The property and casualty insurance industry provides protection from covered loss events, such as damage to property or liability claims by third parties. Property and casualty insurance can be broadly classified into personal lines, in which insurance is provided to individuals, and commercial lines, in which insurance is provided to business enterprises. In the United States, personal and commercial insurance products are written in admitted and non-admitted markets.

In the admitted market, insurance rates and forms are generally highly regulated, coverages tend to be standardized and carriers are subject to assessments by state insurance departments.

The non-admitted market, also known as the excess and surplus lines market, focuses on harder-to-place risks that admitted insurers typically do not underwrite. Non-admitted carriers are not subject to the same degree of regulatory oversight as admitted insurers, and excess and surplus lines business is underwritten with more flexible policy forms and rates, which can result in more restrictive and expensive coverages. Non-admitted insurers generally are only permitted to underwrite business once coverage has been denied in the admitted market.

The property and casualty industry has historically been subject to cyclical fluctuations in pricing and availability of insurance coverage. Markets characterized by excess underwriting capital typically feature significant price competition, erosion of underwriting discipline and poor operating performance. These market conditions generally lead to a period of diminished underwriting capacity after insurance companies exit unprofitable lines and exhibit greater underwriting discipline, increase premium rates and implement more restrictive policy terms and conditions.

The Company’s homeowners products are multi-peril policies covering property and liability losses for homeowners, renters and condominium owners. The Company’s products cover losses to the home and its contents, insure against personal liability claims and provide for reimbursement of certain medical expenses. All policies are subject to predetermined exclusions, sub-limits and deductibles.

The Company primarily underwrites Specialty Homeowners business in Florida, South Carolina and Texas, with dwelling limits ranging from $50,000 to $750,000, depending on the state. Deductibles vary by risk location, ranging from 1% to 10% of the replacement value of the insured property, subject to a $1,000 minimum.

The Company offers its Residential Earthquake products primarily on an admitted basis in California, Oregon and Washington. The Company’s products insure against damage to the home and personal property and reimburse for temporary housing costs in the event of an earthquake. The Company does not cover damage caused by fire following an earthquake, which is typically covered by a policyholder’s separate homeowners policy.

The Company currently underwrites policies with coverage limits up to $1,500,000 for homeowners and $500,000 for condominium owners. All policies are subject to predetermined exclusions, such as fire following an earthquake, sub-limits, such as $5,000 for swimming pool enclosures, and deductibles.

Net premiums earned were $152.5 million for 2006, representing an increase of $118.1 million, or 343.3%, compared to $34.4 million for 2005.

Net investment income was $18.2 million for 2006, representing an increase of $11.9 million, or 188.9%, compared to $6.3 million for 2005.

Interest expense was $6.7 million for 2006, representing an increase of $5.7 million, compared to $1.0 million for 2005.

Net income for the year ended December 31, 2006 was $35.5 million, representing an increase of $21.0 million, compared to $14.5 million for 2005.