OVERVIEW

We are a distributor and producer of non-standard personal automobile insurance policies and related products and services for individual consumers in targeted geographic markets. Non-standard personal automobile insurance policies provide coverage to drivers who find it difficult to obtain insurance from standard automobile insurance companies due to their lack of prior insurance, age, driving record, limited financial resources or other factors. Non-standard personal automobile insurance policies generally require higher premiums than standard automobile insurance policies for comparable coverage.

As of September 30, 2008, our subsidiaries included insurance companies licensed to write insurance policies in 40 states, underwriting agencies, and retail agencies with 222 owned stores and 32 operating franchise retail store locations and relationships with two unaffiliated underwriting agencies. We are currently active in offering insurance directly to individual consumers through retail stores in 10 states (Louisiana, Texas, Illinois, Alabama, Florida, Missouri, Indiana, South Carolina, Kansas and Wisconsin), including our franchised stores in Florida, and distributing our own insurance policies through 7,900 independent agents in 10 states (Louisiana, Texas, Illinois, California, Michigan, Florida, Missouri, Indiana, South Carolina and New Mexico). The 13 states in which we operate collectively represent approximately 58% of the non-standard personal automobile insurance market. We believe the states in which we operate are among the most attractive non-standard personal automobile insurance markets due to a number of factors, including size of market and existing regulatory and competitive environments.

We believe that the delivery of non-standard personal automobile insurance policies to individual consumers requires the interaction of three basic operations, each with a specialized function:

• Insurance companies, which possess the regulatory authority and capital necessary to issue insurance policies;

• Underwriting agencies, which supply centralized infrastructure and personnel required to design and service insurance policies that are distributed through retail agencies; and

• Retail agencies, which provide multiple points of sale under established local brands with personnel licensed and trained to sell insurance policies and ancillary products to individual consumers.

Our three operating components often function as a vertically integrated unit, capturing the premium and associated risk and commission income and fees generated from the sale of an insurance policy. There are other instances, however, when each of our operations functions with unaffiliated entities on an unbundled basis, either independently or with one or both of the other two operations.

We believe that our ability to enter into a variety of business relationships with third-parties allows us to maximize sales penetration and profitability through industry cycles better than if we employed a single, vertically integrated operating structure.

CRITICAL ACCOUNTING POLICIES

There have been no changes of critical accounting policies since December 31, 2007.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which requires most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at full fair value. SFAS No. 141R also requires, among other things, the acquisition costs to be expensed in the periods they are incurred, the contingent considerations resulting from events after the acquisition date to be measured and recognized at the acquisition date fair value with subsequent changes recognized in earnings, and the change in deferred tax benefit that are recognizable because of a business combination to be recognized either in income or directly in contributed capital in the period of business combination. SFAS No. 141R is effective for business combinations occurring after December 15, 2008. SFAS No. 141R could have a material impact on our results of operations or financial condition for any business combinations in the future.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment to FASB Statement No. 133. SFAS No. 161 amends and expands the disclosure requirements of Statement 133 in order to

provide users of financial statements with enhanced disclosures about an entity's derivative and hedging activities and thereby improving the transparency of financial reporting. To meet these objectives, SFAS No. 161 requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We do not expect SFAS No. 161 to have a material impact on our results of operations or financial condition.

MEASUREMENT OF PERFORMANCE

We are an insurance holding company engaged in the underwriting, servicing and distributing of non-standard personal automobile insurance policies and related products and services. We distribute our products through three distinct distribution channels: our owned retail stores, independent agents and unaffiliated managing general agencies. We generate earned premiums and fees from policyholders through the sale of our insurance products. In addition, through our owned retail stores, we sell insurance policies of third-party insurers and other products or services of unaffiliated third-party providers and thereby earn commission income from those third-party providers and insurers and fees from customers.

As part of our corporate strategy, we treat our owned retail stores as independent agents, encouraging them to sell to their individual customers those products that are appropriate for and affordable to those customers. We believe that this offers our retail customers the best combination of service and value, developing stronger customer loyalty and improving customer retention. In practice, this means that in our owned retail stores, the relative proportion of the sales of our own insurance products as compared to the sales of the third-party policies will vary depending upon the competitiveness of our insurance products in the marketplace during the period. This reflects our intention of maintaining the margins in our insurance company subsidiaries, even at the cost of business lost to third-party carriers.

The market conditions for the past several years have put downward pressure on industry rate levels. Our insurance company subsidiaries have continued developing and introducing new and better segmented products to serve our target markets.

In the independent agency distribution channel and the unaffiliated managing general agency (MGA) distribution channel, the effect of competitive conditions is the same as in our owned retail store distribution channel. As in our retail stores, independent agents (either working directly with us or through unaffiliated MGAs) not only offer our products but also offer their customers a selection of products by third-party carriers. Therefore, our insurance products must be competitive in pricing, features, commission rates and ease of sale or the independent agents will sell the products of those third-parties instead of our products. We believe that we are generally competitive in the markets we serve, and we constantly evaluate our products relative to those of other carriers.

Premiums. One measurement of our performance is the level of gross premiums written and a second measurement is the relative proportion of premiums written through our three distribution channels. The following table displays our gross premiums written and assumed by distribution channel for the three and nine months ended September 30, 2008 and 2007 (in thousands):

                                          Three Months Ended        Nine Months Ended
                                            September 30,             September 30,
                                           2008        2007         2008         2007
   Our underwriting agencies:
   Retail agencies                      $   54,082   $  61,771   $  180,787   $  199,308
   Independent agencies                     28,905      37,883       95,713      124,937

   Subtotal                                 82,987      99,654      276,500      324,245

   Unaffiliated underwriting agencies        6,428       9,155       23,304       29,870


   Total                                $   89,415   $ 108,809   $  299,804   $  354,115

Total gross premiums written for the three months and nine months ended September 30, 2008 decreased $19.4 million and $54.3 million, respectively or 17.8% and 15.3%, respectively compared with the same periods of the prior year primarily due to macroeconomic effects including higher fuel and food prices, the deterioration of the labor market and the ongoing competitive impact that has created a "soft" market. In October 2008, our gross premiums written production was $33.1 million, which was the highest for any month since the first quarter. This increase could have been attributable to the significant decline in fuel prices in October. In our retail distribution channel, gross premiums written consist of premiums written for our affiliated insurance carriers' products only and do not include premiums written for third-party insurance carriers in our retail and franchised stores. We earn commission income and fees in our retail distribution channel for sales of third-party insurance policies. Gross premiums written in our retail distribution channel for the three and nine month ended September 30, 2008 decreased $7.7 million and $18.5 million, respectively, or 12.4% and 9.3%, respectively when compared with the prior year.

In our independent agency distribution channel, gross premiums written for the three and nine months ended September 30, 2008 decreased $9.0 million and $29.2 million, respectively, or 23.7% and 23.4%, compared with the prior year. The decrease is due to the overall decline in premium volumes.

Gross premiums written by our unaffiliated agencies for the three months and nine months ended September 30, 2008 decreased $2.7 million and $6.6 million, respectively or 29.8% and 22.0%, compared with the prior year. For strategic reasons, we have chosen to reduce our emphasis on growth in the unaffiliated underwriting agencies distribution channel.

The following table displays our gross premiums written and assumed, by state, for the three and nine months ended September 30, 2008 and 2007 (in thousands):

                                    Three Months Ended September 30,             Nine Months Ended September 30
                                   2008            2007          Change           2008          2007       Change

Louisiana                       $    33,774    $     35,211     $  (1,437 )   $    107,583    $ 112,661   $  (5,078 )
Texas                                15,003          17,062        (2,059 )         50,212       55,806      (5,594 )
Illinois                             11,903          15,806        (3,903 )         41,434       53,652     (12,218 )
California                            6,308           8,910        (2,602 )         22,905       28,731      (5,826 )
Alabama                               6,945           6,137           808           21,932       17,707       4,225
Florida                               4,813           9,222        (4,409 )         16,287       25,953      (9,666 )
Michigan                              3,850           5,608        (1,758 )         13,175       19,202      (6,027 )
Missouri                              1,750           3,561        (1,811 )          7,884       13,109      (5,225 )
Indiana                               2,255           2,755          (500 )          7,814       10,934      (3,120 )
South Carolina                        1,825           3,204        (1,379 )          7,322       11,274      (3,952 )
New Mexico                              869           1,089          (220 )          2,856        3,947      (1,091 )
Arizona                                  60             156           (96 )            218          708        (490 )
Georgia                                  58              85           (27 )            181          298        (117 )
Utah                                      -              (2 )           2                -          128        (128 )
Other                                     2               5            (3 )              1            5          (4 )


Total                           $    89,415    $    108,809     $ (19,394 )   $    299,804    $ 354,115   $ (54,311 )

The following table displays our net premiums written by distribution channel for the three and nine months ended September 30, 2008 and 2007 (in thousands):

                                                   Three Months Ended            Nine Months Ended
                                                      September 30,                September 30,
                                                    2008          2007          2008           2007

Our underwriting agencies:
Retail agencies - gross premiums written         $   54,082     $ 61,771     $  180,787     $  199,308
Ceded reinsurance                                   (10,179 )     (9,870 )      (32,354 )      (20,683 )

Subtotal retail agencies net premiums written        43,903       51,901        148,433        178,625


Independent agencies - gross premiums written        28,905       37,883         95,713        124,937
Ceded reinsurance                                      (402 )       (660 )       (1,541 )       (3,111 )

Subtotal independent agencies net premiums
written                                              28,503       37,223         94,172        121,826


Unaffiliated underwriting agencies - gross
premiums written                                      6,428        9,155         23,304         29,870
Ceded reinsurance                                       (58 )        (85 )         (181 )         (298 )

Subtotal unaffiliated underwriting agencies
net premiums written                                  6,370        9,070         23,123         29,572


Catastrophe and contingent coverage with
various reinsurers                                     (109 )          -           (528 )            -
Other, net                                               59         (955 )            -           (955 )


Total net premiums written                       $   78,726     $ 97,239     $  265,200     $  329,068

Total net premiums written for the three months ended September 30, 2008 decreased $18.5 million, or 19.0%, compared with the prior year quarter. Total net premiums written for the nine months ended September 30, 2008 decreased $63.9 million, or 19.4%, compared with the prior year period. For the three months ended September 30, 2008, net premiums written in our retail distribution channel decreased $8.0 million, or 15.4%, compared with the same period in the prior year. For the nine months ended September 30, 2008, net premiums written in our retail distribution channel decreased $30.2 million, or 16.9%, compared with the same period in the prior year. The decrease in the nine-month period was partially due to our exercise of an option to terminate certain reinsurance contracts on a "cut-off" basis on April 1, 2007. As a result, we received $31.0 million to settle the unearned premiums less ceding commissions. In addition on April 1, 2007, our retention increased from 30% to 75% in Louisiana and from 25% to 75% in Alabama on policies issued in those two states.

RESULTS OF OPERATIONS

The following table sets forth the components of consolidated statements of
income as a percentage of total revenues and certain operational information for
the periods indicated (in thousands):



                                               Three Months Ended              Nine Months Ended
                                                 September 30,                   September 30,
                                             2008             2007            2008            2007

Revenues
Net premiums earned                             79.9 %           80.1 %          79.4 %          79.1 %
Commission income and fees                      17.4             16.7            17.4            17.8
Net investment income                            2.7              3.2             3.2             3.2
Net realized gains (losses)                      0.0              0.0             0.0            (0.1 )


Total revenues                                 100.0            100.0           100.0           100.0


Expenses
Losses and loss adjustment expenses             64.5             58.1            61.0            57.9
Selling, general and administrative
expenses                                        35.6             30.6            32.1            32.0
Depreciation and amortization                    2.6              2.0             2.2             2.3
Other intangible assets impairment               4.2                -             1.3               -
Interest expense                                 3.9              4.8             4.1             5.0


Total expenses                                 110.8             95.5           100.7            97.2


Income (loss) before income tax expense
(benefit)                                      (10.8 )            4.5            (0.7 )           2.8

Income tax expense (benefit)                    (4.8 )            0.7            (0.8 )           0.6


Net income (loss)                               (6.0 )%           3.8 %           0.1 %           2.2 %


Operational Information
Gross premiums written                     $  89,415       $  108,809      $  299,804      $  354,115
Net premiums written                          78,726           97,239         265,200         329,068
Percentage retained                             88.0 %           89.4 %          88.5 %          92.9 %

Loss ratio                                      80.6 %           72.5 %          76.9 %          73.2 %
Expense ratio                                   26.1             19.8            21.2            20.8


Combined ratio                                 106.7 %           92.3 %          98.1 %          93.9 %


Effective tax rate                              44.4 %           16.4 %         113.5 %          22.5 %

We had a net loss for the three months ended September 30, 2008 of $6.6 million, compared with net income of $4.8 million for the three months ended September 30, 2007. For the first nine months of 2008, the Company reported net income of $0.3 million, compared with net income of $8.2 million for the same period in 2007.

Significant items impacting the three months ended September 30, 2008 results were as follows:

• A pretax impairment loss for other intangible assets of $4.6 million related to the Company's Florida operations.

• Pretax catastrophe losses from Hurricanes Gustav and Ike totaling $2.5 million, which was comprised of $1.9 million of loss expense and $0.6 million of additional ceding commission expense.

• Adverse loss reserve development from prior years, net of contingent commissions, totaling $2.0 million, related to our Florida operations.

• Current accident year loss expense increase of $1.7 million related to our Florida operations.

Comparison of the Three Months Ended September 30, 2008 to the Three Months Ended September 30, 2007

Total revenues for the three months ended September 30, 2008 decreased $20.1 million, or 15.5%, compared with the three months ended September 30, 2007. The decrease was due to decreases in net earned premium, commission income and fees and investment income.

The largest component of revenue is net premiums earned on insurance policies issued by our insurance carriers. Net premiums earned for the current quarter decreased $16.3 million, or 15.7%, compared with the prior year quarter. Since insurance premiums are earned over the service period of the policies, the revenue in the current quarter includes premiums earned on insurance products written through our distribution channels in both current and previous periods. Net premiums earned during the current quarter on policies sold through our affiliated underwriting agencies (including retail and independent agencies) decreased by $13.8 million, or 14.7%. This decrease was primarily due to lower revenue related to sales of our insurance products due to the decline in production and the macroeconomic effects including higher fuel and food prices and the deterioration of the labor market and the ongoing competitive impact that has created a "soft" market. Net premiums earned on insurance products sold through the unaffiliated underwriting agencies distribution channel decreased by $2.5 million, or 25.3%, compared with the prior year quarter. For strategic reasons, we have chosen to reduce our emphasis on the unaffiliated underwriting agencies distribution channel.

The following table sets forth net premiums earned by distribution channel for the current quarter and the prior year quarter (in thousands):

                                                      Three Months Ended
                                                         September 30,
                                          2008         2007       $ Change     % Change
   Our underwriting agencies
                                        $  80,039   $   93,841   $  (13,802)    (14.7)%
   Unaffiliated underwriting agencies       7,472       10,009       (2,537)   (25.3)


   Total net premiums earned            $  87,511   $  103,850   $  (16,339)    (15.7)%

Commission Income and Fees. Another measurement of our performance is the relative level of production of commission income and fees. Commission income and fees consists of (a) policy, installment, premium finance, franchise, royalty and agency fees earned for business written or assumed by our insurance companies both through independent agents and our retail agencies and (b) the commission income earned on sales of unaffiliated, third-party companies' insurance polices or other products sold by our retail agencies. These various types of commission income and fees are impacted in different ways by the decisions we make in pursuing our corporate strategy.

Policy, installment, premium finance, franchise, royalty and agency fees are earned for business written or assumed by our insurance companies both through independent agents and our retail agencies. Policy, installment and agency fees are fees charged to the customers in connection with their purchase of coverage from our insurance carriers. Subject to statutory and regulatory limits in certain states, we can increase or decrease agency and installment fees at will. However, policy fees and interest rates must be approved by the applicable state's department of insurance. Premium finance fees are financing fees earned by our premium finance subsidiaries, and consist of interest and origination fees on policies that customers choose to finance. Franchise and royalty fees are earned from our franchised stores in Florida, but are not significant to our financial results.

Commissions are earned on sales of unaffiliated, third-party companies' products sold by our retail agencies. As described above, in our owned retail stores there can be a shift in the relative proportion of the sales of third-party insurance products as compared to sales of our own carriers' products due to the relative competitiveness of our insurance products that could result in an increase in our commission income and fees from non-affiliated third-party insurers. We negotiate commission rates with the various third-party carriers whose products we agree to sell in our retail stores. As a result, the level of third-party commission income will also vary depending upon the mix by carrier of third-party products that are sold. In addition, we earn fees from the sales of other products and services such as tax preparation services, auto club memberships and bond cards offered by unaffiliated companies.

The following sets forth the components of consolidated commission income and fees earned for the current quarter and the prior year quarter (in thousands):

                                                                     Three Months Ended
                                                                       September 30,
                                                         2008         2007       $ Change     % Change

Income related to sales of our insurance products:
Policyholder fee income                               $  10,941     $  12,891    $ (1,950)       (15.1 )%
Premium finance revenue                                   4,594         4,539          55          1.2
Agency fees                                                 643           668         (25)        (3.7 )

Subtotal                                                 16,178        18,098      (1,920)       (10.6 )

Income related to sales of third-party products:
Commissions and fees                                      2,605         2,734        (129)        (4.7 )
Agency fees                                                 398           430         (32)        (7.4 )

Subtotal                                                  3,003         3,164        (161)        (5.1 )

Other, net                                                  (85)          398        (483)      (121.4 )


Total commission income and fees                      $  19,096     $  21,660    $ (2,564)       (11.8 )%

Commission income and fees related to sales of our insurance products decreased $1.9 million, or 10.6%, compared with the prior-year quarter. The decrease was primarily due to a decline in policyholder fees due to the decline in premium production.

Commission income and fees related to sales of third-party products decreased $0.2 million, or 5.1%, compared with the prior-year quarter. This decrease was primarily due to the macroeconomic and soft market condition that affected the Company's own premium production.

Other commission income and fees decreased $0.5 million, or 121.4% with the prior-year quarter. The decrease was primarily due to commission income and fees earned by our underwriting agencies on business that is not written or retained by us. We have substantially eliminated reinsurance contracts with our underwriting agencies and, as a result, this income source has almost been eliminated

Net Investment Income. Net investment income for the current quarter decreased $1.2 million, or 29.0%, compared with the prior year quarter. The decrease was primarily due to a lower invested balance and decreases in yield. Our . . .