investment funds. Both of Messrs. Zech and Zerbib were informed that their affiliated investment funds would not agree to enter into voting agreements in support of such an approach. Mr. Zerbib then had several telephone discussions, one of which was attended by the general counsel of Stone Point, during the day with representatives of Skadden Arps regarding the potential implications from a legal point of view regarding the bifurcated approach at that time not being accepted by two of the three Significant Stockholders given the fact that in their individual capacities, Messrs. Zech and Zerbib served as members of the board committee. Later in the day, Mr. Bronfman reported that his affiliated investment funds also would not agree to accept the bifurcated approach.

Also on June 9, 2007, Mr. Martin contacted Mr. Abram and expressed his view with regard to the status and course of the negotiation and the D. E. Shaw group’s continuing interest in a transaction with the Company. Messrs. Abram and Martin did not engage in substantive discussions regarding the proposed terms of the transaction, and Mr. Abram promptly reported this conversation to Mr. Zerbib.

Based on his discussions with other board committee members and representatives of his affiliated investment fund regarding the bifurcated approach, Mr. Zerbib, together with Mr. Wright, contacted Messrs. Aube and Martin by telephone to inform them that the bifurcated approach was not acceptable to the Significant Stockholders with whom the board committee was able to consult prior to such call. During the discussion that followed, various alternatives were suggested by Messrs. Wright and Zerbib and discussed in attempting to reach consensus on final terms, including making the higher per share price available to all stockholders or possibly offering a uniform price between $34.50 and the higher per share price to all stockholders. In addition, the parties alternatively considered and discussed possibly increasing the length of the go-shop period. As part of this discussion, Messrs. Wright and Zerbib understood that an extension of the go-shop period from its current 45 days would help to ensure that there was sufficient time during the go-shop period for any interested parties to explore their interest in the Company and possibly reach a definitive agreement with the Company. Following this discussion, Mr. Martin informed Messrs. Wright and Zerbib that he would have to discuss these possible alternatives and possibly others internally to see if any of them were acceptable. Shortly thereafter, Mr. Martin contacted Mr. Zerbib by telephone to inform him that the D. E. Shaw group would not agree to pay a price higher than $34.50 per share to all stockholders, but that it would agree to lengthen the go-shop period from its current agreed upon period of 45 days to 55 days with no notice and matching rights during the additional 10 days of the go-shop period. Based on these discussions, Messrs. Wright and Zerbib believed it was not likely that the D. E. Shaw group would agree to pay a price higher than $34.50 per share to all stockholders. Representatives of JPMorgan also had several discussions during the day with representatives of Wachovia in which the Wachovia representatives reiterated their client’s positions.

Later in the evening on June 9, 2007, the board committee members met again by telephone conference together with representatives of JPMorgan, Skadden Arps and, for a portion of the meeting, Bryan Cave. The purpose of the meeting was to receive an update from Messrs. Wright and Zerbib on their discussions during the day with Messrs. Aube and Martin and on the discussions between representatives of JPMorgan and Wachovia and to report on the latest proposal from the D. E. Shaw group. A representative of JPMorgan then discussed that while, in the view of JPMorgan, the initial 45-day go-shop period would have provided sufficient flexibility for the Company to undertake an appropriate post-signing market check, the lengthening of this period by an additional 10 days clearly was beneficial in helping to ensure that if there was a party willing to pay more than $34.50 per share, such party would have an appropriate opportunity to do so during the go-shop period, a time during which there is a reduced termination fee and no expense reimbursement would be payable. In this regard, it was noted that the addition of an extra 10 days would help ensure that there is sufficient time during the go-shop period for all interested parties to conduct due diligence, participate in management meetings, assess the potential prospects of the Company, submit a bid reflective of that understanding and possibly reach a definitive agreement with the Company, irrespective of the number of third parties that may express an interest in exploring the possibility of a transaction with the Company and the ongoing work required in connection with implementation of the transaction with the D. E. Shaw group. The board committee members also received feedback from representatives of JPMorgan that the $34.50 in cash per share offer in the May 14 proposal

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remained very attractive and continued to compare favorably to the valuation methodologies previously reviewed with the board committee and that this feedback was not affected by the fact that our common stock closed at $35.18 per share on NASDAQ on June 8, 2007. The board committee members then received an update from representatives of Skadden Arps on recent developments in negotiating the remaining issues in the transaction agreements with members of the D. E. Shaw group.

Representatives of Skadden Arps then discussed that in light of each of the Significant Stockholders’ decision not to accept the bifurcated approach, and given the fact that in their individual capacities three of the four members of the board committee were associated with the three Significant Stockholders, it would be advisable for the full board to consider the May 14 proposal, without first receiving a recommendation from the board committee. During the discussion that followed, the board committee members determined, with the assistance of representatives of Skadden Arps, that recent developments should be discussed and reviewed by our board of directors and that a decision on whether to accept the May 14 proposal with a 55-day go-shop period, which we refer to in this proxy statement as the definitive proposal, should be made by the full board after receiving input from each of the board committee members, but without receiving a recommendation from the board committee. It was also agreed during this discussion that Mr. Wright would communicate to Mr. Martin that the definitive proposal would be considered by the full board at a meeting scheduled for June 10, 2007. Following the meeting, Mr. Wright contacted Mr. Martin by telephone to inform him of these developments and timing.

On June 10, 2007, a representative of the D. E. Shaw group and representatives of Debevoise participated in a telephone conference with representatives of Skadden Arps, Bryan Cave and JPMorgan to discuss the financial capability of the relevant D. E. Shaw group entities to perform their obligations under the equity commitment letter. Also on June 10, 2007, prior to the meetings discussed below, representatives of Skadden Arps, Bryan Cave and Debevoise finalized the remaining issues in connection with the transaction agreements.

Thereafter on June 10, 2007, the board committee members met by telephone conference together with representatives of JPMorgan, Skadden Arps and Bryan Cave. The purpose of the meeting was to discuss and evaluate the definitive proposal and receive a briefing from representatives of Skadden Arps on recent developments in negotiating the final remaining issues in the transaction agreements with members of the D. E. Shaw group. Representatives of Skadden Arps began by once again discussing the legal duties and responsibilities of the board committee members. During a portion of the meeting, Mr. Abram was invited to discuss his view of the status of discussions with various parties contacted after the exclusivity period had terminated. Following the departure of Mr. Abram, a representative of Skadden Arps reviewed, and answered questions regarding, the terms and conditions of the proposed definitive transaction agreements with members of the D. E. Shaw group. Following this discussion, representatives of JPMorgan reviewed presentation materials that they had prepared in connection with the preparation of its fairness opinion. After addressing questions from the board committee members, a representative of JPMorgan orally delivered its opinion that, as of June 11, 2007, the date of the merger agreement, and based upon and subject to the factors and assumptions set forth in its written opinion, the price of $34.50 per share to be paid to the holders of shares of our common stock was fair, from a financial point of view, to such holders. See ‘‘The Merger — Opinion of JPMorgan’’ beginning on page 38 and Annex C to this proxy statement.

Later, on June 10, 2007, the members of the compensation committee of our board of directors also met by telephone conference together with representatives of Bryan Cave. The purpose of the meeting was to discuss and consider a modification of the Company’s general policy regarding the payment terms of cash bonuses to employees, including executive officers. The existing policy was that in order to be eligible for a cash bonus payment in any fiscal year, an employee must have been employed on December 31 of the fiscal year immediately preceding the fiscal year in which the applicable cash bonus payment (or portion thereof, as applicable) was actually made. The purpose of the proposed modification was, in anticipation of the execution of the merger agreement, to provide the Company’s employees with some financial protection and to encourage them to remain with the Company through the transition period. After consideration and deliberation, the compensation committee modified the policy as applied to cash bonus payments (or portion thereof, as applicable)

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to be made in the first quarter of 2008, to provide that if an employee is terminated, other than for cause, following the closing of the transaction with members of the D. E. Shaw group or a similar transaction, such employee will nonetheless be entitled to receive any cash bonus payment (or portion thereof, as applicable) that he or she would have been entitled to receive in the first quarter of 2008 had such employee been employed by the Company on December 31, 2007.

Following the compensation committee meeting on June 10, 2007, our board members met by telephone conference together with representatives of Bryan Cave, JPMorgan and Skadden Arps. The purpose of the meeting was to discuss and consider the definitive proposal. Mr. Zerbib began the meeting by summarizing material developments since the last board meeting, including receipt of the Party A proposal and the board committee’s reasons for not pursuing that proposal at this time. A representative of Skadden Arps then discussed the reasons that the board committee felt it was appropriate for the May 14 proposal to be brought before the full board for consideration without the board committee making a recommendation in respect of such proposal. Representatives of Bryan Cave and Skadden Arps then discussed with our board its legal duties and responsibilities in considering these matters.

Representatives of JPMorgan then reviewed the financial terms of the definitive proposal and the status of the Company’s discussions with Party A. Following additional discussion, it was the consensus of our board of directors that:

	•	$34.50 per share was a fair price, a view that, in our board’s judgment was not affected by the fact that our common stock closed at $35.18 on NASDAQ on June 8, 2007, as confirmed by the fairness opinion from JPMorgan delivered to our board of directors as discussed below;

	•	the Party A proposal was non-binding in nature and was conditioned on a number of factors as discussed above, not all of which were within the control of the Company; and

	•	Party A would not be able to enter into a definitive agreement within the near future, there was a significant risk of losing the definitive proposal if the process were to be delayed and that the Company’s termination fees during both the go-shop period and the no-shop period (and in the case of the no-shop period, reimbursement of Buyer’s and Merger Sub’s transaction expenses up to the agreed upon cap) should not preclude another bidder from making a superior proposal in the manner to be permitted by the merger agreement.

Following this discussion, representatives of JPMorgan then reviewed with our board members presentation materials that they had prepared in connection with the preparation of its fairness opinion. After addressing questions from our board members, a representative of JPMorgan orally delivered its opinion that, as of June 11, 2007, the date of the merger agreement, and based upon and subject to the factors and assumptions set forth in its written opinion, a price of $34.50 per share in cash to be paid to the holders of shares of our common stock was fair, from a financial point of view, to such holders. See ‘‘The Merger — Opinion of JPMorgan’’ beginning on page 38 and Annex C to this proxy statement. Representatives of Skadden Arps and Bryan Cave then reviewed, and answered questions regarding, the terms and conditions of the proposed definitive merger agreement, equity commitment letter and form of voting agreement. As part of this discussion, the resolution of the remaining issues in the merger agreement were reviewed, in particular:

	•	the agreement that there be parity in the maximum amount of the termination fees and expense reimbursement payable by Buyer and the Company;

	•	the requirement that the termination fee be payable by Buyer in the event:

	–	of the failure of Buyer to obtain necessary regulatory approvals; and

	–	all of the conditions to Buyer and Merger Sub closing, other than necessary regulatory approvals, are satisfied or waived and Buyer fails to fund the merger consideration; and

	•	the ability of the Company to effect a recommendation withdrawal not related to the receipt of a superior proposal, and the survival of the voting agreements for three months following termination of the merger agreement in such event.

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The board committee members then discussed the process that the board committee and its advisors had undertaken to evaluate, among other things, the proposed transaction with members of the D. E. Shaw group, and to develop the material terms of the transaction agreements. In addition, the board committee members each expressed his individual support for the transaction based on the reasons previously discussed with our board of directors and set forth under ‘‘The Merger — Reasons for the Merger; Recommendation of Our Board of Directors’’ beginning on page 35. Following additional discussion and deliberation, including consideration of the reasons enumerated in ‘‘The Merger — Reasons for the Merger; Recommendation of Our Board of Directors’’ beginning on page 35, our board of directors approved, by unanimous vote, the merger agreement and the equity commitment letter and the transactions contemplated thereby and resolved to recommend that the Company’s stockholders vote to adopt the merger agreement.

Prior to the opening of trading on June 11, 2007, the Company, Buyer and Merger Sub executed and delivered the merger agreement; the appropriate parties executed and delivered the equity commitment letter, the voting agreements and the ancillary documents; JPMorgan delivered its written fairness opinion as described above; and the Company issued a press release announcing the transaction with members of the D. E. Shaw group.

At its meeting held on June 10, 2007, our board of directors also authorized the board committee to supervise, with the assistance of its financial and legal advisors, management of the Company and the Company’s legal advisors, the solicitation, during the go-shop period, of potential third party interest. Beginning on June 11, 2007, at the direction and under the supervision of the board committee and JPMorgan, representatives of JPMorgan, management and the board committee, as appropriate, contacted approximately 40 parties, in addition to the parties referenced earlier, that were viewed as being capable of, and might be interested in, consummating an acquisition of the Company. The period in which the Company is permitted to actively solicit and engage in discussions and negotiations with respect to competing proposals from, and provide non-public information to, third parties expires at 11:59 p.m., New York time, on August 5, 2007. As previously announced, the Company does not otherwise intend to announce developments with respect to the go-shop period unless and until our board of directors has made a decision regarding a competing proposal.

Reasons for the Merger; Recommendation of Our Board of Directors

At a meeting held on June 10, 2007, our board of directors, after careful review of the facts and circumstances relating to the merger, unanimously (a) determined that the merger is in the best interests of the Company and its stockholders and declared it advisable to enter into the merger agreement, (b) approved the execution, delivery and performance of the merger agreement and the equity commitment letter, and the consummation of the transactions contemplated thereby, including the merger, (c) resolved, subject to the right of our board of directors to effect a recommendation withdrawal and/or terminate the merger agreement in certain circumstances, to recommend that the stockholders approve the adoption of the merger agreement and directed that such matter be submitted for consideration of the stockholders at the special meeting and (d) took all necessary steps so that the provisions of Section 203 of the Delaware General Corporation Law, which we refer to in this proxy statement as the DGCL, and any ‘‘moratorium’’, ‘‘control share acquisition’’, ‘‘business combination’’, ‘‘fair price’’ or other form of anti-takeover laws or regulations of any jurisdiction that may purport to be applicable to the merger agreement do not apply to the execution and delivery of the merger agreement and the transactions contemplated thereby, including, without limitation, as a result of the entering into of the voting agreements by the parties thereto. Our board of directors unanimously recommends that you vote ‘‘FOR’’ the adoption of the merger agreement and ‘‘FOR’’ the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in the event that there are not sufficient votes in favor of the proposal to approve the adoption of the merger agreement at the time of the special meeting.

In reaching its determination, our board of directors considered a number of factors that favored our board of directors’ conclusion that the merger and related transactions were in the best interests of the Company and our stockholders, including:

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	•	The opinion received by our board of directors and the board committee from JPMorgan to the effect that, as of the date of the opinion and based upon and subject to the factors and assumptions set forth therein, the merger consideration to be paid to the holders of our common stock is fair, from a financial point of view, to such holders. A summary of JPMorgan’s presentation and analysis is described under ‘‘The Merger — Opinion of JPMorgan’’ beginning on page 38 and the written opinion of JPMorgan is included as Annex C to this proxy statement.

	•	The fact that the merger consideration of $34.50 in cash per share to be paid to our stockholders was higher than the price at which shares of our common stock ever closed prior to June 8, 2007, and represented an approximately 92% premium to the price at which shares of our common stock were first offered to the public in August 2005.

	•	The fact that the merger consideration of $34.50 in cash per share to be paid to our stockholders in the merger:

	–	exceeded or was within the range of the results of the valuation analyses performed by JPMorgan;

	–	represented a price equal to 14.6 times trailing diluted earnings per share for the twelve months ended March 31, 2007; and

	–	represented an 11% premium over the 90-day volume-weighted average price per share at the date of the merger agreement.

	•	The fact that the purchase price to be paid to our stockholders:

	–	represented a price equal to approximately 2.6 times March 31, 2007 GAAP stockholders’ equity; and

	–	represented a price equal to 2.6 times March 31, 2007 GAAP tangible stockholders’ equity.

	•	The presentations made by JPMorgan, including the fact that the merger consideration to be paid to our stockholders was above five of seven ranges of value derived by JPMorgan.

	•	The fact that the material terms of the merger agreement were developed for consideration by our board of directors, by the board committee with the assistance of its and the Company’s advisors, and, as appropriate, senior management of the Company, as well as the belief of the members of our board of directors, after reviewing the matter with the members of the board committee and the board committee’s financial advisor, that the Company would likely not be able to obtain more favorable terms from Buyer.

	•	The view of our board of directors that, at the time the D. E. Shaw group proposal was being voted on by the board, the trading price of our common stock was fully valued in the marketplace, and that there was a risk that our stock price could decrease over time as compared to such value given the uncertainties and cyclicality of the property/casualty insurance marketplace.

	•	The fact that the transaction is not subject to a financing condition and equity commitments for the full amount of the merger consideration were to be received from affiliates of Buyer.

	•	The liquidity that the merger consideration will offer to our stockholders, especially given the limited trading volume of our common stock, and, in particular, the fact that between March 8, 2007 and June 8, 2007, the average trading volume of shares of our common stock on NASDAQ was only approximately 26,000 shares per day.

	•	The view of our board of directors that continuing to operate as a stand alone company was not likely to produce greater value in the near term, if our common stock were to trade consistent with its peers.

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	•	The terms of the merger agreement permitting the Company and our board of directors to actively solicit third party interest in the Company during the go-shop period (which period was increased from 45 days to 55 days in response to the board committee’s request for an increase in the proposed purchase price), and thereafter, but prior to the adoption of the merger agreement by our stockholders, to explore, under certain circumstances, unsolicited expressions of interest should they arise.

	•	The fact that, subject to compliance with the terms and conditions of the merger agreement, our board of directors is permitted to change its recommendation to vote in favor of the proposal to approve the adoption of the merger agreement and, prior to the adoption of the merger agreement by stockholders, to terminate the merger agreement in order to enter into a definitive alternative acquisition agreement with respect to a superior proposal, upon the payment to Buyer of the specified termination fee and expense reimbursement.

	•	The view of our board of directors, after consultation with financial and legal advisors, that as a percentage of the merger consideration to be paid in the merger, the termination fee and expense reimbursement provisions were within the range of fees and expenses provided for in similar size transactions.

	•	The fact that the Significant Stockholders subject to the voting agreements are not bound by the voting agreements if the Company terminates the merger agreement with respect to a superior proposal, allowing such stockholders to vote in favor of an alternative transaction, if any, that may be entered into by the Company. See ‘‘The Voting Agreements’’ beginning on page 66).

	•	The fact that Buyer will be required to pay a reverse termination fee of $11,463,424, representing approximately 2% of the total anticipated merger consideration, plus up to $3,582,320 expense reimbursement, representing approximately 0.625% of the total anticipated merger consideration, if the merger agreement is terminated as a result of Buyer’s failure to fund the merger consideration or obtain regulatory approvals.

	•	The fact that the merger agreement permits the Company to continue to declare regular quarterly cash dividends at its current levels before the merger.

	•	The availability of appraisal rights to holders of our common stock, other than the Significant Stockholders subject to the voting agreements, who comply with all of the required procedures under Delaware law, which allows such holders to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery.

Our board of directors also considered a number of material risks or potentially adverse factors in making its determination and recommendation, including:

	•	The fact that, following the merger and related transactions, the Company will cease to be a public company and its current stockholders will no longer participate in any of its potential future growth or benefit from any future increase in the Company’s value.

	•	The fact that under two of seven valuation methodologies employed by JPMorgan in preparing its valuation analysis, the comparable publicly traded companies analysis based on 2008 analyst estimates and the dividend discount model based on the ‘‘insurance cycle’’ case, the high ends of the ranges of imputed values were greater than the per share merger consideration, and the per share merger consideration was approximately 109% and 105% of the mid-points of the ranges for the comparable publicly traded companies analysis based on 2008 analyst estimates and the dividend discount model analysis based on the ‘‘insurance cycle’’ case, respectively.

	•	The fact that completion of the merger is subject to regulatory approvals and there can be no assurance that these approvals will be received prior to the outside date under the merger agreement, or at all, or that the regulatory approvals will not contain conditions that may cause the parties not to complete the merger.

	•	The fact that several parties who had been contacted by the Company shortly prior to the execution of the merger agreement had expressed an interest in conducting due diligence and, subject to the results of due diligence, possibly pursuing a transaction with the Company.

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	•	The fact that the Company may be required to pay Buyer certain fees and, in certain circumstances, reimburse expenses in the event that the Company terminates the merger agreement to accept another proposal.

	•	The terms of the merger agreement placing certain limitations on the Company’s ability to consider after the go-shop period alternative proposals and to terminate the merger agreement and accept a superior proposal.

	•	The interests of our directors and executive officers that may be different from, or in addition to, the interests of our stockholders generally.

	•	The fact that merger consideration of $34.50 per share was below the closing price of $35.18 per share on NASDAQ on the last trading day prior to announcement of the merger and that a limited number of shares of our common stock have been publicly reported as having been traded above the merger consideration of $34.50 per share at various times since our initial public offering and prior to the date of the merger agreement.

	•	The fact that near the end of the transaction negotiations, the D. E. Shaw group informed the board committee chairman that, in light of the concern expressed by the board committee chairman as to whether the board committee and our board of directors would find the merger consideration of $34.50 per share acceptable given the closing price of our common stock on NASDAQ on the last trading day prior to announcement of the merger was $35.18 per share, it would be willing to consider making a proposal to acquire our common stock on the basis of a bifurcated purchase price of $35.25 per share payable to all stockholders other than the Significant Stockholders and $34.50 per share payable to the Significant Stockholders, assuming that each of the Significant Stockholders would continue to agree to enter into voting agreements supporting the transaction on the terms previously negotiated, which each of the Significant Stockholders had separately determined to be unacceptable.

	•	The fact that, if the merger agreement is terminated as a result of the Company effecting a recommendation withdrawal not related to the receipt of a superior proposal, the Significant Stockholders remain bound by the voting provisions under the voting agreements for 90 days after termination of the merger agreement.

	•	The fact that, for U.S. federal income tax purposes, the cash merger consideration will generally be taxable to the stockholders of the Company being paid the consideration.

	•	The possibility of disruption to our operations following the announcement of the merger, and the resulting effect on the Company if the merger is not completed.

This discussion of the information and factors considered by our board of directors in reaching its conclusions and recommendation includes all of the material factors considered by our board of directors but is not intended to be exhaustive. In view of the wide variety of factors considered by our board of directors in evaluating the merger and related transactions and the complexity of these matters, our board of directors did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weight to those factors. In addition, individual members of our board of directors may have accorded greater or lesser relative importance to specific factors considered than did other members of our board of directors. Our board of directors unanimously approved and recommends the merger agreement and the merger based upon the totality of the information presented to and considered by it.

Our board of directors unanimously recommends that you vote ‘‘FOR’’ the adoption of the merger agreement and ‘‘FOR’’ the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies.

Opinion of JPMorgan

Pursuant to an engagement letter effective as of April 6, 2007, the board committee retained JPMorgan as its financial advisor in connection with the proposed merger. See ‘‘— Engagement Letter’’ beginning on page 43.

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At the meetings of our board of directors and the board committee on June 10, 2007, JPMorgan rendered its oral opinion to our board of directors and the board committee, which opinion was confirmed in writing on June 11, 2007, that, as of the date of such written opinion and based upon and subject to the factors and assumptions set forth therein, the merger consideration to be paid to the holders of our common stock in the merger was fair, from a financial point of view, to such holders.

The full text of the written opinion of JPMorgan dated June 11, 2007, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex C to this proxy statement and is incorporated herein by reference. You are urged to read the opinion in its entirety.

JPMorgan’s written opinion is addressed to our board of directors and the board committee, addresses only the consideration to be paid in the merger and does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote with respect to the merger. The summary of the opinion of JPMorgan set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

In arriving at its opinion, JPMorgan, among other things:

	•	reviewed the June 10, 2007 draft of the merger agreement, which was substantially the form executed by the parties on June 11, 2007;

	•	reviewed certain publicly available business and financial information concerning the Company and the industry in which it operates;

	•	compared the proposed financial terms of the merger with the publicly available financial terms of certain transactions involving companies JPMorgan deemed relevant and the consideration received for such companies;

	•	compared the financial and operating performance of the Company with publicly available information concerning certain other companies JPMorgan deemed relevant, and reviewed the current and historical market prices of the Company’s common stock and certain publicly traded securities of such other companies;

	•	reviewed (a) management reports, (b) Company financial data and (c) financial analyses and forecasts relating to the Company’s business that were approved for use in connection with JPMorgan’s opinion by management of the Company; and

	•	performed such other financial studies and analyses and considered such other information as JPMorgan deemed appropriate for the purposes of its opinion.

JPMorgan also held discussions with the board committee, certain members of the Company’s management and representatives of the D. E. Shaw group with respect to certain aspects of the merger, the past and current business operations of the Company, the financial condition and future prospects and operations of the Company and certain other matters JPMorgan believed necessary or appropriate to its inquiry.

In giving its opinion, JPMorgan relied upon and assumed, without assuming responsibility or liability for independent verification, the accuracy and completeness of all information that was publicly available or was furnished to or discussed with JPMorgan by the Company and the D. E. Shaw group or otherwise reviewed by or for JPMorgan. JPMorgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did JPMorgan evaluate the solvency of the Company under any state or federal laws relating to bankruptcy, insolvency or similar matters. In giving its opinion, JPMorgan relied on financial analyses and forecasts which were approved for use in connection with JPMorgan’s opinion by management of the Company. JPMorgan also assumed, with the consent of the Company, that such financial analyses and forecasts have been reasonably prepared based on assumptions that best reflect management’s judgment as to the appropriate ranges of performance metrics for the applicable periods. JPMorgan expresses no view as to such analyses or forecasts or the assumptions on which they were based. JPMorgan also assumed that the merger and the other transactions contemplated by the merger agreement will be consummated as described in

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the merger agreement, and that the definitive merger agreement would not differ from the draft reviewed by JPMorgan in any respects material to its analysis. It also assumed that the representations and warranties made by the Company, Buyer and Merger Sub in the merger agreement are and will be true and correct in all respects that would be material to its analysis. JPMorgan is not a legal, regulatory, actuarial or tax expert and has relied on the assessments made by advisors of the Company with respect to such matters. JPMorgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the Company that would be material to its analysis.

JPMorgan’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to JPMorgan as of, the date of such opinion. Subsequent developments may affect JPMorgan’s opinion, and JPMorgan does not have any obligation to update, revise or reaffirm its opinion. JPMorgan’s opinion is limited to the fairness, from a financial point of view, of the merger consideration to be paid to the holders of the Company’s common stock in the proposed merger, and JPMorgan has expressed no opinion as to the fairness of the merger to, or any consideration received in connection with the merger by, the holders of any other class of securities, creditors or other constituencies of the Company, or the underlying decision by the Company to engage in the merger.

JPMorgan was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of the Company or any other alternative transaction, except in contemplation of and in connection with the go-shop process. See ‘‘The Merger Agreement — Solicitation of Other Offers’’ beginning on page 60.

Summary of Certain Financial Analyses

In connection with rendering its opinion to our board of directors and the board committee, JPMorgan performed a variety of financial and comparative analyses, including those described below. The summary set forth below does not purport to be a complete description of the analyses or data presented by JPMorgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. JPMorgan believes that the summary set forth below and its analyses must be considered as a whole and that selecting portions of such analyses, without considering all of the analyses and their narrative descriptions, could create an incomplete view of the processes underlying JPMorgan’s analyses and opinion. In arriving at its fairness determination, JPMorgan did not attribute any particular weight to any factor or analysis considered by it; rather, JPMorgan arrived at its opinion based on the results of all the analyses undertaken by it and assessed as a whole. JPMorgan’s analyses are not necessarily indicative of actual values or actual future results that might be achieved, which values may be higher or lower than those indicated. Moreover, JPMorgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold.

JPMorgan’s opinion and financial analyses were only some of the many factors considered by our board of directors and the board committee in their evaluation of the merger and should not be viewed as determinative of the views of our board of directors, the board committee or the Company with respect to the merger or the merger consideration.

Summary of Imputed Share Values

JPMorgan assessed the fairness of the merger consideration to the holders of the Company’s common stock in connection with the merger by assessing the value of the Company using several methodologies, including a comparable publicly traded companies analysis using valuation multiples from selected publicly traded companies, a regression analysis, a comparable acquisitions analysis and a dividend discount model analysis, each of which is described in more detail below. Each of these methodologies was used to generate imputed valuation ranges that were then compared to the $34.50 per share merger consideration.

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The following table shows the ranges of imputed valuation per share of the Company’s common stock derived using each of these methodologies. The table should be read together with the more detailed summary of each of the valuation analyses discussed below.

			Imputed Valuation Per Share of Common Stock
Valuation Methodology			Minimum						Maximum
Comparable Publicly Traded Companies Analysis (2007 analyst estimates)				$	25.86					$	33.02
Comparable Publicly Traded Companies Analysis (2008 analyst estimates)					27.17						35.94
Regression Analysis					28.05						29.52
Comparable Acquisitions Analysis (actual book value multiples)					24.80						25.24
Comparable Acquisitions Analysis (estimated earnings multiples)					25.86						26.37
Dividend Discount Model Analysis (base case)					25.19						33.03
Dividend Discount Model Analysis (insurance cycle case)					28.07						37.50

Comparable Publicly Traded Companies Analysis

JPMorgan compared the financial and operating performance of the Company with publicly available information of selected property and casualty insurance companies. The companies selected were:

	•	Argonaut Group Inc.;

	•	United America Indemnity, Ltd.;

	•	The Midland Company;

	•	The Navigators Group, Inc.; and

	•	ProCentury Corporation.

These companies were selected, among other reasons, for their size, target market, specialty focus and performance. None of the companies utilized in the analysis, however, is identical to the Company. Accordingly, JPMorgan made judgments and assumptions concerning differences in financial and operating characteristics of the selected companies and other factors that could affect their public trading value. First Mercury Financial Corporation also met the criteria for being included in the comparable publicly traded companies analysis but was excluded from the analysis because of its short trading history and reliance on fee income that is not dependent upon underwriting results.

For each selected company, JPMorgan calculated the ratio of its estimated earnings per share for 2007 and 2008, based on First Call consensus estimates, to its stock price as of June 8, 2007. For 2007, JPMorgan calculated earnings multiples of the selected companies as ranging from a low of 10.1x to a high of 12.9x with a median of 10.6x and a mean of 11.0x. For 2008, JPMorgan calculated earnings multiples of the selected companies as ranging from a low of 9.6x to a high of 12.7x with a median of 9.8x and a mean of 10.6x. By applying the derived range of multiples for 2007 of 10.1x to 12.9x to the Company’s 2007 estimated earnings per share of $2.56, based on First Call consensus estimates, JPMorgan derived a range of implied equity values for the Company of between $25.86 and $33.02 per share. By applying the derived range of multiples for 2008 of 9.6x to 12.7x to the Company’s 2008 estimated earnings per share of $2.83, based on First Call consensus estimates, JPMorgan derived a range of implied equity values for the Company of between $27.17 and $35.94 per share.

Regression Analysis

JPMorgan performed a regression analysis, which assesses the relationship between price-to-book ratios and return on average book equity, to review, for comparable companies, the relationship between (a) the ratio of closing stock price as of June 8, 2007 to book value per share at March 31, 2007 and (b) the 2008 estimated return on average book equity, based on First Call consensus estimates.

Based on this analysis, JPMorgan derived a reference range for the implied equity value per share of the Company’s common stock of $28.05 to $29.52.

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Precedent Transactions Analysis

Using publicly available information, JPMorgan examined the following selected transactions within the specialty and commercial lines insurance industry since 1997, each of which had a transaction equity value over $50 million and which together were considered the most relevant transactions for purposes of JPMorgan’s analysis:

Announcement Date			Target			Acquirer
12/13/2006			Praetorian Financial Group, Inc.			QBE Holdings Inc.
08/04/2006			Republic Companies Group, Inc.			Delek Capital Ltd.
10/15/2004			Penn-America Group Inc.			United National Group Ltd.
05/07/2001			Front Royal, Inc.			Argonaut Group Inc.

JPMorgan then calculated each transaction’s equity value (a) as a multiple of the earnings of the target company for the last twelve months, or LTM, prior to the transaction, (b) as a multiple of the estimated earnings of the target company for the next twelve months, or NTM, after the transaction and (c) as a multiple of the book value of the target company. No transaction reviewed was directly comparable to the proposed merger. Accordingly, this analysis involved complex considerations and judgments concerning differences in financial and operating characteristics of the Company relative to the targets in the selected transactions and other factors that would affect the acquisition values in the precedent transactions.

JPMorgan calculated the multiples of transaction equity value to the LTM earnings for the target companies as ranging from a low of 14.1x to a high of 14.4x, with a median of 14.3x, the multiples of transaction equity value to the NTM earnings for the target companies as ranging from a low of 10.1x to a high of 10.3x, with a median of 10.2x, and the multiples of transaction equity value to book value for the target companies as ranging from a low of 1.68x to a high of 1.71x, with a median of 1.70x. Based upon the multiples derived from this analysis, JPMorgan derived a range of implied equity values for the Company’s common stock of between $24.80 and $25.24 per share when applying these multiples to the Company’s book value of $14.76 per share at March 31, 2007, and between $25.86 and $26.37 per share when these multiples were applied to the Company’s estimated 2007 earnings per share of $2.56, based on First Call consensus estimates.

Dividend Discount Model Analysis

JPMorgan performed a discounted dividend analysis to estimate a range of present values for the Company’s common stock as of March 31, 2007. The analysis used projected ranges of the Company’s performance metrics for the years 2007 through 2016 that management approved for use in connection with JPMorgan’s analyses. JPMorgan performed two dividend discount model analyses using alternative cases representing two different loss ratio and premium growth scenarios. One analysis used ‘‘base case’’ projections that were based on the current estimate of the Company’s growth and loss ratio performance through the insurance underwriting cycle and excluded development of prior years’ reserves. The other analysis used ‘‘insurance cycle case’’ projections that assumed that (a) the currently anticipated softening of the market for the years 2008 and 2009 would be more modest than current forecasts, (b) the Company’s premium growth and loss ratios would be higher than current forecasts and (c) there would be a strong market in the years 2010 through 2012. The cash flows in each case were modeled assuming that the Company would continue to operate as an independent entity.

The valuation range was determined by adding the present value of (a) cash available for stockholder dividends during the time period March 31, 2007 to December 31, 2016 and (b) the ‘‘terminal value’’ of the Company’s common stock. In calculating the terminal value of the Company’s common stock, JPMorgan applied a range of perpetual dividend growth rates in the terminal year of 2.5% to 3.5% and discounted the future dividends to the terminal date using discount rates ranging from 10% to 12%. The dividend stream and the terminal value were discounted to present value using discount rates ranging from 10% to 12%.

Based on the assumptions set forth above and assuming a 3.0% perpetual dividend growth rate, JPMorgan determined that the present value of the Company’s common stock ranged from $25.19 to

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$33.03 per share when the calculations were performed using the ‘‘base case’’ projections and $28.07 to $37.50 per share when the calculations were performed using the ‘‘insurance cycle case’’ projections.

Engagement Letter

Pursuant to the terms of the engagement letter with JPMorgan, we agreed to pay JPMorgan a fee equal to 0.60% of the equity value of the merger (defined therein as the total amount of cash and the fair market value of any property paid to us or our stockholders in connection with the merger), which is currently estimated to be $3.45 million, $750,000 of which was payable upon delivery by JPMorgan of its fairness opinion and the balance of which is payable upon the closing of the merger or another business combination transaction pursuant to an agreement entered into within 12 months of the termination of our engagement of JPMorgan. The fee paid to JPMorgan upon delivery of its opinion is creditable against the fee payable to it upon the closing of the merger. JPMorgan may also receive an additional fee of $1 million payable upon the closing of the merger in the sole discretion of the board committee based on its assessment of the performance of JPMorgan in its role as financial advisor to the board committee. In addition, we have agreed to reimburse JPMorgan for expenses incurred in connection with its services, including the fees and disbursements of counsel, and to indemnify JPMorgan and related persons against certain liabilities, including liabilities arising under the federal securities laws.

Other Matters

As a part of its investment banking business, JPMorgan and its affiliates are engaged continually in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. The board committee selected JPMorgan as financial advisor with respect to the merger on the basis of such experience.

Other than its engagement as financial advisor to the board committee in connection with the proposed merger, neither JPMorgan nor any of its affiliates has any financial advisory or other commercial or investment banking relationship with us. JPMorgan and its affiliates have longstanding business relationships with, and have performed in the past and may continue to perform, financial advisory and commercial and investment banking services for the D. E. Shaw group, Buyer, Merger Sub and their respective affiliates, all for customary compensation. In the ordinary course of JPMorgan’s businesses, it and its affiliates may actively trade the debt and equity securities of the Company or affiliates of the D. E. Shaw group for JPMorgan’s own account or for the accounts of customers and, accordingly, JPMorgan may at any time hold long or short positions in such securities. JPMorgan and certain of its affiliates and certain of its and their respective employees and certain private investment funds affiliated or associated with it may from time to time invest in private investment funds managed or advised by the D. E. Shaw group.

Interests of our Directors and Executive Officers in the Merger

Our directors and executive officers may be deemed to have interests in the merger that are in addition to, or different from, the interests of our stockholders. These interests may present actual or potential conflicts of interest. Our board of directors was aware of these interests and considered them, among other matters, in reaching its decision to approve the merger agreement and the merger and recommend that our stockholders vote in favor of the adoption of the merger agreement.

Treatment of Stock Options

As of the record date, there were approximately [•] shares of our common stock issuable pursuant to stock options granted under our equity incentive plans to our directors, officers and employees, including executive officers. Pursuant to the terms of the merger agreement, except as otherwise agreed to by Buyer, each outstanding vested or unvested option to purchase shares of our common

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stock will be canceled and the holder will be entitled to receive in cash an amount equal to the difference between the merger consideration and the exercise price of each applicable stock option, without interest and less any required withholding taxes.

The following table identifies, for our current directors and executive officers, the aggregate number of shares of our common stock subject to outstanding vested and unvested stock options held as of June 30, 2007, the number of shares of our common stock subject to unvested stock options that will be canceled in exchange for a cash payment in connection with the merger, the cash-out value of such unvested stock options and the cash-out value of vested and unvested stock options.

Name			Aggregate Shares Subject to Options						Number of Shares Underlying Unvested Options						Aggregate Cash-Out Value of Unvested Options (1)						Aggregate Cash-Out Value of Vested and Unvested Options (2)
Richard W. Wright					12,120						1,000					$	24,500					$	296,940
J. Adam Abram					750,279						222,323						3,835,207						16,226,977
Matthew Bronfman					12,120						1,000						24,500						296,940
Alan N. Colner					12,120						1,000						24,500						296,940
Joel L. Fleishman					12,120						1,000						24,500						296,940
Dallas W. Luby					12,120						3,030						74,235						296,940
John T. Sinnott					12,120						3,030						74,235						296,940
A. Wellford Tabor					—						—						—						—
James L. Zech					12,120						1,000						24,500						296,940
Nicolas D. Zerbib					—						—						—						—
Michael T. Oakes					138,500						59,625						1,160,813						2,993,250
Gregg T. Davis					45,000						33,750						311,250						415,000
Michael P. Kehoe					263,630						15,000						247,500						6,298,935
C. Kenneth Mitchell					102,583						40,083						694,533						2,205,783

(1)

This column represent the cash-out value of all unvested options that will be canceled in connection with the merger, which is calculated in each case by multiplying the number of shares of our common stock underlying unvested stock options held by each individual by the positive difference between the merger consideration and the exercise price of the unvested stock option.

(2)

This column represents the cash-out value of all options, vested and unvested, to be canceled in connection with the merger, which is calculated in each case by multiplying the aggregate number of shares of our common stock underlying stock options held by each individual by the positive difference between the merger consideration and the exercise price of the stock options.

Termination Payments

The Company previously entered into employment agreements with each of our named executive officers pursuant to which, among other things, the Company agrees to provide post-termination salary, bonus and benefits to the named executive officer for periods ranging from 12 to 36 months depending on the level of the executive and the nature of the termination. In the event that a named executive officer is terminated for cause or disability or the executive elects to terminate his employment without good reason (as defined), then the Company generally offers no post-termination benefits. In the event an executive is terminated without cause or for performance, the executive terminates with good reason (as defined), or the Company permits the agreement to expire at the end of the applicable term, then the Company offers the continuation of certain salary, bonus and benefits. The termination payments do not contemplate any tax gross-ups. The merger will not, by itself, trigger such payments unless the executive is also terminated under such circumstances.

The following table shows (a) the end of the term for each employment agreement and (b) the total potential amount of all termination payments that each named executive officer is entitled to receive under their existing employment agreements with us (including salary, bonus and benefits) as of

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June 30, 2007. The amounts listed in the table do not include the acceleration of stock options, which is described on page 43. In addition, the amounts listed in the table exclude bonus, if any, related to fiscal 2007, which is described on page 46 and includes any unused vacation paid in the normal course.

Name			End of Term			Total Potential Termination Payments
J. Adam Abram			November 2008				$	1,733,650
Michael T. Oakes			April 2008					1,060,345
Gregg T. Davis			May 2009					875,864
Michael P. Kehoe			November 2008					787,365	(1)
C. Kenneth Mitchell			October 2009					568,452	(2)
Total							$	5,025,676

(1)	Includes $257,357 related to fiscal 2006 bonus award.

(2)	Includes $33,333 related to fiscal 2006 bonus award.

In addition, under the terms of Mr. Abram’s existing employment agreement, the Company is obligated in certain circumstances to grant Mr. Abram, in connection with equity financing transactions, options to purchase our common stock equal to 5% of the total number of shares of common stock or securities convertible into common stock offered by us, until invested equity capital equals or exceeds $250 million. At the request of Buyer, Mr. Abram executed a letter agreement with the Company concurrently with the execution of the merger agreement, acknowledging that neither the merger nor any financing transactions, agreements or arrangements related thereto will trigger any obligation to grant options to Mr. Abram under the terms of his existing employment agreement.

Arrangements with Executive Officers

Buyer has informed us that it desires that our existing management team remain in place following completion of the merger, subject to agreement to mutually acceptable terms and conditions. Buyer has had preliminary discussions with our executive officers regarding such desire and to explore the possibility of investments by management in Buyer following the completion of the merger. However, none of our executive officers has had specific discussions with Buyer regarding the terms of employment of or compensation for such individual or any possible investment by such individual in Buyer, or has entered into any agreement, arrangement or understanding with respect thereto, other than their existing employment agreements. No such post-closing agreement, arrangement or understanding currently exists, and any such agreement, arrangement or understanding is subject to negotiations and discussions between Buyer and such executive officers. Buyer has informed us that it expects to have further discussions with our executive officers regarding their continued employment and possible investments in Buyer, in which event, unlike our stockholders, our executive officers may have an opportunity to participate in the Company’s potential future growth and benefit from any potential future increase in the Company’s value following the completion of the merger. We cannot presently determine whether such negotiations and discussions will result in agreements between the executive officers and Buyer or its affiliates.

Continued Benefits

Under the terms of the merger agreement, to the extent that any of our employees, including our executive officers, remain employed by the surviving corporation, they will receive compensation, including base salary and incentive compensation opportunities and excluding equity-based incentive arrangements, and employee benefits that are substantially comparable in the aggregate to those received by such employee immediately prior to the merger. Employees are not third party beneficiaries under the merger agreement and may not rely on the agreements therein or any descriptions thereof. See ‘‘The Merger Agreement — Employee Benefits’’ beginning on page 64.

In addition, we believe, based on preliminary discussions with Buyer, that Buyer will authorize a new equity-based incentive plan after the completion of the merger for the benefit of employees of the

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Company and its subsidiaries. However, the terms of the merger agreement do not require Buyer to do so. In addition, we do not know and have not had specific discussions with Buyer regarding the anticipated size of the plan or individual awards to our executive officers and other participants under the plan. We expect that the size of such awards will generally be customary and will vary depending on the participant’s responsibilities with and potential contributions to the surviving corporation.

Cash Bonus Compensation

As a matter of practice, the Company awards cash bonuses to certain employees on an annual basis, in the discretion of our board of directors and the compensation committee, generally based upon our business objectives of generating returns on average equity of 15% or greater and generating underwriting profits. On June 10, 2007, the compensation committee of our board of directors modified the Company’s general practice regarding the payment terms of such cash bonuses to employees, including executive officers. The general practice had been that in order to be eligible for a cash bonus payment (or portion thereof, as applicable) in any fiscal year, an employee must have been employed on December 31 of the fiscal year immediately preceding the fiscal year in which the applicable cash bonus payment (or portion thereof, as applicable) is actually made. In anticipation of the Company entering into the merger agreement, the compensation committee modified the general practice as applied to cash bonus payments (or portions thereof, as applicable) to be made in the first quarter of 2008, to provide that if an employee is terminated, other than for cause, following the closing of the merger or a similar transaction, the employee will nonetheless be entitled to receive any cash bonus payment (or portion thereof, as applicable) that he or she would have been entitled to receive in the first quarter of 2008 had such employee been employed by the Company on December 31, 2007.

Indemnification and Insurance

The merger agreement provides for director, officer and employee indemnification arrangements and director and officer insurance arrangements for specified time periods. See ‘‘The Merger Agreement — Indemnification and Insurance’’ beginning on page 64.

In addition, the Company previously entered into indemnification agreements with each of our executive officers and directors, including members of the board committee, pursuant to which the Company indemnifies the executive officers and directors to the maximum extent allowed by Section 145 of the DGCL.

Compensation of the Board Committee

To compensate the members of the board committee for the significant time commitment required of them in connection with fulfilling their duties and responsibilities, the members of the board committee will each receive a cash fee of $500 for each board committee meeting pursuant to the Company’s existing policy regarding the compensation of committee members. As of July 31, 2007, there had been a total of 17 meetings of the board committee. The members of the board committee will also be reimbursed for their reasonable out-of-pocket travel and other expenses incurred in connection with their services on the board committee.

Relationship with Wachovia

A. Wellford Tabor, a director of the Company, is a partner of Wachovia Capital Partners, the merchant banking arm of Wachovia Corporation. Wachovia Capital Markets, LLC, the D. E. Shaw group’s financial advisor, which will be entitled to a fee or commission in connection with the merger, is an affiliate of Wachovia Corporation. Wachovia Investors, Inc., which is an affiliate of Wachovia Capital Markets, LLC and Wachovia Corporation, owns 99.6% of the membership interests in Wachovia Capital Partners 2003, LLC, which in turn is the sole limited partner of HRWCP 1, L.P. HRWCP 1, L.P. is a Significant Stockholder. WCP Management Company 2003, LLC, an entity which is owned by the individual partners and professionals of Wachovia Capital Partners, including Mr. Tabor, is the managing member of Wachovia Capital Partners 2003, LLC.

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Material U.S. Federal Income Tax Consequences

The following is a summary of the material U.S. federal income tax consequences of the merger to U.S. persons (as defined below) whose shares of our common stock, or warrants or options to purchase our common stock, are converted into the right to receive cash in the merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. For purposes of this discussion, we use the term ‘‘U.S. person’’ to mean a beneficial owner of shares of our common stock that is, for U.S. federal income tax purposes:

	•	a citizen or resident of the U.S.;

	•	a corporation created or organized under the laws of the U.S. or any of its political subdivisions;

	•	a trust that (a) is subject to the supervision of a court within the U.S. and the control of one or more U.S. persons or (b) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

	•	an estate that is subject to U.S. federal income tax on its income regardless of its source.

If a partnership, including an entity treated as a partnership for U.S. federal income tax purposes, holds shares of our common stock, the tax treatment of a partner generally will depend on the status of the partners and the activities of the partnership. A partner of a partnership holding shares of our common stock should consult its tax advisor.

This discussion is based on current law, which is subject to change, possibly with retroactive effect. It applies only to beneficial owners who hold shares of our common stock as capital assets, and may not apply to (1) stockholders who hold an equity interest, directly or indirectly, in Buyer or the surviving corporation after the merger, (2) stockholders who validly exercise their rights under Delaware law to object to the merger or (3) to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, stockholders subject to the alternative minimum tax, stockholders that have a functional currency other than the U.S. dollar, or stockholders who hold our common stock as part of a hedge, straddle or a constructive sale or conversion transaction). This discussion does not address the receipt of cash in connection with the cancellation of shares of stock options to purchase shares of our common stock, or any other matters relating to equity compensation or benefit plans. This discussion also does not address the U.S. tax consequences to any stockholder who, for U.S. federal income tax purposes, is a non-resident alien individual, foreign corporation, foreign partnership or foreign estate or trust, and does not address any aspect of state, local or foreign tax laws.

Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement.    The exchange of shares of our common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a stockholder whose shares of our common stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received with respect to such shares and the stockholder’s adjusted tax basis in such shares. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). Such gain or loss will be long-term capital gain or loss provided that a stockholder’s holding period for such shares is more than 12 months at the time of the completion of the merger. Long-term capital gains of individuals are eligible for reduced rates of taxation. There are limitations on the deductibility of capital losses.

Cancellation of Stock Options and Warrants for Cash Pursuant to the Merger Agreement.    The cancellation of our stock options and warrants for cash in the merger will be a taxable transaction for U.S. federal income tax purposes. A holder of stock options received in connection with the performance of services, which we refer to in this proxy statement as compensatory options, will generally recognize ordinary income (subject to employment and income tax withholding) upon the

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receipt of the cash received in cancellation of such options in an amount equal to the excess of the cash received over the amount, if any, that the holder paid for the compensatory options. Holders of stock options that are not compensatory options and holders of warrants will generally recognize gain upon the receipt of the cash received in cancellation of such options or warrants in an amount equal to the excess of the cash received over the holder’s adjusted tax basis in the options or warrants. Any gain recognized will be capital gain provided the holder of the stock option or warrants held such options or warrants as a capital asset at the time of completion of the merger.

Backup Withholding and Information Reporting.    Backup withholding of tax may apply to cash payments to which a non-corporate stockholder is entitled under the merger agreement, unless the stockholder or other payee provides a taxpayer identification number, certifies that such number is correct, and otherwise complies with the backup withholding rules. Each of our stockholders should complete and sign the Substitute Form W-9 included as part of the letter of transmittal and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowable as a refund or a credit against a stockholder’s U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

Cash received in the merger will also be subject to information reporting unless an exemption applies.

The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each stockholder should consult his/her/its tax advisor regarding the applicability of the rules discussed above to him/her/it and the particular tax effects to him/her/it of the merger in light of his/her/its particular circumstances, the application of state, local and foreign tax laws, and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of stock options or warrants, including the transactions described in this proxy statement relating to our other equity compensation and benefit plans.

Regulatory Approvals

U.S. state insurance laws and regulations generally require that, prior to the direct or indirect acquisition of an insurance company domiciled in that particular jurisdiction, the acquiring company must obtain the approval of the insurance regulatory authority of that jurisdiction. In connection with the merger, filings for regulatory approval are required with the insurance regulatory authorities of North Carolina and Ohio, the states in which the Company’s insurance subsidiaries are domiciled. These filings were made with the insurance regulatory authorities of North Carolina and Ohio on July 11, 2007.

Although the Company and Buyer do not expect these regulatory authorities to object to the transaction or otherwise withhold their approval, there is no assurance that the Company and Buyer will obtain all necessary regulatory approvals.

Under the HSR Act and the rules promulgated thereunder by the FTC, the merger may not be completed until notification and report forms have been filed with the FTC and the Antitrust Division of the DOJ and the applicable waiting period has expired or been terminated. The Company and Buyer filed notification and report forms under the HSR Act with the FTC and the Antitrust Division of the DOJ on July 11, 2007. On July 20, 2007, the FTC granted early termination of the waiting period under the HSR Act with respect to the merger. At any time before or after completion of the merger, notwithstanding the early termination or expiration of the waiting period under the HSR Act, the Antitrust Division of the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the Company or Buyer. At any time before or after the completion of the merger, and notwithstanding the early termination or expiration of the waiting period under the HSR Act, any U.S. state could take such action under the antitrust laws as it

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deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the Company or Buyer. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

Delisting and Deregistration of Common Stock

If the merger is completed, our common stock will be delisted from NASDAQ and deregistered under the Securities Exchange Act of 1934, as amended, which we refer to in this proxy statement as the Exchange Act, and we will no longer file periodic reports with the SEC on account of our common stock.

Litigation Related to the Merger

We are aware of one lawsuit filed in connection with the proposed merger. On June 13, 2007, Levy Investments filed a purported class action complaint, referred to in this proxy statement as the Levy complaint, in the Superior Court for Orange County, North Carolina against the Company, all of the directors of the Company and the D. E. Shaw group. The Levy complaint alleges, among other things, that our directors breached their fiduciary duties to our stockholders in approving the merger agreement and that the negotiation and structure of the proposed merger are the result of an unfair process. The Levy complaint seeks, among other things, class certification and an injunction preventing the completion of the merger, and a declaration that the directors breached their fiduciary duties. We believe the Levy complaint is without merit and plan to defend it vigorously. Additional lawsuits pertaining to the merger could be filed in the future.

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THE MERGER AGREEMENT

This section of the proxy statement describes the material provisions of the merger agreement but does not purport to describe all of the terms of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and incorporated into this proxy statement by reference. We encourage you to read the full text of the merger agreement because it is the legal document that governs the merger. The merger agreement has been included to provide investors and security holders with information regarding its terms. It is not intended to provide you with any other factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled ‘‘Where You Can Find More Information’’ beginning on page 74.

The Merger

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, of the merger agreement. As the surviving corporation, the Company will continue to exist following the merger. Upon completion of the merger, the directors of Merger Sub will be the initial directors of the surviving corporation and our officers will be the initial officers of the surviving corporation, other than those officers who Merger Sub determines shall not remain as officers of the surviving corporation. All officers of the surviving corporation will hold their positions until their successors are duly elected and qualified or until the earlier of their resignation or removal.

The Company and Buyer each have certain termination rights under the terms of the merger agreement, including the right of either party to terminate the merger agreement if the merger has not been completed on or before December 15, 2007. See ‘‘— Termination of the Merger Agreement’’ beginning on page 62.

The merger will be effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware (or at a later time, if agreed upon by the parties and specified in the certificate of merger). We expect to complete the merger in the second half of 2007 and as promptly as practicable following the adoption of the merger agreement by our stockholders at the special meeting and following all necessary regulatory approvals being obtained. Unless otherwise agreed by the parties to the merger agreement, the parties are required to close the merger no later than the third business day after the satisfaction or waiver of the conditions described under ‘‘— Conditions to the Merger’’ beginning on page 58.

Following completion of the merger, our common stock will be delisted from NASDAQ, deregistered under the Exchange Act and no long publicly traded. We will be a privately-held corporation and our current stockholders, other than any employee who may agree to terms with Buyer permitting such employee to invest in the surviving corporation or an affiliate of the surviving corporation and who chooses to invest, although no such arrangement, agreement or understanding regarding any such investment currently exists between any of our employees and Buyer or any of its affiliates, will cease to have any ownership interest in us or rights as a stockholder in us. Therefore, such current stockholders will not participate in any of our potential future growth or benefit from any potential future increase in the Company’s value following the completion of the merger.

If the merger is not completed, you will not receive any payment for your shares of our common stock in connection with the merger. Instead, we will remain an independent public company and our shares will continue to be listed and traded on NASDAQ and registered under the Exchange Act. In addition, we may be obligated to pay Buyer a termination fee of $11,463,424, unless the termination occurs during the go-shop period, in which case we may be obligated to pay Buyer a termination fee of $7,164,640. In addition, if the termination occurs after the expiration of the go-shop period, we may be required to reimburse Buyer for an amount not to exceed $3,582,320 for transaction fees and expenses incurred by Buyer and its affiliates.

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Merger Consideration

At the effective time of the merger, each outstanding share of our common stock outstanding immediately prior to the effective time of the merger, other than shares as to which appraisal rights may have been perfected under Delaware law, will be canceled and converted into the right to receive $34.50 in cash per share, without interest and less any required withholding taxes, and each holder of our common stock, other than shares as to which appraisal rights may have been perfected under Delaware law, shall cease to have any rights with respect to such shares, except for the right to receive the merger consideration. See ‘‘Appraisal Rights of Dissenting Stockholders’’ beginning on page 71 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex D to this proxy statement. All shares held by the Company will be retired and canceled and no payment will made in respect of those shares.

Treatment of Options, Warrants and Notes

Stock Options.    Under the terms of the merger agreement, upon the completion of the merger, each outstanding vested or unvested option to purchase our common stock will be canceled and the holder will be entitled to receive in cash an amount equal to the difference between the merger consideration and the exercise price of each applicable stock option, without interest and less any required withholding taxes. Payments with respect to such options will be made by the paying agent. See ‘‘— Exchange and Payment Procedures’’ beginning on page 51.

Warrants.    Under the terms of the merger agreement, upon the completion of the merger, each outstanding warrant to purchase shares of our common stock will be converted into the right to receive, upon exercise of such warrant the merger consideration the holder of such warrant would have been entitled to receive upon completion of the merger if such holder had been, immediately prior to the merger, the holder of the number of shares of our common stock then issuable upon exercise in full of such warrant or, if the holder and the Company agree, canceled and extinguished, and the holder thereof will be entitled to receive, following cancellation an amount in cash equal to the excess of (a) the product of (1) the number of shares of our common stock subject to the warrant and (2) the merger consideration, minus (b) the aggregate exercise price of the warrant, without interest and less any required withholding taxes. Payments with respect to such warrants will be made by the paying agent. See ‘‘— Exchange and Payment Procedures’’ beginning on page 51.

Notes.    If you borrowed funds from the Company to purchase shares of our common stock and any such loan is outstanding, under the terms of the notes evidencing such loans, the outstanding principal amount and accrued and unpaid interest is required to be prepaid in full by wire transfer or certified bank check upon the completion of the merger. However, if the borrower and the Company agree, the borrower may pay such loan by agreeing to reduce the merger consideration otherwise payable to the borrower by the outstanding amount of principal and interest with respect to any such loan.

Exchange and Payment Procedures

Promptly after the effective time of the merger, Buyer will deposit, or will cause to be deposited, with a bank or trust company, which we refer to in this proxy statement as the paying agent, reasonably acceptable to us, cash in amounts and at the times necessary to pay the applicable merger consideration to each holder of shares of our common stock, holders of our options and holders of our warrants.

As promptly as practicable after the effective time of the merger (but in any event within three business days), the paying agent will mail a letter of transmittal and instructions to you and the other stockholders. The letter of transmittal and instructions will tell you how to surrender your common stock certificates or shares you may hold represented by book entry in exchange for the merger consideration. You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

You will not be entitled to receive the applicable merger consideration until you surrender your stock certificate or certificates (or book-entry shares) to the paying agent, together with a duly completed

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and executed letter of transmittal and any other documents as may be required by the letter of transmittal. The merger consideration may be paid to a person other than the person in whose name the corresponding certificate is registered if the certificate is properly endorsed or is otherwise in the proper form for transfer. In addition, the person who surrenders such certificate must either pay any transfer or other applicable taxes or establish to the satisfaction of the surviving corporation that such taxes have been paid or are not applicable.

No interest will be paid or will accrue on the cash payable upon surrender of the certificates or book-entry shares. Each of Buyer or the paying agent will be entitled to deduct and, withhold, and pay to the appropriate taxing authorities, any applicable taxes from the merger consideration. Any sum that is withheld and paid to a taxing authority by the paying agent will be deemed to have been paid to the person with regard to whom it is withheld.

At the effective time of the merger, the surviving corporation will not record on the stock transfer books of the Company or the surviving corporation any transfers of shares of our common stock that were outstanding immediately prior to the effective time of the merger. If, after the effective time of the merger, certificates or book-entry shares are presented for transfer, such shares will be canceled and treated as having been surrendered for the applicable merger consideration.

Any portion of the merger consideration deposited with the paying agent that remains undistributed to former holders of our common stock for more than one year following the completion of the merger will be delivered, upon demand, to the surviving corporation. Former holders of our common stock who have not complied with the above-described exchange and payment procedures will thereafter only look to the surviving corporation for payment of the applicable merger consideration. None of Buyer, Merger Sub, the Company, the surviving corporation, the paying agent or any other person will be liable to any former holders of our common stock for any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar laws.

If you have lost a certificate, or if it has been lost stolen or destroyed, then before you will be entitled to receive the merger consideration, you will have to make an affidavit of the loss, theft or destruction, and if required by the paying agent post a bond in a customary amount sufficient to protect the surviving corporation against any claim that may be made against it with respect to that certificate. These procedures will be described in the letter of transmittal that you will receive, which you should carefully read in its entirety.

Representations and Warranties

The merger agreement contains representations and warranties made by us to Buyer and Merger Sub, and representations and warranties made by Buyer and Merger Sub to us, and may be subject to important limitations and qualifications agreed to by the parties in connection with negotiating the terms of the merger agreement. In particular, the representations and warranties that we made are qualified by certain information that we disclosed in documents we filed with or furnished to the SEC and that are publicly available on EDGAR on or after March 9, 2007 and prior to the date of the merger agreement, as well as by confidential disclosure schedules that we delivered to Buyer and Merger Sub concurrently with the execution of the merger agreement. In addition, certain representations and warranties were made as of a specified date, may be subject to contractual standards of materiality different from those generally applicable to public disclosures to stockholders, or may have been used for the purpose of allocating risk among the parties rather than establishing matters of fact. Stockholders are not third party beneficiaries under the merger agreement, except for the right to receive the merger consideration from and after the completion of the merger, and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Buyer or Merger Sub or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

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Our representations and warranties to Buyer and Merger Sub relate to, among other things:

	•	corporate organization and existence;

	•	corporate authorization to enter into and perform our obligations under the merger agreement;

	•	required regulatory filings and consents and approvals of governmental entities required to complete the merger;

	•	absence of conflicts with or defaults under our organizational documents, other contracts and applicable laws;

	•	our capital structure, including in particular the number of shares of our common stock, stock options and warrants outstanding;

	•	our subsidiaries, including our equity interests in them and the conduct of our insurance operations through them;

	•	certain documents we have filed with the SEC;

	•	our financial statements;

	•	statutory statements and other documents we file with applicable insurance regulatory authorities;

	•	absence of certain changes or events since December 31, 2006;

	•	no undisclosed liabilities;

	•	compliance with applicable laws and court orders;

	•	litigation matters;

	•	reinsurance treaties or agreements;

	•	actuarial matters;

	•	title to our properties and absence of liens;

	•	taxes;

	•	compliance with the Employee Retirement Income Securities Act of 1974, as amended, and other employee benefit matters;

	•	labor matters;

	•	environmental matters;

	•	intellectual property;

	•	material contracts;

	•	brokers’ and finders’ fees; and

	•	affiliate transactions.

Many of our representations and warranties are qualified by a material adverse effect standard. For purposes of the merger agreement, ‘‘material adverse effect’’ is defined to mean any event, change, circumstance or effect that, individually or in the aggregate, is materially adverse to the business, assets, liabilities, financial condition or results of operation of the Company and its subsidiaries, taken as a whole, provided that none of the following shall be considered in determining whether a material adverse effect on the Company has occurred or would reasonably be expected to occur:

	•	changes or fluctuations in the economy or financial markets generally in the U.S. or Bermuda or changes or fluctuations that are the result of acts of war, armed hostilities or terrorism, provided that any such change or fluctuation does not disproportionately adversely affect us and our subsidiaries compared to other companies of similar size operating in the same industries and in similar geographic areas and product markets in which we and our subsidiaries operate;

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	•	changes that are the result of factors generally affecting the property/casualty insurance and/or workers compensation industry and the geographic areas in which we and our subsidiaries operate, provided that any such change does not disproportionately adversely affect us and our subsidiaries compared to other companies of similar size operating in the same industries and in similar geographic areas and product markets in which we and our subsidiaries operate;

	•	any loss of, or adverse change in, the relationship of the Company or any of its subsidiaries with its customers, employees, agents, suppliers or regulators caused by the pendency or the announcement of the merger;

	•	changes in generally accepted accounting principles, the rules or policies of the Public Company Oversight Board or the statutory accounting principals prescribed or permitted by the applicable state insurance regulators as in effect as of the date of the merger agreement in any state in which our subsidiaries operate, or any applicable law or interpretation or application of any of the foregoing after the date of the merger agreement;

	•	the suspension of trading in securities on the New York Stock Exchange or NASDAQ or a decline in the price, or a decline or increase in the trading volume, of our common stock, provided that this exception does not preclude a determination that any event, change, circumstance or effect underlying such decline or increase, as the case may be, has resulted in, or contributed to, a material adverse effect;

	•	the entry into or announcement of the execution of the merger agreement or our compliance with the terms of the merger agreement;

	•	any failure by the Company to meet any estimates or projections of revenues or earnings for any period ending on or after the date of the merger agreement and prior to completion of the merger, provided that this exception does not preclude a determination that any event, change, circumstance or effect underlying such failure, has resulted in, or contributed to, a material adverse effect;

	•	any (a) change or announcement of a potential change in the credit rating or A.M. Best rating of the Company or any of our subsidiaries or any of their businesses or securities if the transactions contemplated by the merger agreement or any other event, change, circumstance or effect otherwise set forth in the first bullet above, subclause (b) of this bullet and the last bullet below has contributed to, or underlies, such change or announcement, in each case in any material respect, or (b) failure of any affiliate of Buyer or Merger Sub to obtain a specified credit rating or A.M. Best rating in connection with the transactions contemplated by the merger agreement; or

	•	any actions taken, or the failure to take any action, which Buyer has requested in writing or to which Buyer has consented in writing.

In the merger agreement, Buyer and Merger Sub each made representations and warranties relating to:

	•	corporate organization and existence;

	•	corporate authorization to enter into and perform their obligations under the merger agreement;

	•	necessary regulatory filings and consents and approvals of governmental entities required to complete the merger;

	•	absence of conflicts with or defaults under organizational documents, other contracts and applicable laws;

	•	capital structure of Buyer and Merger Sub;

	•	litigation;

	•	brokers and finders’ fees;

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	•	Buyer having funds available prior to and as of the completion of the merger to pay the merger consideration and all related fees and expenses to be paid as of or prior to the completion of the merger;

	•	that neither Buyer or Merger Sub is, with respect to the Company, an ‘‘interested stockholder’’ as such term is defined in Section 203(c)(5) of the DGCL; and

	•	ownership of shares of our common stock.

Several of these representations made by Buyer and Merger Sub to us were qualified by certain information that Buyer and Merger Sub disclosed in confidential disclosure schedules that they delivered to us concurrently with the execution of the merger agreement.

Conduct of Business Prior to Closing

Under the terms of the merger agreement, we have agreed that, subject to certain exceptions, between the date of the merger agreement and the completion of the merger, we will conduct, and cause our subsidiaries to conduct, our operations in the ordinary course consistent with past practice, including using our commercially reasonable efforts to preserve intact our business organization, and goodwill and relationships with customers, third party vendors, including government entities, insurance carries and other intermediaries, company producers and others having material business dealings with us and to keep available the services of our current officers and key employees.

In addition, we have agreed that, subject to certain exceptions, between the date of the merger agreement and the completion of the merger, we and our subsidiaries will not:

	•	adopt or propose any change in its organizational documents;

	•	declare, set aside, make or pay any dividend or other distribution in respect of our securities, securities of our subsidiaries or rights to acquire such securities, except for (a) dividends or distributions from one wholly owned subsidiary to another and (b) regular quarterly cash dividends paid on our common stock not in excess of $0.15 per share per quarter;

	•	adjust, split, combine or reclassify any of our common stock or issue or authorize the issuance of any other securities;

	•	repurchase, redeem or otherwise acquire any shares of our common stock or the capital stock of our subsidiaries or any other equity interests or rights to acquire any such shares or interests;

	•	issue, sell, grant, pledge, amend, grant any rights in respect of or otherwise encumber shares of our common stock or other securities or make any change to our capital structure other than upon exercise of our previously issued and outstanding options or warrants or certain issuances by and among our wholly owned subsidiaries;

	•	merge or consolidate with any person or acquire any material assets or make a material investment in any other person other than acquisitions of inventory, equipment or software in the ordinary course of business consistent with past practice or ordinary course investment portfolio transactions;

	•	sell, lease, license, subject to a lien, other than a permitted lien, encumber or otherwise surrender, relinquish or dispose of any assets, property, product lines or businesses, except pursuant to existing contracts or commitments, in an amount not in excess of $250,000 individually or $1,000,000 in the aggregate or ordinary course investment portfolio transactions;

	•	make any loans, advances or capital contributions to or investments in any person, in excess of $2,500,000 in the aggregate during any 12-month period, other than by the Company or any of its subsidiaries or ordinary course investment portfolio transactions;

	•	create, incur, guarantee or assume certain indebtedness;

	•	make or commit to make any capital expenditure other than capital expenditures approved by our board of directors prior to the date of the merger agreement or within the Company’s capital budget for the 2007 fiscal year;

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	•	cancel any debts or waive any claims or rights of substantial value, except in the ordinary course of business consistent with past practice with respect to claims that are not material;

	•	take certain actions with respect to compensation and employee benefits, including:

	–	amending or otherwise modifying benefits under any of our benefit plans other than immaterial amendments or modifications;

	–	accelerating the payment or vesting of benefits or amounts payable or to become payable under any of our benefit plans as in effect on the date of the merger agreement;

	–	failing to make any required contribution to any of our benefit plans;

	–	merging or transferring any of our benefit plans or the assets or liabilities of any of our benefit plans;

	–	changing the sponsor of any of our benefit plans; or

	–	terminating or establishing any of our company benefit plans, except to the limited extent necessary to comply with Section 409A of the Internal Revenue Code of 1986, as amended, which we refer to in this proxy statement as the Code, without any material increase in liability or cost to the Company or to the extent required by an existing agreement, benefit plan or law;

	•	grant any increase in the compensation, bonus or benefits of our directors, officers, employees, consultants, representatives or agents, other than immaterial increases in the compensation and benefits of persons who are not directors, executive officers or employees who earn more than $150,000 in base salary in the ordinary course of business consistent with past practice;

	•	enter into or materially amend or modify any severance, consulting, retention, collective bargaining, change of control or employment agreement, plan, program or arrangement;

	•	settle or compromise any material claims or audits in an amount in excess of $750,000 individually or $2,000,000 in the aggregate, except that if a reserve has been established on our balance sheet as of December 31, 2006 for an amount less than the settlement or comprise amount, we may settle such claims or audits in an amount up to $750,000 individually or $2,000,000 in the aggregate in excess of such claim or reserve amount, other than with respect to insurance claims in the ordinary course of business;

	•	enter into any consent decree, injunction or similar restraint or form of equitable relief in settlement of any material claim or audit that would restrict in any material respect the operations of the business after completion of the merger, other than with respect to insurance claims in the ordinary course of business;

	•	make or rescind any material election relating to taxes, settle or compromise any claim relating to taxes, enter into a written and legally binding agreement with a tax authority relating to taxes or, except as required by law, change any of our methods of reporting income or deductions for federal income tax purposes from those employed for our tax returns for the taxable year ended December 31, 2006;

	•	other than in the ordinary course of business:

	–	modify or amend in any material respect or terminate any material contract;

	–	enter into any successor agreement relating to an expiring material contract that changes the terms of the expiring material contract in a way that is materially adverse to us or any of our subsidiaries; or

	–	modify, amend or enter into any new agreement that would have been considered a material contract if it were entered into at or prior to the date of the merger agreement;

	•	enter into or renew or extend any agreements or arrangements that limit or otherwise restrict us or any of our subsidiaries or any affiliate that could, after the completion of the merger, limit or restrict Buyer or any of its affiliates, including the surviving corporation, from engaging or competing in any line of business or in any geographic area;

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	•	terminate, cancel, amend or modify any insurance policies covering us or any of our subsidiaries as insureds or their respective properties which is not replaced by comparable insurance coverage;

	•	adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of the Company or any of our subsidiaries;

	•	other than a renewal transaction with any reinsurer upon expiration of any current reinsurance agreement, enter into any new reinsurance transaction as assuming or ceding insurer which does not contain arms’ length cancellation, termination and commutation provisions;

	•	alter or amend in any material respect any existing underwriting, claim handling, loss control, investment, actuarial, financial reporting or accounting practices, methods, guidelines or policies, except as may be required by generally accepted accounting principles, the statutory accounting principals prescribed or permitted by the applicable state insurance regulators in any state in which we operate or any governmental entity or applicable law; or

	•	agree or commit to do any of the foregoing.

Agreement to Use Commercially Reasonable Efforts to Complete the Merger

Subject to the terms and conditions set forth in the merger agreement, each of the parties to the merger agreement has agreed to use its commercially reasonable efforts to take, or to cause to be taken, all actions and to do, or to cause to be done, all things necessary, proper or advisable under applicable law to complete the merger as promptly as practicable, including preparing and filing any required submissions under applicable law. Under the terms of the merger agreement, the parties have also agreed, to the extent permissible, to use their commercially reasonable efforts to obtain all requisite material approvals, clearances and authorizations for the merger. In addition, each of the parties agreed to use its commercially reasonably efforts to cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or inquiry, including any proceeding initiated by a non-governmental entity.

Agreement to Cooperate with Financing

We have agreed, and have agreed to cause our subsidiaries (and to use our commercially reasonable efforts to cause our and their respective representatives) to provide to Buyer all cooperation reasonably requested by Buyer in connection with the placement of trust preferred securities or debt financing in the U.S. and/or in Bermuda, including:

	•	furnishing Buyer, Merger Sub and their financing sources with financial and other pertinent information regarding us and our subsidiaries as may be reasonably requested by Buyer;

	•	participating in a reasonable number of meetings, presentations, road shows, due diligence sessions, drafting sessions and sessions with rating agencies;

	•	assisting with the preparation of materials for rating agency presentations, offering documents, private placement memoranda, bank information memoranda, prospectuses and similar documents required in connection with any such financing;

	•	reasonably cooperating with the marketing efforts for any such financing;

	•	facilitating the entrance into one or more indentures, guarantees or other agreements satisfactory to Buyer in connection with any such financing;

	•	facilitating the consummation of any such financing;

	•	executing and delivering, or using commercially reasonable efforts to obtain from our advisors or other persons, customary certificates, accounting comfort letters, legal opinions, hedging agreements, surveys or title insurance policies; and

	•	facilitating the entrance into other documents and instruments relating to guarantees and other matters ancillary to any such financing as may be reasonably requested by Buyer.

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However, the merger is not subject to a financing condition and equity commitments for the full amount of the merger consideration plus funds sufficient to pay all related fees and expenses required to be paid or funded as of or prior to the completion of the merger have been received by Buyer from the Investors pursuant to the equity commitment letter.

Conditions to the Merger

Each party’s obligation to complete the merger is subject to the satisfaction or waiver of the following conditions:

	•	the adoption of the merger agreement must have been approved by the affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding shares of our common stock;

	•	any applicable waiting period (and any extension thereof) under the HSR Act shall have terminated or expired; and

	•	approvals under any applicable insurance laws shall have been obtained and the waiting period under filings under any insurance laws shall have terminated or expired.

The obligation of Buyer and Merger Sub to complete the merger is subject to the satisfaction or waiver of the following additional conditions: 

	•	our representation and warranty with respect to the absence of any event, change, circumstance or effect that has had or would, individually or in the aggregate, reasonably be expected to have a material adverse effect on us since December 31, 2006 must be true and correct in all respects;

	•	our representations and warranties with respect to corporate authorization, capitalization and brokers’ and finders’ must be true and correct in all material respects;

	•	all other representations and warranties made by us in the merger agreement, with the exception of those listed above, must be true and correct (without giving effect to any qualification as to materiality or material adverse effect set forth in such representations and warranties), except where the failure to be so true and correct does not have and would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on us;

	•	we must deliver to Buyer at the closing a certificate from our chief executive officer or our chief financial officer with respect to the satisfaction of the conditions relating to our representations and warranties;

	•	we must have performed or complied in all material respects with all agreements and covenants required to be performed by us under the merger agreement at or prior to the closing date and Buyer shall have received a certificate of our chief executive officer or our chief financial officer certifying to such effect; and

	•	we must deliver a certificate to Buyer certifying that, as of the closing date of the merger, we are not and have not been at any time during the five-year period ending on such date a real property holding corporation as defined under Section 897(c)(2) of the Code.

Our obligation to complete the merger is subject to the satisfaction or waiver of the following further conditions:

	•	Buyer’s and Merger Sub’s representation and warranty with respect to financing must be true and correct in all respects;

	•	Buyer’s and Merger Sub’s representation and warranty with respect to corporate authorization must be true and correct in all material respects;

	•	all other representations and warranties made by Buyer and Merger Sub in the merger agreement, with the exception of those listed above, must be true and correct, without giving

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		effect to any qualification as to materiality or material adverse effect set forth in such representations and warranties, except where the failure to be so true and correct does not and would not, individually or in the aggregate, reasonably be expected to prevent, materially delay or materially impair the consummation of the transactions contemplated by the merger agreement;

	•	Buyer must deliver to us at the closing a certificate from an executive officer of Buyer with respect to the satisfaction of the conditions relating to their representations and warranties; and

	•	Buyer and Merger Sub must have performed or complied in all material respects with all agreements and covenants required to be performed by them under the merger agreement at or prior to the closing date and we must receive a certificate of an executive officer of Buyer to such effect.

No Financing Condition; Equity Commitment Letter

The merger is not subject to a financing condition. Equity commitments for the full amount of the merger consideration plus funds sufficient to pay all related fees and expenses required to be paid or funded as of or prior to the completion of the merger have been received by Buyer from each of the Investors pursuant to the equity commitment letter. Under the terms of the equity commitment letter, each of the Investors has committed to Buyer, severally and not jointly, in the amount set forth therein, to fund, or to cause to be funded, the aggregate funds necessary to complete the transactions contemplated by the merger agreement. The obligations of each Investor to Buyer to fund, or to cause to be funded, its equity commitment are subject to the prior satisfaction or waiver of the conditions to Buyer’s and Merger Sub’s obligations to effect the merger, as set forth solely in Sections 7.1 and 7.2 of the merger agreement, and the contemporaneous completion of the merger. The Investors’ obligation to fund the equity commitment, but not any obligation to pay amounts owed in connection with any breach or failure of Buyer or Merger Sub to comply with any payment obligations under the merger agreement, as described below, terminates upon the termination of the merger agreement.

The Investors have agreed pursuant to the equity commitment letter to pay amounts owed in connection with any breach or failure of Buyer or Merger Sub to comply with any payment obligations under the merger agreement following termination of the merger agreement, whether or not any such amounts may have arisen prior to termination of the merger agreement, in an amount with respect to each Investor equal to the product of the liability cap and such Investor’s percentage of the equity commitment. This obligation will survive any termination of the merger agreement for a period of not less than six months.

Each Investor may assign all or a portion of its obligation to fund its equity commitment to one or more of its affiliates or affiliated funds or any co-investor permitted under the terms of the merger agreement, so long as the Investors, their affiliates and any affiliated funds continue to own at least 60% of the equity securities of Buyer prior to and as of the closing of the merger. Any such assignment will not relieve an Investor from its obligation to fund the equity commitment pursuant to the terms of the equity commitment letter. In addition, no such assignment by an Investor will become effective if it would or would reasonably be expected to adversely affect the obligation to pay amounts owed in connection with any breach or failure of Buyer or Merger Sub to comply with the payment obligations under the merger agreement, or prevent, materially delay or materially impair the completion of the merger or the other transactions contemplated by the merger agreement. Each Investor’s liability to the Company or otherwise under the equity commitment letter is capped at an amount equal to the product of the liability cap and such Investor’s percentage of the equity commitment.

Calling of Stockholder Meeting

Subject to the terms and conditions set forth in the merger agreement, the Company is required to duly call, give notice of, convene and hold a meeting of our stockholders to vote upon the adoption of the merger agreement. Our board of directors has unanimously resolved to recommend that our

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stockholders approve the adoption of the merger agreement. However, under specified circumstances our board of directors may, at any time prior to the adoption of the merger agreement by our stockholders, withdraw or change its recommendation and/or (b) terminate the merger agreement. See ‘‘— Recommendation Withdrawal; Special Company Termination Rights’’ beginning on page 61 for a complete discussion of these rights.

Solicitation of Other Offers

Solicitation of Other Offers during the ‘‘Go-Shop’’ Period.    Under the terms of the merger agreement, the Company has the right to actively solicit and engage in discussions and negotiations with respect to competing proposals from, and provide non-public information to, third parties through 11:59 p.m., New York time, on August 5, 2007. At any time during the go-shop period, subject to the payment of a termination fee (as described in ‘‘— Termination of the Merger Agreement’’ and ‘‘— Termination Fees and Expenses’’ beginning on page 62 and 63, respectively), our board of directors may terminate the merger agreement to accept a superior proposal, without any obligation to notify or offer Buyer a right to match the proposal.

No Solicitation of Other Offers during the ‘‘No-Shop’’ Period.    Under the terms of the merger agreement, after 11:59 p.m., New York time, on August 5, 2007, the Company has agreed not to, and to cause our representatives not to:

	•	initiate, solicit or knowingly encourage the submission of any inquiries, proposals or offers, provide any non-public information or data to any third party that may initiate a takeover proposal, or knowingly make any other efforts or attempts that constitute or would reasonably be expected to lead to, any takeover proposal or engage in any discussions or negotiations with respect thereto or otherwise cooperate with or assist or participate in, or knowingly facilitate any such inquiries, proposals, discussions or negotiations;

	•	approve or recommend, or publicly propose to approve or recommend, any takeover proposal;

	•	enter into any merger agreement, letter of intent or other agreement providing for or relating to a takeover proposal;

	•	enter into any agreement requiring us to abandon, terminate or fail to complete the transactions contemplated by the merger agreement; or

	•	agree or publicly propose to do any of the foregoing.

However, if at any time during the no-shop period, we receive a bona fide written takeover proposal from any party with whom we were in contact during the go-shop period or an unsolicited takeover proposal from any third party, we are permitted to engage in discussions or negotiations with, or provide any non-public information to, any such party if our board of directors determines in good faith, after consultation with its financial advisor and outside counsel, that the takeover proposal constitutes, or could reasonably be expected to lead to, a superior proposal and the failure to provide non-public information to or engage in discussions or negotiations with, such third party would be inconsistent with our directors’ fiduciary duties under applicable law.

During the no-shop period, we are required under the terms of the merger agreement to promptly (within two business days) notify Buyer in the event we receive a takeover proposal, including the material terms and conditions thereof, and will keep Buyer reasonably apprised as to the status and any material developments, discussions and negotiations concerning the same. Without limiting the foregoing, we will promptly (within two business days) notify Buyer orally and in writing if we determine to begin providing information or to engage in negotiations concerning a takeover proposal.

Confidentiality Obligations

Under the terms of the merger agreement, we may not, and may not allow our representatives to, disclose any non-public information to any person in connection with a takeover proposal without

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entering into a confidentiality and standstill agreement that contains provisions that are no less favorable in the aggregate to us than those contained in the confidentiality agreements entered into with Buyer or its affiliates; provided that no such agreement will be required to prohibit or restrict any third party from submitting, amending, discussing, negotiating, entering into and consummating a takeover proposal with the Company or any of its advisors. Also, we are required to promptly or substantially contemporaneously, depending on the circumstances, provide to Buyer any non-public information concerning us or our subsidiaries provided to such other person which was not previously provided to Buyer.

Takeover Proposal and Superior Proposal

A ‘‘takeover proposal’’ means any inquiry, proposal or offer from any person or group of persons other than Buyer or its affiliates relating to any direct or indirect acquisition or purchase of a business that constitutes 15% or more of the net revenues, net income or assets of us and our subsidiaries, taken as a whole, or 15% or more of any class or series of our securities (or any of our subsidiaries whose business constitutes 15% or more of our and our subsidiaries’ net revenues, net income or assets, taken as a whole), any tender offer or exchange offer that if completed would result in any person or group of persons beneficially owning 15% or more of any class or series of our capital stock, or any merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of our subsidiaries whose business constitutes 15% or more of our and our subsidiaries’ net revenues, net income or assets, taken as a whole.

A ‘‘superior proposal’’ means a bona fide written takeover proposal (as defined above, except that all references to ‘‘15%’’ in the definition of ‘‘takeover proposal’’ shall be deemed to be references to ‘‘more than 50%’’) that our board of directors determines in good faith, after consulting with its financial advisor and outside counsel, taking into account, among other things, all legal, financial and other aspects of the takeover proposal and the third party making such proposal, is more favorable to our stockholders than the transactions contemplated by the merger agreement, including any written proposal by and binding upon Buyer to amend the merger agreement prior to such determination by our board of directors, as amended from time to time.

Recommendation Withdrawal; Special Company Termination Rights

Subject to the terms and conditions set forth in the merger agreement, the Company is required to duly call, give notice of, convene and hold a meeting of our stockholders to vote upon the adoption of the merger agreement. Our board of directors has unanimously resolved to recommend that our stockholders approve the adoption of the merger agreement. However, our board of directors may, at any time prior to the adoption of the merger agreement by our stockholders, (a) withdraw (or modify or qualify in a manner adverse to Buyer in any material respect), or publicly propose to withdraw, its recommendation that our stockholders approve the adoption of the merger agreement or knowingly take any other action or knowingly make any other public statement that is knowingly inconsistent in any material respect with such recommendation, which we refer to in this proxy statement as a recommendation withdrawal, and/or (b) terminate the merger agreement, in either case, if our board of directors determines in good faith, after consultation with its outside counsel, that the failure to take such action would be inconsistent with its fiduciary duties under applicable law, except that our board of directors may not take any such action (1) not in connection with a takeover proposal, unless the taking of such action is based on one or more events, changes, circumstances or effects relating to the Company or any of its subsidiaries that occurs on or after June 11, 2007, the date of the merger agreement, and (2) in connection with a takeover proposal, unless our board of directors determines in good faith, after consultation with its financial advisor and outside counsel, that such takeover proposal constitutes a superior proposal and, if such determination is made during the no-shop period, the Company:

	•	has given written notice to Buyer at least three business days in advance of its intention to effect a recommendation withdrawal or terminate the merger agreement and has provided Buyer with a copy of the relevant proposed transaction agreements with the party making the takeover proposal; and

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	•	negotiates in good faith during such three business day period with Buyer (to the extent Buyer desires to negotiate) to make such adjustments to the terms and conditions of the merger agreement so that such takeover proposal ceases, in the judgment of our board of directors to constitute a superior proposal.

For a detailed discussion of the termination rights of the parties under the merger agreement and the fees and expenses associated therewith , see ‘‘— Termination of the Merger Agreement’’ and ‘‘— Termination Fees and Expenses’’ beginning on page 62 and 63, respectively.

Termination of the Merger Agreement

The Company and Buyer each have certain termination rights under the terms of the merger agreement. The merger agreement may be terminated at any time prior to the completion of the merger, whether before or after stockholder approval has been obtained, as follows:

	•	by mutual written consent of the Company and Buyer;

	•	by either the Company or Buyer if:

	–	the merger is not completed on or before December 15, 2007, except that this right will not be available to any party whose material breach of the merger agreement primarily contributes to the failure to complete the merger by such date;

	–	there is any final and non-appealable order, judgment, decree or ruling prohibiting the merger; or

	–	our stockholders fail to approve the adoption of the merger agreement at the special meeting or at any adjournment or postponement thereof at which the merger agreement is voted on.

	•	by Buyer if:

	–	the Company has breached or failed to perform any of our representations, warranties, covenants or agreements under the merger agreement and the breach or failure to perform (a) has not been cured or is incapable of being cured by us prior to the earlier of December 15, 2007, and 30 days following written notice to us by Buyer or Merger Sub and (b) would cause certain conditions to closing to not be satisfied; or

	–	our board of directors (or any committee thereof):

	(a)	effects a recommendation withdrawal;

	(b)	recommends to our stockholders a takeover proposal other than the merger; or

	(c)	fails to call the special meeting in breach of the obligations to do so under the merger agreement.

	•	by the Company if:

	–	Buyer has breached or failed to perform any of its representations, warranties, covenants or agreements under the merger agreement and the breach or failure to perform (a) has not been cured or is incapable of being cured by it prior to the earlier of December 15, 2007, and 30 days following written notice to Buyer by us and (b) would cause certain conditions to closing to not be satisfied; or

	–	prior to obtaining the requisite stockholder approval, our board of directors effects a recommendation withdrawal or determines in good faith (after consultation with our outside counsel) that the failure to terminate the merger agreement would be inconsistent with its fiduciary duties under applicable law (whether or not in connection with a superior proposal), subject to certain limitations described in ‘‘Recommendation Withdrawal; Special Company Termination Rights’’ beginning on page 61.

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Termination Fees and Expenses

Termination Fees and Expenses Payable by the Company

The Company will be required to pay a termination fee of $11,463,424 to Buyer if the merger agreement is terminated under certain circumstances, unless the termination occurs during the go-shop period, in which case we will be required to pay a termination fee of $7,164,640 to Buyer. These circumstances include:

	•	the merger agreement is terminated by Buyer if our board of directors (a) has effected a recommendation withdrawal, (b) recommends to our stockholders a takeover proposal other than the merger or (c) fails to call the special meeting in breach of the obligations to do so under the merger agreement, in which event the termination fee shall be paid promptly (within two business days) following such termination;

	•	the merger agreement is terminated by us prior to obtaining the requisite stockholder approval as a result of our board of directors (a) effecting a recommendation withdrawal or (b) determining in good faith (after consultation with our outside counsel) that the failure to terminate the merger agreement would be inconsistent with its fiduciary duties under applicable law (whether or not in connection with a superior proposal), subject to certain limitations described in ‘‘Recommendation Withdrawal; Special Company Termination Rights’’ beginning on page 61;

	•	the merger agreement is terminated by Buyer or us if the merger has not been completed by December 15, 2007 other than as a result of a breach by Buyer of its obligations under the merger agreement and (a) prior to the termination of the merger agreement, a takeover proposal has been publicly announced or made known and not withdrawn and (b) we or any of our subsidiaries enters into a definitive agreement with respect to, or consummates, any takeover proposal within 12 months after such termination, in which event the termination fee shall be paid on the date of consummation of such takeover proposal within such 12-month period or thereafter if such takeover proposal was entered into within such 12-month period;

	•	the merger agreement is terminated by Buyer or us if we fail to obtain the requisite stockholder approval for the merger (or after we fail to obtain the requisite stockholder approval for the merger, we terminate the merger agreement for another reason), and (a) prior to the special meeting, a takeover proposal has been publicly announced or made known and not withdrawn, and (b) we or any of our subsidiaries enters into a definitive agreement with respect to or consummates, as applicable, any takeover proposal within 12 months after such termination, in which event the termination fee shall be paid on the date of such execution or consummation within such 12-month period, as applicable; or

	•	the merger agreement is terminated by Buyer as a result of our breach or failure to perform any of our representations, warranties, covenants or agreements under the terms of the merger agreement, and (a) prior to the breach, a takeover proposal has been publicly announced or publicly made known and not withdrawn and (b) we or any of our subsidiaries enters into a definitive agreement with respect to, or consummates, any takeover proposal within 12 months after such termination, in which event the termination fee shall be paid on the date of consummation of such takeover proposal within such 12-month period or thereafter if such takeover proposal was entered into within such 12-month period.

For purposes of this discussion, the term ‘‘takeover proposal’’ has the meaning assigned to such term in ‘‘— Solicitation of Other Offers — Takeover Proposal and Superior Proposal’’, except that all references to 15% therein are deemed to be references to ‘‘more than 50%’’.

In addition, we will be required to reimburse Buyer promptly (within two business days) following receipt of an invoice therefor, for an amount not to exceed $3,582,320 for transaction fees and expenses incurred by Buyer and its affiliates if the merger agreement is terminated after the expiration of the go-shop period (a) by Buyer for any reason permitted under the merger agreement other than

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the failure to obtain the necessary regulatory approvals for the merger, including the approval of the insurance regulatory authorities of the applicable jurisdictions or (b) by us if we fail to obtain the requisite stockholder approval for the merger, or if we fail to obtain the requisite stockholder approval for the merger and we terminate the merger agreement for another reason. The merger agreement provides that Buyer and Merger Sub are entitled to an injunction or injunctions to prevent breaches by the Company of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, this being in addition to any other remedy to which they are entitled at law or in equity. Our and our affiliates’ liability for monetary damages to Buyer for breaches under the merger agreement and related agreements, including any termination fee and any expense reimbursement, are limited to the liability cap.

Termination Fee and Expenses Payable by Buyer

Buyer will be required to pay us promptly (within two business days) following termination of the merger agreement, a reverse termination fee of $11,463,424 and to reimburse us promptly (within two business days) following receipt of an invoice therefor, for an amount not to exceed $3,582,320 for transaction fees and expenses incurred by the Company and its affiliates, if the merger agreement is terminated because Buyer and Merger Sub fail to fund the merger consideration following satisfaction or waiver of the conditions to Buyer’s and Merger Sub’s obligations to effect the merger as set forth in the merger agreement or fails to receive the necessary regulatory approvals for the merger. The merger agreement provides that, except with respect to breaches of certain confidentiality provisions for which injunctive relief may be available, our right to receive the reverse termination fee and the expense reimbursement is the sole and exclusive remedy available to us and our subsidiaries against Buyer and Merger Sub with respect to the merger agreement and the transactions contemplated thereby, and Buyer’s and Merger Sub’s liability to us for breaches under the merger agreement and related agreements is limited to the liability cap.

Under the terms of the equity commitment letter, each of the Investors has agreed, severally and not jointly, to pay its proportionate share (based on its respective percentage of the equity commitment) of the reverse termination fee and expense reimbursement owed to us if Buyer and Merger Sub fail to do so, subject to its respective share of the liability cap.

Indemnification and Insurance

The merger agreement provides that the surviving corporation will, to the greatest extent permitted by law, indemnify and hold harmless, and advance reasonable expenses to, present and former officers, directors and employees of the Company and any of its subsidiaries against any and all costs or expenses, including reasonable attorney’s fees and expenses, judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with actual or threatened claim, action, suit, proceeding or investigation whether civil, criminal, administrative, regulatory or investigative arising out of any circumstances, developments or matters in existence or acts or omissions occurring or alleged to occur, prior to the merger.

The merger agreement provides that, for a period of six years following the merger, the surviving corporation will either (a) maintain in effect the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company or (b) provide substitute policies or purchase a ‘‘tail policy’’, in either case of at least the same coverage and amounts and containing terms, conditions, retentions and limits of liability that are no less advantageous in the aggregate to the directors and officers of the Company, in each case with respect to claims arising out of or relating to events which occurred before or at the effective time of the merger; provided, however that in no event will the surviving corporation be required to expend an annual premium for such coverage in excess of 250% of the last annual premium paid by the Company for such insurance prior to the date of the merger agreement.

Employee Benefits

Under the terms of the merger agreement, for a period of one year following the effective time of the merger, the surviving corporation has agreed to provide our employees with compensation, including

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base salary and incentive compensation opportunities, but excluding equity-based incentive arrangements, and employee benefits that are substantially comparable in the aggregate to those received by such employees immediately prior to the execution of the merger agreement. Employees of the Company, in such capacity, are not third party beneficiaries under the merger agreement and may not rely on the agreements therein or any descriptions thereof.

With respect to benefit plans, the surviving corporation has agreed to recognize service with us prior to the merger for purposes of eligibility to participate, vesting and level of benefits, with the exception of benefits accrual, and waive any applicable pre-existing condition exclusions and waiting periods with respect to participation and coverage requirements in any replacement or successor benefit plan. However, with respect to post-retirement health plan coverage, the surviving corporation will only provide credit for the periods of an employee’s employment with the surviving corporation or its subsidiaries for purposes of determining eligibility.

Amendment, Extension and Waiver

The parties may amend the merger agreement at any time, except that after our stockholders have approved the adoption of the merger agreement, there shall be no amendment that by law requires further approval by our stockholders without such approval having been obtained. All amendments to the merger agreement must be in a writing signed by the Company, Buyer and Merger Sub.

At any time before the completion of the merger, the parties to the merger agreement may, by written instrument:

	•	extend the time for the performance of any of the obligations or other acts of the other parties;

	•	waive any inaccuracies in the representations and warranties of the other parties contained in the merger agreement or in any document delivered pursuant to the merger agreement; or

	•	waive compliance with any of the agreements or conditions contained in the merger agreement.

Additional Agreements

The merger agreement contains additional agreements among the Company, Buyer and Merger Sub relating to, among other things:

	•	Buyer’s reasonable access during normal business hours to all of our and our subsidiaries’ properties, books, records, contracts, commitments and personnel;

	•	delivery by us to Buyer of a copy of each material report, schedule and other document filed, furnished, or received pursuant to the requirements of federal or state securities laws or a governmental entity, other than routine filings, correspondence, reports, circulars or invoices, and all information as Buyer may reasonably request;

	•	our agreement to give Buyer the opportunity to participate in the defense or settlement of any stockholder litigation against the Company and/or its directors relating to the merger; and

	•	our agreement to consult with Buyer (and Buyer’s agreement to consult with us) regarding any public announcements with respect to the merger and the merger agreement.

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THE VOTING AGREEMENTS

The following summary, which includes the material terms of the voting agreements by and among Buyer and Merger Sub, on the one hand, and each of the Significant Stockholders, on the other hand, each dated as of June 11, 2007, is subject to, and is qualified in its entirety by reference to the form of voting agreement, a copy of which is attached as Annex B to this proxy statement and is incorporated herein by reference.

In order to induce Buyer and Merger Sub to enter into the merger agreement, the Significant Stockholders, which collectively own approximately 45% of the outstanding shares of our common stock as of June 11, 2007, have separately entered into voting agreements with Buyer and Merger Sub pursuant to which each such Significant Stockholder has agreed to attend the special meeting and cause its shares of common stock to be voted as follows:

	•	in favor of the adoption of the merger agreement and approval of the merger;

	•	against any takeover proposal or any proposal in opposition to approval of the merger or in competition with or materially inconsistent with the merger;

	•	against any other proposal with respect to an action or an agreement that in any manner would reasonably be expected to materially impede, interfere with, delay, postpone or adversely affect the merger or the completion of the other transactions contemplated by the merger agreement; and

	•	against any amendment to the certificate of incorporation or by-laws of the Company that in any manner would reasonably be expected to materially impede, interfere with, delay, postpone or adversely effect the merger or the completion of the other transactions contemplated by the merger agreement, except as contemplated by the merger agreement or otherwise agreed to in writing by Buyer or Merger Sub.

The voting agreements shall terminate on the earlier of:

	•	the termination of the merger agreement in accordance with its terms;

	•	a written agreement between Buyer or Merger Sub and any individual Significant Stockholder; and

	•	the consummation of the transactions contemplated by the merger agreement.

However, if the merger agreement is terminated as a result of the Company effecting a recommendation withdrawal not related to the receipt of a superior proposal, the voting provisions will continue in force for 90 days following the termination of the voting agreements, which we refer to in this proxy statement as the extended termination period.

Prior to the termination of the merger agreement, these stockholders have agreed to not transfer their shares of common stock to third parties or deposit them into a voting trust. However, during the extended termination period, these stockholders are permitted to sell shares of our common stock in a public offering or other distribution pursuant to a registration statement under the Securities Act of 1933, as amended, or in a public sale on NASDAQ or another automatic quotation system or national securities exchange, provided that any such stockholder may not, in one or a series of such transfers, transfer all or substantially all of its shares of our common stock to a single person or group of affiliated persons, other than to an underwriter, agent, broker or other market intermediary in connection with or in facilitation of a transfer to unaffiliated persons.

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MARKET PRICE OF COMMON STOCK

Our common stock trades on NASDAQ under the symbol ‘‘JRVR’’. The following table sets forth the range of the daily high and low sales prices as reported by NASDAQ for the quarterly periods, as applicable, from August 9, 2005, the date we first became publicly traded, through the date indicated below.

			High						Low
YEAR ENDED DECEMBER 31, 2005
First Quarter				$	—					$	—
Second Quarter				$	—					$	—
Third Quarter				$	21.43					$	15.35
Fourth Quarter				$	20.68					$	16.25
YEAR ENDED DECEMBER 31, 2006
First Quarter				$	27.07					$	19.25
Second Quarter				$	28.45					$	23.50
Third Quarter				$	30.75					$	23.63
Fourth Quarter				$	34.48					$	27.59
YEAR ENDED DECEMBER 31, 2007
First Quarter				$	33.42					$	27.30
Second Quarter				$	35.31					$	30.68
Third Quarter (through [•], 2007)			$ [•]						$[•]

The closing sale price of our common stock on NASDAQ on June 8, 2007, the last trading day prior to the announcement of the merger agreement, was $35.18 per share. You are encouraged to obtain current market quotations for our common stock in connection with voting your shares.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information concerning beneficial ownership of our common stock as of June 30, 2007 for: (a) each director; (b) the chief executive officer, the chief financial officer and the three most highly compensated executive officers; (c) the directors and executive officers as a group; and (d) each stockholder known by the Company to be the beneficial owner of more than 5% of our voting securities.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In the table below, options and warrants that are exercisable or will become exercisable into shares of our common stock within 60 days of June 30, 2007, if any, are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. To our knowledge, except as indicated in the footnotes to this table and subject to applicable community property laws, where applicable, the persons or entities named have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them. Unless otherwise stated, the business address for each person below is 300 Meadowmont Village Circle, Suite 333, Chapel Hill, North Carolina 27517.

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Name and Address of Beneficial Owner			Number of Shares Beneficially Owned						Percent of Class
Trident II, L.P. and related parties (1) c/o Maples & Calder Ugland House, Box 309 South Church Street Georgetown, Grand Cayman Cayman Islands					2,874,282						19.0	%
HRWCP 1, L.P. and related parties (2) 5405 2 Morgan Hill Road South Woodstock, VT 05071					2,503,062						16.5	%
JRG Seven, LLC and related parties (3) c/o Holtz Rubenstein Remnick LLP 1430 Broadway, 17th Floor New York, NY 10018					1,754,533						11.6	%
Beck, Mack and Oliver LLC (4) 360 Madison Avenue New York, NY 10017					1,001,950						6.6	%
Federated Investors, Inc. (5) Federated Investors Tower Pittsburgh, PA 15222					827,700						5.5	%
J. Adam Abram (6)					1,215,064						7.7	%
Matthew Bronfman (3)					1,754,533						11.6	%
Alan N. Colner (7)					109,104				*