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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

Commission File Number 1-14094

Meadowbrook Insurance Group, Inc.
(Exact name of registrant as specified in its charter)

26600 Telegraph Road, Southfield, Michigan 48034
(Address, zip code of principal executive offices)

(248) 358-1100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____

The aggregate number of shares of the Registrant’s Common Stock, $.01 par value, outstanding on May 11, 2000 was 8,511,655.

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PART 1 — FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS

MEADOWBROOK INSURANCE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME

For the Quarters Ended March 31,
(Unaudited)
(in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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MEADOWBROOK INSURANCE GROUP, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the Quarters Ended March 31,
(Unaudited)
(in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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MEADOWBROOK INSURANCE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

ASSETS
(in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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MEADOWBROOK INSURANCE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Three Months Ended March 31,
(Unaudited)
(in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — Earnings Per Share (EPS)

NOTE 2 — Commitments & Contingencies

On June 26, 1995, two shareholders and an officer of a former agent (the “Primary Plaintiffs”) of Star Insurance Company (“Star”), and a former spouse of one shareholder and an employee of the former agent (the “Individual Plaintiffs”) initiated legal proceedings against, among others, Star and Meadowbrook, Inc. (“Meadowbrook”) in the District Court for Washoe County, Reno, Nevada. All of the plaintiffs requested injunctive relief, compensatory damages, punitive and exemplary damages, and attorney’s fees in an unspecified amount. The Nevada Insurance Department revoked the license of one of the Primary Plaintiffs and one of the Individual Plaintiffs and denied further licensing of the other Primary Plaintiffs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued

Meadowbrook and Star vigorously defended themselves and filed counterclaims against the Primary and Individual Plaintiffs. On April 1, 1998, the Court issued an Order dismissing all claims of the Primary Plaintiffs with prejudice.

On January 12, 1999, the remaining claims of the Individual Plaintiffs and the counterclaims of Meadowbrook and Star against the Primary and Individual Plaintiffs were tried. On February 2, 1999, the jury returned a verdict in favor of Meadowbrook and Star against the Primary Plaintiffs and Individual Plaintiffs. In addition, the jury found against the Individual Plaintiffs and in favor of Meadowbrook and Star on their remaining claims. On April 21, 1999, the Court found in favor of Meadowbrook and Star and against the Primary and Individual Plaintiffs on all outstanding claims for equitable relief. It is not expected that the outcome of this litigation will have a material impact on the financial condition of the Company.

A Final Judgment has been entered with the Court, which is subject to an appeal.

NOTE 3 — Cumulative Effect of Accounting Change

As described in our 1998 Annual Report, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 97-3, “Accounting by Insurance and Other Enterprises for Insurance-Related Assessments” (“SOP 97-3”). SOP 97-3 provides guidance for determining when an entity should recognize a liability for guaranty-fund and other insurance-related assessments, how to measure that liability, and when an asset may be recognized for the recovery of such assessments through premium tax offsets or policy surcharges. As required, the Company adopted SOP 97-3 in the quarter ended March 31, 1999. The adoption of SOP 97-3 resulted in a non-cash after-tax $1.7 million (net of tax of $879,064), or $0.20 per share, cumulative effect accounting change.

NOTE 4 — Reclassifications

Certain amounts in the 1999 notes to consolidated financial statements have been reclassified to conform with the 2000 presentation.

NOTE 5 — Segment Information

Agency Operations

The agency segment was formed in 1955 as Meadowbrook’s original business. The insurance agency places principally commercial insurance, as well as personal property, casualty, life and accident and health insurance, with more than 50 insurance carriers from which it earns commission income. The agency has grown to be one of the largest agencies in Michigan and, with recent acquisitions, expanded into Florida and California.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued.

Program Business

The program business segment is engaged primarily in developing and managing alternative market risk management programs for defined client groups and their members. This includes providing services, such as reinsurance brokering, risk management consulting, claims handling, and administrative services, along with various types of property and casualty insurance coverage, including workers’ compensation, general liability and commercial multiple peril. Insurance coverage is primarily provided to associations or similar groups of members, commonly referred to as programs. A program is a set of coverages and services tailored to meet the specific requirements of a group of clients.

The following table sets forth the segment results (in thousands):

The pre-tax income reconciling items represent other expenses relating to the holding company, amortization and interest expense, which are not allocated among the segments.

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MANAGEMENT REPRESENTATION

In the opinion of management, the financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the interim periods. Preparation of financial statements under GAAP requires management to make estimates. Actual results could differ from those estimates. Interim results are not necessarily indicative of results expected for the entire year. These financial statements should be read in conjunction with the Company’s 1999 Form 10-K, as filed with the Securities and Exchange Commission.

Certain statements made by the Company in this document may constitute forward-looking statements. Actual results could differ materially from those projected in forward-looking statements. These forward-looking statements involve risk and uncertainties including, but not limited to the following: the frequency and severity of claims; uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, or supply of reinsurance or insurance; increased competitive pressure; changing rates of inflation; and general economic conditions.

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PART I — FINANCIAL INFORMATION

ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the Periods ended March 31, 2000 and 1999

Meadowbrook Insurance Group, Inc. (the “Company”) is a program-oriented risk management company specializing in alternative risk management solutions for agents, brokers, profession/trade associations, and insureds of all sizes. The Company owns insurance carriers, which are essential elements of the risk management process. Management defines its business segments as agency operations and program business operations based upon differences in products and services.

RESULTS OF OPERATIONS FOR THE PERIODS ENDED MARCH 31, 2000 AND 1999

Overview

2000 compared to 1999:

Results from operations, excluding the cumulative effect of an accounting change, increased $1.5 million, or 107.3% from a loss of $1.4 million in 1999 to net income of $105,000 in 2000.

Revenues for the quarter increased $8.3 million, or 22%, to $46.2 million in 2000 from $37.9 million in 1999. Revenues from program business increased $8.4 million, or 24.9%, to $42.2 million in 2000 from $33.8 million in 1999. Agency revenues decreased $82,000, or 1.9%, to $4.3 million in 2000 from $4.4 million in 1999.

Program Business

The following table sets forth the revenues and results from operations for program business (in thousands):

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MANAGEMENT’S DISCUSSION AND ANALYSIS — continued
For the Periods Ended March 31, 2000 and 1999

2000 compared to 1999:

Revenue from program business increased $8.4 million, or 24.9%, to $42.2 million in 2000 from $33.8 million in 1999. This increase reflects 27.2% growth in net earned premiums to $33.3 million in 2000 from $26.2 million in 1999. This increase reflects the 1999 acquisition which contributed $3.4 million. Excluding the impact of the 1999 acquisition, net earned premium increased 14%, or $3.7 million, reflecting growth in existing business. Management fees grew $1.1 million, or 22%, to $6.1 million from $5.0 million. This increase reflects the 1999 acquisition. Excluding the 1999 acquisition, management fees would be slightly down reflecting a decrease in fees for claims services. The remaining increase reflects an increase in investment income of $78,000, or 3%, from $2.7 million in 1999 to $2.8 million in 2000.

Program business in 2000 generated a pre-tax income of $533,000, which compares to a pre-tax loss of $2.6 million in 1999. The 1999 pre-tax loss in program business reflects the impact of the $4.7 million reserve strengthening charge. After excluding the 1999 reserve strengthening charge, the decrease in pre-tax program business reflects the increased pricing pressure that developed during the second half of 1999.

Agency Operations

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

2000 compared to 1999:

Agency commissions decreased $82,000, or 1.9%, to $4.3 million in 2000 from $4.4 million in 1999. Agency operations generated pre-tax income of $1.1 million in 2000 compared to $1.2 million in 1999. This decrease primarily reflects a decrease in contingent commissions for 2000.

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MANAGEMENT’S DISCUSSION AND ANALYSIS — continued
For the Periods Ended March 31, 2000 and 1999

Other Items

Interest Expense

Interest expense of $1,240,000 and $840,000 was recorded for the three months ended March 31, 2000 and 1999, respectively. This interest is related to utilization of the Company’s Line of Credit. The increase in interest expense is a result of both a higher average daily loan balance and higher average interest rates during 2000 as compared to 1999. The average daily loan balances during 2000 and 1999 were $55.7 million and $38.2 million, respectively. The interest rate increased from 7.5% at March 31, 1999 to 8.57% at March 31, 2000. The outstanding balance on this line was $55.8 million at March 31, 2000, as compared to $55.6 million at December 31, 1999.

Amortization Expense

Amortization expense of $480,000 and $345,000 was recorded for the three months ended March 31, 2000 and 1999, respectively. This increase in amortization is related to the goodwill recorded on the 1999 acquisition.

Taxes

The provision for income taxes was a $244,000 benefit for the three months ended March 31, 2000, and a $1.4 million provision for the same period in 1999, representing effective tax rates of 176% and 49%, respectively. Historically, the Company’s tax rates vary from the 34% corporate rate due to its heavily tax-exempt investment portfolio. Tax exempt securities at March 31, 2000 represented 50.5% of the portfolio, down from 53.2% at year-end, and down from 70.2% at March 31, 1999. The Company is shifting its portfolio to taxable securities, by reinvesting cash from operations and maturing securities and is completing an analysis of additional sales and purchases to re-balance the debt security portfolio aimed at maximizing after-tax investment yields and minimizing current outflow related to taxes.

Liquidity and Capital Resources

The principal sources of funds for the Company are insurance premiums, investment income, proceeds from the maturity and sale of invested assets, risk management fees and agency commissions. Funds are primarily used for the payment of claims, commissions, salaries and employee benefits, and other operating expenses. In addition, the Company has a high volume of intercompany transactions due to the payment of management fees by the insurance subsidiaries to the risk management subsidiaries, which are subject to regulatory approval by state insurance departments.

Cash flow provided by operations for the three months ended March 31, 2000 and 1999 was $7.1 million and $12.6 million, respectively. At March 31, 2000, the Company held $25.6 million in cash and cash equivalents.

The Company has an unsecured Line of Credit totaling $60.0 million, of which $55.8 million was outstanding at March 31, 2000 and $55.6 million was outstanding at December 31, 1999. The Line

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MANAGEMENTS’S DISCUSSION AND ANALYSIS — continued
For the Periods Ended March 31, 2000 and 1999

of Credit expires on August 1, 2002. The Company drew on this Line of Credit during 1999 primarily to meet acquisition and cash flow needs.

One of the Company’s principal corporate objectives is to operate at appropriate leverage ratios. The Company plans to reduce its reliance on bank debt in 2000 from currently identified sources of capital.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On June 26, 1995, two shareholders and an officer of a former agent (the “Primary Plaintiffs’) of Star, and a former spouse of one shareholder and an employee of the former agent (the “Individual Plaintiffs”) initiated legal proceedings against, among others, Star and Meadowbrook in the District Court for Washoe County, Reno, Nevada. All of the plaintiffs requested injunctive relief, compensatory damages, punitive and exemplary damages, and attorney’s fees in an unspecified amount. The Nevada Insurance Department revoked the license of one of the Primary Plaintiffs and one of the Individual Plaintiffs and denied further licensing of the other Primary Plaintiffs.

The Company vigorously defended itself and filed counter-claims against the Primary and Individual Plaintiffs. On April 1, 1998, the Court issued an Order dismissing all claims of the Primary Plaintiffs with prejudice.

On January 12, 1999, the remaining claims of the Individual Plaintiffs and the counterclaims of Meadowbrook and Star against the Primary and Individual Plaintiffs were tried. On February 2, 1999, the jury returned a verdict in favor of Meadowbrook and Star against the Primary Plaintiffs and Individual Plaintiffs. In addition, the jury found against the Individual Plaintiffs and in favor of Meadowbrook and Star on their remaining claims. On April 21, 1999, the Court found in favor of Meadowbrook and Star and against the Primary and Individual Plaintiffs on all outstanding claims for equitable relief. It is not expected that the outcome of this litigation will have a material impact on the financial condition of the Company.

A Final Judgment has been entered with the Court, which is subject to an appeal.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8K

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Meadowbrook Insurance Group, Inc.
	By:	/s/ William S. Lohmeyer
		Sr. Vice President and Chief Financial Officer

Dated: May 15, 2000

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Exhibit Index