The property and casualty insurance industry is highly competitive, and except for certain regulatory considerations, there are relatively few barriers to entry.

Property insurance covers a policyholder whose property is damaged or destroyed by a covered risk. The loss is the reduction in the value of the property being insured after the covered risk has occurred. Liability, also known as casualty, insurance covers a policyholder’s liability resulting from a covered risk in the form of an act or omission that causes bodily injury or property damage to a third party. In liability insurance, the loss is the amount of the claim or payment made on the policyholder’s behalf.

Short-tail liability is liability for losses which become known to the policyholder and are reported to the insurance company within a short period of time, generally within the policy period or within one or two years of expiration. Conversely, longer-tail liability is liability for losses that may take many years before they become known to the policyholder and are reported as claims.

Most property and casualty insurance policies are purchased from insurance companies that are licensed to write insurance in the state in which the policy was sold. These companies are admitted to do business in the state by its insurance department, and therefore are generally known as admitted companies. Admitted companies’ insurance rates and forms are regulated by state insurance departments. In contrast, non-admitted companies, also known as surplus lines companies, are not licensed in the particular state. They provide coverage for risks that either do not fit the underwriting criteria of admitted carriers or are of such a class of risk that the admitted carriers in that state generally avoid them altogether, often due to the difficulty of insuring these risks in an environment where rates and forms are regulated.

The Company’s specialty commercial insurance lines consist primarily of coverages for liquor liability, property, general liability, commercial multi-peril and commercial automobiles. The Company’s insurance policies are sold to targeted small and mid-sized businesses on a single or multiple-coverage basis. Liquor liability laws require a business that sells alcoholic beverages to be responsible for bodily injury or property damage caused by its customers to a third party. Insurance coverage for this exposure is referred to as liquor liability insurance. The Company’s liquor liability insurance policies provide limits generally ranging from $50,000 to $100,000 per occurrence.

General liability covers a policyholder’s liability resulting from a covered risk in the form of an act or omission of the policyholder that causes bodily injury or property damage to a third party. The Company’s general liability policies usually provide for defense and related expenses in addition to per occurrence and aggregate policy limits. The Company’s general liability insurance policies have varying limits, with the majority of its policies having limits of $1.0 million or less. Property insurance covers a policyholder whose property is damaged or destroyed by a covered risk. The Company’s property insurance policies have varying limits, with the majority of such policies having limits of $1.0 million or less.

Commercial multi-peril, also known as CMP, is composed of two or more coverages including property, commercial automobile, boiler and machinery and general liability, and is tailored to the policyholder’s needs. Businessowners policies, also known as BOP, are included within the Company’s CMP line and combine property, liability and business interruption coverage to cover expenses of a small business resulting from damage to the business’ property or the acts or omissions of the business that cause damage to a third party. Commercial automobile policies provide physical damage and other liability coverage for activities involving company-owned vehicles. The Company’s commercial automobile insurance policies generally provide combined bodily injury and property damage limits of $1.0 million.

The Company also offers selected specialty personal insurance products. The Company currently offers non-standard homeowners insurance and dwelling/fire insurance products to individuals in Indiana and Illinois. Non-standard personal automobile insurance provides coverage to drivers who find it difficult to obtain insurance from standard insurance companies due to a lack of prior insurance, failure to maintain continuous coverage, age, prior accidents, driving violations, type of vehicle or limited financial resources. Typically, the Company’s non-standard personal automobile insurance policies have been issued for six months and for the minimum limits of coverage mandated by state law.

Net premiums written for the year ended December 31, 2004 were $80.5 million as compared to $76.2 million the year ended December 31, 2003, an increase of $4.3 million, or 5.6%.

Net premiums earned for the year ended December 31, 2004 were $77.0 million as compared to $68.7 million for the year ended December 31, 2003, an increase of $8.3 million, or 12.1%.

Net investment income for the year ended December 31, 2004 was $2.4 million as compared to $2.2 million for the year ended December 31, 2003, an increase of $203,000, or 9.2%.

Net income for the year ended December 31, 2004 was $11.4 million as compared to $6.6 million for the year ended December 31, 2003, an increase of $4.8 million, or 72.7%.