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, 2009, our subsidiaries included insurance companies licensed to write policies in 40 states, underwriting agencies, and retail agencies with 203 owned stores and relationships with two unaffiliated underwriting agencies. We are currently active in offering insurance directly to individual consumers through retail stores in 9 states (Louisiana, Texas, Illinois, Alabama, Missouri, Indiana, South Carolina, Kansas, and Wisconsin) and distributing our own insurance policies through 9,200 independent agents or brokers in 11 states (Louisiana, Texas, Illinois, Alabama, California, Michigan, Florida, Missouri, Indiana, South Carolina, and New Mexico).

We believe that the delivery of non-standard personal automobile insurance policies to individual consumers requires the interaction of four 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;

• 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; and

• Premium finance companies, which provide financing alternatives to individual customers of our retail agencies.

Our four 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 two of the other operations. For example, our retail stores earn commission income and fees from sales of non-standard automobile insurance policies issued by third-party insurance carriers.

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, 2008.

The Company completed its annual goodwill and indefinite lived intangible asset impairment analyses as of September 30, 2009. The Company reports under a single reporting segment and, as such, the goodwill analysis is measured under one reporting unit. Consistent with prior assessments, the fair value of the Company's reporting unit was determined using an internally developed discounted cash flow methodology and other relevant indicators of value available in the market place such as market transactions and trading values of similar companies. Based upon the results of the assessment, the Company concluded that the carrying values of goodwill and other intangible assets were not impaired as of September 30, 2009. As of September 30, 2008, the Company concluded that the carrying value of other intangible assets related to the Company's Florida operations exceeded their fair value, resulting in an impairment loss of $4.4 million for indefinite lived other intangible assets and $0.2 million for amortizing other intangible assets.

Key inputs in our valuation model are projected cash flows, future inflationary trends, future tax rates, and the risk-adjusted discount rate. The risk-adjusted discount rate was developed using a capital asset pricing model to estimate our weighted-average cost of capital. The relative mix of capital between debt and equity was estimated at approximately 34 percent based on observed industry averages.

Based on the valuation model results, management concluded that goodwill was not impaired as the fair value of the Company exceeded its carrying value. Further, the fair value obtained from the discounted cash flow model was subject to a stress test by decreasing forecasted cash flows by 15%, and at the same time increasing the discount rate by 100 basis points to 15.4%. The indicated stress value was sufficient to cover the book value of the Company.

RECENTLY ISSUED ACCOUNTING STANDARDS

Effective July 1, 2009, The Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (ASC or Codification), which superseded all existing non-SEC accounting and reporting standards under U.S. GAAP and became the single official source for U.S. authoritative GAAP combined with guidance issued by the U.S. Securities and Exchange Commission (SEC), and is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The FASB no longer issues new standards in the form of Statements of Financial Accounting Standards (SFAS), FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, amendments to the Codification are made by issuing "Accounting Standards Updates". The Codification did not change existing GAAP. Accordingly, the issuance of the codification did not impact the Company's consolidated results of operations or financial condition.

Two FASB standards issued in June 2009, SFAS No. 166, Accounting for Transfers of Financial Assets - An Amendment of FASB Statement No. 140 (SFAS 166); and SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167) have not been added to the Codification as of September 30, 2009, and are not effective as of that date without the ability to early adopt.

SFAS 167 eliminates Interpretation 46(R)'s exceptions to consolidating qualifying special-purpose entities, contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity's status as a variable interest entity, a company's power over a variable interest entity, or a company's obligation to absorb losses or its right to receive benefits of an entity must be disregarded in applying Interpretation 46(R)'s provisions. The elimination of the qualifying special-purpose entity concept and its consolidation exceptions means more entities will be subject to consolidation assessments and reassessments. SFAS 167 will be effective for the fiscal year beginning January 1, 2010. The Company is currently assessing the potential impacts, if any, on the consolidated results of operations and financial condition.

SFAS 166 eliminates the concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor's interest in transferred financial assets. SFAS 166 will be effective for fiscal years beginning after November 15, 2009. The Company is currently assessing the potential impacts, if any, on the consolidated results of operations and financial condition.

In May 2009, the FASB issued authoritative guidance establishing general standards for the accounting and reporting of subsequent events that occur between the balance sheet date and issuance of financial statements. It should not result in significant changes in the subsequent events that an entity reports, either through recognition or disclosure in its financial statements. This guidance requires companies to recognize the effects, if material, of subsequent events in the financial statements if the subsequent event provides additional evidence about conditions that existed as of the balance sheet date. Beginning in financial reporting periods ending after June 15, 2009, companies must also disclose the date through which subsequent events have been evaluated and the nature of any nonrecognized subsequent events. Nonrecognized subsequent events include events that provide evidence about conditions that did not exist as of the balance sheet date, but which are of such a nature that they must be disclosed to keep the financial statements from being misleading. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. The Company adopted this standard in the second quarter of 2009 and it had no material impact on the consolidated results of operations or financial condition. Management evaluated subsequent events for recognition or disclosure through November 9, 2009.

On January 1, 2009, the Company adopted authoritative guidance issued by the FASB that amended and expanded the disclosure requirements to provide users of financial statements with enhanced disclosures about an entity's derivative and hedging activities thereby improving the transparency of financial reporting. This standard 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. The adoption of this standard did not have a material impact on the Company's consolidated results of operations or financial condition.

In April 2009, the FASB issued authoritative guidance that requires fair value disclosures in both interim as well as annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. The Company adopted this guidance in the second quarter of 2009, the impact of which related only to disclosures of the Company's debt and did not have a material impact on the Company's consolidated financial statements.

In the second quarter of 2009, the Company adopted authoritative guidance issued by the FASB that amended the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments in the financial statements. This guidance did not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. Adoption of this guidance did not have a material impact on the Company's consolidated results of operations or financial condition.

In the second quarter of 2009, the Company adopted authoritative guidance issued by the FASB on estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying circumstances that may indicate that a transaction is not orderly. Adoption of this guidance did not have a material impact on the Company's consolidated results of operations or financial condition.

On January 1, 2009, the Company adopted authoritative guidance issued by the FASB on fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Adoption of the new guidance did not have a material impact on the Company's consolidated results of operations or financial condition.

In August, the FASB issued authoritative guidance on measuring the fair value of liabilities and clarifies that the quoted price for an identical liability, when traded as an asset in an active market, is also a Level 1 measurement, the highest priority in the fair value hierarchy, when no adjustment to the quoted price is required. This guidance is effective for interim and annual periods beginning after August 27, 2009. The Company does not anticipate any revisions in valuation techniques to be considered necessary as a result of adopting this guidance in the fourth quarter of 2009.

MEASUREMENT OF PERFORMANCE

We are an insurance holding company engaged in the underwriting, servicing and distribution of non-standard personal automobile insurance policies and related products and services. We distribute our products through three distinct distribution channels: our retail stores, independent agents and unaffiliated underwriting agencies. We generate earned premiums and fees from policyholders through the sale of our insurance products. In addition, through our 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 the customers.

As part of our corporate strategy, we treat our retail stores as independent agents, encouraging them to sell to their individual customers whatever products are most 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 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.

In the independent agency distribution channel and the unaffiliated underwriting agency distribution channel, the effect of competitive conditions is the same as in our retail store distribution channel. As in our retail stores, independent agents (either working directly with us or through unaffiliated underwriting agencies) 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, 2009 and 2008 (in thousands):

                                           Three Months Ended       Nine Months Ended
                                             September 30,            September 30,
                                            2009         2008       2009        2008
    Our underwriting agencies:
    Retail agencies                      $    50,742   $ 54,082   $ 163,445   $ 180,787
    Independent agencies                      34,833     28,905     102,955      95,713

    Subtotal                                  85,575     82,987     266,400     276,500
    Unaffiliated underwriting agencies         5,850      6,428      19,493      23,304

    Total                                $    91,425   $ 89,415   $ 285,893   $ 299,804

Total gross premiums written for the three months ended September 30, 2009 increased $2.0 million, or 2.2%, compared with the prior year primarily due to the expansion of independent agency relationships. Total gross premiums written for the nine months ended September 30, 2009 decreased $13.9 million, or 4.6%, compared with the prior year primarily due to macroeconomic factors. 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 only 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 months ended September 30, 2009, decreased $3.3 million and $17.3 million, or 6.2% and 9.6%, respectively, when compared with the prior year. These declines were primarily due to the negative macroeconomic environment.

In our independent agency distribution channel, gross premiums written for the three and nine months ended September 30, 2009 increased $5.9 million and $7.2 million, respectively, or 20.5% and 7.6%, respectively, compared with the prior year. This increase was primarily due to the expansion of independent agency relationships.

Gross premiums written by our unaffiliated underwriting agencies for the three and nine months ended September 30, 2009 decreased $0.6 million and $3.8 million, respectively, or 9.0% and 16.4%, respectively, compared with the prior year. For strategic reasons, we have chosen to reduce our emphasis on growth in the unaffiliated underwriting agencies distribution channel.

In the third quarter of 2009, we began to implement changes in pricing to improve our premium production levels and profitability. The states of Illinois, Indiana, Michigan and South Carolina are targeted for these changes. We expect it to take about one year before the full benefits from these actions are realized.

The following table displays our gross premiums written and assumed by state for the three and nine months ended September 30, 2009 and 2008 (in thousands):

                                 Three Months Ended       Nine Months Ended
                                   September 30,            September 30,
                                  2009         2008       2009        2008
              Louisiana        $    36,087   $ 33,774   $ 108,543   $ 107,583
              Texas                 20,396     15,003      64,217      50,212
              Illinois               8,916     11,903      31,269      41,434
              Alabama                7,324      6,945      22,729      21,932
              California             5,788      6,308      19,272      22,905
              Michigan               5,709      3,850      14,326      13,175
              Indiana                2,136      2,255       7,295       7,814
              Missouri               2,058      1,750       7,109       7,884
              Florida                1,136      4,813       4,934      16,287
              South Carolina         1,082      1,825       3,772       7,322
              New Mexico               728        869       2,207       2,856
              Other                     65        120         220         400

              Total            $    91,425   $ 89,415   $ 285,893   $ 299,804

The following table displays our net premiums written by distribution channel for the three and nine months ended September 30, 2009 and 2008 (in thousands):

                                                  Three Months Ended            Nine Months Ended
                                                     September 30,                September 30,
                                                  2009          2008           2009           2008
Our underwriting agencies:
Retail agencies - gross premiums written        $ 50,742      $  54,082      $ 163,445      $ 180,787
Ceded reinsurance                                     -         (10,179 )       10,286        (32,354 )

Subtotal retail agencies net premiums written     50,742         43,903        173,731        148,433

Independent agencies - gross premiums written     34,833         28,905        102,955         95,713
Ceded reinsurance                                   (651 )         (402 )       (1,304 )       (1,541 )

Subtotal independent agencies net premiums
written                                           34,182         28,503        101,651         94,172

Unaffiliated underwriting agencies - gross
premiums written                                   5,850          6,428         19,493         23,304
Ceded reinsurance                                    (32 )          (58 )         (121 )         (181 )

Subtotal unaffiliated underwriting agencies
net premiums written                               5,818          6,370         19,372         23,123

Catastrophe and contingent coverages with
various reinsurers                                  (179 )          (50 )         (530 )         (528 )

Total net premiums written                      $ 90,563      $  78,726      $ 294,224      $ 265,200

Total net premiums written for the three months ended September 30, 2009 increased $11.8 million, or 15.0%, compared with the prior year quarter. Total net premiums written for the nine months ended September 30, 2009 increased $29.0 million, or 10.9%, compared with the prior year period. The increase was primarily due to lower ceded reinsurance for our Louisiana and Alabama businesses. Effective January 1, 2009, we terminated our quota share reinsurance contract on a cut-off basis and $10.5 million of ceded unearned premium was returned.

RESULTS OF OPERATIONS

We had a loss from continuing operations of $3.4 million and $0.2 million for the three and nine months ended September 30, 2009, respectively, compared with a loss from continuing operations of $3.5 million for the three months ended September 30, 2008 and income from continuing operations of $4.4 million for the nine months ended September 30, 2008. Significant items impacting the current year to date results were:

• net pretax gain on extinguishment of debt of $19.4 million in the first quarter of 2009;

• unfavorable development on reserve estimates for prior accident years of $11.0 million in the second quarter of 2009;

• net contingent commission expense related to prior period development of $1.0 million and $3.3 million for the three and nine months ended September 30, 2009, respectively;

• an accrual of $1.0 million for severance payments to be made to a former executive in the second quarter of 2009; and

Comparison of the Three Months Ended September 30, 2009 to the Three Months Ended September 30, 2008

Total revenues for the three months ended September 30, 2009 increased $2.7 million, or 2.4%, compared with the three months ended September 30, 2008. The increase was primarily due to increased commission and fees revenue as well as reduced reinsurance in 2009.

The largest component of revenue is net premiums earned on our insurance policies. Net premiums earned for the current quarter increased $1.1 million, or 1.2%, 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 three 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) increased by $2.2 million, or 2.8%. This increase is primarily due to the termination of our quota-share reinsurance agreement for Louisiana and Alabama business. Net premiums earned on insurance products sold through the unaffiliated underwriting agencies distribution channel decreased by $1.2 million, or 15.7%, compared with the prior year quarter.

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,
                                                     2009         2008
             Our underwriting agencies            $    82,260   $ 80,039
             Unaffiliated underwriting agencies         6,301      7,472

             Total net premiums earned            $    88,561   $ 87,511

Commission Income and Fees. Another measurement of our performance is the relative level of production of commission income and fees. Commission income and fees consist of (a) policy, installment, premium finance 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, premium finance and agency fee income earned on sales of unaffiliated, third-party companies' insurance policies 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 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 company subsidiaries. Generally, we can increase or decrease agency and installment fees subject to limited regulatory restrictions, but 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 premiums that customers choose to finance.

Commissions, premium finance and agency fees are earned on sales of unaffiliated (third-party) companies' products sold by our retail agencies. As described above, in our owned 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 auto club memberships, bond cards and tax preparation services 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
. . .