may not adversely develop. This is due to the volatile nature of New Jersey PPA, including the regulatory, judicial and legislative environments.

             We will continue to monitor loss development patterns in 2001 and beyond closely, to ensure that the level of reserves carried for PPA is adequate and appropriate as dictated by actual loss development.

              To date, we have believed that AICRA ultimately will have only a modest net negative effect on Motor Club’s PPA operations and profitability, because the mandated rate reductions do  not appear to be completely cost justified (based on information presently available) by the cost savings in the legislation.  While we have not changed our ultimate outlook for the effect of AICRA, it is clear based on the impact to date, combined with the inaction of the NJ DOBI in implementing several key legislative provisions of AICRA and other legislative reforms and the ongoing disruption in the marketplace being caused by company announcements to leave the market, that this may take longer to occur and that the near-term effects of AICRA may continue to be more negative than originally forecast before improvement begins.

             As a result, Motor Club’s premium written to surplus ratio remains in excess of 3 to 1.  The increased submissions of NJ PPA business by producers that the Company is required to write, combined with the poor results of operations, increased the premium written to surplus ratio to 4.05 to 1 for the twelve months ended June 30, 2001.   The same ratio was 3.18 to 1 for the year ended December 31, 2000.  In addition, Motor Club’s liabilities in relation to its statutory surplus are at a level whereby adverse development of claims, particularly as a result of the impact of AICRA, could further reduce its surplus, thus decreasing its RBC ratios, possibly to a level which would require action as prescribed by law.  To date, the NJ DOBI has generally not been responsive to requests for rate increases or other regulatory relief based upon the impact of AICRA to companies, nor as noted has it implemented certain key aspects of AICRA which would provide relief to insurers such as Motor Club.

             On May 15, 2001, the Company was advised by the NJ DOBI that its April 30, 2001 application for take-all-comers relief had been denied.  Motor Club requested reconsideration of the decision, based on what it viewed as an incomplete evaluation of the facts and circumstances regarding its application by the NJ DOBI, including Motor Club’s first quarter results.

             On July 18, 2001, Motor Club was granted certain relief by the NJ DOBI with regard to its private passenger automobile operations. The relief is designed to improve Motor Club's deteriorating financial condition. Motor Club's premium to surplus ratio no longer meets industry standards, its share of urban enterprise zone ("UEZ") business (where it writes double its required amount) is disproportionately high, and A.M. Best recently downgraded Motor Club. The relief includes the immediate cessation of accepting new business in UEZ's, the non-renewal of a number of UEZ risks and relief from assigned risk business.  Motor Club is implementing the relief provided in the third quarter 2001.

             Accordingly, considering these elements, combined with New Jersey’s regulatory and legislative history, the enacted legislation, current judicial decisions, current rate freeze and ongoing volatility, we believe there are significant uncertainties with regard to our ongoing NJ PPA operations, which could adversely affect the Company. Consistent with our long-stated goal to increase our identification as a provider of small commercial lines insurance and expand and diversify our operations outside the State of New Jersey, we continue to review strategies to improve the profitability of our NJ PPA business and otherwise to add more value to our shareholders.

             Motor Club’s expense ratio declined in 2001 as compared to 2000 as a result of lower expenses and its rapid growth in premium.  In large part the decline in expenses is due to the economies of scale gained from the acquisition of Mountain Valley and North East.  We allocated approximately $1,048,000 in costs previously attributable to Motor Club to Mountain Valley and North East in 2001 without any significant increase in overall expenditures other than those noted below.  This allocation, combined with Motor Club’s own premium growth, accounts for the improvement in the expense ratio.

Other Revenues and Expenses

             The following table sets forth other revenues and expenses of the Company for each of the six and three months ended June 30:

	For the six months				For the three months				Percent change in the period
	ended June 30,				ended June 30,				ended June 30, 2001 vs. 2000
	2001		2000		2001		2000		Six months		Three months
Merger-related expenses	$	-	$	354,097	$	-	$	40,000	-100.0	%	-100.0	%
Other corporate, net	290,633		266,749		168,705		143,841		9.0	%	17.3	%
Interest expense	1,031,788		841,010		515,894		517,403		22.7	%	-0.3	%
Amortization of goodwill	42,348		42,348		21,174		21,174		-		-
Federal income tax	(54,805)		440,339		44,731		344,075		-112.4	%	-87.0	%

             The merger expenses relate to the acquisition of Mountain Valley in 2000.

             The increase in interest expense reflects the issuance of $11.5 million in Debt in February 2000, related to our acquisition of Mountain Valley.  Thus, the increase in the six months ended June 30, 2001 compared to 2000 is due to a full period charge in 2001, while the amount in 2000 was for a partial charge of the same item.

Liquidity and Capital Resources

             Liquidity is a measure of the ability to generate sufficient cash to meet cash obligations as they come due. Cash outflows can be variable because of uncertainties regarding settlement dates for liabilities for unpaid losses and because of the potential for large losses either individually or in the aggregate.

             As a holding company, the Company derives cash from its subsidiaries in the form of dividends, tax payments and management fees. The Company uses cash to pay debt service, Federal income taxes and operating expenses. We also may provide capital to our subsidiaries.  Maximum amounts of dividends that can be taken without regulatory approval are prescribed by statute (see Note K of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K).

             Deferred tax liabilities related to MCAIC (captioned as “Excess Loss Account” in the schedule of net deferred tax assets in Note J in the Notes to Consolidated Financial Statements) will likely be payable on the final liquidation of MCAIC by its Receiver, which the Company does not control.  It is not presently known when MCAIC’s final liquidation will occur, although the Company does anticipate that it will have approximately one year notice before this event occurs and that this should occur prior to 2006.  Accordingly, the Company may be required to seek financing depending on the timing and magnitude of this liability.

             Tax payments and management fees from the insurance subsidiaries are made under formal agreements that generally are subject to approval by state insurance departments.

             The Insurance Companies are highly liquid, receiving substantial cash from premiums, investment income, service fees and proceeds from sales and maturities of portfolio investments.  The principal outflows of cash are payments of claims, taxes, interest, operating expenses and dividends.  Accordingly, the Insurance Companies maintain investment and reinsurance programs generally intended to provide adequate funds to pay claims without forced sales of investments.  The Insurance Companies model their exposure to catastrophes and generally have the ability to pay claims without selling securities.  Even in years of greater catastrophe frequency, the Insurance Companies have been able to pay claims without liquidating any investments.  The Insurance Companies’ policy with respect to fixed maturity investments is to purchase only those that are of investment grade quality.

             See Note K of the Notes to Consolidated Financial Statements in the Company’s 2000 Annual Report on Form 10-K for additional discussion of the NAIC risk-based capital standards and Codification of Statutory Accounting Principles with an effective date of January 1, 2001.

             As a company with insurance subsidiaries that invests substantial sums in fixed income securities, we are accustomed to fluctuations in the value of our fixed income investments. We have identified one hundred percent of those investments as available for sale pursuant to SFAS 115.  Accordingly, changes in the value of those investments are recorded as other comprehensive income.  Because our investment portfolios are composed completely of securities which are generally highly liquid (i.e., U.S. government securities and investment grade corporate bonds), and that our credit reviews have not indicated any downgrades, there are no grounds to believe that any unrealized losses are other than temporary.  At June 30, 2001, the net unrealized gain on fixed maturity investments was approximately $745,000, net of deferred taxes.  In addition, the combination of the duration of the portfolio being sufficiently short (approximately 3.46 and 3.60 years at December 31, 2000 and 1999, respectively), combined with the highly liquid nature of those securities and our proclivity to hold those bonds to maturity (although they are classified as available-for-sale), the par value of those bonds should be fully realized at maturity, resulting in those unrealized gains and losses being temporary.

             In addition, we generally believe that the longer-term trend for future movements in interest rates is toward lower interest rates, which has occurred and has positively affected the value of fixed income investments and has converted those unrealized losses to unrealized gains. We believe the combination of economic circumstances, which are resulting in slower overall economic growth, modest inflation and real long-term interest rates that remain historically high, all combines to result in lower longer-term interest rate trends.

Operating and Investing Activities

             Net cash utilized in and provided by operating activities were $1,572,000 and $4,688,000 in the six months ended June 30, 2001 and 2000, respectively.  The decrease in cash flow from operating activities in the three months ended June 30, 2001 as compared to 2000 reflects the poorer results of operations and higher PPA paid losses by Motor Club.

             Excluding the acquisition of Mountain Valley in 2000, net cash utilized in investing activities was $4,990,000 in 2001 and $11,182,000 in 2000, reflecting the investment of cash provided by operating and financing activities.

Financing Activities

             The Company paid no dividend on its common stock in 2001 or 2000.

             The Company issued $11.5 million of Promissory Notes on February 28, 2000.

             The Company has no material outstanding capital commitments which would require additional financing.

Recent Accounting Standards

             In July 2001, the FASB issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS No. 141 requires the purchase method of accounting to be used for all future business combinations and contains provisions for the accounting for goodwill and intangible assets.  SFAS No. 142 is effective January 1, 2002 and will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead evaluated for impairment.

             At June 30, 2001, the Company has unamortized goodwill in the amount of $1,467,000 which will be subject to transition provisions of SFAS No. 141 and 142.  Amortization expense related to goodwill was $42,000 for both the six month periods ended June 30, 2001 and 2000.  The Company has not yet determined an estimate of the impact of adopting SFAS No. 141 and 142 on its financial statements at the date of this report.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

             This Report on Form 10-Q contains statements that are not historical facts and are considered “forward-looking statements” (as defined in the Private Securities Litigation Reform Act of 1995), which can be identified by terms such as “believes”, “expects”,  “may”, “will”, “should”, “anticipates”, the negatives thereof, or by discussions of strategy.  Certain statements contained herein are forward-looking statements that involve risks, uncertainties, opinions and predictions, and no assurance can be given that the future results will be achieved since events or results may differ materially as a result of risks facing the Company.  These include, but are not limited to, the cyclical nature of the property casualty insurance industry,  the impact of competition, product demand and pricing, claims development and the process of estimating reserves, the level of the Company’s retentions, catastrophe and storm losses, legislative and regulatory developments, changes in the ratings assigned to the Company by rating agencies, investment results, availability and cost of reinsurance, availability of  dividends from our insurance company subsidiaries, investing substantial amounts in our information systems and technology, the ability of our reinsurers to pay reinsurance recoverables owed to us, our entry into new markets, our acquisition of North East Insurance Company on September 24, 1999, our acquisition of Mountain Valley Indemnity Company on March 1, 2000, our successful integration of these acquisitions, potential future tax liabilities related to an insolvent subsidiary and state regulatory and legislative actions which can affect the profitability of certain lines of business and impede our ability to charge adequate rates, and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission, including this Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

             The Company's market risk generally represents the risk of gain or loss that may result from the potential change in the fair value of the Company's investment portfolio as a result of fluctuations in prices and interest rates. The Company attempts to manage its interest rate risk by maintaining an appropriate relationship between the average duration of the investment portfolio and the approximate duration of its liabilities.

             The company has maintained approximately the same duration of its investment portfolio to its liabilities from December 31, 2000 to June 30, 2001. In addition, the Company has maintained approximately the same investment mix during this period.

Item 4. Submission of Matters to a Vote of Security Holders

             The Company held its Annual Meeting of Shareholders on June 6, 2001. The total number of shares represented at the Annual Meeting in person or by proxy was 1,588,932 of the 2,124,387 shares of common stock outstanding and entitled to vote at the meeting. The meeting involved the election of directors for a term to expire at the Annual Meeting  of Shareholders to be held in the year 2002 and the restatement and amendment of the Company's Certificate of Incorporation to change the name of the Company to Preserver Group, Inc. The directors elected and the results of the voting are as follows:

(i) Election of Directors

Nominee	Votes For	Votes Withheld
Archer McWhorter	1,587,851	1,081
William E. Lobeck	1,587,851	1,081
Alvin E. Swanner	1,587,851	1,081
Stephen A. Gilbert	1,587,851	1,081
Patrick J. Haveron	1,587,851	1,081
Robert S. Fried	1,587,851	1,081
Malcolm Galatin	1,587,851	1,081
Archer McWhorter, Jr.	1,587,851	1,081

(ii) Restate and Amend Certificate of Incorporation to Change Name to Preserver Group, Inc.

Votes For	Votes Against, Abstained or Withheld
1,583,650	5,282

             No other matters were voted on at the Annual Meeting. At the Board of Directors meeeting following the Annual Meeting, the Board elected George P. Farley to the Board of Directors to comply with the new audit committee composition requirements of Nasdaq's corporate governance and shareholder protection rules.

PART II
OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8–K
	a)	Exhibits
				None
	b)	Reports on Form 8-K
	During the quarter ended June 30, 2001, the Company filed the following Reports on Form 8-K:
	1.		Report dated April 3, 2001 with respect to a press release announcing income before Federal income taxes as of December 31, 2000 and that the Company's audit was incomplete pending review of a tax item.
	2.		Report dated April 17, 2001 with respect to a press release announcing net income for the fourth quarter and year ended December 31, 2000 and the restatement of the Company's 1999 and 1998 results for a complex tax item related to a subsidiary that was rendered insolvent in 1992, but is still required to continue to be included in the Company's consolidated Federal tax returns.
	3.		Report dated April 30, 2001 with respect to a press release announcing the Company's plan to  change its name to Preserver Group, Inc. after shareholder approval at the Company's Annual meeting of shareholders on June 6, 2001, that it had reserved a new stock symbol for the Company, "PRES", and that its Motor Club of America  Insurance company unit had filed for relief from take-all-comers laws in new Jersey personal automobile insurance.
	4.		Report dated May 17, 2001 with respect to a press release announcing results of operations for the Company for the first quarter 2001 and additional information on the Company's Motor Club of America Insurance Company units take-all-comers relief application in New Jersey private passenger automobile.

SIGNATURES

             Pursuant to the requirements 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.

		PRESERVER GROUP, INC.
		s/Patrick J. Haveron
		By:	Patrick J. Haveron
			Executive Vice President,
				Chief Executive Officer
				and Chief Financial Officer
		s/Francis J. Fenwick
		By:	Francis J. Fenwick
				Vice President - Finance
				Chief Accounting Officer
Dated:	August 14, 2001