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Meadowbrook Insurance Group Inc – ‘424B1’ on 6/6/02

On:  Thursday, 6/6/02, at 5:06pm ET   ·   Accession #:  950124-2-2026   ·   File #:  333-86548

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/06/02  Meadowbrook Insurance Group Inc   424B1                  1:1.1M                                   Bowne - Bde

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                          HTML   1.09M 

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18,500,000 Shares

COMMON STOCK

          We are selling 18,500,000 shares of our common stock. Our common stock is traded on the New York Stock Exchange under the symbol “MIG” On June 4, 2002, the closing price of our common stock as reported on the New York Stock Exchange was $3.54 per share.

            Investing in our common stock involves a high degree of risk. You should carefully consider the information under the heading “Risk Factors” beginning on page 8 of this prospectus before buying shares of our common stock.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

          We have granted the underwriters an option for a period of 30 days to purchase up to 2,775,000 additional shares of our common stock at the public offering price to cover over-allotments if any.

          We expect the shares of our common stock will be ready for delivery to purchasers on or about June 11, 2002.

Friedman Billings Ramsey

The date of this prospectus is June 6, 2002.

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      You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

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PROSPECTUS SUMMARY

      This summary may not contain all of the information that may be important to you. You should read the entire prospectus, including the financial statements and related notes and other financial data included or incorporated by reference in this prospectus, before making an investment decision. Investors should carefully consider the information set forth under “Risk Factors” beginning on page 8. In addition, some statements include forward-looking statements that involve risk and uncertainties. See “Special Note on Forward-Looking Statements” on page 51.

      As used in this prospectus, “we,” “us,” “our” and “Meadowbrook Insurance Group, Inc.” mean Meadowbrook Insurance Group, Inc. and our subsidiaries, unless the context indicates otherwise.

MEADOWBROOK INSURANCE GROUP, INC.

Who We Are

      We are a publicly traded specialty risk management company headquartered in Southfield, Michigan, specializing in alternative market insurance and risk management solutions for agents, brokers, professional and trade associations, and insureds of all sizes. The alternative market includes a wide range of approaches to financing and managing risk exposures, such as captives, risk retention and risk purchasing groups, governmental pools and trusts and self insurance plans. The alternative market has developed as a result of the historical volatility in the cost and availability of traditional commercial insurance coverages, and usually involves some form of self-insurance or risk-sharing on the part of the client. We develop and manage alternative risk management programs for defined client groups and their members. We also operate as an insurance agency representing policyholders in placing their insurance coverages with unaffiliated insurance companies.

      We generate and manage over $500 million in premiums annually, and employ approximately 575 people in 16 offices in the United States, Bermuda and Barbados. As of March 31, 2002, we had total assets of $675 million and shareholders’ equity of $80 million. A.M. Best rates our insurance subsidiaries stable “B” (Fair). Our common stock is traded on the New York Stock Exchange under the symbol “MIG.”

      Through our insurance company subsidiaries, we offer a variety of commercial insurance products including workers’ compensation, commercial multi-peril package, commercial property, product liability, inland marine (cargo and watercraft), general liability (including errors and omissions, automobile, owners, landlord and tenant), and employment practices liability insurance. These products are specially designed to meet the particular needs of the client. We also offer professional liability coverage and services tailored to meet the specific requirements of the legal and medical professions, as well as real estate appraisers, accountants, and pharmacists. In addition to our non-regulated insurance agency and fee-for-services operations, our principal assets include all or substantially all of the equity interests of our insurance company subsidiaries listed below (including their states of domicile):

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How We Earn Revenue

      Our revenues are derived from two distinct business operations:

     Specialty Risk Management Operations

      Our specialty risk management operations (also referred to as our program business segment) focus on specialty or niche insurance business in which we provide services and coverages that are tailored to meet the specific requirements of defined client groups and their members. This includes providing services, such as risk management consulting, claims handling, loss control, and reinsurance brokering, along with various types of property and casualty insurance coverage, including workers’ compensation, general liability and commercial multi-peril.

     Agency Operations

      Our company was formed in 1955 as a retail insurance agency. Today, our agency operations (our agency segment) have grown to be one of the largest agencies in Michigan and, with acquisitions, have expanded into California. Our agency operations produce principally commercial insurance, as well as personal, property, casualty, life and accident and health insurance, with more than 50 insurance carriers from which we earn commission income.

Our Operational Structure:

      Our specialty risk management operations and agency operations are entirely supported by our full-service processing capabilities, which provide every function necessary to a risk management organization.

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Historical Performance

      Despite losses in recent years, we are dedicated to achieving consistent underwriting profitability. Our strategy has been one of highly disciplined niche underwriting and historically this focus has produced profitable underwriting results. Furthermore, our fee-based and agency operations generate a stream of consistent revenue, which helps to level out the potential volatility experienced in our underwriting operations. Our performance over the past eight years is illustrated by the following table:

MEADOWBROOK INSURANCE GROUP, INC.

      We became a public company in 1995, raising approximately $44 million in capital, which enabled us to take advantage of new growth opportunities. In deploying the capital raised, we undertook an aggressive growth pattern, writing new insurance programs and making several strategic acquisitions.

      Beginning in late 1998, our underwriting results were impacted by adverse development in a limited group of insurance programs that were launched during this period of growth in a soft market. These underwriting losses continued to grow, resulting in a significant reduction in statutory surplus within our insurance company subsidiaries during 1999, 2000 and the second quarter of 2001. The resulting impact on our financial position eventually caused our insurance operations to be downgraded from “A- (excellent)” to stable “B (fair)” by the leading insurance rating agency, A.M. Best.

Recent Results and Actions Taken

      During the past three years, we have taken aggressive actions to discontinue and eliminate this group of unprofitable programs. The runoff of these discontinued programs is now near completion. We have strengthened our balance sheet and have begun to see a more consistent pattern of quarterly operating results. Our core business and continuing programs (absent the discontinued programs) have remained profitable despite the prolonged soft market. Likewise, our fee-based and agency operations continue to thrive and grow. As a result of these actions, we are reducing our gross premium written. Gross written premium in the first quarter of 2002 was $57.5 million, as compared to $90.1 million in the first quarter of 2001.

      We have re-dedicated ourselves to maintaining underwriting discipline, and have established and followed a set of strict corporate underwriting guidelines which prohibit:

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      The underwriting losses associated with the discontinued programs were $12.8 million, $29.0 million, and $12.0 million for the years ended December 31, 2001, 2000, and 1999, respectively. The amount of unearned premium at December 31, 2001 associated with these programs has been reduced to only $3.2 million compared to approximately $15.4 million at December 31, 2000.

      This offering will provide the capital necessary to reduce our debt and strengthen our statutory surplus, and should assist us in obtaining a higher A.M. Best rating. We expect to then be able to support our profitable existing client base and selectively write new business in this current more favorable pricing environment.

Market Outlook and Current Strategies

     Market Outlook

      Over the past two years, several program insurers in the property-casualty industry have struggled or failed. Firms that were our competitors a few years ago are no longer in business or are suffering significant losses. Our approach to the structuring and managing of alternative risk programs has allowed us to overcome the challenges presented by the soft market and to discontinue the business that has proven to be unsuccessful.

      We began re-underwriting and strengthening our balance sheet well in advance of the recent problems that have developed in the industry. We now operate with fewer competitors in the specialty risk management market, and in a pricing environment where significant rate increases are typical. Continued rate increases are helping to improve profitability and present the opportunity for us to selectively add programs that are adequately priced and structured.

     Specialty Business

      We believe the specialty business will continue to provide us enhanced opportunities for underwriting profitability as a result of individual risk selection, loss prevention, claims handling, legal defense, and all other aspects of risk management. We have determined that the specialty niche business permits more operating efficiency, focused expertise and offers a superior opportunity to produce a better return on our resources. A fundamental element of our approach is to focus on small to medium-sized accounts produced by local and regional agencies. We seek to avoid any geographic concentration of risks that might lead to naturally occurring or intentionally caused catastrophic events.

     Alternative Risk Expertise

      Since 1976, we have specialized in providing alternative risk management solutions for our clients. By forming risk-sharing partnerships, we will continue our goal of having our financial objectives firmly aligned with our clients. By having their capital at risk, our clients help us to avoid adverse selection and share in the underwriting profits and investment income from their risk management plan. According to recent industry studies, the alternative market will account for approximately 45% of the $300 billion commercial property/casualty marketplace by the end of 2002, up from 33% in 1999. The current state of the market presents us with many opportunities. Higher rates and less capacity are contributing to an environment in which policyholders are seeking alternative ways to secure affordable, stable insurance protection.

      Using our products and services, small-to-medium sized client groups gain access to more sophisticated risk management techniques previously available only to larger corporations. This enables the client to control

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     Agents Edge™/Advantage

      We are lowering our internal and external administrative costs through the expanded use of our online policy processing system, Advantage. In addition to administrative processing efficiencies, Advantage enhances underwriting practices by automating certain risk selection criteria. We have continued to capitalize on our Advantage System’s capabilities by introducing Agents Edge^TM. This initiative utilizes a web-enabled, automated, predictable, profit-driven underwriting model to make workers’ compensation products available to select agencies through our regional branch offices. Given our experience in underwriting workers’ compensation (this line of business accounts for approximately 50% of total written premiums), coupled with lowered business processing costs, we believe that we can successfully and profitably underwrite and grow this line of business.

     Agency Operations

      We intend to grow our wholesale and retail agency operations. The continuation of the hard market creates an opportunity to service new clients seeking new markets in an environment of increasing rates.

MANAGEMENT

      Our senior management team has extensive experience in the insurance industry. Merton J. Segal, our founder and Chairman has spent over 47 years in the industry. The remaining members of the senior management team average over 20 years of insurance and risk management experience. Over the past three years, our executive management group has added five key individuals, with expertise in claims, underwriting, and information technology. These new employees average over 23 years of experience. We manage our branches through eight regional Vice Presidents with an average of 25 years of experience.

PRINCIPAL EXECUTIVE OFFICES

      Our principal executive offices are located at 26600 Telegraph Road, Southfield, Michigan 48034-2438 (telephone number: (248) 358-1100).

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THE OFFERING

      We calculated the outstanding shares after the offering assuming the underwriters do not exercise their option to purchase an additional 2,775,000 shares and based on the number of shares outstanding as of March 31, 2002, excluding:

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RISK FACTORS

If we are unsuccessful in raising the amount of capital we need, we may be required to sell assets to meet our liquidity requirements which may have a material and adverse affect on our business, financial condition and results of operations.

      Our loan agreement with our primary lenders requires us to reduce our outstanding line of credit from its current level of $47.0 million to $23.9 million by December 31, 2002, a reduction of $23.1 million. Similarly, our line of credit is scheduled to expire on January 3, 2003. Our primary lenders have agreed that they will extend the line of credit for an additional one-year period subject to the successful completion of this offering. If we are unsuccessful in raising the amount of capital we need, we may be unable to make or obtain an extension of the scheduled payments required under our loan agreement and we may need to sell assets which contribute to our revenue, in order to make the required payments. If they do not renew our line of credit, we will be required to pay down the existing outstanding balance. If we are required to do so, we may need to sell additional income producing assets to repay the line of credit. These sales could have a material and adverse affect on our business, financial condition and results of operations.

Our insurance subsidiaries are subject to risk-based or statutory capital requirements. Our failure to meet these standards could subject us to regulatory actions.

      Our insurance subsidiaries are subject to risk-based capital (“RBC”) standards imposed by their states of domicile. These laws, based on the RBC Model Act adopted by the National Association of Insurance Commissioners (“NAIC”), require our regulated subsidiaries to report their results of risk-based capital calculations to the departments of insurance and the NAIC. At December 31, 2001, all of our insurance subsidiaries were in compliance with RBC requirements, with the exception of Star. Star reported statutory surplus of $51.6 million and $56.2 million at December 31, 2001 and 2000, respectively. The calculated RBC was $29.7 million in 2001 and $27.0 million in 2000 and the threshold requiring the minimum regulatory involvement was $59.5 million in 2001 and $53.9 million in 2000. The 2001 RBC ratio for Star was within “Company Action Level” under the RBC standards and as a result on April 12, 2002, we submitted a RBC plan to the Michigan Office of Financial and Insurance Services outlining how we intend to achieve compliance. The Michigan Office of Financial and Insurance Services approved our plan on April 29, 2002. If the various state regulators determine that we have made insufficient progress towards reducing our leverage ratios and increasing our risk-based capital ratios, they may require us to take steps to correct our capital deficiency, requiring a reduction in permitted premium writings, or implementing some other form of regulatory action. If actions were taken by our regulators, those actions could have a material and adverse effect on our business, financial condition and results of operations.

If our regulated insurance company subsidiaries continue to be unable to pay dividends or make loans to our non-regulated operations, we may not have the cashflow to meet our debt obligations.

      Historically, our primary sources of funds have been dividends and payments from our subsidiaries (regulated and non-regulated). Regulations that apply to insurance companies restrict the ability of our insurance company subsidiaries to pay dividends and make loans to us. Star Insurance Company is the parent of the domestic insurance company subsidiaries (Savers, Williamsburg and Ameritrust) and its dividend capacity represents the combined insurance companies’ surplus. Star may not pay any dividends to us during 2002 without prior approval of the Michigan Office of Financial and Insurance Services.

      Absent the sale of assets, distributions from our regulated subsidiaries or other capital raising events, we may not have the cashflow in our non-regulated subsidiaries to make the required debt payment of $10.8 million on June 30, 2002. Also, if repayment of our line of credit is required due to a default, currently we do not have sufficient cash to repay the balance.

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If A.M. Best maintains our current rating or further downgrades the ratings of our insurance company subsidiaries, we will not be able to compete as effectively and our ability to sell insurance policies could decline, further reducing our sales and earnings.

      We believe that the rating assigned by A.M. Best is an important factor in marketing our products. In 2001, A.M. Best downgraded the ratings of our insurance company subsidiaries to stable “B” (Fair). According to A.M. Best, companies rated “B” (Fair) have, on balance, fair balance sheet strength, operating performance and business profile when compared to the standards established by the A.M. Best. These companies, in their opinion, have an ability to meet their current obligations to policyholders, but their financial strength is vulnerable to adverse changes in underwriting and economic conditions. Rating agencies evaluate insurance companies based on financial strength and the ability to pay claims, factors more relevant to policyholders than investors.

If our reserves for losses and costs related to adjustment of losses are not adequate, we will have to increase our reserves, which would result in reductions in net income and retained earnings and may result in further regulatory or rating actions.

      We establish reserves for losses and costs related to the adjustment of losses under the insurance policies we write. We determine the amount of these reserves based on our best estimate and judgment of the losses and costs we will incur on existing insurance policies. Our insurance subsidiaries obtain an annual statement of opinion from an independent actuary firm on these reserves. While we believe that our reserves are adequate, we base these reserves on assumptions about past and future events. The following factors could have a substantial impact on our future loss experience:

      Actual losses and the costs we incur related to the adjustment of losses under insurance policies may be different from the amount of reserves we establish. When we increase reserves, our net income for the period will decrease by a corresponding amount. See also “BUSINESS — Analysis of Loss and Loss Adjustment Expense Development” on page 37.

We have pledged the stock of our non-regulated insurance subsidiaries under our credit agreement with our primary lender.

      If we fail to make the required debt payments, do not meet the financial covenants, or otherwise default under our credit agreement, the stock of our non-regulated insurance subsidiaries could be transferred to our lenders pursuant to the pledge agreement under our credit agreement. A transfer would have a material adverse effect on our business, financial condition and results of operations, and would have a significant adverse effect on the market value of our common stock.

Our performance is dependent on the continued services and performance of our senior management and other key personnel.

      Our performance depends on our ability to retain and motivate our officers and key employees. The loss of the services of any of our executive officers or other key employees could have a material adverse effect on our business, financial condition and results of operations. We have existing employment agreements with some of our executive officers. We maintain “key person” life insurance policies on our key personnel.

      Our future success also will depend on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel. Competition for these employees is intense and we may not be able to successfully attract, integrate or retain sufficiently qualified personnel. Our future success also depends on our ability to attract, retain and motivate our agents. Our failure

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If market conditions cause our reinsurance to be more costly or unavailable, we may be required to bear increased risks or reduce the level of our underwriting commitments.

      As part of our overall risk and capacity management strategy, we purchase reinsurance for significant amounts of risk underwritten by our insurance company subsidiaries, especially for the excess of loss and severity risks. Market conditions beyond our control determine the availability and cost of the reinsurance we purchase, which may affect the level of our business and profitability. Our reinsurance facilities are generally subject to annual renewal. We may be unable to maintain our current reinsurance facilities or to obtain other reinsurance in adequate amounts and at favorable rates. As a result of cyclicality in the insurance markets generally, and the terrorist attacks of September 11, 2001, in particular, we anticipate increases in the price of reinsurance we purchase throughout 2002 and possibly beyond. If we are unable to renew our expiring facilities or to obtain new reinsurance, either our net exposure to risk would increase or, if we are unwilling to bear an increase in net risk exposures, we would have to reduce the amount of risk we underwrite. We also anticipate that the terms available for reinsurance will become less favorable to us.

We cannot guarantee that our reinsurers will pay in a timely fashion, if at all, and, as a result, we could experience losses.

      We transfer some of the risk we have assumed to reinsurance companies in exchange for part of the premium we receive in connection with the risk. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred, it does not relieve us of our liability to our policyholders. Our reinsurers may not pay the reinsurance recoverables that they owe to us or they may not pay such recoverables on a timely basis. Even though the terrorist attacks of September 11, 2001 have not had a significant impact on our business to-date, they may affect the financial resources of some of our reinsurers. If our reinsurers fail to pay us or fail to pay us on a timely basis, our financial results would be adversely affected.

Our results may fluctuate as a result of many factors, including cyclical changes in the insurance industry.

      The results of companies in the property and casualty insurance industry historically have been subject to significant fluctuations and uncertainties. Our industry’s profitability can be affected by:

      The demand for property and casualty insurance can also vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases. The property and casualty insurance industry historically is cyclical in nature. These fluctuations in demand and competition could produce underwriting results that would have a negative impact on our financial condition and results of operations.

We face competitive pressures in our business that could cause demand for our products to fall and adversely affect our profitability.

      We compete with a large number of other companies in our selected lines of business. We compete, and will continue to compete, with major U.S. and non-U.S. insurers and other regional companies, as well as mutual companies, specialty insurance companies, underwriting agencies and diversified financial services

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      A number of new, proposed or potential legislative or industry developments could further increase competition in our industry. These developments include:

      These developments could make the property and casualty insurance marketplace more competitive by increasing the supply of insurance capacity. In that event, recent favorable industry trends could be reversed and may negatively influence our ability to maintain or increase rates. Accordingly, these developments could have an adverse effect on our business, financial condition and results of operations.

Because we are heavily regulated by the states in which we operate, we may be limited in the way we operate.

      We are subject to extensive supervision and regulation in the states in which we operate. The supervision and regulation relate to numerous aspects of our business and financial condition. The primary purpose of the supervision and regulation is the protection of our insurance policyholders and not our investors. The extent of regulation varies, but generally is governed by state statutes. These statutes delegate regulatory, supervisory and administrative authority to state insurance departments. This system of regulation covers, among other things:

The regulations of the state insurance departments may affect the cost or demand for our products and may impede us from obtaining rate increases or taking other actions we might wish to take to increase our profitability. Furthermore, we may be unable to maintain all required licenses and approvals and our business may not fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of the laws and regulations. Also, regulatory authorities have relatively broad discretion to grant, renew or revoke licenses and approvals. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could stop or temporarily suspend us from conducting some or all of our activities or monetarily penalize us. See “Risk Factors — If our regulated insurance company subsidiaries continue to be unable to pay dividends or make loans to our non-regulated operations, we may not have the cashflow to meet our debt obligations” on page 8.

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We could be forced to sell investments to meet our liquidity requirements.

      We believe that we maintain adequate amounts of cash and short-term investments to pay claims, and do not expect to have to sell securities prematurely for such purposes. We may, however, decide to sell securities as a result of changes in interest rates, credit quality, the rate or repayment or other similar factors. A significant increase in market interest rates could result in a situation in which we are required to sell securities at depressed prices to fund payments to our insureds. Since we carry debt securities at fair value, we expect that these securities would be sold with no material impact on our net equity. However, if these securities are sold, future net investment income may be reduced if we are unable to reinvest in securities with similar yields.

Because our investment portfolio consists primarily of fixed income securities, our investment income could suffer as a result of fluctuations in interest rates.

      We currently maintain and intend to continue to maintain an investment portfolio consisting primarily of fixed income securities. The fair value of these securities fluctuate depending on changes in interest rates. Generally, the fair market value of these investments increases or decreases in an inverse relationship with changes in interest rates, while net investment income earned by us from future investments in fixed income securities will generally increase or decrease with interest rates. Changes in interest rates may result in fluctuations in the income derived from, and the valuation of, our fixed income investments, which could have an adverse effect on our financial condition and results of operations.

Provisions of the Michigan Business Corporation Act, our articles of incorporation and other corporate governing documents and the insurance laws of Michigan, Missouri, California, and Florida may discourage takeover attempts.

      The Michigan Business Corporation Act contains “anti-takeover” provisions. Chapter 7A and 7B of the Business Corporation Act apply to us and may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in their best interest, including those attempts that might result in shareholders receiving a premium over market price for their shares. For additional information, see “Description of Our Capital Stock — Anti-Takeover Provisions” on page 47.

      Our articles of incorporation allow the board of directors to issue one or more classes or series of preferred stock with voting rights, preferences and other privileges as the board of directors may determine. Also, we have adopted a shareholder rights plan which if triggered would significantly dilute the stock ownership percentage of anyone who acquires more than 15% of our shares without the approval of our board of directors. The existence of our shareholder rights plan and the possible issuance of preferred shares could adversely affect the holders of our common stock and could prevent, delay or defer a change of control.

      We are also subject to the laws of various states, including Michigan, Missouri, California, and Florida, governing insurance holding companies. Under these laws, a person generally must obtain the applicable insurance department’s approval to acquire, directly or indirectly, 5% to 10% or more of the outstanding voting securities or our insurance subsidiaries. An insurance department’s determination of whether to approve an acquisition would be based on a variety of factors, including an evaluation of the acquiror’s financial stability, the competence of its management and whether competition in that state would be reduced. These laws may prevent, delay or defer a change of control of us or our insurance company subsidiaries.

We have a large shareholder whose interests may diverge from those of our other shareholders.

      Mr. Merton J. Segal, the Chairman of our board of directors, owns approximately 36% of our issued and outstanding common stock. Assuming Mr. Segal does not purchase any shares in the offering and all of the 18,500,000 shares are issued to persons other than Mr. Segal, he will still own approximately 11% of our issued and outstanding common stock. Consequently, Mr. Segal will be in a position to strongly influence the outcome of substantially all corporate actions requiring shareholder approval, including mergers involving us, sales of all or substantially all of our assets, and the adoption of certain amendments to our articles of incorporation. In so acting, Mr. Segal may have interests different than, or adverse to, those of the rest of our shareholders.

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Our common stock has had low trading volume and its price may continue to be subject to significant fluctuations.

      Our common stock has had low trading volume prior to this offering. The average daily trading volume of our common stock for 2001 was approximately 8,700 shares per day. The trading volume in our common stock may not increase after the offering even though we are selling a significant number of shares in this offering. Investors in this offering may be unable to resell their shares at prices equal to or greater than the offering price.

      The market price of our common stock could be subject to significant fluctuations due to a limited trading volume, variations in our quarterly financial results and other factors, such as changes in earnings estimates by analysts or our ability to meet these estimates, conditions in the overall economy and the financial markets and other developments affecting us and our competitors.

Most states assess our insurance subsidiaries to provide funds for failing insurance companies and those assessments could be material.

      Our insurance subsidiaries are subject to assessments in most states where we are licensed for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies. Maximum contributions required by law in any one year vary by state, and have historically been less than 1% of annual premiums written. We cannot predict with certainty the amount of future assessments. Significant assessments could have a material adverse effect on our financial condition and results of operations.

If we do not generate sufficient taxable income, we will be unable to realize our current deferred tax asset, which, if unrealized, may have a material and adverse affect on our profitability.

      At December 31, 2001, we had a deferred tax asset of $24.5 million, of which $11.8 million was related to a net operating loss carryforward. Whether we realize the benefits of this deferred tax asset depends on our ability to generate sufficient taxable income to absorb both the applicable reversing temporary differences and the net operating loss carryforward. If we were unable to successfully execute these tax strategies or generate sufficient taxable income, then we could be required to establish a valuation allowance and expense up to the full amount of the deferred tax asset. See also, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Significant Accounting Policies — Taxes” on page 24.

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      We estimate that we will receive about $52.7 million in net proceeds from this offering after deducting underwriting discounts and commissions and our estimated expenses for this offering of approximately $4.7 million. If the underwriters’ over-allotment is exercised in full, we estimate that our net proceeds will be about $60.7 million. The table below sets forth the estimated sources and uses of the net proceeds we will receive from the sale of our common stock in the offering:

      While we have paid dividends in the past, we have not in the past two quarters paid dividends on our stock. Our Board of Directors considers whether or not a dividend will be declared based on a variety of factors, including but not limited to our cashflow, liquidity needs, results of operations and financial condition. As a holding company, we are dependent upon dividends and other permitted payments from our subsidiaries to pay any cash dividend. Our regulated subsidiaries’ ability to pay dividends to us is limited by government regulations. See “Business — Governmental Regulations that Impact Us” on page 40.

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      The following table shows our capitalization at March 31, 2002, and as adjusted to give effect to the sale of the common stock offered by this prospectus based upon the public offering price of $3.10 per share and after deducting underwriting discounts and commissions and estimated offering expenses of approximately $4.7 million.

      Our common stock is traded on the New York Stock Exchange under the symbol “MIG.” The following table shows the high and low prices of our common stock as reported by the NYSE and our dividends declared for each fiscal period shown.

      On June 4, 2002, the last reported sale price of our common stock on the New York Stock Exchange was $3.54 per share. As of June 4, 2002, there were 251 holders of record of our common stock.

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SELECTED CONSOLIDATED FINANCIAL DATA

      The following table sets forth our selected consolidated financial data and other operating information. The financial data as of and for each of the five years ended December 31, 2001 are derived from our audited consolidated financial statements. The financial data as of and for the three month periods ended March 31, 2002 and 2001 are derived from our unaudited consolidated financial statements. In management’s opinion, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for these periods have been included. Operating results for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2002 or for any other period.

      The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Results of Operations

      Over the past three years, we have taken actions to eliminate a limited group of unprofitable programs that were not aligned with our historic and present alternative risk management strategy. We also established strict corporate program guidelines that identify the following criteria as unacceptable:

      Our underwriting losses associated with these programs were $12.8 million, $29.0 million, and $12.0 million for the years ended December 31, 2001, 2000, and 1999, respectively. The amount of unearned premium at December 31, 2001 associated with these programs was only $3.2 million compared to approximately $15.4 million at December 31, 2000.

     Quarter ended March 31, 2002 versus March 31, 2001

      Our net income for the quarter ended March 31, 2002 was $910,000, compared to net income of $153,000 for the quarter ended March 31, 2001. Our revenues for the quarter ended March 31, 2002 decreased $6.2 million, or 11.0% to $51.0 million from $57.2 million for the comparable period in 2001.

     Specialty Risk Management Operations

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

      Our revenues from specialty risk management operations decreased $5.3 million, or 9.9%, to $47.3 million for the quarter ended March 31, 2002 from $52.6 million for the comparable period in 2001. This decrease reflects a $2.5 million, or 6.1% decrease in net earned premiums to $38.7 million in the quarter ended March 31, 2002 from $41.2 million in the comparable period in 2001. This decrease includes a reduction in earned premium of $4.4 million related to previously discontinued programs and a decrease of $6.5 million related to inactive programs terminated for leverage ratio purposes. These decreases were offset by a $1.9 million reduction in net ceded earned premium associated with our decision to cancel a quota share reinsurance treaty for several workers’ compensation programs, and a $6.5 million growth in existing programs both from increasing policy count and rate increases. Management fees decreased $2.1 million, or 28.1%, to $5.6 million from $7.7 million. This decrease is the result of a $1.6 million profit sharing fee recognized in the

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      Our specialty risk management operations generated pre-tax income of $888,000 for the quarter ended March 31, 2002 compared to pre-tax income of $627,000 for the comparable period in 2001. Our loss and loss adjustment expense ratio improved by 11.1 points to 67.4% for the quarter ended March 31, 2002 from 78.5% for the same period in 2001. This improvement reflects the elimination of a group of unprofitable programs, which were previously discontinued. Our expense ratio was 37.8% compared to 35.3% in the comparable period in 2001. While the actual expenses have been reduced in connection with the reduction in premium volume, our fixed costs, such as corporate overhead and technology, are a higher proportion of our overall expense structure. In addition, these improvements in underwriting expenses were offset by the recognition of a $1.6 million profit sharing fee in the quarter ended March 31, 2001.

     Agency Operations

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

* Excluding the allocation of corporate overhead.

      Our revenue from agency operations, which consists primarily of agency commission revenue, decreased $1.3 million, or 25.5%, to $3.6 million for the quarter ended March 31, 2002 from $4.9 million for the comparable period in 2001. This decrease reflects the sale of the Meadowbrook-Villari Agency effective July 1, 2001. The Meadowbrook-Villari Agency was a Florida-based insurance agency, which offered professional liability products and programs, group health and disability, and property and casualty products. Excluding the Meadowbrook-Villari Agency revenues for the quarter ended March 31 2001, our agency revenue would have decreased 2.9%.

      Our agency operations generated pre-tax income of $1.7 million for the quarter ended March 31, 2002, compared to $1.6 million for the comparable period in 2001. The improvement in the pre-tax margin reflects the sale of Meadowbrook-Villari and overall expense reductions.

     Taxes

      Our federal income tax expense for the quarter ended March 31, 2002 was $318,000, or 25.9% of income before taxes. For the same quarter last year, we incurred a federal income tax expense of $28,000, or 15.5% of income before taxes. The increase in the effective tax rate primarily reflects the reduction in our tax-exempt investments.

     Interest Expense

      Our interest expense for the quarter ended March 31, 2002 decreased by $69,000, or 5.2%, to $1,250,000 from $1,319,000 for the comparable period in 2001. This decrease reflects the reduction in the interest rate. Interest expense is primarily attributable to our line of credit.

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      Our results from operations improved $11.0 million from a net loss of $17.5 million in 2000 to a net loss of $6.5 million in 2001. The net loss in 2001 reflects the impact of pre-tax adverse development of $14.4 million on net reserves. The adverse development includes:

      In addition, we incurred provisions for pre-tax impairments on the investment in Connecticut Surety Company surplus notes of $870,000 and recorded a loss of $1.1 million on the sale in July 2001 of the Meadowbrook-Villari Agency. The 2000 results also reflected significant adverse development related to the discontinued programs previously mentioned. For additional information on matters involving Connecticut Surety Company , see “Business — Surety Business” on page 33. For additional information concerning the sale of the Meadowbrook-Villari Agency, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Agency Operations: 2001 compared to 2000” on page 22.

      Results from operations, excluding the cumulative effect of an accounting change, deteriorated $9.6 million from a net loss of $7.8 million in 1999 to a net loss of $17.5 million in 2000. The 2000 results reflect a $28.0 million pre-tax, or $18.5 million after-tax, charge for loss and loss adjustment expense related items. This pre-tax charge reflects $20.2 million of adverse development on prior accident years, $2.0 million for accelerated amortization of deferred acquisition costs, $3.0 million for additional reinsurance costs on our adjustable rate casualty reinsurance treaty, and $2.8 million associated with loss-based assessments and other indirect claims expenses. The adverse development was primarily from discontinued programs. Adverse development of $15.1 million in 1999 was primarily related to programs no longer being underwritten by our insurance company subsidiaries which includes the discontinued programs.

     Specialty Risk Management Operations

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

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     2001 compared to 2000

      Our revenues from specialty risk management operations increased $19.3 million, or 10.5%, to $204.0 million for the year ended December 31, 2001 from $184.7 million for the comparable period in 2000. This increase reflects 12.1% growth in net earned premiums to $163.7 million in the year ended December 31, 2001 from $146.0 million in the comparable period in 2000. This increase is the result of growth in existing programs both from increasing policy count and rate increases. These increases were partially offset by the impact of the purchase of a large quota share reinsurance treaty for several workers’ compensation programs. These increases were also partially offset by the decline in written premium from programs previously discontinued. Management fees grew $952,000, or 3.9%, to $25.5 million from $24.5 million. Primarily, this increase resulted from a profit sharing fee of $1.6 million related to the good experience achieved on a loss portfolio transfer and new business growth of $1.0 million, which amounts were partially offset by fees related to discontinued or inactive managed programs. The remaining increase reflects a $513,000, or 3.8%, increase in investment income to $14.2 million in 2001 from $13.7 million in 2000. This increase reflects both a 1.8% increase in average invested assets, from operating cash flows, and a decrease in pre-tax yields to 5.64% in 2001 from 6.23% in 2000.

      Specialty risk management operations generated a pre-tax loss of ($7.6) million for the year ended December 31, 2001 compared to a pre-tax loss of ($24.3) million for the comparable period in 2000. This was the result of a decrease in our loss and loss adjustment expenses and operating expenses on specialty risk management operations. Our loss and loss adjustment expense ratio was 81.1% for the year ended December 31, 2001 compared to 90.9% for the comparable period in 2000. The net loss in 2001 reflects the impact of adverse development of $14.4 million on net reserves. The adverse development reflects $5.2 million related to unprofitable discontinued programs, $4.5 million related to the provision for uncollectible reinsurance on Connecticut Surety Company and HIH America Compensation & Liability Company, and the remaining development related to claims activity on the auto liability line of business. The 2000 results reflected significant adverse development related to the discontinued programs mentioned above.

      Our expense ratio was 36.0% for the year ended December 31, 2001 compared to 35.9% for the comparable period in 2000.

     2000 compared to 1999

      Our revenues from specialty risk management operations increased $25.6 million, or 16.1%, to $184.7 million in 2000 from $159.1 million in 1999. The increase reflects 16.9% growth in net earned premiums to $146.0 million in 2000 from $124.9 million in 1999. This increase reflects growth in new and existing specialty risk management clients, partially offset by a reduction in premiums from programs discontinued in 1999 and 2000. In addition, the purchase of a large quota share reinsurance treaty for several workers’ compensation programs resulted in a $9.5 million reduction in net earned premiums. Management fees grew $1.6 million, or 7.2%, to $24.5 million from $22.9 million. This increase reflects the addition of two new managed programs and the full year impact of the 1999 acquisition of TPA Associates, Inc. The remaining increase reflects a $2.1 million, or 18.3%, increase in investment income to $13.7 million in 2000 from $11.6 million in 1999. This increase reflects both a 9.2% increase in average invested assets, from operating cash flows, and an increase in pre-tax yields to 6.23% in 2000 from 5.33% in 1999.

      Our specialty risk management operations in 2000 generated a pre-tax loss of ($24.3) million compared to a pre-tax loss of ($11.9) million in 1999. The 2000 results reflect a $28.0 million pre-tax, or $18.5 million after-tax, charge for loss and loss adjustment expense reserve related items. This pre-tax charge reflects $20.2 million of adverse development on prior accident years, $2.0 million for accelerated amortization of deferred acquisition costs, $3.0 million for additional reinsurance costs on our adjustable rate casualty reinsurance treaty, and $2.8 million associated with loss-based assessments and other indirect claims expenses. The adverse development in 2000 was primarily from discontinued programs. The adverse development of $15.1 million in 1999 was primarily relating to programs no longer being underwritten by our insurance company subsidiaries, which includes the limited discontinued programs.