Forward-Looking Statements

This quarterly report may provide information including certain statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include statements regarding the intent, belief, or current expectations of management, including, but not limited to, those statements that use the words "believes," "expects," "anticipates," "estimates," or similar expressions. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: the frequency and severity of claims; uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, availability or collectibility of reinsurance; increased rate pressure on premiums; ability to obtain rate increases in current market conditions; investment rate of return; changes in and adherence to insurance regulation; actions taken by regulators, rating agencies or lenders; attainment of certain processing efficiencies; changing rates of inflation; general economic conditions and other risks identified in our reports and registration statements filed with the Securities and Exchange Commission. We are not under any obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements whether as a result of new information, future events or otherwise.

Business Overview

We are a publicly traded specialty risk management organization offering a full range of insurance products and services, focused on niche and specialty program business, which we believe is under served by the standard insurance market. Program business refers to an aggregation of individually underwritten risks that have some unique characteristic and are distributed through a select group of focused general agencies, retail agencies and program administrators. We perform the majority of underwriting and claims services associated with these programs. We also provide property and casualty insurance coverage and services through programs and specialty risk management solutions for agents, professional and trade associations, public entities and small to medium-sized insureds. In addition, we also operate as an insurance agency representing unaffiliated insurance companies in placing insurance coverages for policyholders. We define our business segments as specialty risk management operations and agency operations.

On July 31, 2008, the merger of Meadowbrook Insurance Group, Inc. and ProCentury Corporation ("ProCentury") was completed ("Merger"). Under the terms of the merger agreement, ProCentury shareholders were entitled to receive, for each ProCentury common share, either $20.00 in cash or Meadowbrook common stock based on a 2.5000 exchange ratio, subject to adjustment as described within the merger agreement. In accordance with the merger agreement, the stock price used in determining the final cash and share consideration portion of the purchase price was based on the volume-weighted average sales price of a share of Meadowbrook common stock for the 30-day trading period ending on the sixth trading day before the completion of the Merger, or $5.7326. Based upon the final proration, the total purchase price was $227.2 million, of which $99.1 million consisted of cash, $122.7 million in newly issued common stock, and approximately $5.4 million in transaction related costs. The total number of common shares issued for purposes of the stock portion of the purchase price was 21.1 million shares.

ProCentury is a specialty insurance company, which primarily underwrites general liability, commercial property, commercial multi-peril, commercial auto, surety, and marine insurance in the excess and surplus lines market through a select group of general agents. The excess and surplus lines market provides an alternative market for customers with hard-to-place risks that insurance companies licensed by the state in which the insurance policy is sold, also referred to as standard insurers or admitted insurers, typically do not cover.

Two months of earnings of ProCentury are included in our financial statements as of and for the three and nine months ended September 30, 2008.

Critical Accounting Policies

In certain circumstances, we are required to make estimates and assumptions that affect amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions on an on-going basis based on a variety of factors. There can be no assurance, however, that actual results will not be materially different than our estimates and assumptions, and that reported results of operation will not be affected by accounting adjustments needed to reflect changes in these estimates and assumptions. The accounting estimates and related risks described in our Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission on March 17, 2008, are those that we consider to be our critical accounting estimates. For the three months and nine months ended September 30, 2008, there have been no material changes in regard to any of our critical accounting estimates.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

Executive Overview

Over the past three months, there have been many well-documented events that have occurred in the global economy and financial markets, some of which have adversely impacted our results within the third quarter. Among those events was the impact on our investment portfolio primarily because of impairments we recorded related to preferred stock investments in Fannie Mae, Freddie Mac, and Lehman Brothers. In addition, ProCentury's results for the two months included property losses from Hurricanes Gustav and Ike. In spite of these unusual factors, our core operating results continue to be favorable. These favorable factors include the positive impact from our continued selective growth, as well as our adherence to strict corporate underwriting guidelines, recognition of the anticipated expense savings from the elimination of the fronting fees paid prior to achievement of our A.M. Best upgrade to "A- " (Excellent), as well as a focus on current accident year price adequacy. In addition, we continue to experience a favorable impact due to the further leveraging of our fixed costs, which has helped to reduce our expense ratio. Our generally accepted accounting principles ("GAAP") combined ratio improved 1.7 percentage points to 94.0% for the nine months ended September 30, 2008, from 95.7% in 2007. Net operating income, excluding amortization, increased $9.1 million, or 41.2%, to $31.2 million, compared to $22.1 million in 2007.

Unconsolidated pre-tax income, excluding amortization, relating to our fee-for-service business, which includes management fees paid by our Insurance Company Subsidiaries, was $10.0 million, or a 13.2% margin for the nine months ended September 30, 2008, compared to $10.0 million, or a 13.6% margin in 2007.

Gross written premium increased $61.0 million, or 23.6%, to $319.3 million, compared to $258.2 million in 2007. Included in this increase was $37.8 million in gross written premiums related to ProCentury. Excluding the gross written premiums related to ProCentury, the increase was primarily the result of growth in new business related to programs implemented in late 2007 and early 2008. During the nine months ended September 30, 2008, new business was up $29.0 million and we anticipate this growth to continue through the remainder of the year as the annualized premiums of these programs continue to be realized. In addition, we continue to experience selective growth within existing programs consistent with our corporate underwriting guidelines and our controls over price adequacy. Offsetting this growth, was the loss of one program in which our pricing and financial targets were higher than our competition.

On January 31, 2008, we exercised our option to purchase the remainder of the economics related to the acquisition of the USSU business in April 2007, by terminating the Management Agreement with the former owners for a payment of $21.5 million. As a result of this purchase, we recorded an increase to other intangible assets of approximately $11.4 million and an increase to goodwill of approximately $10.1 million.

As of September 30, 2008, we recorded an overall reclassification of other intangible assets and goodwill. This reclassification was the result of a refinement to the original valuation analysis completed at the time of purchase of the remaining economics related to the termination of the Management Agreement with USSU. This adjustment to the valuation analysis resulted in a decrease in other intangible assets and a corresponding increase to goodwill of $6.5 million.

On June 4, 2008, we announced the affirmation of A.M. Best Company's financial strength rating of "A- " (Excellent) for our Insurance Company Subsidiaries.

On July 31, 2008, we completed our Merger with ProCentury. The total purchase price, as determined under GAAP, was $227.2 million, of which $99.1 million consisted of cash, $122.7 million in newly issued common stock, and approximately $5.4 million in transaction related costs. The total number of common shares issued for the stock portion of the purchase price was approximately 21.2 million shares. The purchase price was calculated based upon the volume-weighted average sales price of a share of our common stock for the 30-day trading period ending the sixth trading day prior to completing the merger, or $5.7326. We financed the cash portion of the merger consideration with a combination of an $18.8 million dividend from our insurance company subsidiary, Star Insurance Company, available cash of $12.6 million, and loan proceeds of approximately $67.8 million.

As of September 30, 2008, we recorded $48.8 million in goodwill in relation to the ProCentury merger. In addition, we recorded an increase to other intangible assets of approximately $21.0 million and $5.0 million related to agent relationships and trade names, respectively.

Results of Operations

Net income for the nine months ended September 30, 2008, decreased 4.7% to $19.7 million, or $0.48 per dilutive share, compared to net income of $20.7 million, or $0.65 per dilutive share, for the comparable period of 2007. Net operating income, a non-GAAP measure, increased $5.8 million, or 27.7%, to $26.5 million, or $0.65 per dilutive share, compared to net operating income of $20.8 million, or $0.65 per dilutive share for the comparable period in 2007, with lower weighted average shares outstanding. Total weighted average shares outstanding for the nine months ended September 30, 2008 were 40,657,894, compared to 31,761,244 for the comparable period in 2007. This increase in the weighted average shares is primarily the result of the equity issued in connection with the ProCentury merger, as well as a full year impact of the equity issued in July 2007 related to our capital raise.

Net income for the nine months ended September 30, 2008, was primarily impacted by after-tax realized losses of $6.9 million, or $0.17 per diluted share, as a result of the other than temporary impairments of Freddie Mac, Fannie Mae, and Lehman Brothers preferred stock, described in more detail below. In addition, net income for the nine months ended September 30, 2008, includes the after-tax impact of the catastrophe losses related to Hurricanes Gustav and Ike of $5.4 million, or $0.13 per diluted share. In addition, net income included amortization expense of $4.6 million, compared to $1.3 million in 2007. Excluding the impact from the impairments and the catastrophe losses, net income would have increased in comparison to 2007. We have experienced improvements in our expense ratio as we continue to benefit from the elimination of the fronting fees associated with our prior use of an unaffiliated insurance carrier's "A" rated policy forms. Our expense ratio also benefited by our ability to further leverage our fixed costs in the management company. In addition, net investment income increased 28.8% to $24.7 million. Somewhat offsetting these positive variables was a substantial increase in amortization expense related to the acquisition of the USSU business in 2007 and 2008 and an increase in other administrative expenses related to the management fee paid to the former owners of USSU, which was eliminated effective January 31, 2008. We continue to see favorable prior accident reserve development, as well as selective premium growth consistent with our corporate underwriting guidelines and our controls over price adequacy.

Revenues for the nine months ended September 30, 2008, increased $44.2 million, or 17.4%, to $298.5 million, from $254.3 million for the comparable period in 2007. This increase reflects a $47.6 million increase in net earned premiums, of which $31.0 million related to ProCentury. Excluding the net earned premiums related to ProCentury, the increase was primarily the result of overall growth within our existing programs and new business we began underwriting in 2007 and 2008. Our overall net commissions and fees were down 4.7%, or $1.6 million. This decrease was primarily the result of a decrease in fees related to our New England-based programs, related to a decrease in premium volume due to reduced rates in the self-insured markets on which the fees are based, because of mandatory rate reductions and an increase in competition. In addition, this decrease reflects slightly lower agency commission revenue, which resulted from more competitive pricing in certain jurisdictions. In 2008, we converted a portion of the policies produced by USSU to our Insurance Company Subsidiaries. The intercompany management fees associated with that portion of the underwritten policies of the USSU business that we brought in house were $1.6 million for the nine months ended September 30, 2008. These fees are now eliminated up consolidation, thereby lowering net commissions and fees, but not impacting overall consolidated results. Excluding the full year impact of this change, net commission and fees would have remained relatively flat in comparison to 2007. In addition, the revenues reflect a $5.5 million increase in investment income, which primarily

reflects the increase in invested assets acquired with the Merger. The increase in investment income was partially the result of overall positive cash flow and the net proceeds received from our equity offering in July 2007. Slightly offsetting the increases was an overall $7.3 million increase in realized losses, primarily related to the other than temporary impairments recorded in the third quarter.

As previously indicated, our results for the nine months ended September 30, 2008, included the recognition of realized investment losses. These impairments were primarily related to preferred stock investments in Fannie Mae, Freddie Mac, and Lehman Brothers. We also recorded an impairment on GMAC and Lehman Brother bonds.

Specialty Risk Management Operations

The following table sets forth the revenues and results from operations for our
specialty risk management operations (in thousands):


                                                    For the Nine Months
                                                           Ended
                                                       September 30,
                                                     2008          2007

           Revenue:
           Net earned premiums                    $  247,296     $ 199,732
           Management fees                            17,178        18,663
           Claims fees                                 6,789         6,788
           Loss control fees                           1,602         1,632
           Reinsurance placement                         571           603
           Investment income                          24,177        18,514
           Net realized losses                        (7,467 )        (186 )

           Total revenue                          $  290,146     $ 245,746

           Pre-tax income:
           Specialty risk management operations   $   40,695     $  35,867

Revenues from specialty risk management operations increased $44.4 million, or 18.1%, to $290.1 million for the nine months ended September 30, 2008, from $245.7 million for the comparable period in 2007.

Net earned premiums increased $47.6 million, or 23.8%, to $247.3 million for the nine months ended September 30, 2008, from $199.7 million in the comparable period in 2007. This increase was the primarily the result of $31.0 million in net earned premiums related to ProCentury. Excluding the net earned premiums related to ProCentury, net earned premiums increased $16.6 million, or 8.3%. This increase was primarily the result of overall growth within our existing programs and the new business we began writing in 2007 and 2008, as well as additional selective growth consistent with our corporate underwriting guidelines and our controls over price adequacy.

Management fees decreased $1.5 million, or 8.0%, to $17.2 million for the nine months ended September 30, 2008, from $18.7 in the comparable period in 2007. This decrease was primarily the result of a decrease in fees related to our New England-based programs, primarily related to a decrease in premium volume due to reduced rates in the self-insured markets on which the fees are based, because of mandatory rate reductions and an increase in competition.

Claim fees remained relatively flat for the nine months ended September 30, 2008, compared to the comparable period in 2007.

Net investment income increased $5.7 million, or 30.6%, to $24.2 million in 2008, from $18.5 million in 2008. This increase is primarily the result of higher invested assets due to the inclusion of ProCentury's invested assets, from the Merger date, which were $431.0 million at September 30, 2008, coupled with the investing from positive cash flows from operations. The positive cash flows from operations were due to favorable underwriting results, increased fee revenue, and the lengthening of the duration of our reserves. The increase in the duration of our reserves reflects the impact of growth in our excess liability business, which was implemented at the end of 2003.

This type of business has a longer duration than the average reserves on our other programs and is now a larger proportion of reserves. In addition, the increase in average invested assets reflects cash flows from our equity offering in July 2007.

Specialty risk management operations generated pre-tax income of $40.7 million for the nine months ended September 30, 2008, compared to pre-tax income of $35.9 million for the comparable period in 2007. This increase in pre-tax income primarily demonstrates a continued improvement in underwriting results including favorable reserve development on prior accident years, selective growth in premium, adherence to our strict underwriting guidelines, and our overall leveraging of fixed costs. In addition, this improvement was also attributable to an increase in net investment income. Partially offsetting these improvements were the previously mentioned other than temporary impairments recognized in the third quarter, which primarily related to securities within the investment portfolio acquired with the Merger. In addition, these improvements were also partially offset by the impact of the losses incurred with the hurricanes, as mentioned above. The GAAP combined ratio was 94.0% for the nine months ended September 30, 2008, compared to 95.7% for the same period in 2007.

Net loss and loss adjustment expenses ("LAE") increased $31.8 million, or 28.0%, to $145.1 million for the nine months ended September 30, 2008, from $113.4 million for the same period in 2007. Our loss and LAE ratio increased 1.5 percentage points to 63.2%, from 61.7% for the same period in 2007. This ratio is the unconsolidated net loss and LAE in relation to net earned premiums. Net loss and LAE includes $23.7 million of net loss and LAE expense related to ProCentury. In addition, the loss and LAE ratio of 63.2% includes 3.3 percentage points related to the previously mentioned catastrophe losses. The loss and LAE ratio includes favorable development of $11.3 million, or 4.6 percentage points, compared to favorable development of $4.4 million, or 2.2 percentage points in 2007. The increase in our favorable development in comparison to 2007 was primarily the result of a reduction in adverse development on an excess lines program due to the implementation of a new claim handling unit for this program in 2008. Additional discussion of our reserve activity is described below within the Other Items ~ Reserves section.

Our expense ratio decreased 3.2 percentage points to 30.8% for the nine months ended September 30, 2008, from 34.0% for the same period in 2007. This ratio is the unconsolidated policy acquisition and other underwriting expenses in relation to net earned premiums. The decrease in our expense ratio reflects the anticipated decrease in commission due to the elimination of the fronting fees paid in 2007 to an unaffiliated insurance carrier to use their "A" rated policy forms. In addition, profit sharing commissions were lower in comparison to 2007 as required premium and loss ratio conditions were not achieved. We also continue to leverage fixed costs as we are able to grow without adding to our staffing levels. This is reflected in the reduction in intercompany fees paid by our Insurance Company Subsidiaries to our management company. Those fees are eliminated upon consolidation, but do reduce the expense ratio of the Insurance Company Subsidiaries.

Agency Operations

The following table sets forth the revenues and results from operations from our
agency operations (in thousands):


                                           For the Nine Months
                                                  Ended
                                              September 30,
                                            2008           2007

                     Net commission      $    8,640       $ 9,074
                     Pre-tax income(1)   $    1,328       $ 1,578

(1) Our agency operations include an allocation of corporate overhead, which includes expenses associated with accounting, information services, legal, and other corporate services. The corporate overhead allocation excludes those expenses specific to the holding company. For the nine months ended September 30, 2008 and 2007, the allocation of corporate overhead to the agency operations segment was $2.1 million and $2.3 million, respectively.

Revenue from agency operations, which consists primarily of agency commission revenue, decreased $434,000, or 4.8%, to $8.6 million for the nine months ended September 30, 2008, from $9.1 million for the

comparable period in 2007. This decrease primarily reflects regional competition and a softer insurance market within our mid to larger Michigan accounts and isolated competitive pricing pressure in the California automobile market.

Agency operations generated pre-tax income, after the allocation of corporate overhead, of $1.3 million for the nine months ended September 30, 2008, compared to $1.6 million for the comparable period in 2007. The decrease in the pre-tax income is primarily attributable to the decrease in agency commission revenue mentioned above.

Other Items

Reserves

At September 30, 2008, our best estimate for the ultimate liability for loss and LAE reserves, net of reinsurance recoverables, was $625.8 million. We established a reasonable range of reserves of approximately $574.4 million to $661.6 million. This range was established primarily by considering the various indications derived from standard actuarial techniques and other appropriate reserve considerations. The following table sets forth this range by line of business (in thousands):

                                                  Minimum       Maximum
                                                  Reserve       Reserve      Selected
   Line of Business                                Range         Range       Reserves

   Workers' Compensation(1)                      $ 161,580     $ 179,024     $ 172,944
   Commercial Multiple Peril/General Liability     281,758       335,657       312,114
   Commercial Automobile                            84,216        94,176        90,686
   Other                                            46,849        52,785        50,032

   Total Net Reserves                            $ 574,403     $ 661,642     $ 625,776

(1) Includes Residual Markets

Reserves are reviewed by our internal actuaries for adequacy on a quarterly basis. When reviewing reserves, we analyze historical data and estimate the impact of numerous factors such as (1) per claim information; (2) industry and our historical loss experience; (3) legislative enactments, judicial decisions, legal developments in the imposition of damages, and changes in political attitudes; and (4) trends in general economic conditions, including the effects of inflation. This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events. There is no precise method for subsequently evaluating the impact of any specific factor on the adequacy of reserves, because the eventual deficiency or redundancy is affected by multiple factors.

The key assumptions used in our selection of ultimate reserves included the underlying actuarial methodologies, a review of current pricing and underwriting initiatives, an evaluation of reinsurance costs and retention levels, and a detailed claims analysis with an emphasis on how aggressive claims handling may be impacting the paid and incurred loss data trends embedded in the traditional actuarial methods. With respect to the ultimate estimates for losses and LAE, the key assumptions remained consistent for the nine months ended September 30, 2008 and the year ended December 31, 2007.

For the nine months ended September 30, 2008, we reported a decrease in net ultimate loss estimates for accident years 2007 and prior of $11.3 million, or 1.9% of $589.3 million of net loss and LAE reserves, which include $341.5 million of Meadowbrook net loss and LAE reserves at December 31, 2007 and $247.7 million of ProCentury net loss and LAE reserves at August 1, 2008. The decrease in net ultimate loss estimates reflected revisions in the estimated reserves as a result of actual claims activity in calendar year 2008 that differed from the projected activity. There were no significant changes in the key assumptions utilized in the analysis and calculations of our reserves during . . .