Atlas Financial Holdings, Inc. (Form: 10-K/A, Received: 05/04/2012 16:27:40)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

ANNUAL REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended:		COMMISSION FILE NUMBER:
December 31, 2011		000-54627

ATLAS FINANCIAL HOLDINGS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)




CAYMAN ISLANDS		27-5466079
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

150 NW POINT BOULEVARD		60007
Elk Grove Village, IL		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (847) 472-6700

Securities registered pursuant to Section 12(b) of the Act:



TITLE OF EACH CLASS:				NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common, $0.001 par value per share				TSX Venture Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ¨ Accelerated Filer ¨

Non-Accelerated Filer ¨ Smaller Reporting Company ¨

(do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

There were 18,433,153 shares of the Registrant's common stock outstanding as of March 1, 2012 of which 4,628,292 shares of the Registrant’s ordinary voting common stock outstanding as of March 1, 2012 were held by non-affiliates of the Registrant. The aggregate market value of the common stock held by non-affiliates of the Registrant, computed by reference to the closing price as of the last business day of the registrant's most recently completed second fiscal quarter, June 30, 2011, was approximately $5.5 million.

For purposes of the foregoing calculation only, which is required by Form 10-K, the Registrant has included in the shares owned by affiliates those shares owned by directors and officers of the Registrant, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.

* * *

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement for its 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.



PART I
Item 1.	Business	3
	Strategic Focus	6
	Competition	6
	Geographic Markets	6
	Regulation	7
	Employees	8
	Agency Relationships	8
	Available Information	8
	Seasonality	9
	Outlook	10
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	23
Item 3.	Legal Proceedings	23
Item 4.	Mine Safety Disclosures	23
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities	23
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	70
Item 9B.	Other Information	70
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	70
Item 11.	Executive Compensation	71
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	71
Item 13.	Certain Relationships and Related Transactions, and Director Independence	71
Item 14.	Principal Accounting Fees and Services	71
PART IV
Item 15.	Exhibits and Financial Statement Schedules	72
	Signatures	73
	Financial Statement Schedules	74

Table of Contents

Part I

Explanatory Note:

Atlas Financial Holdings, Inc. (“Atlas” or the “Company”) is filing this Amendment No. 1 on Form 10-K/A to its Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “Original Form 10-K Filing”), which was originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 26, 2012.

We are filing this Amendment in response to a comment letter received from the SEC (the “Comment Letter”). The following sections of the Original Filing were revised:

Item 1. Business

Item 2. Properties

Item 7. Management's Discussion & Analysis

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 10. Directors, Executive Officers and Corporate Governance

In addition, three new exhibits (10.5, 10.6 and 10.7) have been included in Item 15 and the Corporation's principal executive officer and principal financial officer have provided new certifications in connection with this Amendment No. 1 (Exhibits 31.1, 31.2, 32.1, and 32.2).

The revisions made are primarily enhancements of disclosures. No revisions were made which impacted the financial statements, earnings per share or book value per share.

Except as described above, no other amendments have been made to the Original Filing. This Amendment No. 1 continues to be as of the date of the Original Filing. Unless otherwise noted, this Amendment does not reflect events occurring after the filing of the Original Annual Report or modify or update those disclosures, including the exhibits to the Original Annual Report affected by subsequent events. Accordingly, this Amendment should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Annual Report, including any amendments to those filings.

Item 1. Business

Atlas is a financial services holding company incorporated under the laws of the Cayman Islands. The core business of Atlas, which is carried out through its insurance subsidiaries, American Country Insurance Company (“American Country”) and American Service Insurance Company, Inc. (“American Service” together with American Country, the “insurance subsidiaries”), is the underwriting of commercial automobile insurance policies, focusing on the “light” commercial automobile sector. This sector includes taxi cabs, non-emergency para-transit, limousine, livery and business auto. The insurance subsidiaries distribute their products through a network of independent retail agents. American Country commenced operations in 1979. With roots dating back to 1925 selling insurance for taxi cabs, American Country is one of the oldest insurers of U.S. taxi and livery business. In 1983, American Service began as a non-standard personal and commercial auto insurer writing business in the Chicago, Illinois area. Since then, the insurance subsidiaries have expanded their expertise. Together, American Country and American Service are licensed to write property and casualty ("P&C") insurance in 47 states in the United States. The management of American Country and American Service is fully integrated with a single operating infrastructure supporting the insurance subsidiaries.

The address of Atlas’ registered office is Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The operating headquarters of Atlas and its subsidiaries is located at 150 Northwest Point Boulevard, Elk Grove Village, Illinois 60007, USA.

Atlas was formed on December 31, 2010 in a reverse merger transaction amongst:


(a)	JJR VI Acquisition Corporation (“JJR VI”), a Canadian capital pool company sponsored by JJR Capital, a Toronto based merchant bank,


(b)	American Insurance Acquisition Inc., (“American Acquisition”), a corporation formed under the laws of Delaware by Kingsway America Inc. (“KAI”), a subsidiary of Kingsway Financial Services Inc. (“KFSI”), a Canadian public company formed under the laws of Ontario and whose shares are traded on the Toronto and New York Stock Exchanges, and


(c)	Atlas Acquisition Corp, a Delaware corporation formed by JJR VI.

Prior to the transaction, KAI transferred 100% of the capital stock of American Service and American Country , to American Acquisition in exchange for common and preferred shares of American Acquisition and promissory notes aggregating C$60.8 million. In addition, American Acquisition raised C$8.0 million through a private placement offering of subscription receipts to qualified investors at a price of C$2.00 per subscription receipt.

KAI received 13,804,861 restricted voting common shares of Atlas valued at $27.8 million, along with 18,000,000 non-voting preferred shares of Atlas valued at $18.0 million and C$8.0 million cash in exchange for 100% of the outstanding shares of American Acquisition and full payment of the promissory notes. Investors in the American Acquisition subscription receipts received 3,983,502 ordinary voting common shares of Atlas plus warrants to purchase one ordinary voting common share of Atlas for each subscription receipt at C$2.00 at any time until December 31, 2013. JJR VI common shares held by former shareholders of JJR VI were consolidated on the basis of one post-consolidation JJR VI common share for every 10 pre-consolidation JJR VI common shares. The post-consolidation JJR VI common shares were then exchanged on a one-for-one basis for ordinary voting common shares of Atlas.

Atlas' consolidated financial statements are those of Atlas and subsidiaries and have been prepared in accordance with Accounting Standard Codification ("ASC") 805 Business Combinations . Financial statements prepared following the reverse merger are presented in the name of the legal parent acquirer, Atlas, but are a continuation of the financial statements of the accounting acquirer, American Acquisition, with an adjustment for the capital structure (that is, the number and type of equity interests, including equity instruments issued to effect the merger) of Atlas, as the legal parent acquirer and accounting acquiree. Accordingly, and as a result of the December 31, 2010 merger date, shareholders’ equity at December 31, 2010 reflects the ordinary voting common shares outstanding at the date of the merger together with the restricted voting common shares and non-voting preferred shares that were issued to effect the merger, and also reflect the historical retained earnings (retained deficit) balances of American Acquisition, as the accounting acquirer.

On February 25, 2010, while under KAI ownership, Southern United Fire Insurance Company ("Southern United") merged into American Service. The transaction was accounted for as a merger of companies under common control with the Southern United assets and liabilities included at their carrying values and its results of operations included in the financial statements from the date of the merger.

Under Section 12(b) of the U.S. Securities Exchange Act of 1934, non-US companies must test to see if they qualify for domestic issuer status as of the last day of the second quarter of each fiscal year, and, if so, will be considered “domestic issuers” in the United States effective the beginning of the next fiscal year and report its financial statements in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and on U.S. domestic forms. Atlas has determined that, as of June 30, 2011, it qualified to become a U.S. domestic issuer effective January 1, 2012 and, as such, has adopted U.S. GAAP for

its annual financial statements beginning December 31, 2011.

In this annual report on Form 10-K, we occasionally refer to statutory financial information. All domestic United States insurance companies are required to prepare statutory-basis financial statements. As a result, industry data is available that enables comparisons between insurance companies, including competitors who are not subject to the requirement to prepare financial statements in conformity with U.S. GAAP. We frequently use industry publications containing statutory financial information to assess our competitive position.

Strategic Focus

Vision

To be the preferred specialty commercial transportation insurer in any geographic areas where our value proposition delivers benefit to all stakeholders.

Mission

To develop and deliver superior specialty insurance products that are correctly priced to meet our customers' needs and generate consistent underwriting profit for the insurance companies we own. These products will be distributed to the insured through independent retail agents utilizing Atlas' efficient operating platform.

We will achieve our Vision and Mission through the design, sophisticated pricing and efficient delivery of specialty transportation insurance products. Through constant interaction with our retail producers, we will strive to thoroughly understand each of the markets we serve. This knowledge will assist us in ensuring we deliver strategically priced products to the right market at the right time. Analysis of the substantial data available through our operating companies will drive product and pricing decisions. We will focus on our key strengths and expand our geographic footprint and products only to the extent that these activities support our Vision and Mission. We will target niche markets that support adequate pricing and will be best able to adapt to changing market needs ahead of our competitors through our strategic commitment and increasing scale.

Competition

The insurance industry is price competitive in all markets in which the insurance subsidiaries operate. Atlas strives to employ disciplined underwriting practices with the objective of rejecting under‑priced risks. Based on the current size of the commercial automobile insurance industry, Atlas requires only 1% market share to achieve its business plan.

Atlas competes on a number of factors such as distribution strength, pricing, agency relationships, policy support, claim service, and market reputation. In Atlas’ core commercial automobile lines, the primary offerings are policies at the minimum prescribed limits in each state, as established by statutory, municipal and other regulations. Atlas differentiates itself from many larger companies competing for this specialty business by exclusively focusing on these lines of insurance.

In the specialty insurance market, American Country and American Service compete against, among others, American Transit Insurance Company (New York only), Canal Insurance Company, CNA Financial Corporation, Carolina Casualty Insurance Company, Empire Fire & Marine Insurance Company (subsidiary of Zurich Financial Services Ltd.), Gateway Insurance Company, Global Liberty Insurance Company of New York, Grenada Insurance Company, Hereford Holding Company, Inc., Hartford Financial Services Group, Lancer Financial Group, MAPFRE USA, Maya Assurance Company, Mercury General Corporation, National Indemnity Company (subsidiary of Berkshire Hathaway, Inc.), National Interstate Corporation, Northland Insurance Company (subsidiary of Travelers Companies, Inc.), Safeco Corporation (subsidiary of Liberty Mutual), Scottsdale Insurance Company (National Casualty Company) and ULLICO, Inc.

To compete successfully in the specialty commercial insurance industry, Atlas relies on its ability to: identify markets that are most likely to produce an underwriting profit; operate with a disciplined underwriting approach; offer diversified products and geographic platforms; practice prudent claims management; reserve appropriately for unpaid claims; strive for cost containment through economies of scale where deemed appropriate; and provide services and competitive commissions to its independent agents and brokers.

Geographic Markets

Currently, Atlas distributes insurance only in the United States. Through our insurance subsidiaries, we are licensed to write P&C insurance in 47 states in the United States. The following table reflects, in percentages, the principal geographic distribution of premiums written for the year ended December 31, 2011. No other jurisdiction accounted for more than 5%.

Table 1(a). Selected Geographic Data

Illinois	60.4	%
Michigan	9.1	%
Indiana	6.4	%
Minnesota	6.1	%

The below diagram outlines the states where Atlas is actively writing insurance as of December 31, 2011 and where Atlas plans to become active in 2012.

Regulation

Atlas is subject to extensive regulation, particularly at the state level. The method, extent and substance of such regulation varies by state but generally has its source in statutes which establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to a state regulatory agency. In general, such regulation is intended for the protection of those who purchase or use insurance products issued by our insurance subsidiaries, not the holders of securities issued by Atlas. These rules have a significant impact on our business and relate to a wide variety of matters including accounting methods, agent and company licensure, claims procedures, corporate governance, examination, investing practices, policy forms, pricing, trade practices, reserve adequacy and underwriting standards.

In recent years, the state insurance regulatory framework has come under increased federal oversight. Legislation which would provide for increased federal chartering of insurance companies has been proposed. Moreover, in its effort to strengthen the regulation of the financial services market overall, the federal government has proposed a set of regulatory reforms, including the establishment of an Office of National Insurance within the Department of the Treasury. In addition, state legislators and insurance regulators continue to examine the appropriate nature and scope of state insurance regulation.

Nearly all states have insurance laws dictating the protocol for P&C insurers to file or maintain price schedules, policy or coverage forms, and other information subject to that state’s regulatory authority. In many cases, such price schedules, policy forms, or both, must be approved prior to use. While these vary from state to state, the objectives of the pricing regulations are generally the same: a price cannot be excessive, inadequate or unfairly discriminatory.

As a result, the speed with which an insurer can change prices in response to competition or increased costs depends, in part, on whether the pricing regulations are (i) prior approval, (ii) file-and-use, or (iii) use-and-file. In states having prior approval laws (of which there are 18), the regulator must approve a price before an insurer may use it. In file-and-use states, the insurer does not have to wait for the regulator’s approval to use a price, but the price must be filed before being used. When a state significantly restricts both underwriting and pricing, it can become more difficult for an insurer to make adjustments quickly in response to changes which could affect profitability.

It is difficult to predict what specific measures at the state or federal level will be adopted or what effect any such measures would have on Atlas.

A primary metric used by insurance regulators is the National Association of Insurance Commissioners’ (“NAIC”) risk based capital (“RBC”) ratio which is computed at the end of each year based on annual information. The insurance subsidiaries are required to maintain certain minimum RBC ratios as provided for by insurance statutes in the states in which they write business. The insurance subsidiaries were above the 200% minimum RBC ratio threshold as measured at December 31, 2011. Based on the 2011 annual statutory financial statements, December 31, 2011 RBC ratios were 592.5% and 803.4% for American Country and American Service, respectively. The insurance subsidiaries had approximately $36.4 million of capital in excess of the 200% minimum RBC described above.

Employees

As of December 31, 2011, Atlas had 89 full-time employees, most of whom work at the corporate offices in Elk Grove Village, Illinois.

Agency Relationships

Independent agents are recruited by the company directly and through marketing efforts targeting the specialty niche upon which Atlas focuses. Interested agents are evaluated based on their experience, expertise and ethical dealing. Typically, we enter into distribution relationships with one out of every ten agents seeking an agency contract. Atlas is generally interested in acting as one of a relatively small number of insurance partners with whom their independent agents place business and are also careful not to oversaturate the distribution channel in any given geographic market. This helps to ensure that Atlas is able to receive the maximum number of submissions for underwriting evaluation without unnecessary downstream pressure from agents to write business that does not fit our underwriting model. Agents receive commission as their primary compensation from Atlas. This commission is set as a percentage of premiums and is included in our subsidiaries' statutory filings. Larger agents are also eligible for profit sharing based on the growth and underwriting probability related to their book of business with Atlas. The quality of business presented and written by each independent agent is evaluated regularly by Atlas' underwriters and is also reviewed

quarterly by senior management. Key metrics for evaluation include overall accuracy and adequacy of underwriting information, performance relative to agreed commitments, support with respect to claims presented by their customers (as applicable) and overall underwriting profitability of the agent's book of business. While we rely on our independent agents for distribution and customer support, underwriting and claim handling responsibilities are retained by Atlas. Many of Atlas' agents have had direct relationships with either or both of the subsidiaries for a number of years.

Available Information

We maintain an Internet website at www.atlas-fin.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q (as well as those previously filed on the SEDAR system in Canada), current reports on Form 8-K, and any amendments to said reports are available through this website, free of charge, as soon as reasonably practicable after they are electronically filed or furnished to the Securities and Exchange Commission (the "SEC"). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC available at www.sec.gov.

In addition, our code of business conduct and ethics and Audit Committee charter are available on our website.

Seasonality

The P&C insurance business is seasonal in nature. While Atlas’ net premiums earned generally follow a stable trend from quarter to quarter, Atlas’ gross premiums written follow certain common renewal dates for the light commercial risks that represent its core lines of business. For example, January 1 and March 1 are common taxi cab renewal dates in Illinois and New York, respectively. Net underwriting income is driven mainly by the timing and nature of claims, which can vary widely. Atlas’ ability to generate written premium is also impacted by the timing of policy periods in the states in which Atlas operates.

Outlook

Over the past two years, through dispositions and by placing certain lines of business into run-off, the insurance subsidiaries have streamlined operations to focus on the lines of business they believe will produce favorable underwriting results. Significant progress has also been made in aligning the cost base to the company's expected revenue base going forward. The core functions of the insurance subsidiaries were integrated into a common operating platform. Management believes that both insurance subsidiaries are well positioned in 2012 to begin returning to the volume of premium they wrote in the recent past with better than industry level profitability. The insurance subsidiaries have a long heritage with respect to their continuing lines of business and will benefit from the efficient operating infrastructure honed in 2011. American Country and American Service will actively write business in more states during 2012 than in any prior year, utilizing its well developed underwriting and claim methodology.

Management believes that the most significant opportunities going forward are: (i) continued re-energizing of distribution channels with the objective of recapturing business generated prior to 2009, (ii) building business in previously untapped geographic markets where our insurance subsidiaries are licensed, but not recently active, and (iii) opportunistically acquiring books of business provided market conditions support this activity. Primary potential risks related to these activities include: (i) insurance market conditions remaining “soft” for a sustained period of time, (ii) not being able to achieve the expected support from distribution partners, and (iii) the insurance subsidiaries not successfully maintaining their recently improved ratings from A.M. Best.

Atlas’ sole focus going forward is the underwriting of commercial automobile insurance in the U.S. Atlas will seek to deploy its capital to maximize the return for its shareholders, either by investing in growing the operations or other capital initiatives, depending upon insurance and capital market conditions. Atlas will use historic and current data to analyze and assess future business opportunities.

Item 1A. Risk Factors

This document contains "forward-looking statements" that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.

These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like "plans," "seeks," "expects," "will," "should," "anticipates," "estimates," "intends," "believes," "likely," "targets" and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements.

In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below, which apply to us as an insurer and a provider of other financial services. These risks constitute our cautionary statements under the

Private Securities Litigation Reform Act of 1995 and readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and historical trends. These cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this document, in our filings with the SEC or via SEDAR or in materials incorporated therein by reference.

Operational Risk

Operational risk is the risk that the Company is unable to deliver its products or services to customers or perform vital functions required to conduct its business in an efficient and cost effective manner. This risk includes the potential for loss from such events as the breakdown or ineffectiveness of processes, human errors, technology and infrastructure failures, etc.

The insurance subsidiaries’ provisions for unpaid claims may be inadequate, which would result in a reduction in the Company’s net income and might adversely affect its financial condition.

Establishing an appropriate level of reserves is an inherently uncertain process. The Company’s provisions for unpaid claims do not represent an exact calculation of actual liability, but are estimates involving actuarial and statistical projections at a given point in time of what they expect to be the cost of the ultimate settlement and administration of known and unknown claims. The process for establishing the provision for unpaid claims reflects the uncertainties and significant judgmental factors inherent in estimating future results of both known and unknown claims and as such, the process is inherently complex and imprecise. These estimates are based upon various factors, including:


•	actuarial projections of the cost of settlement and administration of claims reflecting facts and circumstances then known;


•	estimates of future trends in claims severity and frequency;


•	judicial theories of liability;


•	variability in claims handling procedures;


•	economic factors such as inflation;


•	judicial and legislative trends, and actions such as class action lawsuits and judicial interpretation of coverages or policy exclusions; and


•	the level of insurance fraud.

Most or all of these factors are not directly quantifiable, particularly on a prospective basis, and the effects of these and unforeseen factors could negatively impact the Company’s ability to accurately assess the risks of the policies that it writes. In addition, there may be significant reporting lags between the occurrence of the insured event and the time it is actually reported to the insurer and additional lags between the time of reporting and final settlement of claims. Unfavorable development in any of these factors could cause the level of reserves to be inadequate. The following factors may have a substantial impact on future claims incurred:


•	the amounts of claims payments;


•	the expenses that the insurance subsidiaries incur in resolving claims;


•	legislative and judicial developments; and


•	changes in economic conditions, including inflation.

As time passes and more information about the claims becomes known, the estimates are appropriately adjusted upward or downward to reflect this additional information. Because of the elements of uncertainty encompassed in this estimation process, and the extended time it can take to settle many of the more substantial claims, several years of experience may be required before a meaningful comparison can be made between actual losses and the original provision for unpaid claims. The development of the provision for unpaid claims is shown by the difference between estimates of claims as of the initial year end and the re-estimated liability at each subsequent year end. Favorable development (reserve redundancy) means that the original claims estimates were higher than subsequently determined or re-estimated. Unfavorable development (reserve deficiency) means that the original claims estimates were lower than subsequently determined or re-estimated. The Company cannot guarantee that it will not have additional unfavorable reserve development in the future. In addition, it may in the future, acquire other insurance companies. The Company cannot guarantee that the provisions for unpaid claims of the companies that it acquires are or will be adequate.

Actual claims and claim adjustment expenses incurred under insurance policies may deviate, perhaps substantially, from the amounts of provisions reflected in the financial statements of the Company.

To the extent that actual claims incurred exceed expectations and the provision for unpaid claims reflected on financial statements, the Company will be required to reflect those changes by increasing reserves for unpaid claims. In addition, government regulators could require that it increase reserves if they determine that provisions for unpaid claims are understated. Increases to the provision for unpaid claims causes a reduction in the insurance subsidiaries’ surplus which could cause a downgrading of the insurance subsidiaries’ ratings. Any such downgrade could, in turn, adversely affect their ability to sell insurance policies.

The insurance subsidiaries will rely on independent agents or producers and will be exposed to risks.

The insurance subsidiaries will market and distribute automobile insurance products through a network of independent agents or producers in the United States. As a result, the Company relies heavily on these agents or producers to attract new business. These agents typically represent more than one insurance company, which may expose the insurance subsidiaries to competition within the agencies and, therefore, cannot rely on their sole commitment to the Company’s insurance products. Independent agents generally have the ability to bind insurance policies, actions over which the Company has a limited ability to exercise preventative control. In the event that an independent agent exceeds their authority by binding the Company on a risk that does not comply with its underwriting guidelines, the Company may be at risk for that policy until it effects a cancellation. Any improper use of such authority may result in losses that could have a material adverse effect on the Company's business, results of operations and financial condition.

In accordance with industry practice, customers often pay the premiums for their policies to agents for payment to the Company. These premiums may be considered paid when received by the agent and thereafter the customer is no longer liable to the Company for those amounts, whether or not the Company has actually received these premium payments from the agent. Consequently, the Company assumes a degree of risk associated with its reliance on independent agents in connection with the settlement of insurance premium balances.

The majority of gross premiums written will be derived from the commercial automobile markets. If the demand for insurance in these markets declines, results of operations could decline significantly.

The size of the commercial automobile insurance market can be affected significantly by many factors outside of the Company’s control, such as the underwriting capacity and underwriting criteria of automobile insurance carriers, and it may be specifically affected by these factors. Additionally, an economic downturn in one or more of its principal markets could result in fewer automobile sales or public transportation operators, resulting in less demand for these insurance products. To the extent that these insurance markets are affected adversely for any reason, gross premiums written will be disproportionately affected due to its substantial reliance on these insurance markets.

The insurance subsidiaries may not be successful in reducing their risk and increasing their underwriting capacity through reinsurance arrangements, which could adversely affect their business, financial condition and results of operations. If reinsurance rates rise significantly or reinsurance becomes unavailable or reinsurers are unable to pay its claims, the Company may be adversely affected.

In order to reduce underwriting risk and increase underwriting capacity, the Company transfers portions of its insurance risk to other insurers through reinsurance contracts. The availability, cost and structure of reinsurance protection are subject to prevailing market conditions that are outside of the Company’s control and which may affect its level of business and profitability. The Company purchases reinsurance from third parties in order to reduce its liability on individual risks. Reinsurance does not relieve

the Company of its primary liability to its insureds. A third party reinsurer’s insolvency or inability or unwillingness to make payments under the terms of a reinsurance treaty could have a material adverse effect on the Company's financial condition or results of operations. The amount and cost of reinsurance available to the Company are subject, in large part, to prevailing market conditions beyond the Company’s control. Its ability to provide insurance at competitive premium rates and coverage limits on a continuing basis depends in part upon the extent to which the Company can obtain adequate reinsurance in amounts and at rates that will not adversely affect its competitive position. There are no assurances that the Company will be able to maintain its current reinsurance facilities, which generally are subject to annual renewal. If it is unable to renew any of these facilities upon their expiration or to obtain other reinsurance facilities in adequate amounts and at favorable rates, the Company may need to modify its underwriting practices or reduce its underwriting commitments.

The insurance subsidiaries are subject to credit risk with respect to the obligations of reinsurers and certain of their insureds. The inability of their risk sharing partners to meet their obligations could adversely affect their profitability.

Although the reinsurers are liable to the Company to the extent of risk ceded to them, the Company remains ultimately liable to policyholders on all risks, even those reinsured. As a result, ceded reinsurance arrangements do not limit the Company’s ultimate obligations to policyholders to pay claims. The Company is subject to credit risks with respect to the financial strength of its reinsurers. The Company is also subject to the risk that their reinsurers may dispute their obligations to pay its claims. As a result, the Company may not recover sufficient amounts for claims that it submits to reinsurers, if at all. As of December 31, 2011, the Company had an aggregate of $ 8.0 million of unsecured reinsurance recoverables. In addition, its reinsurance agreements are subject to specified limits and the Company would not have reinsurance coverage to the extent that it exceeds those limits. With respect to insurance programs, the insurance subsidiaries are subject to credit risk with respect to the payment of claims and on the portion of risk exposure either ceded to captives established by their clients or deductibles retained by their clients. The credit worthiness of prospective risk sharing partners is a factor considered when entering into or renewing these alternative risk transfer programs. The Company typically collateralizes balances due through funds withheld, letters of credit or trust agreements. No assurance can be given regarding the future ability of these entities to meet their obligations. The inability of the Company's risk sharing partners to meet their obligations could adversely affect profitability.

Financial Risk

Atlas is a holding company and the insurance subsidiaries are subject to dividend restrictions and are required to maintain certain capital adequacy levels.

Atlas is a holding company with no significant operations of its own and as a legal entity separate and distinct from its insurance subsidiaries. As a result, its only sources of income are dividends and other distributions from its insurance subsidiaries. Atlas will be limited by the earnings of those subsidiaries, and the distribution or other payment of such earnings to it in the form of dividends, loans, advances or the reimbursement of expenses. The payment of dividends, the making of loans and advances or the reimbursement of expenses by its insurance subsidiaries is contingent upon the earnings of those subsidiaries and is subject to various business considerations. In addition, payments of dividends by the insurance subsidiaries are subject to various statutory and regulatory restrictions imposed by the insurance laws of the domiciliary jurisdiction of such subsidiaries, which limit the aggregate amount of dividends or other distributions that they can declare or pay within any 12-month period. In most jurisdictions, payment of dividends is subject to regulatory approval, and insurance regulators have broad powers to prevent reduction of statutory capital and surplus to inadequate levels and could refuse to permit the payment of dividends calculated under any applicable formula. As a result, Atlas may not be able to receive dividends from its insurance subsidiaries at times and in amounts necessary to meet its operating needs, to pay dividends to shareholders or to pay corporate expenses. The inability of its insurance subsidiaries to pay dividends could have a material adverse effect on Atlas’ business and financial condition.

Market fluctuations, changes in interest rates or a need to generate liquidity could have significant and negative effects on the Company’s investment portfolio. The Company may not be able to realize its investment objectives, which could significantly reduce its net income.

The Company depends on income from its securities portfolio for a substantial portion of its earnings. Investment returns are an important part of overall profitability. A significant decline in investment yields in the securities portfolio or an impairment of securities owned could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company currently maintains and intends to continue to maintain a securities portfolio comprised primarily of fixed income securities. As of December 31, 2011, the majority of the investment portfolio was invested in fixed income securities. The Company cannot predict which industry sectors in which it maintains investments may suffer losses as a result of potential declines in commercial and economic activity, or how any such decline might impact the ability of companies within the affected industry sectors to pay interest or principal on their securities and cannot predict how or to what extent the value of any underlying collateral might be affected. Accordingly, adverse fluctuations in the fixed income or equity markets could adversely impact profitability, financial condition or cash flows.

The Company’s ability to achieve its investment objectives is affected by general economic conditions that are beyond its control. General economic conditions can adversely affect the markets for interest rate sensitive securities, including the extent and timing of investor participation in such markets, the level and volatility of interest rates and, consequently, the value of fixed maturity securities. U.S. and global markets have been experiencing volatility since mid-2007. Initiatives taken by the U.S. and foreign governments have helped to stabilize the financial markets and restore liquidity to the banking system and credit markets. However, the financial system has not completely stabilized and market volatility could continue in the future if there is a prolonged recession or a worsening in key economic indicators. If market conditions deteriorate, the Company’s investment portfolio could be adversely impacted.

Difficult conditions in the economy generally may materially adversely affect the Company’s business, results of operations, and statement of financial position and these conditions may not improve in the near future.

Current market conditions and the instability in the global financial markets present additional risks and uncertainties for the Company’s business. In particular, deterioration in the public debt markets could lead to additional investment losses and an erosion of capital as a result of a reduction in the fair value of investment securities. The severe downturn in the public debt and equity markets, reflecting uncertainties associated with the mortgage crisis, worsening economic conditions, widening of credit spreads, bankruptcies and government intervention in large financial institutions, created significant unrealized losses in the securities portfolio at certain stages in 2009. Depending on market conditions going forward, the Company could again incur substantial realized and additional unrealized losses in future periods, which could have an adverse impact on the results of operations and financial condition. The Company could also experience a reduction in capital in the insurance subsidiaries below levels required by the regulators in the jurisdictions in which they operate. Certain trust accounts for the benefit of related companies and third parties have been established with collateral on deposit under the terms and conditions of the relevant trust agreements. The value of collateral could fall below the levels required under these agreements putting the subsidiary or subsidiaries in breach of the agreement.

The current market volatility may also make it more difficult to value the Company’s securities if trading becomes less frequent.

Disruptions, uncertainty and volatility in the global credit markets may also impact the Company’s ability to obtain financing for future acquisitions. If financing is available, it may only be available at an unattractive cost of capital, which would decrease profitability. There can be no assurance that current market conditions will improve in the near future. In addition, the Company may not have coverage by security analysts, the trading price of the Company’s ordinary voting common shares and restricted voting common shares may be lower and it may be more difficult for its shareholders to dispose of their Company’s shares due to the lower trading volume. The lack of a significant presence in the market could serve to limit the distribution of news and limit investor interest in the Company’s shares. One or more of these factors could result in price volatility and serve to depress the liquidity and market price of the Company’s shares.

The Company may not have access to capital in the future due to an economic downturn.

The Company may need new or additional financing in the future to conduct its operations, or expand its business. Any sustained weakness in the general economic conditions and/or financial markets in Canada, the United States or globally could adversely affect its ability to raise capital on favorable terms, or at all. From time-to-time, the Company may rely on access to financial markets as a source of liquidity for operations, acquisitions and general corporate purposes.

Liquidity Risk

The limited public float and trading volume for the Company’s shares may have an adverse impact on the share price or make it difficult to liquidate.

The Company’s securities are held by a relatively small number of shareholders. KAI holds all of the restricted voting common shares. Also, the Company has ordinary voting shares which are not widely held. Future sales of substantial amounts of the Company’s shares in the public market, or the perception that these sales could occur, may adversely impact the market price of the Company’s shares and the Company’s shares could be difficult to liquidate.

Compliance Risk

Compliance risk includes the risk arising from violations of, or non-conformance with, laws, regulations or prescribed practices. Compliance risk also arises in situations where the laws or rules governing certain products or activities may be ambiguous or untested. Compliance risk exposes the organization to negative publicity, a potential drop in stock price, fines, criminal and civil monetary penalties, payment of damages and the voiding of contracts. Compliance risks are also sometimes referred to as legal/regulatory, tax or documentation risks.

If the Company fails to comply with applicable insurance and securities laws or regulatory requirements, its business, results of operations and financial condition could be adversely affected.

As a publicly traded holding company listed on a stock exchange which owns insurance companies domiciled in the United States, Atlas and its insurance subsidiaries are subject to numerous laws and regulations. These laws and regulations delegate regulatory, supervisory and administrative powers to federal, provincial or state regulators. Insurance regulations are generally designed to protect policyholders rather than shareholders, and are related to matters including:


•	rate setting;


•	RBC and solvency standards;


•	restrictions on the amount, type, nature, quality and quantity of securities in which insurers may invest;


•	the maintenance of adequate reserves for unearned premiums and unpaid claims;


•	restrictions on the types of terms that can be included in insurance policies;


•	standards for accounting;


•	marketing practices;


•	claims settlement practices;


•	the examination of insurance companies by regulatory authorities, including periodic financial and market conduct examinations;


•	the licensing of insurers and their agents;


•	limitations on dividends and transactions with affiliates;


•	approval of certain reinsurance transactions; and


•	insolvency proceedings.

Such rules and regulations are expected to increase the Company’s legal and financial compliance costs and to make some activities more time-consuming and costly. A significant amount of resources has been committed to monitor and address any internal control issues, and failure to do so could adversely impact operating results. Any failure to comply with applicable laws or regulations could result in the imposition of fines or significant restrictions on its ability to do business, which could adversely affect the Company’s results of operations or financial condition. In addition, any changes in laws or regulations, including the adoption of consumer initiatives regarding rates charged for automobile or other insurance coverage or claims handling procedures, could materially adversely affect its business, results of operations and financial condition. It is not possible to predict the future impact of changing federal, state and provincial regulation on the Company’s operations, and there can be no assurance that laws and regulations enacted in the future will not be more restrictive than existing laws and regulations. New or more restrictive regulations, including changes in current tax or other regulatory interpretations affecting an alternative risk transfer insurance model, could make it more expensive for the Company to conduct its businesses, restrict the premiums its subsidiaries able to charge or otherwise change the way it does business. In addition, economic and financial market turmoil may result in some type of U.S. federal oversight of the insurance industry in general.

The insurance subsidiaries are subject to comprehensive regulation and their ability to earn profits may be restricted by the regulations.

The insurance subsidiaries are subject to comprehensive regulation by government agencies in the United States. Failure to meet regulatory requirements could subject them to regulatory action. The regulations and associated examinations may have the effect of limiting the insurance subsidiaries’ liquidity and may adversely affect results of operations. The insurance subsidiaries must comply with statutes and regulations relating to, among other things:


•	statutory capital and surplus and reserve requirements;


•	standards of solvency that must be met and maintained;


•	payment of dividends;


•	changes of control of insurance companies;


•	transactions between an insurance company and any of its affiliates;


•	licensing of insurers and their agents;


•	types of insurance that may be written;


•	market conduct, including underwriting and claims practices;


•	provisions for unearned premiums, losses and other obligations;


•	ability to enter and exit certain insurance markets; and


•	nature of and limitations on investments, premium rates, or restrictions on the size of risks that may be insured under a single policy.

In addition, state insurance department examiners perform periodic financial, market conduct and other examinations of insurance companies. Compliance with applicable laws and regulations is time consuming and personnel-intensive. In addition to financial examinations, the insurance subsidiaries may be subject to market conduct examinations of claims and underwriting practices. Any adverse findings could result in significant fines and penalties, negatively affecting profitability.

The Company’s business is subject to risks related to litigation and regulatory actions.

The Company may from time-to-time be subject to a variety of legal and regulatory actions relating to its current and past business operations, including, but not limited to:


•	disputes over coverage or claims adjudication;


•	disputes regarding sales practices, disclosure, premium refunds, licensing, regulatory compliance and compensation arrangements;


•	disputes with its agents, producers or network providers over compensation and termination of contracts and related

claims;


•	disputes with taxing authorities regarding tax liabilities; and


•	disputes relating to certain businesses acquired or disposed of by it.

As insurance industry practices and regulatory, judicial and industry conditions change, unexpected and unintended issues related to pricing, claims, coverage and business practices may emerge. Plaintiffs often target P&C insurers in purported class action litigation relating to claims handling and insurance sales practices. The resolution and implications of new underwriting, claims and coverage issues could have a negative effect on the Company’s business by extending coverage beyond the Company’s underwriting intent, increasing the size of claims or otherwise requiring them to change their practices. The effects of unforeseen emerging claim and coverage issues could negatively impact revenues, results of operations and reputation.

Current and future court decisions and legislative activity may increase the Company’s exposure to these types of claims. Multi-party or class action claims may present additional exposure to substantial economic, non-economic or punitive damage awards. The loss of even one of these claims, if it resulted in a significant damage award or a judicial ruling that was otherwise detrimental, could create a precedent in the industry that could have a material adverse effect on its results of operations and financial condition. This risk of potential liability may make reasonable settlements of claims more difficult to obtain. The Company cannot determine with any certainty what new theories of recovery may evolve or what their impact may be on its business.

The Company may be subject to governmental or administrative investigations and proceedings in the context of its highly regulated sectors of activity. It cannot predict the outcome of these investigations, proceedings and reviews, and cannot guarantee that such investigations, proceedings or reviews or related litigation or changes in operating policies and practices would not materially adversely affect its results of operations and financial condition. In addition, if it were to experience difficulties with its relationship with a regulatory body in a given jurisdiction, it could have a material adverse effect on its ability to do business in that jurisdiction.

The Company’s business could be adversely affected as a result of changing political, regulatory, economic or other influences.

The insurance industry is subject to changing political, economic and regulatory influences. These factors affect the practices and operation of insurance and reinsurance organizations. Legislatures in the United States and other jurisdictions have periodically considered programs to reform or amend their respective insurance and reinsurance systems. Recently, the insurance and reinsurance regulatory framework has been subject to increased scrutiny in many jurisdictions. Changes in current insurance regulation may include increased governmental involvement in the insurance industry and initiatives aimed at premium controls, or may otherwise change the business and economic environment in which insurance industry participants operate. Historically, the automobile insurance industry has been under pressure from time-to-time from regulators, legislators or special interest groups to reduce, freeze or set rates at levels that are not necessarily related to underlying costs or risks, including initiatives to roll back automobile and other personal line rates. These changes may limit the ability of the insurance subsidiaries to price automobile insurance adequately and could require the Company to discontinue unprofitable product lines, make unplanned modifications of its products and services, or result in delays or cancellations of sales of its products and services.

Strategic Risk

Strategic risk arises from adverse effects of high-level business decisions or the improper implementation of those decisions. Strategic risk also incorporates how management analyzes external factors that impact the strategic direction of the business. Strategic risk further encompasses reputation risk which is the impact to earnings, capital or the ability to do business arising from negative public opinion from whatever cause.

The Company will derive the majority of premiums from a few geographic areas, which may cause its business to be affected by catastrophic losses or business conditions in these areas.

Some jurisdictions including Illinois, Michigan, Minnesota, New York and Louisiana generate a significant percentage of total premiums. Results of operations may, therefore, be adversely affected by any catastrophic losses or material loss trends in these

areas, to the extent covered by policies underwritten by the insurance subsidiaries. Catastrophic losses can be caused by a wide variety of events, including earthquakes, hurricanes, tropical storms, tornadoes, wind, ice storms, hail, fires, terrorism, riots and explosions, and their incidence and severity are inherently unpredictable. Catastrophic losses are characterized by low frequency but high severity due to aggregation of losses, and could result in adverse effects on its results of operations or financial condition. Results of operations may also be adversely affected by general economic conditions, competition, regulatory actions or other business conditions that affect losses or business conditions in the specific areas in which it does most of its business.

The Company may experience difficulty in managing historic and future growth, which could adversely affect its results of operations and financial condition.

The Company intends to grow by expanding geographically and underwriting more market share via the Company’s distribution network. Continued growth could impose significant demands on management, including the need to identify, recruit, maintain and integrate additional employees. Growth may also place a strain on management systems and operational and financial resources, and such systems, procedures and internal controls may not be adequate to support operations as they expand.

The successful integration and management of books of business, acquired businesses and other business involve numerous risks that could adversely affect the Company’s profitability, and are contingent on many factors, including:

• expanding its financial, operational and management information systems;

• managing its relationships with independent agents, brokers, and legacy program managers including maintaining adequate controls;

• expanding its executive management and the infrastructure required to effectively control its growth;

• maintaining ratings for certain of its insurance subsidiaries;

• increasing the statutory capital of its insurance subsidiaries to support growth in written premiums;

• accurately setting claims provisions for new business where historical underwriting experience may not be available;

• obtaining regulatory approval for appropriate premium rates; and

• obtaining the required regulatory approvals to offer additional insurance products or to expand into additional states or other jurisdictions.

Failure by the Company to manage its growth effectively could have a material adverse effect on its business, financial condition or results of operations.

Engaging in acquisitions involves risks and, if the Company is unable to effectively manage these risks its business may be materially harmed.

From time-to-time the Company may engage in discussions concerning acquisition opportunities and, as a result of such discussions, may enter into acquisition transactions. Upon the announcement of an acquisition, the Company’s share price may fall depending on the size of the acquisition, the purchase price and the potential dilution to existing shareholders. It is also possible that an acquisition could dilute earnings per share.

Acquisitions entail numerous risks, including the following:


•	difficulties in the integration of the acquired business;


•	assumption of unknown material liabilities, including deficient provisions for unpaid claims;


•	diversion of management's attention from other business concerns;


•	failure to achieve financial or operating objectives; and


•	potential loss of policyholders or key employees of acquired companies.

The Company may not be able to integrate or operate successfully any business, operations, personnel, services or products that

it may acquire in the future, which may result in its inability to realize expected revenue increases, cost savings, increases in geographic or product presence, and other projected benefits from the acquisition. Integration may result in the loss of key employees, disruption to the existing businesses or the business of the acquired company, or otherwise harm the Company’s ability to retain customers and employees or achieve the anticipated benefits of the acquisition. Time and resources spent on integration may also impair its ability to grow its existing businesses. Also, the negative effect of any financial commitments required by regulatory authorities or rating agencies in acquisitions or business combinations may be greater than expected.

Various factors may inhibit potential acquisition bids that could be beneficial to shareholders.

Regulatory provisions may delay, defer or prevent a takeover attempt that shareholders may consider in their best interest. For example, under the terms of applicable U.S. state statutes, any person or entity desiring to purchase more than a specified percentage (commonly 10% but can be as low as 5%) of the Company’s outstanding voting securities is required to obtain regulatory approval prior to the purchase of such shares. These requirements would require a potential bidder to obtain prior approval from the insurance departments of the states in which the insurance subsidiaries are domiciled and may require pre-acquisition notification in states that have adopted pre-acquisition notification provisions. Obtaining these approvals could result in material delays or deter any such transaction.

Regulatory requirements could make a potential acquisition of the Company more difficult and may prevent shareholders from receiving the benefit from any premium over the market price of its shares offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of its shares if they are viewed as discouraging takeover attempts in the future.

Provisions in the Company’s organizational documents, corporate laws and the insurance laws of Illinois could impede an attempt to replace or remove their management or directors or prevent or delay a merger or sale, which could diminish the value of the Company’s shares.

The Company’s Amended and Restated Articles of Incorporation and Code of Regulations and the corporate laws and the insurance laws of various states contain, or are anticipated to contain, provisions that could impede an attempt to replace or remove management or directors or prevent the sale of the insurance subsidiaries that shareholders might consider to be in their best interests. These provisions may include, among others:


•	classified insurance subsidiary boards of directors consisting of no less than five, and no more than ten directors;


•	requiring a vote of holders of 20% of the common shares to call a special meeting of shareholders;


•	requiring a two-thirds vote to amend the Articles of Incorporation;


•	requiring the affirmative vote of a majority of the voting power of shares represented at a special meeting of shareholders; and


•	statutory requirements prohibiting a merger, consolidation, combination or majority share acquisition between the insurance subsidiaries and an interested shareholder or an affiliate of an interested shareholder without regulatory approval.

These provisions may prevent shareholders from receiving the benefit of any premium over the market price of the Company’s shares offered by a bidder in a potential takeover. In addition, the existence of these provisions may adversely affect the prevailing market price of the Company’s shares if they are viewed as discouraging takeover attempts.

The insurance laws of most states require prior notice or regulatory approval of changes in control of an insurance company or its holding company. The insurance laws of the State of Illinois, where the insurance subsidiaries are domiciled, provide that no corporation or other person may acquire control of a domestic insurance or reinsurance company unless it has given notice to such insurance or reinsurance company and obtained prior written approval of the relevant insurance regulatory authorities. Any purchaser of 10% or more of the Company’s aggregate outstanding voting power could become subject to these regulations and could be required to file notices and reports with the applicable regulatory authorities prior to such acquisition. In addition, the

existence of these provisions may adversely affect the prevailing market price of the Company’s shares if they are viewed as discouraging takeover attempts.

Market and Competition Risk

Because the insurance subsidiaries are commercial automobile insurers, conditions in that industry could adversely affect their business.

The majority of the gross premiums written by the Company's insurance subsidiaries will be generated from commercial automobile insurance policies. Adverse developments in the market for commercial automobile insurance, including those which could result from potential declines in commercial and economic activity, could cause our results of operations to suffer. The commercial automobile insurance industry is cyclical. Historically, the industry has been characterized by periods of price competition and excess capacity followed by periods of higher premium rates and shortages of underwriting capacity. These fluctuations in the business cycle have negatively impacted and could continue to negatively impact the revenues of the Company. The results of the insurance subsidiaries, and in turn, the Company, may also be affected by risks, to the extent they are covered by the insurance policies we issue, that impact the commercial automobile industry related to severe weather conditions, floods, hurricanes, tornadoes, earthquakes and tsunamis, as well as explosions, terrorist attacks and riots. The insurance subsidiaries’ commercial automobile insurance business may also be affected by cost trends that negatively impact profitability, such as a continuing economic downturn, inflation in vehicle repair costs, vehicle replacement parts costs, used vehicle prices, fuel costs and medical care costs. Increased costs related to the handling and litigation of claims may also negatively impact profitability. Legacy business previously written by the Company also includes private passenger auto, surety and other P&C insurance business. Adverse developments relative to previously written business could have a negative impact on the Company’s results.

The insurance and related businesses in which the Company operates may be subject to periodic negative publicity which may negatively impact its financial results.

The products and services of the insurance subsidiaries are ultimately distributed to individual and business customers. From time-to-time, consumer advocacy groups or the media may focus attention on insurance products and services, thereby subjecting the industry to periodic negative publicity. The Company also may be negatively impacted if participants in one or more of its markets engage in practices resulting in increased public attention to its business. Negative publicity may also result in increased regulation and legislative scrutiny of practices in the P&C insurance industry as well as increased litigation. These factors may further increase its costs of doing business and adversely affect its profitability by impeding its ability to market its products and services, requiring it to change its products or services or by increasing the regulatory burdens under which it operates.

The highly competitive environment in which the Company operates could have an adverse effect on its business, results of operations and financial condition.

The commercial automobile insurance business is highly competitive and, except for regulatory considerations, there are relatively few barriers to entry. Many of the Company’s competitors are substantially larger and may enjoy better name recognition, substantially greater financial resources, higher ratings by rating agencies, broader and more diversified product lines and more widespread agency relationships than the Company.

The Company’s underwriting profits could be adversely impacted if new entrants or existing competitors try to compete with the Company’s products, services and programs or offer similar or better products at or below the Company’s prices. Insurers in its markets generally compete on the basis of price, consumer recognition, coverages offered, claims handling, financial stability, customer service and geographic coverage. Although pricing is influenced to some degree by that of its competitors, it is not in the Company’s best interest to compete solely on price, and may from time-to-time experience a loss of market share during periods of intense price competition. Its business could be adversely impacted by the loss of business to competitors offering competitive insurance products at lower prices. This competition could affect its ability to attract and retain profitable business.

Pricing sophistication and related underwriting and marketing programs use a number of risk evaluation factors. For auto insurance, these factors can include but are not limited to vehicle make, model and year; driver age; territory; years licensed; loss history; years insured with prior carrier; prior liability limits; prior lapse in coverage; and insurance scoring based on credit report information. Atlas believes its pricing model will generate future underwriting profits.

If the Company is not able to attract and retain independent agents and brokers, its revenues could be negatively affected.

The Company competes with other insurance carriers to attract and retain business from independent agents and brokers. Some of its competitors offer a larger variety of products, lower prices for insurance coverage or higher commissions than the Company. The Company’s top ten independent agents accounted for an aggregate of 63% of its commercial auto gross premium written during the year ended December 31, 2011. While Atlas maintains rigorous standards for both new and existing agents, it is seeking to expand its agent network in many areas around the country. If the insurance subsidiaries are unable to attract and retain independent agents/brokers to sell their products, their ability to compete and attract new customers and their revenues would suffer.

If the Company is unable to maintain its claims-paying ratings, its ability to write insurance and to compete with other insurance companies may be adversely impacted. A decline in rating could adversely affect its position in the insurance market, make it more difficult to market its insurance products and cause its premiums and earnings to decrease.

Financial ratings are an important factor influencing the competitive position of insurance companies. Third party rating agencies assess and rate the claims-paying ability of insurers and reinsurers based upon criteria that they have established. Periodically these rating agencies evaluate the business to confirm that it continues to meet the criteria of the ratings previously assigned. Financial strength ratings are an important factor in establishing the competitive position of insurance companies and may be expected to have an effect on an insurance company’s premiums.

The insurance subsidiaries are rated by A.M. Best, which issues independent opinions of an insurer’s financial strength and its ability to meet policyholder obligations. A.M. Best ratings range from “A++” (Superior) to “F” (In Liquidation), with a total of 16 separate rating categories. The objective of A.M. Best’s rating system is to provide potential policyholders and other interested parties an opinion of an insurer’s financial strength and ability to meet ongoing obligations, including paying claims. On January 30, 2012, A.M. Best Co. affirmed the financial strength rating of American Country and American Service as “B” and the outlook assigned to all ratings is “Stable.”

The Company cannot provide assurance that A.M. Best will maintain these ratings in the future. If the insurance subsidiaries’ ratings are reduced by A.M. Best, their competitive position in the insurance industry could suffer and it could be more difficult to market their insurance products. A downgrade could result in a significant reduction in the number of insurance contracts written by the subsidiaries and in a substantial loss of business to other competitors with higher ratings, causing premiums and earnings to decrease. Rating agencies evaluate insurance companies based on financial strength and the ability to pay claims, factors that may be more relevant to policyholders than to investors. Financial strength ratings by rating agencies are not ratings of securities or recommendations to buy, hold or sell any security and should not be relied upon as such.

Human Resources Risk

Human resources risk is the risk that the Company is unable to maximize available human resources in the achievement of its business objectives. This includes people, their experience, knowledge, skills and work environment.

The Company’s business depends upon key employees, and if it is unable to retain the services of these key employees or to attract and retain additional qualified personnel, its business may suffer.

The Company’s success depends, to a great extent, upon the ability of executive management and other key employees to implement its business strategy and its ability to attract and retain additional qualified personnel in the future. The loss of the services of any

of its key employees, or the inability to identify, hire and retain other highly qualified personnel in the future, could adversely affect the quality and profitability of the Company's business operations. In addition, the Company must forecast volume and other factors in changing business environments with reasonable accuracy and adjust its hiring and employment levels accordingly. Its failure to recognize the need for such adjustments, or its failure or inability to react appropriately on a timely basis, could lead the Company either to over-staffing (which could adversely affect its costs structure) or under-staffing (which could impair its ability to service current products lines and new lines of business). In either event, the Company's financial results and customer relationships could be adversely affected.

U.S. Tax Risks

If the Company were not to be treated as a U.S. Corporation for U.S. federal income tax purposes, certain tax inefficiencies would result and certain adverse tax rules would apply.

Pursuant to certain “expatriation” provisions of the U.S. Internal Revenue Code of 1986, as amended, the reverse merger agreement provides that the parties intend to treat the Company as a U.S. corporation for U.S. federal income tax purposes. The expatriation provisions are complex, are largely unsettled and subject to differing interpretations, and are subject to change, perhaps retroactively. If the Company were not to be treated as a U.S. corporation for U.S. federal income tax purposes, certain tax inefficiencies and adverse tax consequences and reporting requirements would result for both the Company and the recipients and holders of stock in the Company, including that dividend distributions from its insurance subsidiaries to Atlas would be subject to 30% U.S. withholding tax, with no available reduction and that members of the consolidated group may not be permitted to file a consolidated U.S. tax return resulting in the acceleration of cash tax outflow and potential permanent loss of tax benefits associated net operating loss carry-forwards that could have otherwise been utilized.

The Company’s use of losses may be subject to limitations and the tax liability of the Company may be increased.

Generally, a change of more than 50% in the ownership of a corporation’s stock, by value, over a three-year period constitutes an ownership change for U.S. federal income tax purposes. An ownership change generally limits a U.S. corporation’s ability to use its net operating loss carry-forwards attributable to the period prior to the change. Both the insurance subsidiaries experienced ownership changes in connection with the private placement and reverse merger transaction completed in the last quarter of 2010, such that the use of their net operating loss carry-forwards will be subject to limitation. In addition, the amounts of any pre-transaction net operating losses of the insurance subsidiaries and tax basis that may be available for use by the insurance subsidiaries following the reverse merger transaction are limited and dependent on tax elections to be taken on a tax return of the insurance subsidiaries’ former parent. The Company’s former parent controls the determination of which elections are made and the extent to which the elections will impact the net operating losses and tax attributes of the insurance subsidiaries for net operating losses and tax attributes generated in periods through December 31, 2010. The Company will not be compensated to the extent the net operating losses and tax attributes are reduced or otherwise unfavorably adjusted due to changes and elections in the former parent’s 2010 and prior tax filings.

Further limitations on the utilization of losses may apply because of the “dual consolidated loss” rules, which will also require the Company to recapture into income the amount of any such utilized losses in certain circumstances. As a result of the application of these rules, the future tax liability of the Company and its insurance subsidiaries could be significantly increased. In addition, taxable income may also be recognized by the Company or its insurance subsidiaries in connection with the 2010 reverse merger transaction.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Atlas' corporate headquarters is located in Elk Grove Village, Illinois. It consists of one office building totaling 176,844 net rentable square feet of office space on 7.2 acres. Atlas occupies one floor of the building and rents some of the remaining space.

On April 6, 2012, Atlas entered into a definitive sale and purchase agreement related to the headquarters building in Elk Grove Village. Proceeds from this cash transaction, net of costs and fees at closing, are expected to be slightly higher than the asset value of the property and related leasehold improvements recorded as held for sale at December 31, 2011 ($13.5 million). Atlas will remain in the building as a tenant. The transaction is scheduled to close in second quarter 2012 subject to the terms of the agreement.

We also own approximately 50 acres of vacant land in Alabama which was transferred to Atlas from Southern United. It is also currently held for sale.

Item 3. Legal Proceedings

In connection with its operations, the Company and its insurance subsidiaries are, from time to time, named as defendants in actions for damages and costs allegedly sustained by the plaintiffs. While it is not possible to estimate the outcome of the various proceedings at this time, such actions have generally been resolved with minimal damages or expense in excess of amounts provided and the Company does not believe that it will incur any significant additional loss or expense in connection with such actions.

Item 4. Mine Safety Disclosure

Not applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of March 19, 2012, there were 100 shareholders of record of Atlas ordinary voting common shares, of which 4,628,292 were issued and outstanding. Atlas ordinary voting common shares have been exclusively listed on the TSX Venture Exchange (“TSXV”) under the symbol “AFH” since January 6, 2011.

Set forth below are the high and low listing prices of the ordinary common shares during 2011 per the TSXV (in Canadian dollars):

Table 1(c) Summary of Share Prices

	High	Low
First Quarter	$2.00	$1.60
Second Quarter	$2.00	$1.48
Third Quarter	$1.90	$1.25
Fourth Quarter	$2.03	$1.10

During 2011, Atlas did not repurchase any of its equity securities. Atlas also did not pay any dividends during 2011 and has no current plans to pay dividends to its common shareholders. The cumulative amount of dividends to which the preferred shareholders are entitled upon liquidation (or sooner, if Atlas declares dividends), is $810,000 as at December 31, 2011.

Item 7. Management’s Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations



Section	Description	Page
I.	Consolidated Performance	26
II.	Application of Critical Accounting Estimates	27
III.	Operating Results	28
IV.	Financial Condition	33

Overview

This MD&A contains “forward-looking information” which may include, but is not limited to, statements with respect to estimates of future expenses, revenue and profitability; trends affecting financial condition and results of operations; the availability and terms of additional capital; dependence on key suppliers, and other strategic partners; industry trends and the competitive and regulatory environment; the impact of losing one or more senior executives or failing to attract additional key personnel; and other factors referenced in this MD&A.

Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Atlas to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, general business, economic, competitive, political, regulatory and social uncertainties.

Although Atlas has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this MD&A and Atlas disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results, or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty in them.

( All amounts in thousands of US dollars, except for amounts preceded by “C” as Canadian dollars, share and per share amounts)

I. CONSOLIDATED PERFORMANCE

Full year 2011 Highlights


•	Core commercial auto lines gross premium written for 2011 increased 36.9% over 2010 reflecting Atlas’ strong focus on re-energizing this line of business.


•	Net loss for the year ended December 31, 2011 was $ (2,470) .


•	After taking the impact of the liquidation preference of the preferred shares into consideration, the basic and diluted loss per common share in 2011 was $ (0.18) .

•

2011 non-operating expenses totaled $4,971 ($3,357 net of tax) which includes a one-time $2,544 ($1,755 net of tax) non-cash charge upon settlement of the American Country Pension Plan , a $1,800 ($1,188 net of tax) fourth quarter reserve strengthening charge related to pre-Atlas periods, and non-recurring expenses incurred in Q1 2011 of $627 ($414 net of tax) related to transaction costs and restructuring.


•	The above non-operating expenses had an unfavorable impact of ( $0.18 ) on basic and diluted earnings per share in 2011.


•	Total investment income (including realized capital gains) in 2011 was $7,481 , an increase of 35.9% as compared to 2010.


•	Underwriting losses improved by $ 12,746 for the year ended December 31, 2011 as compared to 2010.


•	Atlas' distribution channel was able to write business in a total of 25 states at the end of 2011.


•	Book value per common share diluted at December 31, 2011 was $ 2.03 .

The following financial data is derived from Atlas’ consolidated financial statements for the years ended December 31, 2011 and 2010:

Table 1 Selected financial information

For the year ended December 31,	2011			2010
Gross premium written	$	42,031		$	46,679
Net premium earned	35,747			53,603
Losses on claims	28,994			48,074
Acquisition costs	7,294			11,115
Other underwriting expenses	10,697			18,398
Net underwriting loss	(11,238		)	(23,984		)
Net investment and other income	7,605			4,747
Net loss before tax	(3,633		)	(19,237		)
Income tax (benefit) expense	(1,163		)	2,575
Net loss	$	(2,470	)	$	(21,812	)

Key Financial Ratios:
Loss ratio	81.1		%	89.7		%
Acquisition cost ratio	20.4		%	20.7		%
Other underwriting expense ratio	29.9		%	34.3		%
Combined ratio (see Table 6)	131.4		%	144.7		%
Return on equity	(4.2		)%	(38.7		)%
Loss per common share, basic and diluted	$	(0.18	)	$	(1.19	)
Book value per common share, basic and diluted	$	2.03		$	2.30

Atlas’ full year combined ratio for 2011 was 131.4% , compared to 144.7% for the full year of 2010. The $4,971 in 2011 non-operating expenses added 13.9% to the combined ratio in 2011.

As planned, core commercial automobile lines became a more significant component of Atlas’ gross premium written as a result of the strategic focus on these core lines of business coupled with positive response from new and existing agents. Gross premium written related to these core commercial lines increased by 36.9% for 2011 as compared to 2010. As a result, the overall loss ratio for 2011 was 81.1% compared to 89.7% in 2010. The $1,800 reserve strengthening charge in the fourth quarter of 2011 related to pre-Atlas periods added 5.0% to the loss ratio in 2011.

Investment performance and other income generated $ 7,605 of income for 2011, of which $4,201 is realized gains. This resulted in a 4.7% yield for the full year 2011. Cash and invested assets were $ 127,881 as of December 31, 2011 and were $ 45,167 lower than December 31, 2010, resulting primarily from the payment of claim settlements. This reduction in cash and invested assets is in line with expectations as Atlas rebuilds its book of business (see page 27 below).

Overall, Atlas generated a net loss of $ (2,470) . After taking the impact of the liquidation preference of the preferred shares into consideration, the basic and diluted loss per common share in 2011 was $ (0.18) . This compares to a net loss of $ (21,812) or $ (1.19) per common share diluted in 2010.

Book value per common share diluted as of December 31, 2011 was $ 2.03 .

II. APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates include those used in determining:

• Fair value and impairment of financial assets

• Deferred policy acquisition costs amortization

• Reserve for property-liability insurance claims and claims expense estimation

• Deferred tax asset valuation

In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our businesses and operations. It is reasonably likely that changes in these estimates could occur from period to period and result in a material impact on our consolidated financial statements.

A brief summary of each of these critical accounting estimates follows. For a more detailed discussion of the effect of these estimates on our consolidated financial statements, and the judgments and assumptions related to these estimates, see the referenced sections of this document. For a complete summary of our significant accounting policies, see the notes to the consolidated financial statements.

Fair values of financial instruments - Atlas has used the following methods and assumptions in estimating its fair value disclosures:

Fair values for bonds are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or values obtained from independent pricing services through a bank trustee.

Impairment of financial assets - Atlas assesses, on a quarterly basis, whether there is objective evidence that a financial asset or group of financial assets is impaired. An investment is considered impaired when the fair value of the investment is less than its cost or amortized cost. When an investment is impaired, the Company must make a determination as to whether the impairment is other-than-temporary.

Under ASC guidance, with respect to an investment in an impaired debt security, other-than temporary impairment (OTTI) occurs if (a) there is intent to sell the debt security, (b) it is more likely than not it will be required to sell the debt security before its anticipated recovery, or (c) it is probable that all amounts due will be unable to be collected such that the entire cost basis of the security will not be recovered. If Atlas intends to sell the debt security, or will more likely than not be required to sell the debt security before the anticipated recovery, a loss in the entire amount of the impairment is reflected in net realized gains (losses) on investments in the consolidated statements of income. If Atlas determines that it is probable it will be unable to collect all amounts and Atlas has no intent to sell the debt security, a credit loss is recognized in net realized gains (losses) on investments in the consolidated statements of income to the extent that the present value of expected cash flows is less than the amortized cost basis; any difference between fair value and the new amortized cost basis (net of the credit loss) is reflected in other comprehensive income (losses), net of applicable income taxes.

Deferred policy acquisition costs - Atlas defers brokers’ commissions, premium taxes and other underwriting and marketing costs directly relating to the acquisition of premiums written to the extent they are considered recoverable. These costs are then expensed as the related premiums are earned. The method followed in determining the deferred policy acquisition costs limits the deferral to its realizable value by giving consideration to estimated future claims and expenses to be incurred as premiums are earned. Changes in estimates, if any, are recorded in the accounting period in which they are determined. Anticipated investment income is included in determining the realizable value of the deferred policy acquisition costs. Atlas’ deferred policy acquisition costs are reported net of ceding commissions.

Valuation of deferred tax assets - Deferred taxes are recognized using the asset and liability method of accounting. Under this method the future tax consequences attributable to temporary differences in the tax basis of assets, liabilities and items recognized directly in equity and the financial reporting basis of such items are recognized in the financial statements by recording deferred tax liabilities or deferred tax assets.

Deferred tax assets related to the carry-forward of unused tax losses and credits and those arising from temporary differences are recognized only to the extent that it is probable that future taxable income will be available against which they can be utilized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment.

Claims liabilities - The provision for unpaid claims represent the estimated liabilities for reported claims, plus those incurred but not yet reported and the related estimated loss adjustment expenses. Unpaid claims expenses are determined using case-basis evaluations and statistical analyses, including insurance industry loss data, and represent estimates of the ultimate cost of all claims incurred. Although considerable variability is inherent in such estimates, management believes that the liability for unpaid claims is adequate. The estimates are continually reviewed and adjusted as necessary; such adjustments are included in current operations and are accounted for as changes in estimates.

III. OPERATING RESULTS

In the years prior the reverse merger which formed Atlas, the Company's insurance subsidiaries were writing a variety of different lines of business, many of which were non-profitable and/or managed by third parties. Challenges facing the subsidiaries' former owner, coupled with that organization's strategic decision to focus their business on private passenger, versus commercial, lines of business resulted in a significant reduction in commercial lines premiums written. In the year prior to the reverse merger, agents were notified that the companies were exiting commercial lines of business resulting in dramatic premium decline and an expense structure that was not in-line with the premium volume written. The former ownership structure also created a substantial amount of overhead and other expense resulting in negative pressure on the subsidiaries' operating results. Effective with the reverse merger, Atlas' management team realigned the strategic focus of the subsidiaries around commercial lines of business which were historically profitable. Infrastructure changes were made to ensure that the Company's expense structure was adjusted based on near term premium expectations to support underwriting profit at a scale considered realistic in the near term. The companies maintain strong core competencies with respect to these lines of business and expect to re-capture business lost in recent years and expect to win new business based on Atlas' strong value proposition. As evidenced below, written premium from core lines of business is increasing. Continued premium growth and the maintenance of the current expense discipline will create positive cash flow. The negative cash flow experienced in connection with claim payments will also reverse as claims related to policies written in prior years are paid and new premium from core lines of business is collected. The reduction in cash and invested assets seen in 2011 was expected in light of the companies' reorganization and circumstances. This is not expected to continue in 2012 forward.

Gross Premium Written

Table 2 Gross premium written by line of business

Year Ended December 31,	2011		2010		% Change
Commercial automobile	$	18,790	$	13,729	36.9	%
Non-standard automobile	17,412		22,986		(24.2	)%
Other	5,829		9,964		(41.5	)%
	$	42,031	$	46,679	(10.0	)%

Table 2 above summarizes gross premium written by line of business. For the year ended December 31, 2011, gross premium written was $ 42,031 compared to $ 46,679 in 2010, representing a 10.0% decrease primarily due to the reduction of non-core lines of business.

Commercial Automobile

The commercial automobile policies we underwrite provide coverage for light weight, individual unit or small fleet commercial vehicles typically with the minimum limits prescribed by statute, municipal or other regulatory requirements. In the year ended December 31, 2011, gross premium written from commercial automobile was $18,790 , representing a 36.9% increase relative to 2010. Atlas’ continued focus on these core lines of business coupled with a positive response from both new and existing agents and policyholders to Atlas’ value proposition drove the improvement. As a percentage of the insurance subsidiaries’ overall book of business, commercial auto gross premium written represented 44.7% of gross premium written in 2011 compared to 29.4% in 2010.

Commercial automobile insurance has outperformed the overall P&C industry in each of the past ten years based on data compiled by the NAIC. Each of the specialty business lines on which Atlas’ strategy is focused is a subset of this historically profitable industry segment.

Because there are a limited number of competitors specializing in these lines of business, management believes a strong value proposition is very important and can result in desirable retention levels as policies renew on an annual basis. There are also a relatively limited number of agents who specialize in these lines of business. As a result, strategic agent relationships are important to ensure efficient distribution.

There is a positive correlation between the economy and commercial automobile insurance in general. However, operators of commercial automobiles may be less likely than other business segments within the commercial auto line to take vehicles out of service as their businesses and business reputations rely heavily on availability. With respect to certain business lines such as the taxi line, there are also other factors such as the cost and limited supply of medallions which may discourage a policy holder from taking vehicles out of service in the face of reduced demand for the use of the vehicle.

Maintaining continuous insurance on all vehicles under dispatch is an important aspect of Atlas’ target policyholders’ businesses.

Non-Standard Automobile

Non-standard automobile insurance is principally provided to individuals who do not qualify for standard automobile insurance coverage because of their payment history, driving record, place of residence, age, vehicle type or other factors. Such drivers typically represent higher than normal risks and pay higher insurance rates for comparable coverage.

Consistent with Atlas’ focus on commercial automobile insurance, Atlas continues to transition away from the non-standard auto line. Atlas’ has ceased renewals of policies of this type in 2011, allowing surplus and additional resources to be devoted to the expected growth of the commercial automobile business. These lines comprised 41.4% of our gross written premium in 2011 versus 49.2% in 2010. In 2012, gross written premium related to non-standard auto will be negligible.

Other

This line of business is primarily comprised of Atlas’ surety business, which is 100% reinsured.

Geographic Concentration

Table 3 Gross premium written by state

Year Ended December 31,	2011				2010
Illinois	$	25,398	60.4	%	$	28,230		60.5	%
Indiana	2,687		6.4	%	4,782			10.2	%
Michigan	3,828		9.1	%	2,032			4.4	%
New York	1,865		4.4	%	2,830			6.1	%
Minnesota	2,555		6.1	%	1,524			3.3	%
Louisiana	1,530		3.6	%	(147		)	(0.3	)%
Wisconsin	758		1.8	%	371			0.8	%
Other	3,410		8.2	%	7,057			15.1	%
Total	$	42,031	100.0	%	$	46,679		100.0	%

As illustrated by the data in Table 3 above, 60.4% of Atlas’ 2011 gross premium written came from the state of Illinois and 76.0% came from the three states currently producing the most year-to-date premium volume (Illinois, Indiana and Michigan), as compared to 75.1% in 2010. Atlas is committed to diversifying geographically by expanding in new areas of the country, leveraging experience, historical data and research. In 2011, Atlas began actively writing insurance in 10 new states, 5 of which were added in the fourth quarter.

The decline of written premium for the year ended December 31, 2011 versus the year ended December 31, 2010 in Illinois and Indiana is primarily attributable to Atlas’ de-emphasis of non-standard automobile insurance. The majority of the 2010 non-standard automobile written premium came from those two states.

Ceded Premium Written

Ceded premium written is equal to premium ceded under the terms of Atlas’ in force reinsurance treaties. Ceded premium written decreased 56.5% to $6,173 for the year ended December 31, 2011 compared with $14,201 for the year ended December 31, 2010.

This decrease is attributed to the reduction of Atlas’ surety gross premium written.

Net Premium Written

Net premium written is equal to gross premium written less the ceded premium written under the terms of Atlas’ in force reinsurance treaties. Net premium written increased 10.4% to $35,858 for 2011 compared with $32,478 for 2010. These changes are attributed to the combined effects of the issues cited in the ‘Gross Premium Written’ and ‘Ceded Premium Written’ sections above.

Net Premium Earned

Premiums are earned ratably over the term of the underlying policy. Net premium earned was $ 35,747 in 2011, a 33.3% decrease compared with $ 53,603 in 2010. The decrease in net premiums earned is attributable to the written premium decline experienced by the Company’s insurance subsidiaries prior to Atlas’ formation, coupled with the transition away from private passenger automobile insurance and other non-core lines of business. Policy periods in Atlas’ core lines of business are typically twelve months.

Claims Incurred

The loss ratio relating to the claims incurred in 2011 was 81.1% compared to 89.7% in 2010. The $1,800 reserve strengthening adjustment made in the fourth quarter 2011 unfavorably impacted the loss ratio by 5% in 2011. The change in loss ratios from 2010 to 2011 is attributable to the increased composition of commercial auto as a percentage of the total written premium. Atlas has extensive experience and expertise with respect to underwriting and claims management in this specialty area of insurance and expects the loss ratio to trend back towards levels seen in the second quarter 2011. The company is committed to retain this claim handling expertise as a core competency as the volume of business increases.

Acquisition Costs

Acquisition costs represent commissions and taxes incurred on net premium earned. Acquisition costs were $ 7,294 in 2011 or 20.4% of net premium earned, as compared to 20.7% in 2010. This ratio has declined slightly due to the shift away from private passenger automobile insurance which carry higher commission rates and are anticipated to continue decreasing as Atlas transitions entirely away from these non-standard automobile lines.

Other Underwriting Expenses

The other underwriting expense ratio was 29.9% in 2011 compared to 34.3% in 2010. Atlas incurred additional expenses of approximately $627 in 2011 that are deemed non-recurring. These items are highlighted in the table below:

Table 4 Non-recurring Expenses

Expense Item	Description	Non-recurring Expense
Licenses, taxes and assessments	Amounts paid in Q1 2011	$	198
Professional fees	Legal and Accounting fees	121
Salary and benefits	Q1 staff reduction impacts	174
EDP expense	Decommissioning software expenses previously capitalized	84
Occupancy/Miscellaneous expense	Straight-line lease adjustment	50
Total non-recurring expenses		$	627

The combination of the settlement of the American Country Pension Plan in the fourth quarter of 2011 and the above expenses unfavorably impacted the other underwriting expense ratio by 8.8% . The favorable change in other areas of underwriting expense can be attributed to operating efficiencies realized after the reverse merger at the end of 2010 as well as the absence of significant agent receivable write-offs.

Net Investment Income

Table 5 Investment Results

Year Ended December 31,	2011			2010
Average securities at cost (including cash)	$	159,555		$	193,686
Interest income after expenses	3,280			4,616
Percent earned on average investments	2.1		%	2.4		%
Net realized gains	$	4,201		$	888
Total investment income	7,481			5,504
Total realized yield (annualized)	4.7		%	2.8		%

Investment income (excluding net realized gains) decreased by 28.9% to $ 3,280 in 2011, compared to $ 4,616 in 2010. These amounts are primarily comprised of interest income. This decrease is primarily due to the lower average investment balance during 2011. However, the average yield on invested assets (including net realized gains of $ 4,201 ) in 2011 increased to 4.7% as compared with 2.8% in 2010.

Net Realized Investment Gains (Losses)

Net realized investment gains in 2011 were $4,201 compared to $888 in 2010. These gains were the result of management's decision to sell certain securities during favorable market conditions in 2011.

Miscellaneous Income (Loss)

Atlas recorded miscellaneous income in 2011 of $ 124 compared to expense of $ 757 for 2010. Miscellaneous income in 2011 is primarily comprised of rental income from the corporate headquarters in Elk Grove Village, Illinois.

Combined Ratio

Atlas’ combined ratio are summarized in the table below. The underwriting loss is attributable to the factors described in the ‘Claims Incurred’, ‘Acquisition Costs’, and ‘Other Underwriting Expenses’ sections above.

Table 6 Combined Ratios

Year Ended December 31,	2011			2010
Net premium earned	$	35,747		$	53,603
Underwriting expenses *	46,985			77,587
Combined ratio	131.4		%	144.7		%

*Underwriting expense is the combination of losses on claims, acquisition costs, and other underwriting expenses

2011 non-operating expenses totaled $4,971 ($3,357 net of tax) which includes a one-time $2,544 ($1,755 net of tax) non cash charge upon settlement of the American Country Pension Plan, a $1,800 ($1,188 net of tax) fourth quarter reserve strengthening charge related to pre-Atlas periods, and non-recurring expenses incurred in Q1 2011 of $627 ($414 net of tax) related to the reverse merger transaction costs and restructuring. These non-operating expenses had an unfavorable impact of 13.9% on the Company's combined ratio in 2011.

Loss before Income Taxes

Atlas generated loss before tax of $ 3,633 in 2011 as compared to a loss before income taxes of $ 19,237 in 2010.

Income Tax Benefit

Atlas recognized an income tax benefit in 2011 of $ 1,163 , consistent with operating results for the year. No further valuation allowance was recorded on net operating losses generated in 2011. This compares to a tax expense of $ 2,575 in 2010. The following table reconciles tax benefit from applying the statutory U.S. Federal tax rate of 34.0% to the actual percentage of pre-tax losses provided for the years ended December 31, 2011 and 2010.

Table 7 Income tax benefit reconciliation

Year ended December 31,	2011					2010
	Amount			%		Amount			%
Expected income tax benefit at statutory rate	$	(1,235	)	(34.0	)%	$	(6,541	)	(34.0	)%
Valuation allowance	—			—	%	(9,476		)	(49.3	)%
Nondeductible expenses	5			0.1	%	183			1.0	%
Tax implications of qualifying transaction	75			2.1	%	18,412			95.7	%
Other	(8		)	(0.2	)%	(3		)	—	%
Total	$	(1,163	)	(32.0	)%	$	2,575		13.4	%

Upon formation of Atlas on December 31, 2010, a yearly limitation as required by U.S. tax law Section 382 that applies to changes in ownership on the future utilization of Atlas’ net operating loss carry-forwards was calculated. The insurance subsidiaries’ prior parent retained those tax assets previously attributed to the insurance subsidiaries which could not be utilized by Atlas as a result of this limitation. As a result, Atlas’ ability to recognize future tax benefits associated with a portion of its deferred tax assets generated during prior years and the current year have been permanently limited to the amount determined under U.S. tax law Section 382. The result is a maximum expected net deferred tax asset which Atlas has available after the merger which is believed more-likely-than-not to be utilized in the future.

Net Loss and Loss per Share

Atlas lost $ 2,470 during 2011 compared to net losses of $ 21,812 in 2010. After taking the impact of the liquidation preference of the preferred shares into consideration, the basic and diluted loss per common share in 2011 was $ (0.18) versus a loss per common share of $1.19 in 2010 computed under continuation accounting rules.

The combination of the one-time $2,544 ($1,755 net of tax) non-cash charge upon settlement of the American Country Pension Plan, the $1,800 ($1,188 net of tax) fourth quarter reserve strengthening, and other non-recurring expenses incurred in Q1 2011 of $627, had an unfavorable impact of ( $0.18 ) on earnings per common share in 2011.

There were 18,373,624 weighted average common shares outstanding at the end of 2011. In 2010, 18,358,363 common shares were used to compute both basic and dilutive earnings per common share, the number of voting common shares at the merger date as required by continuation accounting rules.

Book Value per Common Share

Book value per common share was $ 2.03 at December 31, 2011 as compared to $2.30 at December 31, 2010. The settlement of the American Country Pension Plan had no significant impact on book value per share.

IV. FINANCIAL CONDITION

Table 8 Consolidated Statement of Financial Position

	December 31,
	2011			2010
Assets
Investments
Fixed income securities, at fair value (Amortized cost $101,473 and $148,531)	$	103,491		$	154,011
Equity securities, at fair value (cost $994 and $0)	1,141			—
Total Investments	104,632			154,011
Cash and cash equivalents	23,249			19,037
Accrued investment income	586			1,293
Accounts receivable and other assets (Net of allowance of $4,254 and $4,212)	9,579			13,340
Reinsurance recoverables, net	8,044			4,277
Prepaid reinsurance premiums	2,214			6,999
Deferred policy acquisition costs	3,020			3,804
Deferred tax asset, net	6,775			6,399
Software and office equipment, net	440			1,274
Assets held for sale	13,634			15,004
Total Assets	$	172,173		$	225,438
Liabilities
Claims liabilities	$	91,643		$	132,579
Unearned premiums	15,691			17,061
Due to reinsurers and other insurers	5,701			9,614
Other liabilities and accrued expenses	2,884			6,015
Total Liabilities	$	115,919		$	165,269
Shareholders’ Equity
Preferred shares, par value per share $0.001, 100,000,000 shares authorized, 18,000,000 shares issued and outstanding at December 31, 2011 and December 31, 2010. Liquidation value $1.00 per share	$	18,000		$	18,000
Ordinary voting common shares, par value per share $0.001, 800,000,000 shares authorized, 4,625,526 shares issued and outstanding at December 31, 2011 and 4,553,502 at December 31, 2010	4			4
Restricted voting common shares, par value per share $0.001, 100,000,000 shares authorized, 13,804,861 shares issued and outstanding at December 31, 2011 and December 31, 2010	14			14
Additional paid-in capital	152,652			152,466
Retained deficit	(115,841		)	(113,371		)
Accumulated other comprehensive income, net of tax	1,425			3,056
Total Shareholders’ Equity	$	56,254		$	60,169
Total Liabilities and Shareholders’ Equity	$	172,173		$	225,438
See accompanying Notes to Consolidated Financial Statements.

Investments

Investments Overview and Strategy

Atlas manages its securities portfolio to support the liabilities of the insurance subsidiaries, to preserve capital and to generate investment returns. Atlas invests predominantly in corporate and government bonds with relatively short durations that correlate with the payout patterns of Atlas’ claims liabilities. A third-party investment management firm manages Atlas’ investment portfolio pursuant to the Company’s investment policies and guidelines as approved by its Board of Directors. Atlas monitors the third-party investment manager’s performance and its compliance with both its mandate and Atlas’ investment policies and guidelines.

Atlas’ investment guidelines stress the preservation of capital, market liquidity to support payment of liabilities and the diversification of risk. With respect to fixed income securities, Atlas generally purchases securities with the expectation of holding them to their maturities; however, the securities are available for sale if liquidity needs arise.

Portfolio Composition

At December 31, 2011, Atlas held securities with a fair value of $104,632 which was comprised primarily of fixed income securities. The insurance subsidiaries’ securities must comply with applicable regulations that prescribe the type, quality and concentration of securities. These regulations in the various jurisdictions in which the insurance subsidiaries are domiciled permit investments in government, state, municipal and corporate bonds, preferred and common equities, and other high quality investments, within specified limits and subject to certain qualifications.

The following table summarizes the fair value of the securities portfolio, including cash and cash equivalents, as at the dates indicated.

Table 9 Fair value of securities portfolio

As at December 31, 2011		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Term Deposits		$	—	$	—	$	—	$	—
Fixed Income:
U.S.	- Government	44,835		911		—		45,746
	- Corporate	35,572		825		24		36,373
	- Commercial mortgage backed	17,493		208		—		17,701
	- Other asset backed	3,573		99		1		3,671
Total Fixed Income		$	101,473	$	2,043	$	25	$	103,491
Equities		994		147		—		1,141
Totals		$	102,467	$	2,190	$	25	$	104,632



As at December 31, 2010		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Term Deposits		$	7,898	$	3	$	—	$	7,901
Fixed Income:
U.S.	- Government	67,388		2,117		—		69,505
	- Corporate	62,429		3,011		—		65,440
	- Commercial mortgage backed	8,445		270		—		8,715
	- Other asset backed	2,371		79		—		2,450
Total Fixed Income		$	148,531	$	5,480	$	—	$	154,011
Equities
Totals		$	148,531	$	5,480	$	—	$	154,011

Table 10 Net Change in unrealized gains/(losses) on available-for-sale securities

		2011			2010
Term Deposits		$	(3	)	$	3
Fixed Income:
U.S.	-Government	(1,206		)	852
	- Corporate	(2,210		)	386
	- Commercial mortgage backed	(62		)	33
	- Other asset backed	19			2,037
Equities		147
Totals		$	(3,315	)	$	3,311

For the year ended December 31, 2011, Atlas recognized $ 7,481 in total investment income, including $4,201 of realized gains.

Liquidity and Cash Flow Risk

The following table summarizes the fair value by contractual maturities of the fixed income securities portfolio excluding cash and cash equivalents at the dates indicated.

Table 11 Fair value of fixed income securities by contractual maturity date

As of December 31,	2011				2010
	Amount		%		Amount		%
Due in less than one year	$	29,407	28.4	%	$	21,555	14.0	%
Due in one through five years	27,317		26.4	%	88,564		57.5	%
Due after five through ten years	10,242		9.9	%	24,026		15.6	%
Due after ten years	36,525		35.3	%	19,866		12.9	%
Total	$	103,491	100.0	%	$	154,011	100.0	%

At December 31, 2011, 54.8% of the fixed income securities, including treasury bills, bankers’ acceptances, government bonds and corporate bonds had contractual maturities of five years or less. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties. Atlas holds cash and high grade short-term assets which, along with fixed income security maturities, management believes are sufficient for the payment of claims on a timely basis. In the event that additional cash is required to meet obligations to policyholders, Atlas believes that high quality securities portfolio provides us with sufficient liquidity. With a weighted average duration of 2.35 years, changes in interest rates will have a modest market value impact on the Atlas portfolio relative to longer duration portfolios. Atlas can and typically does hold bonds to maturity by matching duration with the anticipated liquidity needs.

The Company's investment guidelines are designed to ensure that liquidity provided by the insurance subsidiaries' investment portfolio can support claim payments and any other cash operating needs of the subsidiaries. The non-core private passenger automobile lines of business which were historically written by the subsidiaries have a claim payout pattern that is substantially shorter than the expected payout pattern of the Company's core commercial lines of business. The non-recurring expenses described earlier in this document also created an operating cash need in 2011 which is not expected in future years. Based on the Company's business shift, expected operating cash flow needs and the level of surplus as respects policyholders, the duration of the subsidiaries' investment portfolio was extended resulting in a shift from shorter maturity dates to longer ones. Working with our external investment manager, we allocated invested assets to match liquidity and duration for those assets expected to provide future cash for the payment of claims and have extended duration to increase yield for a portion of invested assets considered to be surplus.

Market Risk

Market risk is the risk that Atlas will incur losses due to adverse changes in interest rates, currency exchange rates or equity prices. Having disposed of a majority of its asset backed securities, its primary market risk exposures in the fixed income securities portfolio are to changes in interest rates. Because Atlas’ securities portfolio is comprised of primarily fixed income securities that are usually held to maturity, periodic changes in interest rate levels generally impact its financial results to the extent that the securities in its available for sale portfolio are recorded at market value. During periods of rising interest rates, the market value of the existing fixed income securities will generally decrease and realized gains on fixed income securities will likely be reduced. The reverse is true during periods of declining interest rates.

Credit Risk

Credit risk is defined as the risk of financial loss due to failure of the other party to a financial instrument to discharge an obligation. Atlas is exposed to credit risk principally through its investments and balances receivable from policyholders and reinsurers. It monitors concentration and credit quality risk through policies to limit and monitor its exposure to individual issuers or related

groups (with the exception of U.S. government bonds) as well as through ongoing review of the credit ratings of issuers in the securities portfolio. Credit exposure to any one individual policyholder is not material. The Company's policies, however, are distributed by agents who may manage cash collection on its behalf pursuant to the terms of their agency agreement. Atlas has policies to evaluate the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurers’ insolvency.

The following table summarizes the composition of the fair value of the fixed income securities portfolio, excluding cash and cash equivalents, as of the dates indicated, by ratings assigned by Fitch, S&P or Moody’s Investors Service. The fixed income securities portfolio consists of predominantly very high quality securities in corporate and government bonds with 95.3% rated ‘A’ or better as at December 31, 2011 compared to 97.4% as at December 31, 2010.

Table 12 Credit ratings of fixed income securities portfolio

As of December 31,	2011				2010
	Amount		% of Total		Amount		% of Total
AAA/Aaa	$	54,717	52.9	%	$	88,684	57.6	%
AA/Aa	21,567		20.8	%	26,388		17.1	%
A/A	22,380		21.6	%	35,027		22.7	%
BBB/Baa	4,827		4.7	%	3,851		2.5	%
CCC/Caa or lower or not rated	—		—	%	61		0.1	%
Total Securities	$	103,491	100.0	%	$	154,011	100.0	%

Other-than-temporary impairment

Atlas recognizes losses on securities for which a decline in market value was deemed to be other-than-temporary. Management performs a quarterly analysis of the securities holdings to determine if declines in market value are other-than-temporary. Atlas did not recognize charges for securities impairments that were considered other-than-temporary for the years ended December 31, 2011 and December 31, 2010.

The length of time securities may be held in an unrealized loss position may vary based on the opinion of the appointed investment manager and their respective analyses related to valuation and to the various credit risks that may prevent us from recapturing the principal investment. In cases of securities with a maturity date where the appointed investment manager determines that there is little or no risk of default prior to the maturity of a holding, Atlas would elect to hold the security in an unrealized loss position until the price recovers or the security matures. In situations where facts emerge that might increase the risk associated with recapture of principal, Atlas may elect to sell securities at a loss. As of December 31, 2011 and December 31, 2010, Atlas had no material gross unrealized losses in its portfolio.

Estimated impact of changes in interest rates and securities prices

For Atlas’ available-for-sale fixed income securities held as of December 31, 2011, a 100 basis point increase in interest rates on such held fixed income securities would have increased net investment income and income before taxes by approximately $271. Conversely, a 100 basis point decrease in interest rates on such held fixed income securities would decrease net investment income and income before taxes by $271.

A 100 basis point increase would have also decreased other comprehensive income by approximately $3,041 due to “mark-to-market” requirement; however, holding investments to maturity would mitigate this impact. Conversely, a 100 basis point decrease would increase other comprehensive income by the same amount. The impacts described here are approximately linear to the change in interest rates.

Due from Reinsurers and Other Insurers

Atlas purchases reinsurance from third parties in order to reduce its liability on individual risks and its exposure to large losses. Reinsurance is insurance purchased by one insurance company from another for part of the risk originally underwritten by the purchasing (ceding) insurance company. The practice of ceding insurance to reinsurers allows an insurance company to reduce its exposure to loss by size, geographic area, and type of risk or on a particular policy. An effect of ceding insurance is to permit an insurance company to write additional insurance for risks in greater number or in larger amounts than it would otherwise insure independently, having regard to its statutory capital, risk tolerance and other factors.

Atlas generally purchases reinsurance to limit net exposure to a maximum amount on any one loss of $500 with respect to commercial automobile liability claims. Atlas also purchases reinsurance to protect against awards in excess of its policy limits. In addition, in 2010 the insurance subsidiaries were part of a larger group of insurance companies that purchased catastrophe reinsurance providing coverage in the event of a series of claims arising out of a single occurrence, limiting exposure to $2,000 per occurrence with a maximum coverage of $38,000. This catastrophic coverage was deemed appropriate at the time based on the insurance subsidiaries being part of a larger group of companies. However, this exposure is now much more limited due to the insurance subsidiaries’ relatively low limits of first party physical damage coverage. Further, Atlas primarily operates in geographic regions believed to have less exposure to natural disasters; therefore management determined that catastrophe reinsurance was not required in 2011 and going forward. Atlas will continue to evaluate and adjust its reinsurance needs based on business volume, mix, and supply levels.

Reinsurance ceded does not relieve Atlas of its ultimate liability to its insured in the event that any reinsurer is unable to meet their obligations under its reinsurance contracts. Therefore, Atlas enters into reinsurance contracts with only those reinsurers deemed to have sufficient financial resources to provide the requested coverage. Reinsurance treaties are generally subject to cancellation by the reinsurers or Atlas on the anniversary date and are subject to renegotiation annually. Atlas regularly evaluates the financial condition of its reinsurers and monitors the concentrations of credit risk to minimize its exposure to significant losses as a result of the insolvency of a reinsurer. Atlas believes that the amounts it has recorded as reinsurance recoverables are appropriately established. Estimating amounts of reinsurance recoverables, however, is subject to various uncertainties and the amounts ultimately recoverable may vary from amounts currently recorded. As at December 31, 2011, Atlas had $ 8,044 recoverable from third party reinsurers (exclusive of amounts prepaid) and other insurers as compared to $ 4,277 as at December 31, 2010.

Estimating amounts of reinsurance recoverables is also impacted by the uncertainties involved in the establishment of provisions for unpaid claims. As underlying reserves potentially develop, the amounts ultimately recoverable may vary from amounts currently recorded. Atlas’ reinsurance recoverables are generally unsecured. Atlas regularly evaluates its reinsurers, and the respective amounts recoverable, and an allowance for uncollectible reinsurance is provided for, if needed.

Atlas’ largest reinsurance partners are Great American Insurance Company (“Great American”), a subsidiary of American Financial Group, Inc. and Gen Re, a subsidiary of Berkshire Hathaway, Inc. Great American has a financial strength rating of A+ from Standard & Poor’s, while Gen Re has a financial strength rating of Aa1 from Moody’s.

Deferred Tax Asset

Table 13 Components of Deferred Tax

As at year ended December 31,	2011			2010
Deferred tax assets:
Unpaid claims and unearned premiums	$	3,004		$	4,218
Loss carry-forwards	15,558			13,252
Pension expense	—			841
Bad debts	1,297			1,356
Other	1,338			1,394
Valuation Allowance	(12,361		)	(11,288		)
Total gross deferred tax assets	$	8,836		$	9,773

Deferred tax liabilities:
Investment securities	$	740		$	1,863
Deferred policy acquisition costs	1,027			1,293
Other	294			218
Total gross deferred tax liabilities	$	2,061		$	3,374
Net deferred tax assets	$	6,775		$	6,399

Atlas established a valuation allowance of approximately $ 12,361 and $ 11,288 for its gross future deferred tax assets at December 31, 2011 and December 31, 2010, respectively.

Based on Atlas’ expectations of future taxable income, as well as the reversal of gross future deferred tax liabilities, management believes it is more likely than not that Atlas will fully realize the net future tax assets, with the exception of the aforementioned valuation allowance. Atlas has therefore established the valuation allowance as a result of the potential inability to utilize a portion of its net operation losses in the U.S. which are subject to a yearly limitation. The uncertainty over the Company’s ability to utilize a portion of these losses over the short term has led to the recording of a valuation allowance.

Atlas has the following total net operating loss carry-forwards as of December 31, 2011:

Table 14 Net operating loss carry-forward by expiry

Year of Occurrence	Year of Expiration	Amount
2001	2021	$	14,750
2002	2022	4,317
2006	2026	7,825
2007	2027	5,131
2008	2028	1,949
2009	2029	1,949
2010	2030	1,949
2011	2031	7,762
Total		$	45,632

Assets Held for Sale

As at December 31, 2010, Atlas had five properties held for sale with an aggregate carrying value of $15,004, including its headquarters building in Elk Grove Village, Illinois. During 2011, two of the properties were sold for combined proceeds of $ 2,436 and Atlas re-classified leasehold improvements with a net book value of $926 from office equipment to assets held for sale. At December 31, 2011, Atlas had three properties remaining as held for sale with an aggregate carrying value of $ 13,634 .

All of the properties’ individual carrying values were less than their respective appraised values net of reasonably estimated selling costs at the time those appraisals were received and at the time properties were deemed to be held for sale. All properties were listed for sale through brokers at the appraised values and above carrying values as of December 31, 2011. Atlas expects to re-invest the proceeds from the sale of real estate in its investment portfolio.

The Elk Grove Village building and property were previously owned by KAI and were contributed to Atlas as a capital contribution in June 2010. The other three properties, all located in Alabama, were assets of Southern United Fire Insurance Company which was merged into American Service in February 2010.

On June 8, 2011, the Mobile, Alabama office building was sold for $2,100, which was the same as its carrying value as of December 31, 2010. On November 2, 2011, land in Saraland, Alabama held for sale as of December 31, 2010 was sold for $336. Its carrying value on the date of sale was $296.

In 2011, bank financing for commercial properties in the Chicago suburbs became more difficult to obtain due to high vacancy rates and tightened lending standards. This has made the sale of the property more difficult than originally envisioned in spite of a reasonable selling price relative to the appraised value. In response, Atlas began offering structured financing to prospective buyers in the fourth quarter, which Atlas believes will lead to a sale of the property in 2012.

Claims Liabilities

The table below shows the amounts of total case reserves and incurred but not reported (“IBNR”) claims provision as of December 31, 2011 and December 31, 2010. The provision for unpaid claims decreased by 30.9% to $ 91,643 at the end of 2011 compared to $132,579 at the end of 2010. During 2011, case reserves decreased by 26.2% compared to December 31, 2010, while IBNR reserves decreased by 39.8% generally due to the payment of claims related to prior accident years, consistent with management’s expectations.

Table 15 Provision for unpaid claims by type - gross

As at year ended December 31,	2011		2010		YTD% Change
Case reserves	64,276		87,119		(26.2	)%
IBNR	27,367		45,460		(39.8	)%
Total	$	91,643	$	132,579	(30.9	)%

Table 16 Provision for unpaid claims by line of business – gross

As at year ended December 31,	2011		2010		YTD % Change
Non-standard auto	$	18,175	$	28,897	(37.1	)%
Commercial auto	64,881		92,669		(30.0	)%
Other	8,587		11,013		(22.0	)%
Total	$	91,643	$	132,579	(30.9	)%

Table 17 Provision for unpaid claims by line of business - net of reinsurance recoverables

As at year ended December 31,	2011		2010		YTD % Change
Non-standard Auto	$	18,175	$	28,897	(37.1	)%
Commercial Auto	62,497		92,102		(32.1	)%
Other	3,146		5,103		(38.3	)%
Total	$	83,818	$	126,102	(33.5	)%

The reduction of the provision for unpaid claims is consistent with the change in written premium in prior years. However, because the establishment of reserves is an inherently uncertain process involving estimates, current provisions may not be sufficient. Adjustments to reserves, both positive and negative, are reflected quarterly in the statement of income as estimates are updated.

Table 18 Provision for unpaid claims, net of recoveries from reinsurers

	2011		2010			2009			2008				2007			2006			2005			2004			2003			2002			2001
Gross reserves for unpaid claims and claims expenses
	$	91,643	$	132,579		$	179,054		$	173,652			$	183,649		$	191,171		$	202,677		$	195,437		$	189,262		$	193,909		$	175,104
Less: Reinsurance recoverable on unpaid claims and claims expenses
	7,825		6,477			5,196			103,612				107,837			111,911			95,215			90,596			91,079			94,510			38,779
Reserve for unpaid claims and claims expenses, net
	83,818		126,102			173,858			70,040				75,812			79,260			107,462			104,841			98,183			99,399			136,325
Cumulative paid on originally established reserve as of:
One year later			$	58,562		$	76,835		$	(38,449	)	*	$	29,811		$	29,917		$	30,637		$	37,220		$	41,426		$	46,083		$	51,260
Two years later						125,455			13,573				2,812			49,804			52,182			56,126			66,428			75,709			84,175
Three years later									43,671				38,650			33,742			66,806			69,801			77,919			91,773			104,423
Four years later													59,370			57,853			60,877			78,028			85,576			97,764			114,623
Five years later																69,428			75,935			76,174			89,396			101,725			118,347
Six years later																			81,347			85,150			88,820			103,935			120,455
Seven years later																						88,755			93,142			104,484			121,990
Eight years later																									95,401			106,560			123,240
Nine years later																												107,625			123,965
Ten years later																															124,707

Unpaid claims as of:
One year later			$	69,230		$	102,173		$	114,284			$	46,338		$	50,772		$	76,344		$	62,895		$	57,873		$	61,668		$	65,338
Two years later						56,268			65,101				75,258			31,322			56,428			46,081			35,431			33,838			39,466
Three years later									35,500				43,336			46,116			43,015			34,082			25,491			20,460			21,682
Four years later													21,859			25,534			26,714			26,833			19,231			14,710			12,591
Five years later																11,061			15,329			14,797			16,245			12,300			9,269
Six years later																			6,712			9,359			8,674			10,780			9,515
Seven years later																						4,339			6,108			5,523			8,446
Eight years later																									3,300			4,105			3,624
Nine years later																												2,539			3,275
Ten years later																															2,102

Re-estimated liability as of:
One year later			$	127,792		$	179,008		$	75,835			$	76,149		$	80,689		$	106,981		$	100,115		$	99,299		$	107,751		$	116,598
Two years later						181,723			78,674				78,070			81,126			108,610			102,207			101,859			109,547			123,641
Three years later									79,171				81,986			79,858			109,821			103,883			103,410			112,233			126,105
Four years later													81,229			83,387			87,591			104,861			104,807			112,474			127,214
Five years later																80,489			91,264			90,971			105,641			114,025			127,616
Six years later																			88,059			94,509			97,494			114,715			129,970
Seven years later																						93,094			99,250			110,007			130,436
Eight years later																									98,701			110,665			126,864
Nine years later																												110,164			127,240
Ten years later																															126,809

As of December 31, 2011: Cumulative (redundancy) deficiency
			$	1,690		$	7,865		$	9,131			$	5,417		$	1,229		$	(19,403	)	$	(11,747	)	$	518		$	10,765		$	(9,516	)
Cumulative (redundancy) deficiency as a % of reserves originally established- net
			1.3		%	4.5		%	13.0		%		7.1		%	1.6		%	-18.1		%	-11.2		%	0.5		%	10.8		%	-7.0		%
Re-estimated liability- gross
			$	134,223		$	187,715		$	194,560			$	196,966		$	200,740		$	212,901		$	209,876		$	211,744		$	227,169		$	235,021
Less: Re-established reinsurance recoverable
			6,431			5,992			115,389				115,737			120,251			124,842			116,782			113,043			117,005			108,212
Re-estimated provision- net
			$	127,792		$	181,723		$	79,171			$	81,229		$	80,489		$	88,059		$	93,094		$	98,701		$	110,164		$	126,809
Cumulative deficiency– gross
			1,645			8,661			20,908				13,317			9,569			10,224			14,439			22,482			33,260			59,917

	* Results from the commutation of reinsured reserves by Kingsway Re

The financial statements are presented on a calendar year basis for all data. Claims payments and changes in reserves, however, may be made on accidents that occurred in prior years, not on business that is currently insured. Calendar year losses consist of payments and reserve changes that have been recorded in the financial statements during the applicable reporting period, without regard to the period in which the accident occurred. Calendar year results do not change after the end of the applicable reporting period, even as new claim information develops. Calendar year information is presented in Note 11 to the consolidated financial statements and shows the claims activity and impact on income for changes in estimates of unpaid claims. Accident year losses

consist of payments and reserve changes that are assigned to the period in which the accident occurred. Accident year results will change over time as the estimates of losses change due to payments and reserve changes for all accidents that occurred during that period.

Table 19 Net increase in prior years’ incurred claims estimates by line of business and accident year

Year Ended December 31, 2011



Accident year	Non- standard Auto			Commercial Auto			Other			Total
2006 & prior	$	(423	)	$	(2,420	)	$	(53	)	$	(2,896	)
2007	(100		)	2,259			(19		)	2,140
2008	365			993			(104		)	1,254
2009	(2,040		)	3,716			542			2,218
2010	1,004			(1,588		)	(440		)	(1,024		)
Total	$	(1,194	)	$	2,960		$	(74	)	$	1,692

Year Ended December 31, 2010



Accident year	Non- standard Auto			Commercial Auto			Other			Total
2005 & prior	$	(103	)	$	4,074		$	(297	)	$	3,674
2006	(415		)	421			(151		)	(145		)
2007	(1,164		)	1,686			(133		)	389
2008	(1,050		)	(123		)	95			(1,078		)
2009	1,031			1,534			(253		)	2,312
Total	$	(1,701	)	$	7,592		$	(739	)	$	5,152

Due to Reinsurers

The decrease in due to reinsurers is consistent with the payout patterns of the underlying claims liabilities.

Off-balance sheet arrangements

Atlas has no material off-balance sheet arrangements.

Shareholders’ Equity

The table below identifies changes in shareholders’ equity for the years ended December 31, 2011 and December 31, 2010.

Table 20 Changes in Shareholders' Equity

	Preferred Shares		Ordinary Voting Common Shares		Restricted Voting Common Shares		Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Income (loss)			Total
Balance December 31, 2009	$	18,000	$	4	$	14	$	82,675		$	(47,714	)	$	(433	)	$	52,546
Net loss										(21,812		)				(21,812		)
Capital Contribution							26,994									26,994
Dividends Paid							(16,700		)							(16,700		)
Merger of Southern United							59,944			(43,845		)	331			16,430
Forgiveness of debt							(447		)							(447		)
Other comprehensive income													3,158			3,158
Balance December 31, 2010	$	18,000	$	4	$	14	$	152,466		$	(113,371	)	$	3,056		$	60,169
Net loss										(2,470		)				(2,470		)
Other Comprehensive Loss													(3,315		)	(3,315		)
Share-based compensation							113									113
Stock options exercised							73									73
Settlement of pension plan, net of tax													1,684			1,684
Balance December 31, 2011	$	18,000	$	4	$	14	$	152,652		$	(115,841	)	$	1,425		$	56,254

As of March 19, 2012, there are 4,628,292 ordinary voting common shares, 13,804,861 restricted voting common shares and 18,000,000 preferred shares issued and outstanding.

The restricted voting common shares are convertible into ordinary voting common shares at the option of the holder in the event that an offer is made to purchase all or substantially all of the restricted voting common shares.

The holders of restricted voting shares are entitled to vote at all meetings of shareholders, except at meetings of holders of a specific class that are entitled to vote separately as a class. The restricted voting common shares as a class shall not carry more than 30% of the aggregate votes eligible to be voted at a general meeting of common shareholders.

All of the issued and outstanding restricted voting common shares are beneficially owned or controlled by KFSI or its affiliated entities. In the event that such shares ceased to be beneficially owned or controlled by KFSI or its affiliated entities, the restricted voting common shares shall be converted into fully paid and non-assessable ordinary voting shares on a one-to-one basis.

Preferred shares are not entitled to vote. They accrue dividends on a cumulative basis whether or not declared by the Board of Directors at the rate of $0.045 per share per year (4.5%) and may be paid in cash or in additional preferred shares at the option of Atlas. Upon liquidation, dissolution or winding-up of Atlas, holders of preferred shares receive the greater of $1.00 per share plus all declared and unpaid dividends or the amount they would receive in liquidation if the preferred shares had been converted to restricted voting common shares or ordinary voting common shares immediately prior to liquidation. Preferred shares are convertible into ordinary voting common shares at the option of the holder at any date that is after December 31, 2015, the fifth year after issuance at the rate of 0.3808 ordinary voting common shares for each preferred share. The conversion rate is subject to change if the number of ordinary voting common shares or restricted voting common shares changes. The preferred shares are redeemable at the option of Atlas at a price of US$1.00 per share plus accrued and unpaid dividends commencing at the earlier of December 31, 2012, two years from issuance date, or the date at which KFSI’s beneficial interest is less than 10%.

The cumulative amount of dividends to which the preferred shareholders are entitled upon liquidation or sooner, if Atlas declares dividends, is $810 as at December 31, 2011.

Liquidity and Capital Resources

The purpose of liquidity management is to ensure there is sufficient cash to meet all financial commitments and obligations as they become due. The liquidity requirements of Atlas’ business have been met primarily by funds generated from operations, asset maturities and income and other returns received on securities. Cash provided from these sources is used primarily for payment of claims and operating expenses. The timing and amount of catastrophe claims are inherently unpredictable and may create increased liquidity requirements.

As a holding company, Atlas may derive cash from its subsidiaries generally in the form of dividends and in the future may charge management fees to the extent allowed by statute or other regulatory approval requirements to meet its obligations. The insurance subsidiaries fund their obligations primarily through premium and investment income and maturities in their securities portfolio. Refer also to the discussion “ Investments Overview and Strategy” on page 18. These insurance subsidiaries require regulatory approval for the return of capital and, in certain circumstances, payment of dividends. In the event that dividends and management fees available to the holding company are inadequate to service its obligations, the holding company would need to raise capital, sell assets or incur debt obligations. At December 31, 2011, Atlas did not have any outstanding debt, and therefore, no near term debt service obligations.

Atlas currently has no material commitments for capital expenditures.

In 2010 the insurance subsidiaries paid dividends of $16,700 to their parent, KAI, during that time period.

In 2010 the insurance subsidiaries incurred losses under their former owner, as did Atlas which at the time was a newly formed capital pool company known as JJR VI with no operations. The result of the losses by the insurance subsidiaries reduces Atlas’ capital flexibility by limiting their dividend paying capacity.

Capital Requirements

In the United States, a RBC formula is used by the NAIC to identify P&C insurance companies that may not be adequately capitalized. The NAIC requires capital and surplus not fall below 200% of the authorized control level. As of December 31, 2011, the insurance subsidiaries are well above the required risk based capital levels, with risk based capital ratios based on the unaudited statutory financial statements of 592.5% and 803.4% for American Country and American Service, respectively, and have estimated aggregate capital in excess of the 200% level of approximately $36,402.

Item 8. Financial Statements and Supplementary Data



	Page
Consolidated Statement of Comprehensive Income	46
Consolidated Statements of Financial Position	47
Consolidated Statements of Shareholders’ Equity	48
Consolidated Statements of Cash Flows	48
Notes to Consolidated Financial Statements	49
Reports of Independent Registered Public Accounting Firm	68

Table of Contents

ATLAS FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



($ in thousands, except per share data)
	Year ended December 31,
	2011			2010
Net premiums earned	$	35,747		$	53,603
Net claims incurred	28,994			48,074
Acquisition costs	7,294			11,115
Other underwriting expenses	10,697			18,398
Underwriting loss	(11,238		)	(23,984		)
Net investment income	3,280			4,616
Net investment gains	4,201			888
Other income (expense), net	124			(757		)
Loss from operations before income tax (benefit)/expense	(3,633		)	(19,237		)
Income tax (benefit)/expense	(1,163		)	2,575
Net loss attributable to Atlas	$	(2,470	)	$	(21,812	)

Other comprehensive loss
Available for sale securities:
Changes in net unrealized gains (losses)	$	154		$	3,514
Reclassification to income of net (gains) losses	(3,469		)	(203		)
Effect of income tax	—			—
Pension Liability
Settlement of pension plan	2,473			—
Minimum pension liability adjustment	—			(153		)
Effect of income tax	(789		)	—
Other comprehensive (loss)/income for the period	(1,631		)	3,158
Total comprehensive loss	(4,101		)	(18,654		)


Basic weighted average common shares outstanding	18,373,624			18,358,363
Loss per common share, basic	$	(0.18	)	$	(1.19	)
Diluted weighted average common shares outstanding	18,373,624			18,358,363
Loss per common share, diluted	$	(0.18	)	$	(1.19	)

See accompanying Notes to Consolidated Financial Statements

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ATLAS FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



($ in thousands)
	December 31,
	2011			2010
Assets
Investments, available for sale
Fixed income securities, at fair value (Amortized cost $101,473 and $148,531)	$	103,491		$	154,011
Equity securities, at fair value (cost $994 and $0)	1,141			—
Total Investments	104,632			154,011
Cash and cash equivalents	23,249			19,037
Accrued investment income	586			1,293
Accounts receivable and other assets (Net of allowance of $4,254 and $4,212)	9,579			13,340
Reinsurance recoverables, net	8,044			4,277
Prepaid reinsurance premiums	2,214			6,999
Deferred policy acquisition costs	3,020			3,804
Deferred tax asset, net	6,775			6,399
Software and office equipment, net	440			1,274
Assets held for sale	13,634			15,004
Total Assets	$	172,173		$	225,438

Liabilities
Claims liabilities	$	91,643		$	132,579
Unearned premiums	15,691			17,061
Due to reinsurers and other insurers	5,701			9,614
Other liabilities and accrued expenses	2,884			6,015
Total Liabilities	$	115,919		$	165,269

Shareholders’ Equity
Preferred shares, par value per share $0.001, 100,000,000 shares authorized, 18,000,000 shares issued and outstanding at December 31, 2011 and December 31, 2010. Liquidation value $1.00 per share	$	18,000		$	18,000
Ordinary voting common shares, par value per share $0.001, 800,000,000 shares authorized, 4,625,526 shares issued and outstanding at December 31, 2011 and 4,553,502 at December 31, 2010	4			4
Restricted voting common shares, par value per share $0.001, 100,000,000 shares authorized, 13,804,861 shares issued and outstanding at December31, 2011 and December 31, 2010	14			14
Additional paid-in capital	152,652			152,466
Retained deficit	(115,841		)	(113,371		)
Accumulated other comprehensive income, net of tax	1,425			3,056
Total Shareholders’ Equity	$	56,254		$	60,169
Total Liabilities and Shareholders’ Equity	$	172,173		$	225,438

See accompanying Notes to Consolidated Financial Statements.

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ATLAS FINANCIAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY



($ in thousands)
	Preferred Shares		Ordinary Voting Common Shares		Restricted Voting Common Shares		Additional Paid-in Capital			Retained Deficit			Accumulated Other Comprehensive Income (loss)			Total
Balance December 31, 2009	$	18,000	$	4	$	14	$	82,675		$	(47,714	)	$	(433	)	$	52,546
Net loss										(21,812		)				(21,812		)
Capital Contribution							26,994									26,994
Dividends Paid							(16,700		)							(16,700		)
Merger of Southern United							59,944			(43,845		)	331			16,430
Forgiveness of debt							(447		)							(447		)
Other comprehensive income													3,158			3,158
Balance December 31, 2010	$	18,000	$	4	$	14	$	152,466		$	(113,371	)	$	3,056		$	60,169
Net loss										(2,470		)				(2,470		)
Other comprehensive loss													(3,315		)	(3,315		)
Share-based compensation							113									113
Stock options exercised							73									73
Settlement of pension plan, net of tax													1,684			1,684
Balance December 31, 2011	$	18,000	$	4	$	14	$	152,652		$	(115,841	)	$	1,425		$	56,254

See accompanying Notes to Consolidated Financial Statements.



($ in thousands)
	Year Ended December 31,
	2011			2010
Operating Activities
Net loss	$	(2,470	)	$	(21,812	)
Adjustments to reconcile net loss to net cash used by operating activities:
Forgiveness of mortgage loan	—			1,695
Amortization of fixed assets	218			3,370
Settlement of pension plan	2,544			—
Share-based compensation expense	113			—
(Gain)/loss on sale of fixed assets	(54		)	3
Deferred income taxes	(1,163		)	2,875
Net realized gains	(4,147		)	(891		)
Amortization of bond premiums and discounts	953			1,431
Net changes in operating assets and liabilities, net of effects of the merger of subsidiary:
Accounts receivable and other assets, net	3,762			13,074
Due from reinsurers and other insurers	1,018			(5,255		)
Deferred policy acquisition costs	784			5,750
Income taxes receivable	—			271
Other assets and accrued investment income	707			493
Unpaid claims	(40,936		)	(36,936		)
Unearned premium	(1,370		)	(16,789		)
Due to reinsurers and other insurers	(3,913		)	9,193
Accounts payable and accrued liabilities	(3,207		)	(1,472		)
Net change in other balances	—			(7,466		)
Net cash used by operating activities	$	(47,161	)	$	(52,466	)
Financing activities:
Capital contributions	$	—		$	—
Options exercised	73
Dividends paid	—			(16,700		)
Issuance of notes payable	—			—
Net cash provided/(used) by financing activities	$	73		$	(16,700	)
Investing activities:
Purchase of securities	$	(64,563	)	$	(25,826	)
Proceeds from sales and maturities of securities	113,823			106,684
Sale of assets held for sale	2,436			—
Cash acquired from merger of subsidiary	—			3,871
Net (purchases)/additions of software and other equipment	(396		)	(3,221		)
Net cash provided by investing activities	$	51,300		$	81,508
Net change in cash and cash equivalents	4,212			12,342
Cash and cash equivalents, beginning of year	19,037			6,695
Cash and cash equivalents, end of year	$	23,249		$	19,037
Supplementary disclosure of cash information:
Represented by:
Cash on hand and balances with banks	$	23,249		$	2,329
Investments with original maturities less than 30 days	—			16,708
Cash and cash equivalents, end of year	$	23,249		$	19,037
Cash paid for:
Interest	—			—
Income taxes	—			(227		)

See accompanying Notes to Consolidated Financial Statements.


1.	NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

( All amounts in thousands of US dollars, except for amounts preceded by “C” as thousands of Canadian dollars, share and per share amounts)

Formation and Description of the Business

Atlas Financial Holdings, Inc. (“Atlas”, or "The Company") is a financial services holding company formed on December 31, 2010 in a transaction amongst:


(a)	JJR VI Acquisition Corporation (“JJR VI”), a Canadian Capital Pool Company sponsored by JJR Capital, a Toronto based merchant bank,


(b)	American Insurance Acquisition Inc., (“American Acquisition”), a corporation formed under the laws of Delaware by Kingsway America Inc. (“KAI”), a subsidiary of Kingsway Financial Services Inc. (“KFSI”), a Canadian public company formed under the laws of Ontario and whose shares are traded on the Toronto and New York Stock Exchanges, and


(c)	Atlas Acquisition Corp, a Delaware corporation formed by JJR VI.

Prior to the transaction, KAI transferred 100% of the capital stock of American Service Insurance Company (“American Service”) and American Country Insurance Company (“American Country,” together with American Service the “insurance subsidiaries”), to American Acquisition in exchange for common and preferred shares of American Acquisition and promissory notes aggregating C$60,780. In addition, American Acquisition raised C$7,967 through a private placement offering of subscription receipts to qualified investors at a price of C$2.00 per subscription receipt.

KAI received 13,804,861 restricted voting common shares valued at $27,760, along with 18,000,000 non-voting preferred shares valued at $18,000 and C$7,967 cash in exchange for 100% of the outstanding shares of American Acquisition and full payment of the promissory notes. Investors in the American Acquisition subscription receipts received 3,983,502 ordinary voting common shares plus warrants to purchase one ordinary voting common share for each subscription receipt at C$2.00 at any time until December 31, 2013. JJR VI common shares held by former shareholders of JJR VI were consolidated on the basis of one post-consolidation JJR VI common share for every 10 pre-consolidation JJR VI common shares. The post-consolidation JJR VI common shares were then exchanged on a one-for-one basis for ordinary voting common shares of Atlas.

Atlas commenced operations on December 31, 2010. Atlas ordinary voting common shares have been listed on the TSX Venture Exchange (“TSXV”) under the symbol “AFH” since January 6, 2011.

The primary business of Atlas is commercial automobile insurance in the United States, with a niche market orientation and focus on insurance for the “light” commercial automobile sector including taxi cabs, non-emergency paratransit, limousine, livery and business auto.

The business of the Company is carried on through its insurance subsidiaries. The insurance subsidiaries distribute their insurance products through a network of retail independent agents. Together, American Country and American Service are licensed to write property and casualty insurance in 47 states in the United States. The management and operating infrastructure of American Country is integrated with that of American Service.

On February 25, 2010, while under KAI ownership, Southern United Fire Insurance Company (Southern United) merged into American Service. The transaction was accounted for as a merger of companies under common control with the Southern United assets and liabilities included at their carrying values and its results of operations included in the financial statements from the date of the merger.

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Summary of Significant Accounting Policies

Basis of presentation - These statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). All significant intercompany accounts and transactions have been eliminated. To conform to the current year presentation, certain amounts in the prior years’ consolidated financial statements and notes have been reclassified.

Classification of assets and liabilities - It is not customary in the insurance and financial services industries to classify assets and liabilities as current (settled in 1 year or less) and non-current (settled beyond 1 year). Assets and liabilities that could otherwise be classified as current include cash and cash equivalents, accrued investment income, accounts receivable and other assets, due from reinsurers and other insurers, income tax receivable, deferred policy acquisition costs, assets held for sale, accounts payable and accrued expenses, due to reinsurers and other insurers. Balances that would otherwise be classified as non-current include deferred tax assets and office equipment. All other assets and liabilities include balances that are both current and non-current.

Reverse acquisition continuation accounting - Atlas was formed through a reverse triangular merger and these consolidated financial statements are those of Atlas and subsidiaries and have been prepared in accordance with Accounting Standard Codification ("ASC") 805 Business Combinations . Financial statements prepared following the reverse merger are presented in the name of the legal parent acquirer, Atlas, but are a continuation of the financial statements of the accounting acquirer, American Acquisition, with an adjustment for the capital structure (that is the number and type of equity interests, including equity instruments issued to effect the merger) of Atlas, as the legal parent acquirer and accounting acquiree. Accordingly, and as a result of the December 31, 2010 merger date, shareholders’ equity at December 31, 2010 reflects the common shares outstanding at the date of the merger together with the ordinary voting common shares, restricted voting common shares and preferred shares that were issued to effect the merger, and also reflect the historical retained earnings (retained deficit) balances of American Acquisition, as the accounting acquirer.

Estimates and assumptions - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and changes in estimates are recorded in the accounting period in which they are determined. The liability for unpaid loss and loss adjustment expenses and related amounts recoverable from reinsurers represents the most significant estimate in the accompanying financial statements. Significant estimates in the accompanying financial statements also include the fair values of investments in bonds, deferred tax asset valuation, premium receivable bad debt allowance and deferred policy acquisition cost recoverability.

Business combinations - The reverse merger was consummated and Atlas commenced operations on December 31, 2010. In accordance with ASC 805 Business Combinations , American Acquisition is considered the accounting acquirer and Atlas (formerly JJR VI), the legal acquirer, is considered to be the accounting acquiree. Accordingly, the consolidated financial statements for all periods presented herein are a continuation of the financial statements of American Acquisition adjusted for the legal capital of Atlas.

Principles of consolidation - The consolidated financial statements include the accounts of Atlas and the entities it controls, its subsidiaries. Subsidiaries are entities over which Atlas, directly or indirectly, has the power to govern the financial and operating policies in order to obtain the benefits from their activities, generally accompanying an equity shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to Atlas and would be de-consolidated from the date that control ceases. The operating results of subsidiaries acquired or disposed of during the year will be included in the consolidated statement of operations from the effective date of acquisition and up to the effective date of disposal, as appropriate. All significant intercompany transactions and balances are eliminated in consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by Atlas.

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The following are Atlas’ subsidiaries, all of which are 100% owned, either directly or indirectly, together with the jurisdiction of incorporation that are included in consolidated financial statements:

American Insurance Acquisition Inc. (Delaware)

American Country Insurance Company (Illinois)

American Service Insurance Company, Inc. (Illinois)

Financial Instruments - Financial instruments are recognized and derecognized using trade date accounting, since that is the date Atlas contractually commits to the purchase or sale with the counterparty.

Effective interest method - Atlas utilizes the effective interest method for calculating the amortized cost of a financial asset and to allocate interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash flows through the expected life of the financial instrument. Interest income is reported net of amortization of premium and accretion of discount. Realized gains and losses on disposition of available-for-sale securities are based on the net proceeds and the adjusted cost of the securities sold, using the specific identification method.

Financial assets - Atlas classifies financial assets as described below. Management determines the classification at initial recognition based on the purpose of the financial asset.

Cash and cash equivalents - Cash and cash equivalents include cash and highly liquid securities with original maturities of 90 days or less.

Available-for-sale (“AFS”) - Investments in fixed income securities are classified as available-for-sale. Securities are classified as available-for-sale when Atlas may decide to sell those securities due to changes in market interest rates, liquidity needs, changes in yields or alternative investments, and for other reasons. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of income tax, included as a separate component of accumulated other comprehensive income (loss) in shareholder’s equity.

Accounts receivable and other assets - Receivables are financial assets with fixed or determinable payments that are not quoted in an active market. These assets are recognized initially at fair value, together with directly attributable transaction costs and subsequently measured at amortized cost. Accounts receivable include premium balances due and uncollected and installment premiums not yet due from agents and insureds.

Atlas evaluates the collectibility of accounts receivable based on a combination of factors. When aware of a specific customer's inability to meet its financial obligations, such as in the case of bankruptcy or deterioration in the customer's operating results or financial position, Atlas records a specific reserve for bad debt to reduce the related receivable to the amount Atlas reasonably believes is collectible. Atlas also records reserves for bad debt for all other customers based on a variety of factors, including the length of time the receivables are past due and historical collection experience. Accounts are reviewed for potential write-off on a case-by-case basis. Accounts deemed uncollectible are written off, net of expected recoveries. If circumstances related to specific customers change, the Company's estimates of the recoverability of receivables could be further adjusted.

Premiums receivable are shown net of bad debt allowance of $4,254 and $4,212 at December 31, 2011 and December 31, 2010, respectively. Bad debt expense of $248 and $2,766 was incurred in the years ended December 31, 2011 and December 31, 2010, respectively. Atlas' allowance for bad debt primarily relates to a single agent. Settlement proceedings with this agent were ongoing as of December 31, 2011. A settlement was executed in April 2012 and will be reflected in Atlas' financial statements for the six month period ended June 30, 2012.

Impairment of financial assets - Atlas assesses, on a quarterly basis, whether there is evidence that a financial asset or group of financial assets is impaired. An investment is considered impaired when the fair value of the investment is less than its cost or amortized cost. When an investment is impaired, the Company must make a determination as to whether the impairment is other-than-temporary.

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There were no other-than-temporary impairments recognized in 2011.

Fair values of financial instruments - Atlas has used the following methods and assumptions in estimating its fair value disclosures:

Atlas' fixed income portfolio is managed by Asset Allocation Management (“AAM”), an SEC registered investment advisor specializing in the management of insurance company portfolios. Management works directly with AAM to ensure that Atlas benefits from their expertise and also evaluates investments as well as specific positions independently using internal resources. AAM has a team of credit analysts for all investment grade fixed income sectors. The investment process begins with an independent analyst review of each security's credit worthiness using both quantitative tools and qualitative review. At the issuer level, this includes reviews of past financial data, trends in financial stability, projections for the future, reliability of the management team in place, market data (credit spread, equity prices, trends in this data for the issuer and the issuer's industry). Reviews also consider industry trends and the macro-economic environment. This analysis is continuous, integrating new information as it becomes available. In short, Atlas does not rely on rating agency ratings to make investment decisions, but instead with the support of its independent investment advisors, do independent fundamental credit analysis to find the best securities possible. AAM has found that over time this process creates an ability to sell securities prior to rating agency downgrades or to buy securities before upgrades. As of December 31, 2011, this process did not generate any significant difference in the rating assessment between Atlas' review and the rating agencies.

Atlas employs specific control processes to determine the reasonableness of the fair value of its financial assets. These processes are designed to supplement those performed by AMM to ensure that the values received from them are accurately recorded and that the data inputs and the valuation techniques utilized are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. For example, on a continuing basis, Atlas assesses the reasonableness of individual security values which have stale prices or whose changes exceed certain thresholds as compared to previous values received from those AMM or to expected prices. The portfolio is reviewed routinely for transaction volumes, new issuances, any changes in spreads, as well as the overall movement of interest rates along the yield curve to determine if sufficient activity and liquidity exists to provide a credible source for market valuations. When fair value determinations are expected to be more variable, they are validated through reviews by members of management or the Board of Directors who have relevant expertise and who are independent of those charged with executing investment transactions.

Deferred policy acquisition costs (DAC) - Atlas defers producers’ commissions, premium taxes and other underwriting and marketing costs directly relating to the acquisition of premiums written to the extent they are considered recoverable. These costs are then expensed as the related premiums are earned. The method followed in determining the deferred policy acquisition costs limits the deferral to its realizable value by giving consideration to estimated future claims and expenses to be incurred as premiums are earned. Changes in estimates, if any, are recorded in the accounting period in which they are determined. Anticipated investment income is included in determining the realizable value of the deferred policy acquisition costs. Atlas’ deferred policy acquisition costs are reported net of ceding commissions.

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Deferred policy acquisition costs for the years ended December 31 follows:



	2011		2010
Balance, beginning of year	$	3,804	$	9,399
Acquisition costs deferred	6,510		5,520
Amortization charged to income	7,294		11,115
Balance, end of year	$	3,020	$	3,804

When anticipated losses, loss adjustment expenses, commissions and other acquisition costs exceed recorded unearned premium, and any future installment premiums on existing policies, a premium deficiency reserve is recognized by recording an additional liability for the deficiency, with a corresponding charge to operations. Atlas utilizes anticipated investment income as a factor in its premium deficiency calculation. In 2011 and 2010, Atlas concluded that no premium deficiency adjustments were necessary.

Income taxes - Income taxes expense (benefit) includes all taxes based on taxable income (loss) of Atlas and its subsidiaries and are recognized in the statement of operations except to the extent that they relate to items recognized directly in other comprehensive income, in which case the income tax effect is also recognized in other comprehensive income.

Deferred taxes are recognized using the asset and liability method of accounting. Under this method the future tax consequences attributable to temporary differences in the tax basis of assets, liabilities and items recognized directly in equity and the financial reporting basis of such items are recognized in the financial statements by recording deferred tax liabilities or deferred tax assets.

When considering the extent of the valuation allowance on Atlas' deferred tax asset, the weight given by management to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. GAAP states that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets. However, the strength and trend of earnings, as well as other relevant factors are considered.

Office equipment and software – Office equipment is stated at historical cost less deprecation. Subsequent costs are included in the asset’s carrying amount or capitalized as a separate asset only when it is probable that future economic benefits will be realized. Repairs and maintenance are recognized as an expense during the period incurred. Depreciation on equipment is provided on a straight-line basis over the estimated useful lives which range from 5 years for vehicles, 7 years for furniture and the term of the lease for leased equipment.

Insurance contracts – Contracts under which Atlas’ insurance subsidiaries accept risk at the inception of the contract from another party (the insured holder of the policy) by agreeing to compensate the policyholder or other insured beneficiary if a specified future event (the insured event) adversely affects the holder of the policy are classified as insurance contracts. All policies are short-duration contracts.

Revenue Recognition - Premium income is recognized on a pro rata basis over the terms of the respective insurance contracts. Unearned premiums represent the portion of premiums written that are related to the unexpired terms of the policies in force.

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incurred. Although considerable variability is inherent in such estimates, management believes that the liability for unpaid claims is adequate. The estimates are continually reviewed and adjusted as necessary; such adjustments are included in current operations and are accounted for as changes in estimates.

Reinsurance - As part of Atlas’ insurance risk management policies, portions of its insurance risk is ceded to reinsurers. Reinsurance premiums and claims expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and claims ceded to other companies have been reported as a reduction of premium revenue and claims incurred expense. Commissions paid to Atlas by reinsurers on business ceded have been accounted for as a reduction of the related policy acquisition costs. Reinsurance receivables are recorded for that portion of paid and unpaid losses and loss adjustment expenses that are ceded to other companies. Prepaid reinsurance premiums are recorded for unearned premiums that have been ceded to other companies.

Share-based payments - Atlas has a stock-based compensation plan which is described fully in Note 10. Under ASC 718 Compensation-Stock Compensation (“ASC 718”), the fair-value method of accounting is used to determine and account for equity settled transactions and to determine stock-based compensation awards granted to employees and non-employees using the Black-Scholes option pricing model. Compensation expense is recognized over the period that the stock options vest, with a corresponding increase to additional paid in capital.

For option awards with graded vesting, ASC 718 provides two options: on a straight-line basis over the service period for each separately vesting portion of the award (as if the award were in effect multiple awards), or on a straight line basis over the service period for the entire award. Atlas has chosen the latter policy. Atlas recognized $113 in stock compensation expense in 2011 and none in 2010.

Post-employment benefits - Prior to December 31, 1997, substantially all salaried employees of American Country were covered by a defined benefit pension plan known as the American Country Pension Plan (the “pension plan”). The pension plan was dissolved in the fourth quarter 2011 and the plan assets were distributed. The dissolution resulted in the immediate recognition of $2,544 in prior service costs previously recorded in Accumulated Other Comprehensive Income, which are shown within Other Underwriting Expenses.

Until its dissolution, periodic net pension expense was based on the cost of incremental benefits for employee service during the period, interest on projected benefit obligation, actual return on plan assets and amortization of actuarial gains and losses.

Operating segments - Atlas is in a single operating segment – property and casualty insurance.

Presentation of equity and cash flows : Ordinary and restricted voting common shares are reflected as par value amounts with any remaining consideration upon issuance recorded in additional paid in capital. In 2010, the Company reported the total consideration within the common share equity amounts in the consolidated statement of financial position. The Company has adjusted the prior period common share and additional paid in capital amounts to conform to the presentation in 2011.

In the consolidated statements of cash flows, adjustments to reconcile net income (loss) to cash used in operating activities includes a non cash expense for forgiveness of mortgage loan and net realized investment gains and losses. In 2010, the amount of the expense for forgiveness of mortgage loan was reported as an increase to the net loss amount rather than a reduction. The Company has adjusted the prior period cash flows for the immaterial error in presentation.

2. PENDING ACCOUNTING STANDARDS

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts - In October 2010, the Financial Accounting Standards Board ("FASB") issued guidance modifying the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal insurance contracts. The guidance specifies that the costs must be directly

related to the successful acquisition of insurance contracts. The guidance also specifies that advertising costs should be included as deferred acquisition costs only when the direct−response advertising accounting criteria are met. The new guidance is effective for reporting periods beginning after December 15, 2011. Atlas' current policy for accounting for acquisition costs is already materially consistent with this guidance. Therefore the adoption of this guidance will not have an impact of on our financial statements.

Amendments to Fair Value Measurement and Disclosure Requirements - In May 2011, the FASB issued guidance that clarifies the application of existing fair value measurement and disclosure requirements and amends certain fair value measurement principles, requirements and disclosures. Changes were made to improve consistency in global application. The guidance is to be applied prospectively for reporting periods beginning after December 15, 2011. Early adoption is not permitted. The impact of adoption is not expected to be material to the Company's results of operations or financial position.

Presentation of Comprehensive Income - In June and December 2011, the FASB issued guidance amending the presentation of comprehensive income and its components. Under the new guidance, a reporting entity has the option to present comprehensive income in a single continuous statement or in two separate but consecutive statements. The guidance is effective for reporting periods beginning after December 15, 2011 and is to be applied retrospectively. The new guidance affects presentation only and will have no material impact on the Company's results of operations or financial position.

3. INVESTMENTS

The amortized cost, gross unrealized gains and losses and fair value for Atlas’ investments are as follows:



December 31, 2011		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Term Deposits		$	—	$	—	$	—	$	—
Bonds:
U.S.	- Government	44,835		911		—		45,746
	- Corporate	35,572		825		24		36,373
	- Commercial mortgage backed	17,493		208		—		17,701
	- Other asset backed	3,573		99		1		3,671
Total Fixed Income		$	101,473	$	2,043	$	25	$	103,491
Equities		994		147		—		1,141
Totals		$	102,467	$	2,190	$	25	$	104,632

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December 31, 2010		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Term Deposits		$	7,898	$	3	$	—	$	7,901
Fixed Income:
U.S.	- Government	67,388		2,117		—		69,505
	- Corporate	62,429		3,011		—		65,440
	- Commercial mortgage backed	8,445		270		—		8,715
	- Other asset backed	2,371		79		—		2,450
Total Fixed Income		$	148,531	$	5,480	$	—	$	154,011
Equities		—		—		—		—
Totals		$	148,531	$	5,480	$	—	$	154,011

The following tables summarize carrying amounts of fixed income securities by contractual maturity. As certain securities and debentures have the right to call or prepay obligations, the actual settlement dates may differ from contractual maturity.



As at December 31, 2011	One year or less			One to five years			Five to ten years			More than ten years			Total
Fixed Income Securities	$	29,407		$	27,317		$	10,242		$	36,525		$	103,491
Percentage of total	28.4		%	26.4		%	9.9		%	35.3		%	100.0		%



As at December 31, 2010	One year or less			One to five years			Five to ten years			More than ten years			Total
Fixed Income Securities	$	21,556		$	88,564		$	24,026		$	19,865		$	154,011
Percentage of total	14.0		%	57.5		%	15.6		%	12.9		%	100.0		%

The following table summarizes the change in unrealized gains and losses for the years ended December 31:



		2011			2010
Term Deposits		$	(3	)	$	3
Fixed Income:
U.S.	-Government	(1,206		)	852
	- Corporate	(2,210		)	386
	- Commercial mortgage backed	(62		)	33
	- Other asset backed	19			2,037
Equities		147
Totals		$	(3,315	)	$	3,311

The following table summarizes the components of net investment income for the years ended December 31:



		2011			2010
Total investment income
	Interest (from fixed income securities)	$	3,791		$	4,915
	Dividends	12			—
	Other	—			—
Investment expenses		(523		)	(299		)
Net investment income		$	3,280		$	4,616

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The following table summarizes the components of net investment gains for the years ended December 31:



	2011		2010
Fixed income securities	$	4,149	$	888
Equities	—		—
Other	52		—
Net invesment gains (losses)	$	4,201	$	888

Management performs a quarterly analysis of Atlas’ investment holdings to determine if declines in fair value are other than temporary. The analysis includes some or all of the following procedures as deemed appropriate by management:


•	identifying all security holdings in unrealized loss positions that have existed for at least six months or other circumstances that management believes may impact the recoverability of the security;


•	obtaining a valuation analysis from third party investment managers regarding these holdings based on their knowledge, experience and other market based valuation techniques;


•	reviewing the trading range of certain securities over the preceding calendar period;


•	assessing if declines in market value are other than temporary for debt security holdings based on their investment grade credit ratings from third party security rating agencies;


•	assessing if declines in market value are other than temporary for any debt security holding with a non-investment grade credit rating based on the continuity of its debt service record; and


•	determining the necessary provision for declines in market value that are considered other than temporary based on the analyses performed.

The risks and uncertainties inherent in the assessment methodology utilized to determine declines in market value that are other than temporary include, but may not be limited to, the following:


•	the opinion of professional investment managers could be incorrect;


•	the past trading patterns of individual securities may not reflect future valuation trends;


•	the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company’s financial situation; and


•	the debt service pattern of non-investment grade securities may not reflect future debt service capabilities and may not reflect a company’s unknown underlying financial problems.

There were no impairments recorded in the years ended December 31, 2011 or December 31, 2010 as a result of the above analysis performed by management to determine declines in market value that may be other than temporary. All securities as of December 31, 2011 and 2010 in an unrealized loss position have been in said position for less than 12 months.

4. FINANCIAL AND CREDIT RISK MANAGEMENT

By virtue of the nature of Atlas’ business activities, financial instruments make up the majority of the balance sheet. The risks which arise from transacting financial instruments include credit risk, market risk, liquidity risk and cash flow risk. These risks may be caused by factors specific to an individual instrument or factors affecting all instruments traded in the market. Atlas has a risk management framework in place to monitor, evaluate and manage the risks assumed in conducting its business. Atlas’ risk management policies and practices are as follows:

Credit risk - Atlas is exposed to credit risk principally through its fixed income securities and balances receivable from policyholders and reinsurers. Atlas controls and monitors concentration and credit quality risk through policies to limit and monitor its exposure to individual issuers or related groups (with the exception of U.S. Government bonds) as well as through ongoing

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review of the credit ratings of issuers held in the securities portfolio. Atlas’ credit exposure to any one individual policyholder is not material. Atlas has policies requiring evaluation of the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvency.

The following table summarizes the credit exposure of Atlas from its investments in fixed income securities and term deposits by rating as assigned by Fitch, Standard & Poor’s or Moody’s Investor Services, using the higher of these ratings for any security where there is a split rating:



	2011				2010
	Amount		% of Total		Amount		% of Total
AAA/Aaa	$	54,717	52.9	%	$	88,684	57.6	%
AA/Aa	21,567		20.8	%	26,388		17.1	%
A/A	22,380		21.6	%	35,027		22.7	%
BBB/Baa	4,827		4.7	%	3,851		2.5	%
CCC/Caa or lower or not rated	—		—		61		0.1	%
Total Securities	$	103,491	100.0	%	$	154,011	100.0	%

Equity price risk - This is the risk of loss due to adverse movements in equity prices. Atlas' investment in equity securities comprises a small percentage of its total portfolio, and as a result, the exposure to this type of risk is minimal.

Foreign currency risk - Atlas is not currently exposed to material changes in the U.S. dollar currency exchange rates with any other foreign currency.

Liquidity and cash flow risk - Liquidity risk is the risk of having insufficient cash resources to meet current financial obligations without raising funds at unfavorable rates or selling assets on a forced basis. Liquidity risk arises from general business activities and in the course of managing the assets and liabilities of Atlas. There is the risk of loss to the extent that the sale of a security prior to its maturity is required to provide liquidity to satisfy policyholder and other cash outflows. Cash flow risk arises from risk that future inflation of policyholder cash flow exceeds returns on long-term investment securities. The purpose of liquidity and cash flow management is to ensure that there is sufficient cash to meet all financial commitments and obligations as they fall due. The liquidity and cash flow requirements of Atlas’ business have been met primarily by funds generated from operations, asset maturities and income and other returns received on securities. Cash provided from these sources is used primarily for claims and claim adjustment expense payments and operating expenses. The timing and amount of catastrophe claims are inherently unpredictable and may create increased liquidity requirements.

Fair value - Fair value amounts represent estimates of the consideration that would currently be agreed upon between knowledgeable, willing parties who are under no compulsion to act.

Fair value is best evidenced by quoted bid or ask price, as appropriate, in an active market. Where bid or ask prices are not available, such as in an illiquid or inactive market, the closing price of the most recent transaction of that instrument subject to appropriate adjustments as required is used. Where quoted market prices are not available, the quoted prices of similar financial instruments or valuation models with observable market based inputs are used to estimate the fair value. These valuation models may use multiple observable market inputs, including observable interest rates, foreign exchange rates, index levels, credit spreads, equity prices, counterparty credit quality, corresponding market volatility levels and option volatilities. Minimal management judgment is required for fair values calculated using quoted market prices or observable market inputs for models. The calculation of estimated fair value is based on market conditions at a specific point in time and may not be reflective of future fair values.

Atlas records the available for sale securities held in its securities portfolio at their fair value. Atlas primarily uses the services of external securities pricing vendors to obtain these values. The securities are valued using quoted market prices or prices established using observable market inputs. In volatile market conditions, these quoted market prices or observable market inputs can change rapidly causing a significant impact on fair value and financial results recorded.

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Atlas employs a fair value hierarchy to categorize the inputs it uses in valuation techniques to measure the fair value. The hierarchy is comprised of quoted market prices (Level 1), third party models using observable market information (Level 2) and internal models without observable market information (Level 3). The following table summarizes Atlas' investments at fair value as at the years ended December 31, 2011 and December 31, 2010:



December 31, 2011	Level 1		Level 2		Level 3		Total
Fixed Income Securities	$	13,363	$	90,128	$	—	$	103,491
Equities	1,141		—		—		1,141
Totals	$	14,504	$	90,128	$	—	$	104,632



December 31, 2010	Level 1		Level 2		Level 3		Total
Fixed Income Securities	$	27,561	$	126,450	$	—	$	154,011
Equities	—		—		—		—
Totals	$	27,561	$	126,450	$	—	$	154,011

There were no transfers in or out of Level 2 during either period.

Capital Management - The Company manages capital using both regulatory capital measures and internal metrics. The company’s capital is primarily derived from common shareholders’ equity, retained deficit and accumulated other comprehensive income (loss).

As a holding company, Atlas derives cash from its insurance subsidiaries generally in the form of dividends to meet its obligations, which will primarily consist of operating expense payments. Atlas’ insurance subsidiaries fund their obligations primarily through premium and investment income and maturities in the securities portfolio. The insurance subsidiaries require regulatory approval for the return of capital and, in certain circumstances, prior to the payment of dividends. In the event that dividends available to the holding company are inadequate to cover its operating expenses, the holding company would need to raise capital, sell assets or incur future debt.

The insurance subsidiaries must each maintain a minimum statutory capital and surplus of $1,500 under the provisions of the Illinois Insurance Code. Dividends may only be paid from statutory unassigned surplus, and payments may not be made if such surplus is less than a stipulated amount. The dividend restriction is the greater of statutory net income or 10% of total statutory capital and surplus.

Net loss computed under statutory-basis accounting for American Country and American Service were $(2,328) and $(497) respectively for the year ended December 31, 2011 (unaudited), versus $(1,451) and $(5,351) for the year ended December 31, 2010 (unaudited). Statutory capital and surplus of the insurance subsidiaries was $49,954 (unaudited) and $45,560 at December 31, 2011 and 2010, respectively.

Atlas did not pay any dividends to its common shareholders during 2011 and has no current plans to pay dividends to its common shareholders.

A risk based capital formula is used by the National Association of Insurance Commissioners ("NAIC") to identify property and casualty insurance companies that may not be adequately capitalized. The NAIC requires that capital and surplus not fall below 200% of the authorized control level. As of December 31, 2011, based on the unaudited statutory basis financial statements, both the insurance subsidiaries are above the required risk based capital levels, with risk based capital ratio estimates for American Country and American Service of 592.5% and 803.4%. The insurance subsidiaries had approximately $36,402 of capital in excess of the 200% minimum described above. As of December 31, 2010, the comparable risk based capital ratio estimates for American Country and American Service were 322% and 536%, and estimated capital in excess of the 200% level was approximately $26,100.

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5. INCOME TAXES

The effective tax rate was (32.0)% and 13.4% for the years ended December 30, 2011 and 2010, respectively, compared to the U.S. statutory income tax rate of 34% as shown below:



Year ended December 31,	2011					2010
	Amount			%		Amount			%
Expected income tax benefit at statutory rate	$	(1,235	)	(34.0	)%	$	(6,541	)	(34.0	)%
Valuation allowance	—			—	%	(9,476		)	(49.3	)%
Nondeductible expenses	5			0.1	%	183			1.0	%
Tax implications of qualifying transaction	75			2.1	%	18,412			95.7	%
Other	(8		)	(0.2	)%	(3		)	—	%
Total	$	(1,163	)	(32.0	)%	$	2,575		13.4	%

Atlas carried deferred tax assets on its balance sheet that were generated by its subsidiaries, primarily related to net operating loss carry-forwards. The qualifying transaction caused a change in control for tax purposes which triggered Internal Revenue Code Section 382. Section 382 created a yearly limit on its deferred tax assets such that a portion of the operating loss deferred tax assets would never be able to be utilized. In addition, as a result of the structure of the transaction, the seller, Kingsway, retains a portion of those deferred tax assets as dictated by the Internal Revenue Code. Kingsway, in general, retained those portions of the net operating loss deferred tax assets that Atlas would have otherwise not been able to use due to the Section 382 limit mentioned above. Since the removal of the deferred tax asset from the balance sheet without an off-setting cash recoverable from the U.S. Government, this removal created a reconciling item from Atlas' statutory income tax rate.

Income tax expense consists of the following for the years ended December 31:



	2011			2010
Current tax expense/(benefit)	$	—		$	(300	)
Deferred tax (benefit)/expense	(1,163		)	2,875
Total	$	(1,163	)	$	2,575

The components of deferred income tax assets and liabilities as of December 31 are as follows:



	2011			2010
Deferred tax assets:
Unpaid claims and unearned premiums	$	3,004		$	4,218
Loss carry-forwards	15,558			13,252
Pension expense	—			841
Bad debts	1,297			1,356
Other	1,338			1,394
Valuation Allowance	(12,361		)	(11,288		)
Total gross deferred tax assets	$	8,836		$	9,773

Deferred tax liabilities:
Investment securities	740			1,863
Deferred policy acquisition costs	1,027			1,293
Other	294			218
Total gross deferred tax liabilities	$	2,061		$	3,374
Net deferred tax assets	$	6,775		$	6,399

Amounts and expiration dates of the operating loss carry forwards as of December 31, 2011 are as follows:

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Year of Occurrence	Year of Expiration	Amount
2001	2021	$	14,750
2002	2022	4,317
2006	2026	7,825
2007	2027	5,131
2008	2028	1,949
2009	2029	1,949
2010	2030	1,949
2011	2031	7,762
Total		$	45,632

Atlas established a valuation allowance of approximately $ 12,361 and $ 11,288 for its gross deferred tax assets at December 31, 2011 and December 31, 2010 respectively.

In assessing the need for a valuation allowance, Atlas considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is more likely than not the deferred tax assets will not be realized or if it is deemed premature to conclude that these assets will be realized in the near future, a valuation allowance is recorded. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. GAAP states that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets.

Atlas' assessment also accounted for the following evidence:


◦	Recent spin-off from prior ownership - Atlas was formed on December 31, 2010 in a reverse merger transaction. Consideration was made as to the impact of this transaction on future earnings.

◦

Nature, frequency, and severity of current and cumulative financial reporting losses - A pattern of objectively-measured recent financial reporting losses is heavily weighted as a source of negative evidence. Cumulative pre-tax losses in the three-year period ending with the current quarter are generally considered to be significant negative evidence regarding future profitability. However, the strength and trend of earnings are also considered, as well as other relevant factors. Atlas did not consider historical information as relevant due to the significant changes in business operations beginning on January 1, 2011;

◦

Trends in quarterly earnings from operating activities during the period - When performing the assessment, Atlas excluded certain non-operating items which impacted 2011 results: (1) a $2,544 charge upon settlement of the American Country Pension Plan (see Note 10 below); (2) a $1,800 reserve strengthening adjustment related to claims incurred under prior ownership (See Note 8 below); (3) $627 in non-recurring costs relating to the transactions that created Atlas.

◦

Sources of future taxable income - Future reversals of existing temporary differences are heavily-weighted sources of objectively verifiable positive evidence. Projections of future taxable income exclusive of reversing temporary differences are a source of positive evidence only when the projections are combined with a history of recent profits and can be reasonably estimated. Otherwise, these projections are considered inherently subjective and generally will not be sufficient to overcome negative evidence that includes relevant cumulative losses in recent years, particularly if the projected future taxable income is dependent on an anticipated turnaround to profitability that has not yet been achieved. In such cases, future taxable income is generally given no weight for the purposes of assessing the valuation allowance pursuant to GAAP; and


◦	Tax planning strategies - If necessary and available, tax planning strategies could be implemented to accelerate taxable amounts to utilize expiring carry-forwards. These strategies would be a source of additional positive evidence and, depending on their nature, could be heavily weighted.

At the end of 2011, Atlas' operations (excluding the aforementioned non-operating items) had returned to a position of cumulative profits for the most recent one-year period. Further, operations showed three consecutive quarters of pre-tax operating profits (before non-operating items). Management concluded that the successful repositioning of Atlas during 2011 combined with the

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business plan showing continued profitability into future periods, provide assurance that future tax benefits more likely than not will be realized. Accordingly, at year-end 2011, a tax benefit was realized and the valuation was reduced against net deferred tax assets.

Atlas accounts for uncertain tax positions in accordance with the income taxes accounting guidance. Atlas has analyzed filing positions in the federal and state jurisdiction where it is required to file tax returns, as well as the open tax years in these jurisdictions. Atlas believes that its federal and state income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain federal and state income tax positions have been recorded. Atlas would recognize interest and penalties related to unrecognized tax benefits as a component of the provision for federal income taxes. Atlas did not incur any federal income tax related interest income, interest expense or penalties for the years ended December 31, 2011 or 2010. Tax years 2006 through 2010 are subject to examination by the Internal Revenue Service.

6. ASSETS HELD FOR SALE

As at December 31, 2011, Atlas had three properties held for sale with an aggregate carrying value of $ 13,634 , including its headquarters building in Elk Grove Village, Illinois. All of the properties’ individual carrying values were less than their respective appraised values net of reasonably estimated selling costs at the time those appraisals were received and at the time properties were deemed to be held for sale. All properties were listed for sale through brokers at the appraised values and above carrying values as of December 31, 2011. Atlas expects to re-invest the proceeds from the sale of real estate in its investment portfolio which will support strategic growth initiatives.

The Elk Grove Village building and property were previously owned by KAI and were contributed to Atlas as a capital contribution in June 2010. The other two properties, all located in Alabama, were assets of Southern United Fire Insurance Company which was merged into American Service in February 2010.

7. UNDERWRITING POLICY AND REINSURANCE CEDED

Underwriting Risk - Underwriting risk is the risk that the total cost of claims and acquisition expenses will exceed premiums received and can arise from numerous factors, including pricing risk, reserving risk, catastrophic loss risk, reinsurance coverage risk and that loss and loss adjustment expense reserves are not sufficient.

Reinsurance Ceded - As is customary in the insurance industry, Atlas reinsures portions of certain insurance policies it writes, thereby providing a greater diversification of risk and minimizing exposure on larger risks. Atlas remains contingently at risk with respect to any reinsurance ceded and would incur an additional loss if an assuming company were unable to meet its obligation under the reinsurance treaty.

Atlas monitors the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. Letters of credit are maintained for any unauthorized reinsurer to cover ceded unearned premium, ceded loss reserve balances and ceded paid losses. These policies mitigate the risk of credit quality or dispute from becoming a danger to financial strength. To date, the Company has not experienced any material difficulties in collecting reinsurance recoverables.

Gross premiums written and ceded premiums, losses and commissions as of and for the year ended December 31 are as follows:



	2011		2010
Gross premiums written	$	42,031	$	46,679
Ceded premiums written	6,173		14,201
Net premiums written	35,858		32,478

Ceded premiums earned	$	7,653	$	7,434
Ceded losses and loss adjustment expenses	2,767		3,628
Ceded unpaid losses and loss adjustment expenses	7,825		5,192
Ceded unearned premiums	2,214		3,694
Other amounts due from reinsurers	219		2,390
Ceded commissions	2,412		5,441

8. UNPAID CLAIMS

Claims liabilities - The changes in the provision for unpaid claims, net of amounts recoverable from reinsurers, for the year ended December 31, 2011 and 2010 were as follows:



	2011		2010
Unpaid claims, beginning of period	$	132,579	$	169,520
Less: reinsurance recoverable	6,477		5,197
Net beginning unpaid claims reserves	126,102		164,323
Incurred related to:
Current year	27,303		42,739
Prior years	1,691		5,335
	28,994		48,074
Paid related to:
Current year	12,715		18,994
Prior years	58,563		76,835
	71,278		95,829

Net unpaid claims of subsidiary acquired	—		9,534
Net unpaid claims, end of period	$	83,818	$	126,102
Add: reinsurance recoverable	7,825		6,477
Unpaid claims, end of period	$	91,643	$	132,579

At the end of 2010, a detailed review of claim payment and reserving practices was performed, which led to significant changes in both practices, increasing ultimate loss estimates and accelerating claim payments. Reserves were adjusted at that time to account for these changes, primarily during the second and third quarters of 2010. This review continued into 2011 and Atlas recorded a $1,800 adjustment to further strengthen its reserves for claims related to policies issued while the insurance subsidiaries were under previous ownership in years preceding 2010. The establishment of the estimated provision for unpaid claims is based on known facts and interpretation of circumstances and is therefore a complex and dynamic process influenced by a large variety of factors. These factors include the Atlas’ experience with similar cases and historical trends involving claim payment patterns, loss payments, pending levels of unpaid claims, product mix or concentration, claims severity and claim frequency patterns.

Other factors include the continually evolving and changing regulatory and legal environment, actuarial studies, professional experience and expertise of the Atlas’ claims department personnel and independent adjusters retained to handle individual claims, the quality of the data used for projection purposes, existing claims management practices including claims handling and settlement practices, the effect of inflationary trends on future claims settlement costs, court decisions, economic conditions and public attitudes. In addition, time can be a critical part of the provision determination, since the longer the span between the incidence of a loss and the payment or settlement of the claims, the more variable the ultimate settlement amount can be. Accordingly, short tail claims such as property claims, tend to be more reasonably predictable than long tail claims, such as general liability and automobile accident benefit claims that are less predictable.

Consequently, the process of establishing the estimated provision for unpaid claims is complex and imprecise as it relies on the judgment and opinions of a large number of individuals, on historical precedent and trends, on prevailing legal, economic, social and regulatory trends and on expectations as to future developments. The process of determining the provision necessarily involves risks that the actual results will deviate, perhaps substantially, from the best estimates made.

As the processes of management and the independent appointed actuary are undertaken independently, the provision for unpaid claims recorded by management can differ from the independent appointed actuary’s central estimate.

Comparing management’s selected reserve estimate to the actuarial central estimate and range of reasonable reserves independently determined by the independent appointed actuary continues to be an important step in the reserving process of the Company, however; where differences exist and the Company believes the internally developed reserve estimate to be more accurate, management’s estimate will not change. We believe this to be consistent with industry practice for companies with a robust reserving process in place. As of December 31, 2011, the Company's carried reserves were within the range of reasonable reserves of its independent appointed actuary. As of December 31, 2011, the carrying value of unpaid claims was $ 91,643 . There is no active market for policy liabilities; hence market value is not determinable. The carrying value of unpaid claims does not take into consideration the time value of money or make explicit provisions for adverse deviation. Fair value of unpaid claims would include such considerations.

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9. STOCK OPTIONS AND WARRANTS

Stock options - Stock option activity for years ended December 31, 2011 and December 31, 2010 is as follows:



	2011			2010
	Number		Avg. Price	Number		Avg. Price
Outstanding, beginning of period	110,600		C$1.00	--		--
Granted	369,749		C$2.00	132,000		C$1.00
Exercised	(72,024	)	C$1.00	--		--
Expired	--		--	(21,400	)	C$1.00
Outstanding, end of period	408,325		C$1.90	110,600		C$1.00

Information about options outstanding at December 31, 2011 is as follows:



Grant Date	Expiration Date	Exercise Price	Remaining Contractual Life (Years)	Number Outstanding	Number Exercisable
January 18, 2011	January 18, 2021	C$2.00	9.1	369,749	92,437
March 18, 2010	March 31, 2012	C$1.00	0.3	6,476	6,476
March 18, 2010	March 18, 2020	C$1.00	8.2	32,100	32,100
Total			8.8 wtd. average	408,325	131,013

On March 18, 2010, JJR VI issued options to purchase 250,000 common shares to the agent that assisted JJR VI in raising capital (the “IPO agent”) and options to purchase 1,070,000 shares to directors. All of the options were vested at the date of grant. Options to purchase 214,000 shares held by directors expired before the merger as a result of a director resignation. All outstanding JJR VI options were exchanged for Atlas options without modification on the basis of 1 Atlas option for each 10 JJR VI options and the exercise price was changed from C$0.10 to C$1.00, which was on the same basis as the JJR VI exchange ratio for shares, and thus did not represent any additional value or related expense. This resulted in 25,000 and 85,600 Atlas options for the agent and former JJR VI directors, respectively, outstanding after the merger. In total, 72,024 of these options were exercised in 2011. The options granted on March 18, 2010 have an aggregate intrinsic value of $39, as of December 31, 2011.

On January 6, 2011, Atlas adopted a stock option plan in order to advance the interests of Atlas by providing incentives to eligible persons defined in the plan. The maximum number of ordinary voting common shares reserved for issuance under the plan together with all other security based plans is equal to 10% of issued and outstanding ordinary voting common shares at the date of grant. The exercise price of options granted under the plan cannot be less than the volume weighted average trading price of Atlas’ ordinary voting common shares for the five preceding trading days. Options generally vest over a three year period and expire ten years from grant date.

On January 18, 2011, Atlas granted options to purchase 369,749 ordinary shares of Atlas stock to officers and directors at an exercise price of C$2.00 per share. The options vest 25% at date of grant and 25% on each of the next three anniversary dates and expire on January 18, 2021. The weighted average grant date fair value of the options is $1.24 per share. As of December 31, 2011 the options had no aggregate intrinsic value.

The Black-Scholes option pricing model was used to estimate the fair value of compensation expense using the following assumptions – risk-free interest rate 2.27% to 3.13%; dividend yield 0.0%; expected volatility 100%; expected life of 6 to 9 years.

In accordance with ASC 718, Atlas has recognized stock compensation expense on a straight-line basis over the requisite service period of the last separately vesting portion of the award. In 2011, Atlas recognized $113 in expense, which is a component of

other underwriting expenses on the income statement. Total unrecognized stock compensation expense associated with the January 18, 2011 grant is $337 as of December 31, 2011 which will be recognized ratably over the next three years.

The weighted average exercise price of all the shares exercisable at December 31, 2011 is $1.71 .

Warrants - On November 1, 2010, American Acquisition closed a private placement and issued 3,983,502 subscription receipts for ordinary voting common shares of Atlas and warrants to purchase 3,983,502 ordinary voting common shares of Atlas for C$2.00 per share in connection with the merger. The subscription receipts were converted to Atlas ordinary voting shares in connection with the merger. All the warrants were still outstanding at December 31, 2011 and expire on December 31, 2013.

Atlas ordinary voting common shares were trading on the TSXV for C$1.60 on December 30, 2011 (the last trading day of the 2011 calendar year).

10. OTHER EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

In January 2011, Atlas formed a defined contribution 401(k) plan covering all qualified employees of Atlas and its subsidiaries. Employees can choose to contribute up to 60% of their annual earnings but not more than $16,500 for 2011 to the plan. Qualifying employees age 50 and older can contribute an additional $5,500 in 2011. Atlas matches 50% of the employee contribution up to 5% of annual earnings for a total maximum expense of 2.5% of annual earnings per participant. Atlas contributions are discretionary. Employees are 100% vested in their own contributions and vest in Atlas contributions based on years of service with 100% vested after five years. Atlas’ contributions were $105 in 2011.

Prior to 2011, eligible employees participated in a defined contribution 401(k) plan maintained by KAI (“the Kingsway Plan”) with features identical to Atlas’ current plan (the “Atlas Plan”). Employer contributions to the Kingsway Plan attributable to the Atlas insurance subsidiaries were $144 in 2011 and $130 in 2010, and are included in Other Underwriting Expenses. Assets of the Kingsway Plan attributable to Atlas’ employees, were transferred to the Atlas Plan in March 2011.

Defined Benefit Plan – Prior to December 31, 1997, substantially all salaried employees of American Country were covered by a defined benefit pension plan known as the American Country Pension Plan (the “pension plan”). Benefits were based on the employee’s length of service and wages and benefits, as defined by the pension plan. The funding policy of the pension plan was generally to contribute amounts required to maintain minimum funding standards in accordance with the Employee Retirement Income Security Act. Effective December 31, 1997, upon resolution by the board of directors, the pension plan was frozen. During 2010, American Country made an application to the U.S. Internal Revenue Service to dissolve the pension plan and distribute the net plan assets to the beneficiaries. In the fourth quarter of 2011, the plan assets were fully distributed. As a result of the plan liquidation, the Company recognized a settlement charge of $2,544 within other underwriting expenses in the fourth quarter of 2011. The settlement impact was previously reflected as an unrecognized adjustment to other comprehensive income and therefore, has created a nil impact to shareholders' equity.

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			2011			2010
Change in Benefit Obligation
	Benefit Obligation, beginning of year		$	5,110		$	4,913
	Interest cost		228			263
	Actuarial losses		(28		)	192
	Benefits paid		(229		)	(258		)
	Settlement of obligation		(5,081		)	—
	Benefit Obligation, end of year		$	—		$	5,110

Change in Plan Assets
	Fair value of plan assets, beginning of year		$	3,993		$	3,869
	Actual return on plan assets		17			244
	Employer contributions		1,300			138
	Benefits Paid		(229		)	(258		)
	Settlement of obligation		(5,081		)	—
	Fair value of plan assets, end of year		$	—		$	3,993

Funded Status, end of year			$	—		$	1,117

Items unrecognized as component of net pension cost, end of year (pre-tax)			—			2,473
Deferred income tax			—			(789		)
Items unrecognized as component of net pension cost, end of year			—			1,684

Components of net pension cost
	Interest cost		$	229		$	263
	Expected return on plan assets		(177		)	(268		)
	Amortization of:
		Prior Service Cost	—			—
		Actuarial Losses	61			64
Subtotal			$	113		$	59
Expense resulting from settlement of plan			2,544			—
Net periodic pension cost			$	2,657		$	59

Weighted average assumptions used to determine net pension cost for the years ended December 31:



	2011	2010	2009
Weighted average discount rate	5.25%	5.5%	6.0%
Rate of increase in compensation	n/a	n/a	n/a
Expected long-term rate of return	5.0%	7.0%	7.0%
Weighted average discount rate used to determine end of year benefit obligation	n/a	5.25%	5.5%

Employee Stock Purchase Plan - In the second quarter of 2011, Atlas initiated the Atlas Employee Stock Purchase Plan (the “ESPP”) to encourage continued employee interest in the operation, growth and development of Atlas and to provide an additional investment opportunity to employees. Beginning in June 2011, full time and permanent part time employees working more than 30 hours per week are allowed to invest up to 5% of adjusted salary in Atlas ordinary voting common shares. Atlas matches 50% of the employee contribution up to 5% of annual earnings for a total maximum expense of 2.5% of annual earnings per participant.. Employees who signed up for the ESPP by May 30, 2011 each received an additional 100 ordinary voting common shares as an initial participation incentive. Atlas will also pay administrative costs related to this plan. In 2011, Atlas’ incurred total expenses of $38 related to the plan.

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11. COMMITMENTS AND CONTINGENCIES

Legal proceedings:

In connection with its operations, the Company and its subsidiaries are, from time to time, named as defendants in actions for damages and costs allegedly sustained by the plaintiffs. While it is not possible to estimate the outcome of the various proceedings at this time, such actions have generally been resolved with minimal damages or expense in excess of amounts provided and the Company does not believe that it will incur any significant additional loss or expense in connection with such actions.

Collateral pledged:

As of December 31, 2011, bonds and term deposits with an estimated fair value of $11,843 were on deposit with state and provincial regulatory authorities, versus $9,294 as of December 31, 2010. Also, from time to time, the Company pledges securities to third parties to collateralize liabilities incurred under its policies of insurance. At December 31, 2011, the amount of such pledged securities was $10,396 versus $1,629 at December 31, 2010. Collateral pledging transactions are conducted under terms that are common and customary to standard collateral pledging and are subject to the Company’s standard risk management controls. These assets and investment income related thereto remain the property of the Company while pledged. Neither the state and/or provincial regulatory authorities nor any other third party has the right to re-pledge or sell said securities held on deposit.

Collateral held:

In the normal course of business, the Company receives collateral on certain business transactions to reduce its exposure to credit risk. As of December 31, 2011, the amount of such pledged securities was $240. The Company is normally permitted to sell or re-pledge the collateral it receives under terms that are common and customary to standard collateral holding and are subject to the Company’s standard risk management controls.

12. SHARE CAPITAL

The share capital for the common shares:



As at December 31,		2011			2010
	Shares Authorized	Shares Issued and Outstanding	Amount		Shares Issued and Outstanding		Amount
Ordinary	800,000,000	4,625,526	$	4	4,553,502	¹	$	4
Restricted	100,000,000	13,804,861	14		13,804,861		14
Total common shares	900,000,000	18,430,387	$	18	18,358,363		$	18

¹ Summation of 3,983,502 ordinary voting common shares (refer above) and 570,000 shares issued to former JJR VI shareholders (no cash paid).

The restricted voting common shares are convertible to ordinary voting common shares at the option of the holder in the event that an offer is made to purchase all or substantially all of the restricted voting common shares.

All of the issued and outstanding restricted voting common shares are beneficially owned or controlled by Kingsway. In the event that such shares are disposed of such that Kingsway’s beneficial interest is less than 10% of the issued and outstanding restricted voting common shares, the restricted voting common shares shall be converted into fully paid and non-assessable ordinary voting common shares.

The restricted voting common shares are entitled to vote at all meetings of shareholders, except at meetings of holders of a specific class that are entitled to vote separately as a class. The restricted voting common shares as a class shall not carry more than 30% of the aggregate votes eligible to be voted at a general meeting of common shareholders.

Preferred shares are not entitled to vote. Preferred shareholders are entitled to dividends on a cumulative basis whether or not declared by the Board of Directors at the rate of U.S. $0.045 per share per year (4.5%) and may be paid in cash or in additional preferred shares at the option of Atlas. In liquidation, dissolution or winding-up of Atlas, preferred shareholders receive the greater of US$1.00 per share plus all declared and unpaid dividends or the amount it would receive in liquidation if the preferred shares

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had been converted to restricted voting common shares or ordinary voting common shares immediately prior to liquidation. Preferred shares are convertible into ordinary voting shares at the option of the holder at any date after the fifth year of issuance at the rate of 0.3808 ordinary voting common shares for each preferred share. The conversion rate is subject to change if the number of ordinary voting common shares or restricted voting common shares changes. The preferred shares are redeemable at the option of Atlas at a price of US$1.00 per share plus accrued and unpaid dividends commencing at the earlier of two years from issuance date of the preferred shares or the date the preferred shares are transferred to a party other than Kingsway or its subsidiaries or entities in which KAI holds a 10% or greater interest.

The cumulative amount of dividends to which the preferred shareholders are entitled upon liquidation or sooner, if Atlas declares dividends, is $810 as at December 31, 2011.

13. EARNINGS PER SHARE

Earnings per ordinary and restricted voting common for the year ended December 31, 2011 and 2010 is as follows:



		2011			2010
Net loss attributable to Atlas		$	(2,470	)	$	(21,812	)
Less: Preferred share dividends		(810		)	—
Net loss attributable to common shareholders		(3,280		)	(21,812		)
Basic:
	Weighted average common shares outstanding	18,373,624			18,358,363
Basic loss per common share		$	(0.18	)	$	(1.19	)
Diluted:
	Weighted average common shares outstanding	18,373,624			18,358,363
	Dilutive potential ordinary shares	—			—
Dilutive average common shares outstanding		18,373,624			18,358,363
Dilutive loss per common share		$	(0.18	)	$	(1.19	)

For 2011 and 2010, basic loss per common share has been computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. As required by continuation accounting, Atlas assumed the same number of common shares outstanding for all of 2010.

Diluted loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding each period plus the incremental number of shares added as a result of converting dilutive potential ordinary shares, calculated using the treasury stock method. Atlas’ dilutive potential common shares consist of outstanding stock options and warrants to purchase ordinary voting common shares. The effects of options and warrants to issue ordinary voting common shares are excluded from the computation of diluted loss per share in periods in which the effect would be anti-dilutive. For the year ended December 31, 2011, potential ordinary voting common shares were anti-dilutive due to the net loss attributable to common shareholders.

14. RELATED PARTY TRANSACTIONS

The business of Atlas is carried on through its insurance subsidiaries. Atlas’ insurance subsidiaries have been a party to various transactions with affiliates in the past, although activity in this regard has diminished over time. Related party transactions, including services provided to or received by Atlas’ insurance subsidiaries, are carried out in the normal course of operations and are measured at the amount of consideration paid or received as established and agreed upon by the parties. Management believes that consideration paid for such services approximates fair value.

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At December 31, 2011 and December 31, 2010, Atlas reported net amounts receivable from (payable to) affiliates as follows which are included within other assets and accounts payable and accrued expenses on the balance sheets:



As at year ended December 31,	2011			2010
Kingsway America, Inc.	$	291		$	2,058
Universal Casualty Company	(500		)	—
Kingsway Amigo Insurance Company	(1		)	(13		)
Hamilton Risk Management Inc.	—			(1		)
Total	$	(210	)	$	2,044

In 2010, Atlas’ insurance subsidiaries remitted management fees monthly to KAI for managerial services. During the first six months of 2010, those management fees included rent for Atlas’ Elk Grove Village headquarters building. That building was contributed to Atlas on June 30, 2010 and rental payments ceased at that time. Management fees paid to KAI totaled approximately $0 and $2,643 for the year ended December 31, 2011 and 2010, respectively.

Atlas’ insurance subsidiaries received $158 in regularly scheduled monthly mortgage payments for the six months ended June 30, 2010 under mortgage loan agreements with KAI which were secured by the Elk Grove Village headquarters building. In June 2010, American Service forgave the $1,695 remaining balance of its mortgage loan from KAI and American Country was paid the $1,767 total remaining balance of its mortgage loan from KAI.

The amounts due to Universal Casualty Company relate primarily to claim handling services provided to Atlas.

For the year ended December 31, 2011 and 2010, Atlas incurred $2,279 and $4,463, respectively, in commissions to Avalon Risk Management, Inc. (“Avalon”). In the year ended December 31, 2011 and 2010, Atlas also incurred expenses of $137 and $125 respectively, for marketing services performed by Avalon. Avalon was a KFSI subsidiary through October 2009, and has certain investors and directors in common with Atlas.

During 2010, dividends of $16,700 were paid to KAI by the insurance subsidiaries of Atlas.

15. ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income is comprised of the following:



As at December 31,	2011							2010
	Pre-tax		Tax			Post-tax		Pre-tax			Tax			Post-tax
Available-for-sale securities	$	2,165	$	(740	)	$	1,425	$	5,478		$	(737	)	$	4,741
Pension liability	—		—			—		(2,474		)	789			(1,685		)
Total	$	2,165	$	(740	)	$	1,425	$	3,004		$	52		$	3,056

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16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)



	1st Quarter						2nd Quarter						3rd Quarter						4th Quarter
	2011			2010			2011			2010			2011			2010			2011			2010
Gross Premium Written	$	14,166		$	18,704		$	7,856		$	8,558		$	10,928		$	10,163		$	9,081		$	9,273
Net Premium Earned	8,809			19,301			9,062			12,515			8,797			10,192			9,079			11,595
Underwriting loss	(1,906		)	(4,061		)	(1,278		)	(12,805		)	(1,729		)	(2,393		)	(6,325		)	(4,723		)
Net (loss)/income attributable to Atlas	(705		)	(1,583		)	193			(8,135		)	1,066			(664		)	(3,024		)	(11,430		)
Net (loss)/income attributable to common shareholders	(905		)	(1,583		)	(9		)	(8,135		)	862			(664		)	(3,228		)	(11,430		)
Basic earnings (loss) per share	$	(0.05	)	$	(0.09	)	$	—		$	(0.44	)	$	0.05		$	(0.04	)	$	(0.18	)	$	(0.62	)
Diluted earnings (loss) per share	(0.05		)	(0.09		)	—			(0.44		)	0.05			(0.04		)	(0.18		)	(0.62		)

17. SUBSEQUENT EVENTS

As of March 26, 2012, there were no subsequent events which had a material impact on the 2011 consolidated financial statements.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Atlas Financial Holdings, Inc.:

We have audited the accompanying consolidated statement of financial position of Atlas Financial Holdings, Inc. and subsidiaries (the Company) as of December 31, 2010, and the related consolidated statements of comprehensive income, shareholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Atlas Financial Holdings, Inc. as of December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Chicago, IL

April 15, 2011

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Atlas Financial Holdings, Inc.

We have audited the accompanying consolidated statement of financial position of Atlas Financial Holdings, Inc. ("the Company") as of December 31, 2011, and the related consolidated statements of comprehensive income, shareholders' equity, and cash flows for the period ended December 31, 2011. These consolidated financial statements and financial statement schedules listed on Item 15 of the Company's Form 10-K are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atlas Financial Holdings, Inc as of December 31, 2011, and the results of its operations and its cash flows for the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

/s/ Johnson Lambert & Co. LLP

Arlington Heights, Illinois

March 26, 2012

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We have had no changes in or disagreements with our independent accountants since our Board of Directors’ June 2011 appointment, based upon the recommendation of our Audit Committee, of Johnson Lambert & Co. LLP as Atlas’ independent auditors for the year ended December 31, 2011, replacing KPMG LLP as our independent auditors.

KPMG LLP was discharged on June 20, 2011. KPMG LLP had not issued a report in the last two fiscal years containing a disclaimer or adverse opinion, or that was qualified or modified.

Item 9B. Other Information

None.

Part III

ITEM 10. Directors, Executive Officers and Corporate Governance

Table 1(b). Executive Officers

Name	Age	Position
Scott D. Wollney	43	Chief Executive Officer
Paul A. Romano	50	Chief Financial Officer
Bruce W. Giles	52	Vice President, Underwriting
Joseph A. Shugrue	48	Vice President, Claims
Leslie A. DiMaggio	43	Vice President, Operations

Scott Wollney was President and Chief Executive Officer of KAI since July 2009, prior to which he was the President and Chief Executive Officer of Lincoln General Insurance Company (a subsidiary of KAI) from May 2008 to March 2009. From January 1998 to May 2008, he was President of Avalon Risk Management, Inc.

Paul Romano was previously Vice President and Chief Financial officer of American Country from 2002 to September 2008. He was also Vice President and Treasurer of KAI since March 2010, prior to which he was the Vice President Data Management of Lincoln General Insurance Company from October 2008 to March 2009.

Bruce Giles was previously Assistant Vice President of Commercial Underwriting for KAI, prior to which he held various positions with KAI from December 2003 to June 2010. From 2000 to 2003, he held various positions with Allstate Insurance Group.

Joseph Shugrue was the Vice President Claims of KAI since March 2004.

Leslie DiMaggio was previously the Vice President, Information Technology for KFSI from November 2008 to June 2010, prior to which she was the President, CEO and COO of Southern United Fire Insurance Company from April 2007 to November 2008. From 2000 until 2008, she held various other executive positions at KAI.

All of the above officers were employed by Atlas in the positions noted above on the date of its formation, December 31, 2010.

Information regarding directors of Atlas Financial Holdings, Inc standing for election at the 2012 annual shareholders’ meeting is incorporated in this Item 10 by reference to the descriptions in the 2012 proxy statement of the company to be filed with the SEC pursuant to Regulation 14A (the "Proxy Statement")under the captions “Management Proposals to be Voted On – Proposal 1. Election of Directors.”

Information regarding our audit committee is incorporated in this Item 10 by reference to the first paragraph of the discussion under the captions “Corporate Governance Practices and Code of Ethics – Audit Committee” in the Proxy Statement.

Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated in this item 10 by

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reference to “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

Information regarding executive officers of Atlas Financial Holdings, Inc. is incorporated in this item 10 by reference to Part I of this report under the caption “Executive Officers.”

We have adopted a code of ethics that applies to all our directors, officers and employees. This code is publicly available on our website at www.atlas-fin.com . Amendments to the code of ethics and any grant of a waiver from a provision of the code requiring disclosure under applicable SEC rules will be disclosed on our website.

ITEM 11. Executive Compensation

The information required by this Item will be included under the section entitled “Executive Compensation” in the Proxy Statement, which information is incorporated by reference to this Annual Report on Form 10-K.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management is incorporated in this Item 12 by reference to the sections of the Proxy Statement with the following captions:


•	Security Ownership of Directors & Executive Officers


•	Security Ownership of Certain Beneficial Owners

The following table includes information as of December 31, 2011 with respect to Atlas' equity compensation plans:

Equity Compensation Plan Information

	Number of securities to be issued upon exercise of outstanding options, warrants & rights (a)	Weighted average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	4,391,827 ¹	C$1.99	1,434,714 ²

¹ Summation of 408,325 shares outstanding under the March 18, 2010 and January 18, 2011 equity compensation plans and 3,983,502 shares related to the outstanding warrants. ² Equal to the remainder allowable according to the 2011 Equity Incentive Plan (10% of issued and outstanding ordinary voting common shares)

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Information required for Item 13 is incorporated by reference to the material in the Proxy Statement under the captions “Related Person Transactions” and “Corporate Governance Practices and Code of Ethics – Determinations of Independence of Nominees for Election.”

ITEM 14. Principal Accountant Fees and Services

Information required for Item 14 is incorporated by reference to the material in the Proxy Statement under the captions “Management Proposals to be Voted On – Proposal 2. Ratification of Appointment of Independent Registered Public Accountant.”

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) The following consolidated financial statements, notes thereto and related information of Atlas Financial Holdings, Inc, are included in Item 8.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Financial Position

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

(a) (2) The following additional financial statement schedules and independent auditors' report are furnished herewith pursuant to the requirements of Form 10-K:

Schedules required to be filed under the provisions of Regulation S-X Article 7:

Schedule II - Condensed Financial Information of Registrant

Schedule IV - Reinsurance

Schedule V - Valuation and qualifying accounts

Schedule VI - Supplemental P&C insurance operations

All other schedules pursuant to Article 7 of Regulation S-X are omitted because they are not applicable, or because the required information is included in the consolidated financial statements or in the notes thereto.

(a) (3) The following is a list of the exhibits filed as part of this Form 10-K. The exhibit numbers followed by an asterisk (*) indicate exhibits that are management contracts or compensatory plans or arrangements.

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Item 3 - Articles of Incorporation and By-laws
3.1a	Memorandum of Association of Atlas Financial Holdings, dated December 24, 2010.
3.1b	Restated Articles of Incorporation of American Country Insurance Company, Inc., as amended as of February 13, 2004
3.1c	Restated Articles of Incorporation of American Service Insurance, Inc., as amended as of June 15, 2009
3.1d	Restated Certificate of Incorporation of American Insurance Acquisition, Inc., as amended December 31, 2010
Item 4 - Instruments Defining the Rights of Security Holders, Including Indentures
4.1a	Memorandum of Association of Atlas Financial Holdings, dated December 24, 2010, included in item 3.1a
4.1b	By-laws of American Country Insurance Company, Inc., as amended September 14, 2005
4.1c	By-laws of American Service Insurance, Inc., as amended October 20, 2005
4.1d	By-laws of American Insurance Acquisition, Inc., as amended July 9, 2010
4.2	Specimen Common Stock Certificate
4.3	Specimen Warrant Agreement
Item 10 - Material Contracts
10.1 *	Atlas Financial Holdings, Inc. Stock Option Plan dated January 6, 2011
10.2 *	Form of Atlas Employment Agreement for Executive Management, updated January 1, 2012
10.3 *	Employee Share Purchase Plan Agreement, as adopted June 1, 2011
10.4 *	Defined Contribution Plan Document dated August 11, 2011
10.5	Transition Services Agreement between Kingsway Financial Services, Inc and American Insurance Acquisition, Inc., dated December 31, 2010
10.6	Lease Agreement between Universal Casualty Company and American Service Insurance Company, Inc., dated December 31, 2010
10.7	Program Manager Agreement between American Service Insurance Company and both Universal Casualty Company and Kingsway America, Inc., dated January 1, 2011
Item 14 - Code of Ethics
14	Atlas Financial Holdings, Inc. Code of Business Conduct and Ethics, dated January 1, 2011
Item 16- Letter re change in certifying accountant
16	Letter from KPMG LLP regarding its concurrence with the statements made by Atlas in the current report concerning the dismissal as the registrant's principal accountant.
Item 21 - Subsidiaries of the Registrant
21	List of Subsidiaries
Item 23 - Consent of Independent Registered Public Accounting Firm
23	Consent of Johnson Lambert & Co. LLP
Item 31 – Rule 13a-14(a)/15d-14(a) Certifications
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Item 32 – Section 1350 Certifications
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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		ATLAS FINANCIAL HOLDINGS, INC (Registrant)
		/s/ Paul A. Romano By: Paul A. Romano (Vice President and Chief Financial Officer)
		May 4, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.




Signature	Title	Date

/s/ Scott D. Wollney Scott D. Wollney	President, Chief Executive Officer and Director	May 4, 2012
/s/ Paul A. Romano Paul A. Romano	Vice President, Chief Financial Officer and Principal Accounting Officer	May 4, 2012
/s/ Gordon G. Pratt Gordon G. Pratt	Director, Chairman of the Board	May 4, 2012
/s/ Jordan M. Kupinsky Jordan M. Kupinsky	Director	May 4, 2012
/s/ Larry G. Swets, Jr. Larry G. Swets, Jr.	Director	May 4, 2012

Schedule II – Condensed Financial Information of Registrant

Statements of Comprehensive Income



($ in thousands)	Year ended December 31,
	2011			2010
Other underwriting expenses	$	(55	)	$	—
Underwriting income	55			—
Income before income tax benefit	55			—
Income tax benefit	(1,137		)	(20,628		)
Income before equity in net income of subsidiaries	$	1,192		$	20,628
Equity in net loss of subsidiaries	(3,662		)	(42,440		)
Net loss	$	(2,470	)	$	(21,812	)

See accompanying Notes to Condensed Financial Information of Registrant

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Schedule II – Condensed Financial Information of Registrant (continued)

Statements of Financial Position



($ in thousands)	December 31,
	2011			2010
Assets
Investments
Cash and cash equivalents	$	15		$	2
Securities	—			—
Total Investments	15			2
Other Assets	52			—
Deferred tax asset	64			—
Investment in subsidiaries	56,123			60,338
Total Assets	$	56,254		$	60,340

Liabilities
Accounts payable and accrued liabilities	$	—		$	171
Total Liabilities	$	—		$	171

Shareholders’ Equity
Preferred shares, par value per share $0.001, 100,000,000 shares authorized, 18,000,000 shares issued and outstanding at December 31, 2011 and December 31, 2010. Liquidation value $1.00 per share	$	18,000		$	18,000
Ordinary voting common shares, par value per share $0.001, 800,000,000 shares authorized, 4,625,526 shares issued and outstanding at December 31, 2011 and 4,553,502 at December 31, 2010	4			4
Restricted voting common shares, par value per share $0.001, 100,000,000 shares authorized, 13,804,861 shares issued and outstanding at December31, 2011 and December 31, 2010	14			14
Additional paid-in capital	152,652			152,466
Retained deficit	(115,841		)	(113,371		)
Accumulated other comprehensive income, net of tax	1,425			3,056
Total Shareholders’ Equity	$	56,254		$	60,169
Total Liabilities and Shareholders’ Equity	$	56,254		$	60,340

See accompanying Notes to Condensed Financial Information of Registrant

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Schedule II – Condensed Financial Information of Registrant (continued)

Statements of Cash Flow



	Year Ended December 31,
	2011			2010
Operating Activities
Net income (loss)	$	(2,470	)	$	(21,812	)
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net income of subsidiaries	3,662			42,440
Share-based compensation expense	113			—
Deferred income taxes	(1,137		)	(20,628		)
Net changes in operating assets and liabilities:
Other assets	52
Accounts payable and accrued liabilities	(207		)
	13			—
Financing activities:
Proceeds from sale of preferred stock	—			18,000
Proceeds from sale of common stock	—			42,340
Net cash provided by financing activities	—			60,340

Investing activities:
Purchase of operating subsidiaries	—			(60,338		)
Net cash used in investing activities	—			(60,338		)

Net change in cash and cash equivalents	13			2
Cash and cash equivalents, beginning of year	2			—
Cash and cash equivalents, end of year	$	15		$	2
Supplementary disclosure of cash information:
Represented by:
Cash on hand and balances with banks	$	15		$	2
Investments with maturities less than 30 days	—			—
Cash and cash equivalents, end of year	$	15		$	2
Cash paid for:
Interest	—			—
Income taxes	—			—

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Schedule II – Condensed Financial Information of Registrant (continued)

Notes to Condensed Financial Information

Atlas commenced operations on December 31, 2010. Therefore, a statement of operations and statement of cash flow from the year ended December 31, 2009 has not been included.

The financial statements of the Registrant should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8.

Atlas has no material contingencies, long-term debt obligations or guarantees.

Atlas has not received cash dividends from its subsidiaries since its inception on December 31, 2010.

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Schedule IV – Reinsurance



	Gross Amount		Ceded to Other Companies			Assumed from Other Companies		Net Amount		% of Amount Assumed to Net
December 31, 2011
Premiums earned	$	43,253	$	(7,653	)	$	147	$	35,747	0.4	%

December 31, 2010
Premiums earned	$	60,873	$	(7,434	)	$	164	$	53,603	0.3	%

Schedule V – Valuation and qualifying accounts



	Balance at Beginning of Period		Charged to Expenses		Other additions	Deductions			Balance at End of Period
December 31, 2011
Allowance for uncollectible receivables	$	4,212	$	413		$	(371	)	$	4,254
Valuation allowance for deferred tax assets	11,288				1,073				12,361

December 31, 2010
Allowance for uncollectible receivables	$	1,827	$	2,780		$	(395	)	$	4,212
Valuation allowance for deferred tax assets	14,748		6,016			(9,476		)	11,288

Schedule VI - Supplemental information concerning property-casualty insurance operations



		Year Ended December 31,
		2011	2010
Deferred policy acquisition costs		3,020	3,804
Reserves for insurance claims and claims expense		91,643	132,579
Unearned premiums		15,691	17,061
Earned Premiums		35,747	53,603
Net investment income		3,280	4,616
Claims and claims adjustment expense incurred
	Current Year	27,303	42,739
	Prior Year	1,691	5,335
Amortization of deferred policy acquisition costs		7,294	11,115
Paid claims and claim adjustment expense		71,278	95,829
Gross premium written		42,031	46,679

EXHIBIT 10.5

TRANSITION SERVICES AGREEMENT

KINGSWAY FINANCIAL SERVICES INC. and AMERICAN INSURANCE ACQUISITION INC.

December 31, 2010

THIS Transition Services Agreement dated December 31, 2010 and effective as of the Closing Date (as defined herein below).

BETWEEN:

KINGSWAY FINANCIAL SERVICES INC. , a corporation existing under the laws of the State of Delaware

(the “ KFS ”)

‑ and ‑

AMERICAN INSURANCE ACQUISITION INC. , a corporation existing under the laws of the State of Delaware

(" AIAI ")

(each a “ Party ” and collectively, the “ Parties ”)

RECITALS:

JJR VI Acquisition Corp., Atlas Acquisition Corp., KFS and AIAI have entered into an agreement and plan of merger dated December 14, 2010 (the “ Merger Agreement ”), upon the completion of which AIAI, American Country Insurance Company (" ACIC ") and American Service Insurance Company, Inc. (" ASI " and collectively with ACIC and AIAI, the " Companies ") will become wholly-owned subsidiaries of the Atlas, on and subject to the terms and conditions set out in the Merger Agreement.


B.	As a condition to Closing (as defined in the Merger Agreement), KFS and AIAI have agreed to enter into this Agreement, pursuant to which KFS and its Affiliates (as defined in the Merger Agreement) shall provide certain transition services to AIAI and its Affiliates and/or AIAI and its Affiliates shall provide certain transition services to KFS and its Affiliates, after Closing.

NOW THEREFORE in consideration of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration (the receipt and sufficiency of which are acknowledged ), the Parties agree as follows:

ARTICLE I INTERPRETATION


1.	Definitions.

In this Agreement, the following terms have the following meanings:

“Agreement” means this Transition Services Agreement and all Schedules attached hereto.

“ AIAI Information Systems ” shall mean all AIAI Software, domain names, hardware, telecommunications, network connections, peripherals and other communication and technology infrastructure of the Companies used by Kingsway, or on behalf of Kingsway, in the Ordinary Course prior to Closing.

“ AIAI Intellectual Property ” means all Intellectual Property rights used by, or on behalf of Kingsway, in the Ordinary Course prior to Closing, that is owned or licensed by any of the Companies.

“ AIAI Services ” has the meaning specified in Section 4.2.

“ AIAI Software ” means all software owned or used by the Companies in the Ordinary Course, including all computer programs, operating systems, applications, websites, website content, interfaces, applets, scripts, macros, firmware, middleware, development tools and other software code, whether in object code, source code or other format or in SQL, HyperText Markup Language, XML or other language.

“Business” means the property and casualty insurance business carried on by the Companies as of the date hereof.

“Claims” has the meaning specified in Section 13.2.

“Closing” has the meaning specified in the Merger Agreement.

“Closing Date” has the meaning specified in the Merger Agreement.

“ Change Request ” has the meaning specified in Section 5.1(a).

“ Confidential Information ” has the meaning specified in Section 10.1(a).

“ Consent Fee ” has the meaning specified in Section 7.2(b).

“ Developed Company IP ” has the meaning specified in Section 11.2(b).

“ Developed Kingway IP ” has the meaning specified in Section 11.2(b).

“ Force Majeure Event ” has the meaning specified in Section 7.3.

“ Kingsway ” shall mean KFS and its Affiliates, excluding the Companies.

“ Kingsway Insurance Information Systems ” shall mean all Kingsway Software, domain names, hardware, telecommunications, network connections, peripherals and other communication and technology infrastructure of Kingsway used by the Companies, or on behalf of the Companies, in the Ordinary Course prior to Closing.

“ Kingsway Intellectual Property ” means all Intellectual Property rights used by, or on behalf of the Companies, in the Ordinary Course prior to Closing, that is owned or licensed by Kingsway.

“ Kingsway Services ” has the meaning specified in Section 3.2.

“ Kingsway Software ” means all software owned or used by Kingsway in the Ordinary Course, including all computer programs, operating systems, applications, websites, website content, interfaces, applets, scripts, macros, firmware, middleware, development tools and other software code, whether in object code, source code or other format or in SQL, HyperText Markup Language, XML or other language.

“ Merger Agreement ” has the meaning specified in the Recitals to this Agreement.

“Ordinary Course” means, with respect to an action taken by a Person, that such action is consistent with the past practices of the Person or its business, as the case may be, and is taken in the ordinary course of the normal day-to-day operations of the Person or its business, as the case may be.

“ Performing Party ” has the meaning specified in Section 5.1(a).

“ Performing Party Systems ” has the meaning specified in Section 9.3(a).

“ Recipient Party ” has the meaning specified in Section 5.1(a).

“ Recipient Party Personnel ” has the meaning specified in Section 9.3(a).

“ Representatives ” has the meaning specified in Section 10.1(b).

“ Service Fees ” has the meaning specified in Section 8.1(a).

“ Services ” means the AIAI Services or the Kingsway Services, as applicable.

“ Term ” has the meaning specified in Section 2.1.

“ Termination Fee ” has the meaning specified in Section 5.2(c).

“ Termination Fee Approval ” has the meaning specified in Section 5.2(c).

“ Third Party Consent ” means a license, consent, approval or waiver from a third party (including the Department of Insurance for the State of Illinois) that is required in order to perform a Service.

Defined terms used but not otherwise defined in this Agreement have the meanings ascribed to such terms in the Merger Agreement.


2.	Gender and Number.

Any reference in this Agreement to gender includes all genders and words importing the singular include the plural and vice versa .


3.	Certain Phrases and Calculation of Time.

In this Agreement: (i) the words “including” and “includes” mean “including (or includes) without limitation”; and (ii) in the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding” and if the last day of any such period is not a Business Day, such period will end on the next Business Day.

When calculating the period of time “within” which or “following” which any act or event is required or permitted to be done, notice given or steps taken, the date which is the reference date in calculating such period is excluded from the calculation. If the last day of any such period is not a Business Day, such period will end on the next Business Day.


4.	Headings, etc.

The division of this Agreement into Articles and Sections and the insertion of headings are for convenient reference only and are not to affect or be used in the construction or interpretation of this Agreement.


5.	References to the Schedules and Exhibits.

The Schedules and the Exhibits set out below form an integral part of this Agreement:

Schedule 3.2 - Kingsway Services

Schedule 4.2 - AIAI Services

Schedule 11.1 - Personal Information


6.	Currency.

All monetary amounts in this Agreement, unless otherwise specifically indicated, are stated in United States currency.


7.	Statutory References.

Unless otherwise specifically indicated, any reference to a statute in this Agreement refers to that statute and to the regulations made under that statute.


8.	No Presumption.

The Parties and their counsel have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement is to be construed as if drafted jointly by the

Parties. No presumption or burden of proof will arise in favour of any Party by virtue of the authorship of any provision of this Agreement.


9.	Governing Law.


(a)	This Agreement is governed by and is to be interpreted, construed and enforced in accordance with the laws of the State of Illinois, without regard to conflict of law principles.


(b)	Each of the Parties irrevocably attorns and submits to the non‑exclusive jurisdiction of the courts of the State of Illinois and waives objection to the venue of any proceeding in such court.

ARTICLE II TERM

1. Term

This Agreement shall commence on the Closing Date and shall continue until December 31, 2013 (the “ Term ”), unless extended or terminated earlier in accordance with the terms of this Agreement.

2. Extension of Term

Prior to the expiration of the Term any Party may, on written notice to other Parties, elect to extend the Term on the same terms and conditions for further twelve (12) month periods, provided that unless otherwise agreed to in writing by the Parties the Term may not be renewed more than three (3) times in total.

ARTICLE III SERVICES TO BE PROVIDED BY KFS

1. Provision of Services.

KFS agrees to provide certain transition services to AIAI to: (i) enable the uninterrupted operation of the Business following Closing; (ii) assist in an orderly transfer of the Companies as a result of the change of their ownership; and (iii) permit the Companies to obtain alternate sources of supply of services within a reasonable time after Closing. AIAI acknowledges that certain Kingsway Services are provided for a limited period of time, notwithstanding Section 2.1 or Section 2.2, as more particularly set forth and described in the Schedules hereto.

2. Services to be Provided by KFS to AIAI.

Subject to the terms and conditions of this Agreement, KFS shall provide or shall an Affiliate to provide AIAI with the following transition services (collectively, the “ Kingsway Services ”):

(a) accounting support services, as more particularly described in Schedule 3.2 (the “ Kingsway Accounting Support Services ”);

(b) auto claims handling services and private passenger auto policy administration and underwriting support services as more particularly described in Schedule 3.2 (the “ Kingsway Auto Policy Administration and Underwriting Support Services ”);

(c) those services and the use of Kingsway Insurance Information Systems in support of the Business as set forth on Schedule 3.2 attached hereto (the “ Kingsway IT Services ”);

(d) tax return services as more particularly described in Schedule 3.2 (the " Kingsway Tax Return Services ").

The Parties acknowledge that Schedule 3.2 contemplates that certain of the Kingsway Services will be set out and described in certain additional agreements or amendments to this Agreement (collectively the “ Kingsway Service Amendments ”). The Parties agree to use commercially reasonable efforts in good faith to expeditiously negotiate and enter into all Kingsway Service Amendments, subject to the terms of Section 7.2.

3. License of Kingsway Intellectual Property.

(a) Kingsway hereby grants to AIAI, until such time as all personal lines business written by the Companies prior to Closing has expired and not been renewed and any retention period for records relating to such business has expired under applicable law, a royalty-free, non-transferable and non-exclusive licence to use in the operation of the Business any Kingsway Intellectual Property that is, and Kingsway Insurance Information Systems that are: (i) used by the Companies prior to Closing; and (ii) necessary to the receive the Kingsway Services; provided, however, that AIAI hereby agrees to be bound and to cause the Companies to be bound by all existing restrictions, obligations and conditions that currently exist or relate to the Kingsway Intellectual Property and Kingsway Insurance Information Systems and such restrictions, obligations and conditions will apply to AIAI and/or the Companies, mutatis mutandis .

until such time as the minimum retention period for such records has expired under applicable law

(b) For greater certainty, but subject to its obligations to provide the Kingsway Services hereunder, such license of Kingsway Intellectual Property and/or Kingsway Insurance Information Systems shall not, and shall not be deemed to: (i) prohibit KFS or its Affiliates from freely using or licensing (on a non-exclusive basis) any of the Kingsway Intellectual Property or Kingsway Insurance Information Systems; or (ii) prohibit KFS or its Affiliates from transferring any of the Kingsway Intellectual Property or Kingsway Insurance Information Systems provided that the transferee assumes KFS's obligations under this Agreement in respect of the transferred asset.

ARTICLE IV SERVICES TO BE PROVIDED BY AIAI TO KFS

1. Provision of Services.

AIAI agrees to provide certain transition services to KFS to: (i) enable the uninterrupted operation of KFS' business following Closing; and (ii) permit KFS to obtain alternate sources of supply of services within a reasonable time after Closing.

2. Services to be Provided by AIAI to KFS.

Subject to the terms and conditions of this Agreement, AIAI shall provide or shall cause an Affiliate to provide KFS with the following transition services (collectively, the “ AIAI Services ”):

(a) accounting support services, as more particularly described in Schedule 4.2 (the “AIAI Accounting Support Services”);

(b) auto claims handling services and commercial auto policy administration and underwriting support services as more particularly described in Schedule 4.2 (the “AIAI Claims Handling Services”);

(c) personnel and payroll records support services as more particularly described in Schedule 4.2 (the “AIAI Personnel and Payroll Support Services”);

(d) information technology services, as more particularly described in Schedule 4.2 (the “AIAI IT Services”);

(e) tax return services as more particularly described in Schedule 4.2 (the "AIAI Tax Return Services"); and

(f) additional tax services as more particularly described in Schedule 4.2 (the "AIAI Additional Tax Services").

The Parties acknowledge that Schedule 4.2 contemplates that certain of the AIAI Services will be set out and described in certain additional agreements or amendments to this Agreement (collectively the “ AIAI Service Amendments ”). The Parties agree to use commercially reasonable efforts in good faith to expeditiously negotiate and enter into all of the AIAI Service Amendments, subject to the terms of Section 7.2.

3. License of AIAI Intellectual Property.

(a) AIAI hereby grants and agrees to cause the Companies to grant to KFS, during the Term, a royalty-free, non-transferable and non-exclusive licence to use in the operations of KFS' business any AIAI Intellectual Property that is, and AIAI Information Systems that are: (i) used by Kingsway prior to Closing; and (ii) necessary to receive the AIAI Services; provided, however, KFS, hereby agrees to be bound by all existing restrictions, obligations and conditions that currently exist or relate to the AIAI Intellectual Property and AIAI Information Systems and such restrictions, obligations and conditions will apply to KFS, mutatis mutandis.

(b) For greater certainty, but subject to its obligations to provide or cause the provision of the AIAI Services hereunder, such license of AIAI Intellectual Property and AIAI Information Systems shall not, and shall not be deemed to: (i) prohibit AIAI and its Affiliates from freely using, or licensing (on a non-exclusive basis) any of the AIAI Intellectual Property or AIAI Information Systems; or (ii) prohibit AIAI and/or the Companies and their Affiliates from transferring any of the AIAI Intellectual Property or AIAI Information Systems provided that the transferee assumes AIAI's and/or the Companies' obligations under this Agreement in respect of the transferred asset.

ARTICLE V SERVICE CHANGES

1. Service Change Requests.

(a) During the Term, any Party, in its capacity as a recipient of Services (a “ Recipient Party ”) may

provide written notice (a “ Change Request ”) to any other Party, in its capacity as a provider of Services (a “ Performing Party ”) to request a modification to the nature or scope of the Services (including the addition of new services that are not already part of the Services to be performed by the Performing Party).

(b) The applicable Parties agree to co‑operate and to use commercially reasonable efforts to negotiate an agreement on a Change Request (including any incidental changes to the Service Fees), on terms and conditions that are acceptable to such Parties, acting reasonably. However, such Parties acknowledge and agree that they may not reach an acceptable agreement with respect to a given Change Request and in such event, the Performing Party shall have no liability or obligation to the Recipient Party in respect of such Change Request.

(c) The applicable Schedules shall be amended accordingly to reflect any Change Request agreed upon by such Parties. For greater certainty, it is acknowledged that the Recipient Party bears the costs of preparing any Change Request and any additional costs incurred by a Performing Party to make or implement changes to the Services in response to a Change Request shall be the sole responsibility of the Recipient Party and such additional costs shall be payable in addition to the Service Fees provided for herein.

2. Termination of Particular Services.

(a) A Recipient Party may terminate its receipt of Services prior to the expiration of the Term subject to and in accordance with the terms of this Section 5.2.

(b) A Recipient Party shall provide not less than thirty (30) days prior written notice to a Performing Party of its intent to terminate a particular Service during the Term of this Agreement. Any partial termination notice delivered shall specify in detail: (i) the Service or Services to be terminated; and (ii) the effective date(s) of such termination.

(c) Unless the applicable Parties agree in writing to the contrary, a particular Service may only be terminated in whole, not in part or subcomponent. Any termination of a particular Service shall be final, and the Service Fees payable by the Recipient Party with respect to such terminated Service shall be appropriately pro‑rated to the effective date of termination. If the termination of a Service prior to the expiration of the Term requires the payment of any fee, cost or expense of a similar nature to a third party (a “Termination Fee”), the Performing Party shall have no obligation to terminate such Service, unless the Recipient Party approves in advance such Termination Fee in writing (a “Termination Fee Approval”). If the Termination Fee Approval is granted and the Termination Fee is paid by the Performing Party, the Termination Fee shall be invoiced (without markup) to and payable by the Recipient Party pursuant to Article VIII of this Agreement.

ARTICLE VI SERVICE STANDARDS

1. Service Standards and Level of Service for the Services.

(a) Subject to Section 6.1(b), each of the Parties, in its capacity as a Performing Party, shall:


(i)	provide the Services in a workmanlike manner and at a level of quality that is reasonable under the circumstances;


(ii)	provide the Services to a Recipient Party on substantially the same basis as was provided to such Recipient Party prior to Closing, including substantially similar levels of service; and


(iii)	provide the Services at a level of responsiveness and diligence substantially similar to that provided to a Recipient Party prior to Closing.

(b) Each of the Parties, in its capacity as a Recipient Party, acknowledges and agrees that a Performing Party is not a professional service provider of the Services to third parties (in particular with respect to the Kingsway Insurance Information Systems or the AIAI Information Systems, as the case may be) and as a result, such Performing Party may not be able to meet normal industry service levels or standards associated with such Services. Accordingly, each of the Parties, in its capacity as a Performing Party, shall use commercially reasonable efforts to provide such Services to a Recipient Party and allow each of the Parties the right to audit such Services.

(c) The obligations of a Performing Party to provide the Services in accordance with the standards set forth in this Article shall be subject to:

(i)

a Recipient Party ensuring that the physical and technical environments at the facilities of such Recipient Party, to the extent such physical and technical environments are within the control of such Recipient Party and related to the Performing Party's provision, or such Receiving Party's receipt of the Services, are at least equivalent to those present at such Party's premises on the Closing Date; and


(ii)	a Recipient Party ensuring that nothing within its reasonable control prevents the Performing Party from providing the Services set out herein.

2. Subcontracting.

A Performing Party may, in its sole discretion and without any written notice to a Recipient Party, engage its Affiliates and/or one or more third parties to provide some or all of the Services which such Performing Party is obligated to provide under this Agreement. In the event a Performing Party, so engages its Affiliates, or any such third parties, such Performing Party shall remain responsible for ensuring the performance of the subcontracted Services by the subcontractor in accordance with the applicable standards set forth in this Agreement and for the indemnification obligations of such Performing Party set forth in Article XIII. No subcontracting of any Services shall relieve a Performing Party of its obligations under this Agreement with respect to such Services.

3. Co‑operation.

(a) Each Party shall, and shall cause its Affiliates and third party subcontractors to, co‑operate to the extent necessary or appropriate to facilitate the performance of the Services in accordance with the terms of this Agreement. Without limiting the foregoing, to the extent that an employee of a Performing Party who was transferred to a Recipient Party in connection with the transactions contemplated by the Merger Agreement and who was engaged, prior to Closing, in providing, co‑ordinating or assisting with the Services to such Recipient Party, such Recipient Party shall cause such transferred employee (or reasonably qualified substitutes) to continue to provide, co‑ordinate or assist with the Services throughout the Term at a level and in a manner at least equivalent in all material respects with such transferred employee's engagement prior to Closing.

(b) Each Party shall, at all reasonable times under the circumstances, make available to the other Parties properly authorized personnel for the purpose of consultation and decision, and as may otherwise be reasonably necessary in the performance and receipt of the Services.

(c) Each Party shall provide access to their respective facilities, information systems and equipment as appropriate in connection with the provision of the Services subject to their respective physical security procedures and subject to any obligations or limitations imposed by Articles IX and X of this Agreement.

(d) Each Party may change at any time: (i) its physical security procedures; or (ii) the location from which it provides any Service; provided that the Parties shall remain responsible for the performance of the Services in accordance with the terms of this Agreement.

4. Books and Records.

Each Party shall maintain or cause to be maintained, in accordance with applicable Laws and its document retention policies (including policies relating to backup computer files and maintaining facilities and procedures for safekeeping and retaining documents), books and records of all transactions pertaining to the performance or receipt (as applicable) of the Services. Access to such books and records by any Party shall, to the extent not prohibited by applicable Laws, be made available for audit or other purposes: (a) upon reasonable prior written notice and during regular business hours, through its employees and representatives; (b) at the requesting Party's sole cost and expense and may not unreasonably interfere with the other Party's or any of its Affiliates' business operations and; (c) subject to the physical security procedures of the Party and its Affiliates who are the subject of such request. Notwithstanding the foregoing, the Parties and any third party subcontractor providing Services under this Agreement shall have access to such books and records as necessary or reasonably required to provide the Services in accordance with the terms of this Agreement.

ARTICLE VII LIMITATIONS

1. General Limitations.

(a) KFS shall have no obligation under this Agreement to provide services or support in support of any business or operations of the Companies other than in support of the Business as set forth on Schedule 3.2. In no event, shall KFS be obligated to provide any Services to the Companies if they cease to be wholly owned subsidiaries of Atlas.

(b) In no event shall any Party be obligated hereunder to maintain the employment of any specific employee during the Term; provided that each Party shall remain responsible for the performance of the Services in accordance with the terms of this Agreement.

2. Third Party Consents and Terms; Compliance with applicable law.

(a) Each Party warrants that it has as of the Closing Date obtained, or reasonably expects to receive promptly thereafter, all Third Party Consents that are necessary in order for it to provide the Services to the other Parties.

(b) In the event that any third party vendor requires the payment of a fee or other charge to permit a Performing Party to provide Services to a Recipient Party (“ Consent Fee ”), then the Recipient Party agrees it shall pay or reimburse the Performing Party all such Consent Fees in full upon receipt of an invoice for same.

Closing Date, KFS and AIAI will use commercially reasonable efforts to identify, and shall cooperate with each other in achieving, a reasonable alternative arrangement with a view to continue to operate their respective businesses with as minimal interference to their respective business operations as is reasonable until such Third Party Consent is obtained or until such other reasonable alternative arrangement is concluded; provided that no Party shall be responsible or liable to the other Parties hereunder to the extent that any failure or inability to obtain any Third Party Consent restricts, limits, impedes or otherwise prevents the performance by a Party of its obligations hereunder.

(d) Each Party acknowledges and agrees that any Services provided by a Performing Party and its Affiliates through third parties or by using third party intellectual property are subject to the terms and conditions of any applicable agreements between such Performing Party or its Affiliates and such third parties, as well as compliance with applicable Laws. Each Party agrees to comply, and to cause its Affiliates to comply, with the terms and conditions of any such applicable third party agreements in connection with the provision or receipt (as applicable) of the Services.

3. Force Majeure.

In the event that a Party or its Affiliates or any third party subcontractor is wholly or partially prevented from, or delayed in, providing one or more Services, or one or more Services are interrupted or suspended, by reason of events beyond its reasonable control (including acts of God, acts of nature, acts, decrees or orders of governmental, regulatory or military authorities, fire, explosion, accident, embargoes, epidemics, war, acts of terrorism, nuclear disaster, civil unrest and/or riots or disruption of Internet access as a result of any virus, worm, Trojan horse, etc.) (any of the foregoing or similar type of event, a “ Force Majeure Event ”), (a) such Party shall not be obligated to deliver the affected Services during such period, (b) a Recipient Party shall not be obligated to pay for any Services not delivered during such period except for any Consent Fees or Termination Fees (as defined herein), and (c) the applicable Term shall not be tolled during or extended for all or part of such period; provided that nothing in this Section 7.3 shall alter, suspend or limit the payment obligations of any Party under this Agreement for Services previously provided.

ARTICLE VIII PAYMENT

1. Fees Payable by the Parties.

(a) The fee, rate or amount to be charged for the Services (the “ Service Fees ”) shall be:


(i)	in the case of the Kingsway Services, as set forth in the applicable Schedules attached hereto; and;


(ii)	in the case of the AIAI Services, as set forth in the applicable Schedules attached hereto.

(b) For greater certainty, in no event shall KFS be responsible for, and AIAI or the Companies shall be solely responsible for, any costs or expenses relating to any hardware, software or technical devices and related accessories thereto required to be purchased to complete the orderly transfer of the Companies as a result of the change of ownership and to enable the uninterrupted operation of the Business following Closing.

2. Billing and Payment Terms.

(a) Each Party shall invoice the other Parties following the end of a given calendar month for: (i) the Service Fees; (ii) the Termination Fees; and (iii) the Consent Fees, as applicable, incurred during such calendar month. Each Party shall pay all such invoices within thirty (30) Business Days after receipt thereof by wire transfer of immediately available funds, unless otherwise prescribed in a service agreement referenced in the schedules. Payments not made in accordance with the preceding sentence shall bear simple interest from and including the date such payment is due until, but excluding, the date of payment, at a monthly rate of 1.5% (18% per annum). All Service Fees, Termination Fees, Consent Fees and late payments shall be payable and remitted in United States dollars.

(b) The amount of any Service Fees shall be prorated to the extent necessary on an invoice to reflect the portion of the specified time period for which the Services were actually rendered vis a vis the applicable month, unless otherwise prescribed in a service agreement referenced in the schedules.

(c) If all or a component of a Service is provided by a third party and the invoice in respect thereof is bundled with items unrelated to the subject matter of this Agreement, the Service Fee in respect of such Service shall only reflect the dollar amount appropriately allocated to such Service.

3. Taxes.

Each Party shall reimburse the other Parties for any sales, use, gross income, gross receipts or other similar taxes imposed by or withheld on behalf of any provincial or local taxing authority with respect to any payment made by a Party to the other Parties pursuant to this Agreement, except for taxes based or imposed on or measured in whole or in part by net income or net worth, or a tax imposed in lieu thereof, including any provincial business and occupational tax liability imposed on the Party or its Affiliates providing Services. Amounts to be reimbursed in respect of such taxes shall be separately reflected on the relevant invoice.

ARTICLE IX ACCESS AND SECURITY

1. Security Level; Additional Security Measures.

Each of the Parties and its Affiliates may take physical or information security measures: (a) that affect the manner in

which the Services are provided to maintain such Party's or its Affiliates' current level (or, if greater, an industry‑standard level) of physical and electronic security (including data security and data privacy) during the Term; and (b) that address any new security‑related issues, including compliance with applicable Laws related to security and issues related to new technologies or threats. Each of the Parties shall provide the other Parties reasonable, prior written notice of any such physical or information security measures that are material to such Party's delivery of the Services. Each of the Parties shall, at a requesting Party's cost and expense, provide all assistance reasonably requested by such Party or its Affiliates in connection with such security measures.

2. Security Breaches.

In the event of a security breach that relates to the Services, each of the Parties providing such Services shall, subject to any applicable Laws, co-operate with the Parties receiving such Services regarding the timing and manner of: (a) notifications to their respective customers, potential customers, employees and/or agents concerning a breach or threatened breach of security; and (b) disclosures to appropriate Governmental Authorities.

3. Systems Security.

(a) If a Recipient Party, its Affiliates, any of their respective personnel or any personnel of any third party retained by such Party or its Affiliates and any authorized agent, auditor or Governmental Authority (collectively, the “ Recipient Party Personnel ”) is given access by a Performing Party or its Affiliates to: (i) information systems, including any computer systems or software and data stored therein, of the Performing Party or its Affiliates or (collectively, the “ Performing Party Systems ”), the Recipient Party Personnel shall comply with all of such Performing Party's and its Affiliates' information system security policies, procedures and requirements applicable in accessing and using the Performing Party Systems, and shall not tamper with, compromise or circumvent any security or audit measures employed by such Performing Party or its Affiliates.

(b) Information pertaining to AIAI and its Affiliates and to KFS and its Affiliates will be logically segregated throughout the Term of this Agreement. AIAI and KFS will bear equally any and all labour costs associated with such segregation of information. However, all other costs related to the segregation of information, including, but not limited to, costs for any new hardware, software or technical devices and accessories related thereto such as a storage area network required to achieve such separation of information, will be for the account of the applicable Recipient Party.

(c) Each of the Parties shall ensure that only those of their respective personnel who are specifically authorized by another Party to have access to its information systems, obtain such access and shall prevent unauthorized access, use, destruction, alteration or loss of information contained therein, including: (i) notifying their respective personnel regarding the restrictions set forth in this Agreement and any changes in such Party's information security policies; and (ii) establishing appropriate policies designed to monitor compliance with and effectively enforce such restrictions.

(d) The personnel of a Party shall access and use only those information systems of another Party, and only such data and information within those information systems to which such given personnel has been granted the right to access and use under this Agreement. Each of the Parties shall have the right to deny access to its information systems to personnel of the other Parties, after prior written notice, in the event a Party reasonably believes that such personnel pose a demonstrable security concern. If, at any time, a Party determines: (i) that any personnel of another Party has sought to circumvent, or has circumvented, such Party's information security policies; or (ii) that any unauthorized personnel of another Party has accessed such Party's information systems or (iii) that any personnel of another Party has engaged in activities that may lead to the unauthorized access, use, destruction, alteration or loss of data, information or software, such Party shall be permitted to immediately terminate access to its information systems by any such personnel and shall promptly notify in writing the applicable Party of the name of such personnel and the circumstances surrounding such breach.

(e) All user identification numbers and passwords of a Party disclosed to the other Parties, and any information obtained by a Party from access to and use of the other Parties' information systems, shall be deemed Confidential Information (as defined herein) of the disclosing Party.

(f) Each of the Parties shall co-operate with the other Parties in investigating any apparent unauthorized access to another Party's information systems or any apparent unauthorized release of Confidential Information. Each of the Parties shall promptly notify the other Parties in writing: (i) if such Party has revoked access by any personnel to its own information systems if such personnel also has access to another Party's information systems; and (ii) once any personnel of such Party no longer has a need to access the information systems of another Party so that the applicable Parties can revoke such personnel's access to their information systems.

ARTICLE X CONFIDENTIALITY

1. Confidential Information.

As used in this Agreement, Confidential Information is defined as follows:

(a) “ Confidential Information ” means information owned by or concerning a disclosing Party or its Affiliates (including information disclosed in the course of performance or negotiation of this Agreement and the terms of this Agreement) that is not generally known to the public, except for:


(i)	information that is or becomes publicly available (other than through disclosure by a receiving Party, its Affiliates or any third party retained by a receiving Party), from and after the date of public availability; or


(ii)	information disclosed to a receiving Party by a third party not known to be bound by any confidentiality agreement with a disclosing party or its Affiliates; provided that (A) under the circumstances of disclosure, the receiving Party does not owe a duty of non‑disclosure to such third party and (B) the disclosure by such third party is not otherwise unlawful.

(b) Each Party shall not, and shall cause their respective Affiliates and each of their and their Affiliates' directors, officers, employees, vendors, representatives and agents (“ Representatives ”) not to, disclose to any other Person or use, except for purposes of this Agreement (and only in accordance with applicable Laws), any information that is Confidential Information of another Party respectively, provided that each Party may disclose Confidential Information: (i) to its Representatives on a need‑to‑know basis in connection with the performance of such Party's obligations under this Agreement; (ii) in a regulatory filing if required to be included therein under applicable Laws or, subject to Section 10.1(c) hereof, in response to any summons, subpoena or other legal process or formal or informal investigative demand issued by a Governmental Authority to such Party or its Representatives in the course of any litigation, investigation or administrative proceeding; or (iii) to as reasonably necessary enforce its rights and remedies under this Agreement.

(c) In the event that a Party or any of their respective Representatives becomes legally compelled by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar judicial or administrative process to disclose any Confidential Information of another Party, such Party shall provide such other Party with prompt prior written notice of such requirement and shall use its reasonable best efforts to co-operate with such other Party (at such other Party's expense) to obtain a protective order or similar remedy to cause Confidential Information not to be disclosed, including interposing all available objections thereto, such as objections based on settlement privilege. In the event that such protective order or other similar remedy is not obtained or the other Party waives compliance with the provisions of this Section 10.1(c) and Section 10.1(e) of this Agreement, such Person shall furnish only that portion of Confidential Information of the other Party that has been legally compelled, and shall exercise commercially reasonable efforts to obtain assurance that confidential treatment shall be accorded such disclosed Confidential Information.

(d) Each Party shall comply with any and all applicable Laws including, without limitation, all laws relating to privacy.

(e) Each Party shall, and shall cause its Representatives to, protect Confidential Information of the other Parties by using the same degree of care, but no less than a reasonable degree of care, to prevent the unauthorized disclosure of such Confidential Information as the Party uses to protect its own Confidential Information of a similar nature.

(f) Each Party shall cause its Representatives to be bound by the same restrictions on use and disclosure of Confidential Information as set forth in this Article X.

ARTICLE XI DATA AND INTELLECTUAL PROPERTY

1. Ownership of Data.

(a) As between the Parties, AIAI and its Affiliates shall own all right, title and interest in and to all data generated for AIAI and its Affiliates by KFS, its Affiliates and/or KFS' subcontractors in performing the Kingsway Services, as applicable.

(b) As between the Parties, KFS shall own all right, title and interest in and to all data generated for KFS, its Affiliates and/or the KFS' subcontractors by AIAI and its Affiliates in performing the AIAI Services.

(c) Each Party shall be permitted access to its data at all times, which access shall not be unavailable or restricted or delayed (including in the case of any dispute) except as is expressly provided for in this Agreement. No Party shall (even in the event of a dispute between the Parties or upon the termination of the Agreement):


(i)	possess or assert any ownership right, encumbrance or similar right in or over another Party's data; or


(ii)	sell, disclose, copy, assign, lease, license or otherwise dispose of, or commercially exploit, any of another Party's data.

(d) All data of a Recipient Party shall at all times be stored, processed and maintained by a Performing Party such that it is logically separated from the data and information of the other Parties and any other Person.

(e) Each Recipient Party hereby grants to a Performing Party, during the Term, a limited, revocable, royalty-free, non-transferable and non-exclusive licence to use and process such Recipient Party's data solely as permitted by this Agreement and for the purposes of, and only to the extent necessary for, the provision of the Service to a Recipient Party.

(f) Each Party shall comply with terms of Schedule 11.1(f).

2. Ownership of Intellectual Property.

(a) Except as otherwise expressly set forth herein, each of the Parties and their respective Affiliates shall retain all right, title and interest in and to their respective Intellectual Property.

(b) Except as otherwise expressly agreed to in writing for any given Service, KFS shall solely and exclusively own all right, title and interest, including all Intellectual Property rights and any other intellectual or proprietary rights therein or thereto, throughout the world in and to all deliverables and materials created by KFS or its Affiliates or jointly with AIAI and its Affiliates (other than KFS) in any connection with the performance of the Services (collectively, “Developed Kingsway IP”), and AIAI and its Affiliates hereby irrevocably assign any and all right, title or interest they may have in Developed Kingsway IP to KFS and its Affiliates. AIAI and its Affiliates shall, without further consideration, execute any documents and take any other actions reasonably requested by KFS or its Affiliates to effectuate the purposes of this Section 11.2(b).

3. Reservation of Rights.

Except as otherwise expressly set forth herein, no Party or any of its Affiliates shall have any rights or licenses, express or implied, with respect to any intellectual property, hardware or facility of another Party or any of its Affiliates. All rights and licenses not expressly granted in this Agreement are expressly reserved by the Parties and their Affiliates.

ARTICLE XII DISCLAIMER OF REPRESENTATIONS AND WARRANTIES

1. Disclaimer of Representations and Warranties.

EXCEPT AS EXPRESSLY SET FORTH HEREIN, EACH PARTY EXPRESSLY ACKNOWLEDGES THAT THE OTHER PARTIES DISCLAIM AND ACCEPT NO RESPONSIBILITY FOR ANY OTHER REPRESENTATIONS OR WARRANTIES OR CONDITIONS WHATSOEVER, WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE SERVICES TO BE PROVIDED UNDER THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION WARRANTIES OR CONDITIONS OF MERCHANTABILITY OR SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON‑INFRINGEMENT OF ANY SOFTWARE OR HARDWARE OR OTHER INTELLECTUAL PROPERTY PROVIDED HEREUNDER, AND ANY REPRESENTATIONS OR WARRANTIES OR CONDITIONS ARISING FROM COURSE OF DEALING, COURSE OF PERFORMANCE OR TRADE USAGE.

ARTICLE XIII INDEMNIFICATION; LIMITATION ON LIABILITY

1. General.

(a) Each of the Parties agrees that the other Party shall have no liability (whether direct or indirect and regardless of the legal theory advanced) to it or any Person asserting claims on behalf of or in right of it in connection with, relating to, or arising out of, this Agreement, except solely for indemnifiable claims under Section 13.2 and Section 13.3 of this Agreement, as applicable.

(b) For purposes of this Article XIII, “ material breach ” shall mean in the case of a breach by: (A) a Performing Party and its Affiliates, resulting primarily from their gross negligence, bad faith or wilful misconduct in connection with the provision of the Services; (B) a Recipient Party, resulting primarily from its gross negligence, bad faith or wilful misconduct in connection with the receipt of the Services and fulfillment of the obligations hereunder, and including any failure to make a required payment obligation set out herein; and (C) a third party subcontractor providing Services on behalf of a Performing Party or its Affiliates resulting primarily from the third party subcontractor's gross negligence, bad faith or wilful misconduct in connection with the provision of any such Services; provided that nothing in this Article XIII shall alter, suspend or limit the obligations of the Parties for payment of the Service Fees in accordance with the terms of this Agreement.

2. Indemnification of the Recipient Party.

Subject to the limitations set forth in the Merger Agreement, a Performing Party shall indemnify a Recipient Party against, any and all liabilities, losses, judgments, settlements, damages, costs, fees and expenses, including reasonable legal fees and expenses (collectively, “ Claims ”), that arise as a result of or in connection with or are otherwise attributable to a material breach by the Performing Party or any of its Affiliates, personnel or representatives of any provision of

this Agreement . A Performing Party shall not be liable for any indirect or consequential changes that may be incurred by a Recipient Party.

3. Indemnification of the Performing Party and its Affiliates.

Subject to the limitations set forth in the Merger Agreement, a Recipient Party shall indemnify a Performing Party and its Affiliates against any and all Claims that arise as a result of or in connection with or are otherwise attributable to: (a) a material breach by the Recipient Party or its Affiliates, personnel or representatives of any provision of this Agreement; or (b) any breach or non-compliance by the Recipient Party or its Affiliates of any third party license or agreement between a Performing Party (or its Affiliates) and a third party licensor or supplier of which the Recipient Party or its Affiliate is a beneficiary hereunder in its receipt of the Services.

4. Indemnification Procedures.

In the event a Party has a Claim for indemnity against another Party under the terms of this Agreement, such Parties shall follow the procedures set forth in Article 13 of the Merger Agreement, except to the extent modified herein.

ARTICLE XIV TERMINATION

1. Termination.

This Agreement may be terminated as follows:

(a) by a Recipient Party pursuant to Section 5.2;

(b) by KFS on ten (10) days notice to the AIAI Companies, in the event ACIC or ASI cease to be a wholly owned subsidiary of Atlas;

(c) by any Party immediately in the event that any other Party has been adjudicated bankrupt, has failed to vacate an involuntary bankruptcy or reorganization petition within sixty (60) days of the date of such filing, files such a petition on a voluntary basis, fails to vacate the appointment of a receiver or trustee for it or for a substantial portion of its assets, makes an assignment for the benefit of such Party's creditors or ceases to do business as a going concern;

(d) by any Party, upon written notice to the other Parties, in the event that KFS or AIAI is in material breach hereof or is in default of any of its material obligations hereunder or breaches any material provision of this Agreement and fails to remedy such default or breach within thirty (30) days of its receipt of such written notice.

2. Effect of Termination.

Upon any termination or expiration of this Agreement:

(a) upon request, each Party shall promptly return to the other Parties all tangible personal property and books, records or files owned by such other Parties and used in connection with the provision of each terminated Service that are in its or its Affiliates' possession or control as of the effective date of such termination, except a Party may retain one (1) copy set in order to comply with its regulatory obligations, which copy set shall be deemed Confidential Information of the Party who made such information available;

(b) except for the license to use the Kingsway Insurance Information Systems and any related Kingsway Intellectual Property granted hereunder, all licenses granted hereunder shall terminate (inclusive of any rights and licenses to use any intellectual property or information systems of any other Party) as of the effective date of termination, other than the license to use the Kingsway Intellectual Property and Kingsway Insurance Information Systems granted hereunder, and each Party shall promptly (and in any event within thirty (30) days of the effective date of termination) return to the other Parties all technology and software of the other Parties made available to such Party hereunder or in connection herewith;

(c) each Party shall promptly pay to the other Parties all undisputed amounts due and payable hereunder by such Party up to and including the effective date of termination;

(d) each Party shall within thirty (30) days of the effective date of termination return to the other Parties all data of the other Parties in its possession or under its control. Following such return and at the other Parties' written direction, the returning Party shall erase or destroy any data of the other Parties remaining in its possession, or such portion of such data as the other Parties may direct and shall thereafter provide the other Parties with a written certificate confirming such erasure or destruction; and

(e) Nothing in this Article XIV shall relieve the Parties from their liability for any breach or threatened breach of this Agreement. The provisions of Article VII, Article X, Article XI, Article XII, Article XIII, Section 3.3, this Section 14.2, Article XV and Article XVI, and the obligations of each Party under Article VIII to pay the Service Fees for Services furnished on and prior to the effective date of such termination and any Consent Fees, Termination

Fees or late payments, shall survive any termination hereunder.

ARTICLE XV DISPUTE RESOLUTION

1. Disputes.

Any disputes, disagreements, controversies, questions or claims between the Parties, other than Excluded Disputes, relating to this Agreement or the Services provided hereunder or the Services Fees (a “ Dispute ”), shall be escalated in accordance with the following procedure. (a) If a Dispute cannot be resolved in the normal course, then the Dispute may be referred, at any time, by any party on written notice to the other Parties as follows: (i) for KFS to the President of KFS; and (ii) for AIAI to the President of AIAI. (b) The individuals identified in paragraph (a) shall mutually agree on the methods by which they shall attempt to resolve any Dispute, such as, for example, telephone and/or video conferences, email and fax communications and/or face to face meetings. No Dispute shall be considered resolved until the parties have agreed to the resolution in writing. (c) If the individuals identified in paragraph (b) cannot resolve a Dispute within a period of thirty (30) calendar days from the date on which it was referred as provided in paragraph (b), then any Party may upon notice to the others refer the Dispute to non-binding mediation for a one (1) day maximum session, to be held no later than sixty (60) calendar days after the date of the notice as provided above. Any such mediation shall: (i) be non-binding on the Parties; (ii) be conducted by a single mediator agreeable to each Party. Any mediator selected must be a suitably qualified, impartial Person who is experienced in commercial and contractual disputes involving services reasonably similar to the Services provided hereunder. If the Parties are unable to mutually agree upon a mediator, KFS and AIAI shall, within ten (10) Business Days following the referral of the matter to mediation, appoint a mediator selector with substantially the same expertise as required for the mediator, and the two mediator selectors so appointed shall appoint a third mediator who shall be the mediator; provided, however, that if only one of KFS or AIAI has chosen a mediator selector within such ten (10) Business Day period, that mediator selector shall be entitled to appoint the mediator. In the event that the mediator selectors are unable to mutually agree upon a mediator within ten (10) Business Days, any Party shall be entitled to apply to an Illinois court judge to select a mediator; (iii) be conducted in the English language in the city of Chicago, Illinois (unless otherwise agreed by the Parties) at such time and venue as the mediator may fix; (iv) be limited to no more than one (1) day unless the parties otherwise agree in writing; and (v) be held with each Party sharing equally the costs of the mediator and expenses relative to the mediation process. (d) No Dispute shall be considered resolved by mediation until the Parties have agreed to the resolution in writing. If the Dispute is not resolved within five (5) Business Days of the completion of the mediation described in paragraph (c), each Party shall be free to pursue its remedies in a court of competent jurisdiction as provided in Section 1.9. (e) Each Party shall pay its own costs, if any, associated with the process contemplated under paragraph (b) and the mediation contemplated under paragraph (c). All Disputes (and mediation) will be kept confidential to the full extent permitted by applicable Law. For the purposes of this Agreement “ Excluded Disputes ” are any disputes, disagreements, controversies, questions or Claims between the Parties relating to: (i) actual or alleged breaches or actual or alleged non-compliance by a Recipient Party of any third party licenses or service agreements between a Performing Party and a third party of which the Recipient Party or its Affiliates is a beneficiary (directly or indirectly) of receipt of the Services hereunder; (ii) any Party's data, Confidential Information or Intellectual Property; or (iii) actual or alleged infringement of any third party's intellectual property rights as a result of the performance of the Services.

ARTICLE XVI MISCELLANEOUS

1. Undertakings of the Parties; Breaches.

Each of the Parties agrees to perform, or cause to be performed, when due all obligations of its Affiliates under this Agreement. Each of the Parties agrees to be responsible for any breach or threatened breach of Article IX by any of its respective personnel or Article X by any of its respective representatives.

2. Authority.

Each Party represents and warrants to the other Party hereto:

(a) that it has the requisite power and authority to enter into and deliver this Agreement and to perform its obligations hereunder;

(b) that the execution, delivery and performance of this Agreement have been duly and validly authorized by the requisite corporate action on the part of such Party and that no other corporate proceedings on the part of such Party are necessary to authorize the execution, delivery and performance of this Agreement; and

(c) that this Agreement has been duly executed and delivered by such Party and, assuming the due authorization, execution and delivery of this Agreement by the other Parties hereto, constitutes a valid and binding obligation of such Party, enforceable against such Party in accordance with its terms and conditions.

3. Relationship of the Parties.

(a) The Parties and their respective representatives shall be deemed independent contractors for all purposes under this Agreement.

(b) This Agreement shall not be deemed or construed to create the relationship of employer or employee, partnership or any type of joint venture relationship, between the Parties.

(c) The Parties acknowledge and agree that the Parties are not providing legal, accounting or tax advice under this Agreement. Neither party shall be responsible for any action or failure to take any action relating to any Services provided hereunder. The Parties further acknowledge and agree that no fiduciary or other similar relationship is being created between the Parties relating to the Services provided under this Agreement.

(d) Except as expressly set forth herein, no Party or representative of a Party shall have the authority to contract for or assume obligations of any nature in the name of another Party without that Party's prior written consent.

4. No Offset.

None of the Parties shall have the right to offset or withhold any sums they may owe to the other Parties under this Agreement against any sums they may be entitled to receive under any provision of this Agreement, the Merger Agreement or otherwise.

5. Sole Remedy.

The provisions of Articles XIII, XIV and XV hereof shall be the sole and exclusive remedies with respect to any breach or threatened breach of this Agreement.

6. Amendment, Modification and Waiver.

(a) Neither this Agreement nor any provision hereunder may be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the Parties.

(b) No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided under applicable Laws.

7. Entire Agreement.

This Agreement (together with the Schedules and Exhibits attached hereto) constitutes the entire agreement between the Parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and verbal, between the Parties with respect to the subject matter hereof.

8. Severability.

Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable.

9. Counterparts.

This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement.


10.	Third Party Beneficiaries.

Except as set forth in Article XIII, nothing in this Agreement, express or implied, is intended to confer upon any Person other than the Parties any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement.


11.	Binding Effect; Assignment.

Except as otherwise expressly set forth herein, neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any Party, in whole or in part, to any other Person by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the other Parties hereto, and any attempt at same shall be null and void ab initio . Subject to the foregoing, this Agreement shall enure to the benefit of and be binding upon the Parties and the respective successors and permitted assigns.


12.	Descriptive Headings

The descriptive article and section headings contained herein and in the Schedules and Exhibits attached hereto are

inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.


13.	Expenses.

Except as otherwise expressly set forth herein, all costs and expenses incurred in connection with this Agreement shall be paid by the Party incurring such cost or expense.


14.	Notices.

All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (delivery of which is confirmed), by courier (delivery of which is confirmed), or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties as follows:


(a)	to KFS at:

Kingsway Financial Services Inc.

150 Northwest Point Boulevard

Elk Grove Village, Illinois

60007

Attention: President and CEO

Facsimile: (847) 952-7079


(b)	to AIAI at:

American Insurance Acquisition Inc.

150 Northwest Point Boulevard

Elk Grove Village, IL 60007

Attention: Scott Wollney

Facsimile: (847) 228-2580

or to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 16.14 constitute notice for service of any writ, process or summons in any suit, action or other proceeding.


15.	Notice of Breach.

Each Party shall promptly notify in writing the other Parties of any breach or threatened breach of this Agreement or of any third party license agreement of which it becomes aware.

IN WITNESS WHEREOF , each of the Parties has caused this Agreement to be duly executed on its behalf as of the day and year first above written.



		KINGSWAY FINANCIAL SERVICES INC.
		Per:	/s/ Larry G. Swets, Jr.
			Name: Larry G. Swets, Jr.
			Title: President & CEO
		Per:	/s/ William A. Hickey, Jr.
			Name: William A. Hickey Jr.
			Title: Chief Operating Officer



		AMERICAN INSURANCE ACQUISITION INC.
		Per:	/s/ Scott D. Wollney
			Name: Scott D. Wollney
			Title: President & CEO

SCHEDULE 3.2

KINGSWAY SERVICES

(I)

Kingsway Accounting Support Services : KFS will provide under an Accounting Shared Services Agreement, support for GAAP and IFRS accounting for AIAI and certain U.S. Affiliates or subsidiaries on an ongoing basis until such time as it is mutually determined by both parties to be unnecessary. As consideration for this Service, AIAI or its U.S. Affiliate for whom Service is rendered will reimburse KFS or its subsidiary or Affiliate who performed the Service for actual costs, including but not limited to employee salaries and related expenses, incurred in providing this Service.

(II)

Kingsway Auto Policy Administration and Underwriting Support Services : KFS, or its U.S. Affiliates or subsidiaries, will provide under a Program Management Agreement to be incorporated in the future as Schedule 3.2(II), private passenger auto policy administration and underwriting support for ASI relating to business written prior to and after the Closing until such time as all private passenger auto policies are transitioned away from ASI either through renewal by Kingsway or an Affiliate or non-renewal. As consideration for this Service, KFS or its subsidiary or Affiliate who performed the Service will be entitled to renewal rights relative to ASI's private passenger auto book of business plus payment equal to the difference between .95 X earned premium for the period during which this Service is rendered and the fully developed Loss & ALAE amount as recorded on ASI's books for that same period plus 100% of Unallocated Loss Adjustment Expense (“ ULAE ”) for personal auto lines business as reserved on ASI's books at the close of the Transaction.


(III)	Kingsway IT Services : To the extent that Kingsway remains the bill to party for services required to support both Kingsway's and the Companies' information technology and related business functions (e.g., Verizon), actual expenses based on invoices will be split proportionately based on actual use.

(I)

Kingsway Tax Return Services : KFS shall be required to prepare the 2009 federal income tax returns of AIAI, ASI, ACIC, Southern United Fire Insurance Company (“SUFI”), and Southern United General Agency of Texas, Inc. (“SUGAT”) for inclusion in the 2009 Kingsway consolidated federal income tax return. KFS shall also be required to prepare the 2009 state income tax returns of AIAI, ASI, ACIC, SUFI and SUGAT that are to be included in any combined or unitary state income tax returns whereby KFS or one of its Affiliates is the parent. AIAI shall (or shall cause ASI, ACIC or other AIAI Affiliates to) be responsible for the preparation and filing of all other income tax and other types of tax or information returns of AIAI, ASI, ACIC, SUFI and SUGAT not mentioned in the first two sentences. The foregoing services shall be performed without charge to either party.

SCHEDULE 4.2

AIAI SERVICES

(I)

AIAI Accounting Services : AIAI and its Affiliates will provide under an Accounting Shared Services Agreement, support for Statutory accounting for KFS and certain U.S. Affiliates or subsidiaries, including the delivery of related data in agreed formats, on an ongoing basis until such time as it is mutually determined by both parties to be unnecessary. During the first ninety (90) days immediately following the Closing, AIAI will provide limited support for the transition of certain U.S. Affiliates or subsidiaries' actuarial processes. As consideration for this Service, KFS or its U.S. Affiliate for whom Service is rendered will reimburse AIAI or its subsidiary or Affiliate who performed by Service for actual costs, including but not limited to employee salaries and related expenses, incurred in providing this Service.

(II)

AIAI Claims Handling Services : AIAI, or its U.S. Affiliates or subsidiaries, will provide under an Underwriting & Claims Management Agreement to be incorporated in the future as Schedule 4.2(II), commercial auto policy administration, underwriting and claims handling support for Universal Casualty Company (“ UCC ”) relating to business written prior to and after the Closing until such time as all commercial auto policies are transitioned away from UCC either through renewal by an AIAI subsidiary, or non-renewal. As consideration for this Service, AIAI or its subsidiary or Affiliate who performed the Service will be entitled to renewal rights relative to UCC's commercial auto book of business plus 100% of ULAE for commercial auto lines business as reserved on UCC's books at the close of the Transaction.

(III)

AIAI Personnel and Payroll Support Services : The Companies will provide under a Personnel and Payroll Records Storage Agreement, personnel and payroll records support for records of former employees of KFS that worked at the Companies, including storage of such records, until such time as the minimum retention period for such records has expired under applicable law. As consideration for this Service, KFS will pay to the Companies a one-time fee of $100.00 at the close of the Transaction.

(IV)

AIAI IT Services : AIAI will provide to KFS and certain of its U.S. Subsidiaries or Affiliates limited IT Services to be mutually agreed, relating in particular to the ongoing use of, or transition from, IT infrastructure located at 150 Northwest Point Boulevard, Elk Grove Village, IL 60007. As consideration for this Service, KFS or its U.S. Affiliate for whom Service is rendered will reimburse AIAI or its subsidiary or Affiliate who performed the Service for actual costs, including but not limited to employee salaries and related expenses, incurred in providing this Service. Non-personnel costs (i.e., hardware, software, off-site storage) associated with these services will either be direct expense to KFS or a pass-through of actual expenses based on invoices (to the extent that any of these items are shared between AIAI and KFS, costs will be split proportionately based on actual use). Any special projects that would be above and beyond ordinary services (i.e., reconstructing servers, reconfiguring cubicles) will be billed hourly, based on actual personnel expense.


(V)	AIAI Tax Return Services : See KFS Tax Return Services in Schedule 3.2 to the Agreement.


(VI)	AIAI Additional Tax Services : After the Closing, AIAI shall (and shall cause its respective Affiliates, including AIAI, ASI, ACIC, Southern United Fire Insurance Company (“SUFI”), and Southern United General Agency of Texas, Inc. (“SUGAT”), to):

Assist KFS in preparing (including, but not limited to, the preparation of work papers and schedules needed to prepare the 2009 income tax returns and assist KFS in accumulating the information necessary to calculate the tax basis in the stock of AIAI, ASI, ACIC, SUFI and SUGAT ) any federal or state income tax return for which KFS is responsible to prepare and file under this agreement and any amended returns or refund claims relating to federal or state income taxes for taxable periods ending on or before the Closing Date;


b.	Cooperate fully in preparing for any audits of, or disputes with tax authorities regarding any taxes of AIAI, ASI, ACIC,SUFI and SUGAT relating to any taxable period ending on or before the Closing Date or any taxable year or period beginning before and ending after the Closing Date (a “Straddle Period”);


c.	Make available to KFS as reasonably requested all information, records, and documents relating to taxes of AIAI, ASI, ACIC, SUFI and SUGAT for any taxable period ending on or before the Closing Date and any Straddle Period; and

Retain or cause to be retained all books and records pertinent to AIAI, ASI, ACIC, SUFI and SUGAT for each taxable period ending on or before the Closing Date or any Straddle Period until the expiration of the applicable statute of limitations (giving effect to any and all extensions and waivers thereof) and to abide by or cause compliance with all record retention agreements entered into by or on behalf of AIAI, ASI, ACIC, SUFI or SUGAT with any tax authority.

The foregoing services shall be performed without charge to either party, however, to the extent AIAI or an Affiliate incurs direct external cost in support of these AIAI Additional Tax Services, and provided that (i) AIAI has informed KFS prior to incurring such external cost, and (ii) AIAI or an Affiliate clearly did not have the ability to provide such service without incurring such external cost, KFS will reimburse AIAI for these costs.

SCHEDULE 11.1(f)

PERSONAL INFORMATION


1.	In this Agreement, “ Personal Information ” means information about an identifiable individual, but does not include the name, title or business address or telephone number of an employee of an organization.


2.	In performing the Services, each Party will treat any and all Personal Information that it receives from any other Party, including concerning any of such other Party's employees, as confidential and:


(a)	it will use or reproduce such Personal Information only to the extent necessary to fulfill its obligations under this Agreement;


(b)	it will limit access to such Personal Information to those of its employees and its subcontractors' employees who have a need to be familiar with it or have access to it;


(c)	it will advise its employees and its subcontractors' employees receiving such Personal Information of the confidentiality obligations assumed in this Agreement;


(d)	except in the circumstances described in Article 10 of the Agreement or as may be otherwise expressly provided for in this Schedule, it will not disclose such Personal Information to any third party without the prior written consent of such other Party;


(e)	it will take and reasonable precautions, and in any event not less than the precautions used to protect its own confidential information of like nature, to keep such Personal Information in the strictest confidence and to protect it from unauthorized access, collection, use, disclosure or disposal;

(f)

it will cease all use of such Personal Information and will return or destroy all such Personal Information, including any copies, at the direction of such other Party, upon the termination of this Agreement or upon request by such other Party. In the case of Personal Information in electronic form “destroy” means to use reasonable efforts to permanently delete such Personal Information from its information systems such that the Personal Information is not accessible in the ordinary course, however each Party recognizes that such electronic representations of Personal Information may continue to exist, subject to the terms hereof, in the other Parties' data system backup tapes, or similar storage media;

(g)

it will permit representatives of such other Party to review its processes in place for the handling of such Personal Information and to request that it make any changes (at such other Party's cost and expense) that such other Party, acting reasonably, considers necessary in order to protect the confidentiality of such Personal Information and that it will not unreasonably refuse any such requests by such other Party;


(h)	upon request, it will reasonably cooperate with such other Party in responding to any requests by individuals to allow access to, correct, block, suppress or delete any such Personal Information that it holds on behalf of such other Party;


(i)	if it becomes aware of a breach of any of the provisions of this Schedule, it will notify such other Party promptly in writing and take all reasonable measures to prevent further breaches;


(j)	it will not transfer such Personal Information outside of Canada, either physically or electronically without such other Party's prior written consent (provided that each Party acknowledges and approves such transfer to the extent such transfer is contemplated as part of the Services as such Services were provided immediately prior to Closing); and


(k)	it will reasonably cooperate with, and assist in, any investigation by such other Party or by any Governmental Authority, including the Office of the Privacy Commissioner of Canada, of a complaint that any such Personal Information has been collected, used or disclosed contrary to this Agreement or applicable Law.


3.	Each Party warrants that with respect to any and all Personal Information that it may disclose to another Party under this Agreement, it has, where required by applicable Law, obtained informed consent to such disclosure from the individual(s) whose Personal Information is being disclosed.


4.	Each Party's obligations concerning Personal Information under this Schedule are in addition to, and not in substitution for, any other obligations respecting confidentiality that may be contained in this Agreement.

EXHIBIT 10.6

LEASE AGREEMENT

THIS LEASE AGREEMENT (the “Lease”) is made and entered into this 31st day of December, 2010, between AMERICAN SERVICE INSURANCE COMPANY, INC. (“Landlord”) and UNIVERSAL CASUALTY COMPANY (“Tenant”).

WITNESSETH:

1. Premises and Term

In consideration of the obligation of Tenant to pay rent as herein provided, and in consideration of the other terms, provisions, and covenants hereof, Landlord hereby demises and Leases to Tenant, and Tenant hereby accepts and Leases from Landlord, the following described space, to wit : approximately 14,100 square feet as shown and outlined on the plan attached hereto as Exhibit A (the “Leased Premises”) on the second floor , located in the building commonly known as the Kingsway building (the “Building”), situated on the real property described in Exhibit B attached hereto (the “Property”) which is part of a development in the Park at Northwest Point, Elk Grove Village, Illinois (the “Development”). The Leased Premises shall be occupied and used exclusively for general office purposes and for legal purposes incidental thereto and shall not be used for any other purpose. Tenant shall have shared access to conference rooms, training rooms, meeting facilities and other common areas of the Building without charge and upon reasonable notice to Landlord, but only to the extent Landlord owns the conference rooms, training rooms, meeting facilities and/or other common areas of the Building.

TO HAVE AND TO HOLD the same for a term of thirty-six (36) months commencing on January 1, 2011, and ending December 31, 2013 (“Term”) unless terminated or extended pursuant to any provision hereof. Tenant acknowledges that no representations as to the repair of the Leased Premises, nor promises to alter, remodel or improve the Leased Premises have been made by Landlord, unless such are expressly set forth in this Lease.

The taking of possession by Tenant shall be deemed conclusively to establish that the Building, other improvements, and the Leased Premises are in good and satisfactory condition as of when possession was so taken (except for such items as Landlord is permitted to complete at a later date, which items shall be specified by Landlord to Tenant in writing).

2. Rent

A. Rent and Security Deposit.

i. Tenant agrees to pay to Landlord for the Leased Premises in lawful money of the United States rent for the first twelve (12) months of the term hereof at the rate of Fifteen Dollars ($15.00) per square foot of occupied space, in advance, except that the monthly installment which otherwise shall be due on the commencement date recited above, shall be due and payable on the date hereof. Thereafter one such monthly installment shall be due and payable without demand on or before the first day of each calendar month succeeding the commencement date; further provided, that the rental payment for any fractional calendar month at the commencement or end of the Lease term shall be prorated. The rate charged for rent shall increase by $0.50 (Fifty Cents) per year for each such succeeding twelve (12) month period.

ii . In addition, Tenant agrees to deposit with Landlord on the date hereof the sum of One Thousand Dollars ($1,000.00), which sum shall be held by Landlord, without obligation for interest, as security for the full, timely and faithful performance of Tenant's covenants and obligations under this Lease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein or provided by law, use such funds to the extent necessary to make good any arrears of rent or other payments due to Landlord hereunder, and any other damage, injury, expense or liability caused by any event of Tenant's default; and Tenant shall pay to Landlord on demand the amount so applied in order to restore the security deposit to its original amount. Although the security deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease when Landlord shall have determined that all Tenant's obligations under this Lease have been fulfilled. Subject to the other terms and conditions contained in this Lease, if the Building is conveyed by Landlord, said deposit may be turned over to Landlord's grantee, and if so, Tenant hereby releases Landlord from any and all liability with respect to said deposit and its application or return.

B. -intentionally deleted -

3. Electric Service

To the extent Tenant is not billed directly by a public utility, Tenant shall pay, upon demand, as additional rent, for all electricity used by Tenant in the Leased Premises for lighting, convenience outlets, and other direct uses. The charge shall be based upon allocation of total building use and shall be at the rates charged for such services by the local public authority or utility but shall not exceed the greater of the trailing twelve (12) month average of electricity charges paid by Tenant or Tenant's proportionate share as defined in Section 21 hereof. In the first year of this lease, the trailing twelve (12) month average shall be considered the monthly average beginning with January 1, 2011 through the end of the month for which billing is being calculated. Tenant shall furnish, at its own expense, all electric light bulbs, tubes and ballasts. Tenant will not without the written consent of Landlord use any apparatus or device in the Leased Premises which will in anyway increase its usage beyond the amount of electricity which Landlord determines to be commercially reasonable for use of the Leased Premises as general office space, nor connect with electric current (except through existing electrical outlets in the Leased Premises) any apparatus or device for the purpose of using electric current. If Tenant shall require electric current in excess of that which is reasonably obtainable from existing electric outlets and normal for use of the Leased Premises as general office space, then Tenant shall first procure the consent of Landlord (which consent will not be unreasonably withheld). Tenant shall pay all costs of installation of all facilities necessary to furnishing such excess capacity and for such increased electricity usage.

Interruptions of any service shall not be deemed an eviction or disturbance of Tenants use and possession of the Leased Premises or any part thereof, or render Landlord liable for damages by abatement of rent or otherwise or relieve Tenant from performance of Tenant's obligations under this Lease.

4. Alterations

All improvements and alterations to the Leased Premises to be made by Tenant shall be installed at the cost and expense of Tenant (which cost shall be payable on demand by Landlord as additional rent), but only in accordance with plans and specifications which have been previously submitted to and approved in writing by Landlord, and only by Landlord or by contractors and subcontractors approved in writing by Landlord (which approval shall not be unreasonably withheld). In connection with any request for an approval of alterations by Tenant, Landlord may retain the services of an architect and/or engineer and Tenant shall reimburse Landlord for the reasonable fees of such architect and/or engineer. All alterations, additions, improvements and partitions erected by Tenant shall be and remain the property of Tenant during the term of this Lease and Tenant shall, unless Landlord otherwise elects as hereinafter provided, remove all alterations, improvements and partitions erected by Tenant and restore the Leased Premises to its original condition by the date of termination of this Lease or upon earlier vacating of the Leased Premises; provided, however, that, if at such time Landlord so elects, such alterations, additions, improvements and partitions shall become the property of Landlord as of the date of termination of this Lease or upon earlier vacating of the Leased Premises and title shall pass to Landlord under this Lease as by a bill of sale. All such removals and restoration shall be accomplished in a good workmanlike manner by contractors approved in writing by Landlord so as not to damage the primary structure or structural qualities of the Building. All alterations, additions or improvements proposed by Tenant shall be constructed in accordance with all governmental laws, ordinances, rules and regulations and Tenant shall, prior to construction, provide such assurances to Landlord, including but not limited to, waivers of lien, surety company performance bonds and personal guaranties of individuals of substance, as Landlord shall require to assure payment of the costs thereof and to protect Landlord against any loss from any mechanics', laborers', materialmen's or other liens.

5. Service

A. In buildings of two or more stories Landlord agrees to furnish Tenant, while occupying the Leased Premises, water, hot, cold and refrigerated at those points of supply provided for general use of tenants; heated and refrigerated air conditioning in season at such times as Landlord normally furnishes these services to all tenants of the Building, and at such temperatures and in such amounts as are in accordance with any applicable statutes, rules or regulations and are considered by Landlord to be standard, such service at other times and on Saturday, Sunday, and holidays to be optional on the part of Landlord (Landlord hereby reserves the right to charge Tenant for any such optional service requested by Tenant on such basis as Landlord, in its sole discretion, determines); janitor service to the Leased Premises on weekdays other than holidays and such window washing as may from time to time in the Landlord's judgment be reasonably required; operatorless passenger elevators for ingress and egress to the floor on which the Leased Premises are located, provided Landlord may reasonably limit the number of elevators to be in operation on Saturdays, Sundays, and holidays; but failure to any extent to furnish or any stoppage or interruption of these defined services, resulting from any cause, shall not render Landlord liable in any respect for damages to any person, property, or business, nor be construed as an eviction of Tenant or work an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement

hereof. Should any equipment or machinery furnished by Landlord cease to function properly, Landlord shall use reasonable diligence to repair the same promptly, but Tenant shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. Whenever heat generating machines or equipment are used by Tenant in the Leased Premises which affect the temperature otherwise maintained by the air conditioning equipment, Landlord reserves the right to install supplementary air conditioning units in the Leased Premises (or for the use of the Leased Premises) and the expense of such purchase, installation, maintenance, and repair shall be paid by Tenant upon demand as additional rent.

B. In buildings of one story without interior common public areas, Landlord agrees to provide, at its cost, water, electricity and telephone service connections into the Leased Premises; but Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler system charges and other utilities and services used on or from the Leased Premises, including without limitation, Tenant's proportionate share as determined by Landlord of any central station signaling system installed in the premises or the building of which the premises are a part, together with any taxes, penalties and surcharges or the like pertaining thereto and any maintenance charges for utilities. Tenant shall furnish all electric light bulbs, tubes and ballasts. If any such services are not separately metered to Tenant, Tenant shall pay such proportion of all charges jointly metered with other premises as determined by Landlord, in its sole discretion, to be reasonable. Any such charges paid by Landlord and assessed against Tenant shall be immediately payable to Landlord on demand and shall be additional rent hereunder. Landlord shall in no event be liable for any interruption or failure of utility services on or to the Leased Premises. These costs, paid by Tenant, shall be excluded from amounts billed to Tenant pursuant to Paragraph 2.

C. In single story buildings with heat, ventilating and air conditioning systems servicing individual tenants, Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor approved by Landlord, for servicing all heating and air conditioning systems and equipment servicing the Leased Premises. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective within thirty (30) days of the date Tenant takes possession of the Leased Premises. If there is a common interior public area with its own HVAC system, the costs to operate and maintain that system plus general maintenance of the common area will be included as part of the cost covered by Paragraph 2.

D. Tenants in single and multi-story buildings shall not provide any janitorial services without Landlords written consent and then only subject to supervision of Landlord and by a janitorial contractor or employees at all times satisfactory to Landlord. Any such services provided by Tenant shall be Tenant's sole risk and responsibility.

6. Use of Premises

A. Tenant will not occupy or use, nor permit any portion of Leased Premises to be occupied or used, for any business or purpose other than that described above or for any use or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner, or extra hazardous on account of fire, nor permit anything to be done which will render void or in any way increase the rate of fire insurance on the Building or its contents, and Tenant, shall immediately cease and desist from such use, paying all costs and expenses resulting therefrom.

B. Tenant shall at its own cost and expense promptly obtain any and all licenses and permits necessary for any permitted use. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use and its occupancy of the Leased Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of any violations or nuisances in or upon, or connected with, the Leased Premises, all at Tenant's sole expense. If, as a result of any change in the governmental laws, ordinances, and regulations, the Leased Premises must be altered to lawfully accommodate Tenant's use and occupancy, such alterations shall be made only with the consent of Landlord, but the entire cost shall be borne by Tenant; provided, that, the necessity of Landlord's consent shall in no way create any liability against Landlord for failure of Tenant to comply with such laws, ordinances and regulations.

C. Tenant will maintain the Leased Premises (including all fixtures installed by Tenant, water heaters within the Leased Premises and plate glass) in good repair, reasonable wear and tear excepted, and in a clean and healthful condition, and comply with all laws, ordinances, orders, rules, and regulations (state, federal, municipal, and other agencies or bodies having any jurisdiction thereof) with reference to condition, or occupancy of the Leased Premises. Any repairs or replacements shall be with materials and workmanship of the same character, kind and quality as the original. Tenant will not, without the prior written consent of Landlord, paint, install lighting or decorations, or install any signs, window or door lettering or advertising media of any type on or about the Leased Premises.

D. Tenant will conduct its business and control its agents, employees and invitees in such a manner as not to create any nuisance, nor interfere with, annoy, or disturb other tenants or Landlord in the management of the Building.

E. Tenant shall pay upon demand as additional rent the full cost of repairing any damage to the Leased Premises, Building or related facilities resulting from and/or caused in whole or in part by the negligence or misconduct of Tenant, its agents, servants, employees, patrons, customers, or any other person entering upon the Development as a result of Tenant's business activities or resulting from Tenant's default hereunder.

F. Tenant and Tenant's agents, employees, and invitees will comply fully with all rules and regulations of the Development, the Building, parking area and related facilities which Landlord may establish from time to time. Landlord shall at all times have the right to change such rules and regulations or to promulgate other rules and regulations in such reasonable manner as may be deemed advisable for the safety, care, and cleanliness of the Building or the Development and for the preservation of good order therein. Copies of all rules and regulations, changes, and amendments will be forwarded to Tenant in writing and shall be carried out and observed by Tenant. Tenant shall further be responsible for the compliance with such rules and regulations by Tenant's employees, servants, agents and visitors.

G. At termination of this Lease, upon its expiration or otherwise, Tenant shall deliver up the Leased Premises with all improvements located thereon (except as herein provided) in good repair and condition, reasonable wear and tear excepted, broom clean and free of all debris.

7. Inspections

Landlord shall have the right to enter the Leased Premises at any reasonable time, for the following purposes: (i) to ascertain the condition of the Leased Premises; (ii) to determine whether Tenant is diligently fulfilling Tenant's responsibilities under this Lease; (iii) to clean and to make such repairs as may be required or permitted to be made by Landlord under the terms of this Lease; or (iv) to do any other act or thing which Landlord deems reasonable to preserve the Leased Premises and the Building. During the six (6) months prior to the end of the term hereof and at any time Tenant is in default hereunder, Landlord shall have the right to enter the Leased Premises at any reasonable time during business hours for the purpose of showing the premises. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating and shall arrange to meet with Landlord for a joint inspection of the Leased Premises. In the event of Tenant's failure to give such notice or arrange such joint inspection, Landlord's inspection at or after Tenant's vacating the Leased Premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repairs and restoration.

8. Assignment and Subletting

A. Tenant shall not have the right to assign or pledge this Lease or to sublet the whole or any part of the Leased Premises, whether voluntarily or by operation of law, or permit the use or occupancy of the Leased Premises by anyone other than Tenant, without the prior written consent of Landlord, and such restrictions shall be binding upon any assignee or subtenant to which Landlord has consented (which consent shall not be unreasonably withheld). In the event Tenant desires to sublet the Leased Premises, or any portion thereof, or assign this Lease, Tenant shall give written notice thereof to Landlord within a reasonable time prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed subtenant or assignee, the relevant terms of any sublease and copies of financial reports and other relevant financial information of the proposed subtenant or assignee. In no event may Tenant sublet, nor will Landlord consent to any sublease of, all or any portion of the Leased Premises if the rent is determined in whole or in part based upon the income or profits derived by the sub-lessee (other than a rent based on a fixed percentage or percentages of receipts or sales). Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent herein specified and for compliance with all of its other obligations under the terms, provisions and covenants of his Lease. Upon the occurrence of an “event of default” (as hereinafter defined), if the Leased Premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided or provided by law, may, at its option, collect directly from such assignee or subtenant all rents due and becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant's obligations hereunder. Tenant shall pay to Landlord, on demand, a reasonable service charge for the processing of the application for the consent and for the preparation of the consent. Such service charge shall be collectible by Landlord only where consent is granted by Landlord.

B. In addition to, but not in limitation of, Landlord's right to approve of any subtenant or assignee, Landlord shall have the option, in its sole discretion, in the event of any proposed subletting or assignment, to terminate this Lease, or in the case of a proposed subletting of less than the entire Leased Premises, to recapture the portion of the Leased Premises to be sublet, as of the date the subletting or assignment is to be effective. The option shall be exercised, if at all, by Landlord giving Tenant written notice thereof within sixty (60) days following Landlord's receipt of Tenant's written notice as required above. If this Lease shall be terminated with respect to the entire Leased Premises pursuant to this paragraph, the term of this Lease shall end on the date stated in Tenant's notice as the effective date of the sublease or assignment as if that date had been originally fixed in this Lease

for the expiration of the term hereof. If Landlord recaptures under this paragraph only a portion of the Leased Premises, the rent during the unexpired term shall abate proportionately based on the rent contained in this Lease as of the date immediately prior to such recapture. Tenant shall, at Tenant's own cost and expense, discharge in full any outstanding commission obligation on the part of Landlord with respect to this Lease, and any commissions which may be due and owing as a result of any proposed assignment or subletting, whether or not the Leased Premises are recaptured pursuant hereto and rented by Landlord to the proposed tenant or any other tenant. In the event of the recapture of a portion of the Leased Premises by Landlord pursuant to the terms of this paragraph, Tenant shall pay all costs associated with the separation of the recaptured premises from the portion not recaptured, including, but without limitation, the cost of all demising partitions, changes in lighting and HVAC distribution systems and all reasonable architectural and/or engineering fees.

C. Any assignment or subletting by Tenant pursuant to subparagraph 8A of all or any portion of the Leased Premises, or termination of the Lease for a portion of the Leased Premises pursuant to subparagraph 8B, shall automatically operate to terminate each and every right, option, or election, if any exist, belonging to Tenant, including by way of illustration, but not limitation, any option to expand its premises or to extend or renew the term of Tenant's Lease for all or any portion of the Leased Premises - i.e. such rights and options shall cease as to both space sublet or assigned and as to any portion of the original Leased Premises retained by Tenant.

9. Fire and Casualty Damage

A. If the Building, improvements, or Leased Premises are rendered partially or wholly untenantable by fire or other casualty, and if such damage cannot, in Landlord's reasonable estimation, be materially restored within ninety (90) days of such damage, then Landlord may, at its sole option, terminate this Lease as of the date of such fire or casualty. Landlord shall exercise its option provided herein by written notice within sixty (60) days of such fire or other casualty. For purposes hereof, the Building or Leased Premises shall be deemed “materially restored” if they are in such condition as would not prevent or materially interfere with Tenant's use of the Leased Premises for the purpose for which it was then being used.

B. If this Lease is not terminated pursuant to Paragraph 9A, then Landlord shall proceed with all due diligence to repair and restore the Building, improvements or Leased Premises, as the case may be (except that Landlord may elect not to rebuild if such damage occurs during the last year of the term exclusive of any option which is unexercised at the date of such damage).

C. If this Lease shall be terminated pursuant to this Paragraph 9, the term of this Lease shall end on the date of such damage as if that date had been originally fixed in this Lease for the expiration of the term hereof. If this Lease shall not be terminated by Landlord pursuant to this Paragraph 9 and if the Leased Premises is untenantable in whole or in part following such damage, the rent payable during the period in which the Leased Premises is untenantable shall be reduced to such extent, if any, as may be fair and reasonable under all of the circumstances. In the event that Landlord should fail to complete such repairs and material restoration within one hundred fifty (150) days after the date of such damage, Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, whereupon the Lease shall end on the date of such notice as if the date of such notice were the date originally fixed in this Lease for the expiration of the term hereof; provided however, that if construction is delayed because of changes, deletions, or additions in construction requested by Tenant, strikes, lockouts, casualties, acts of God, war, material or labor shortages, governmental regulation or control or other causes beyond the reasonable control of Landlord, the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed.

In no event shall Landlord be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in or about the Leased Premises by Tenant. Any insurance which may be carried by Landlord or Tenant against loss or damage to the Building or Leased Premises shall be for the sole benefit of the party carrying such insurance and under its sole control.

D. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Leased Premises, Building or Property requires that any insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon the Lease shall end on the date of such damage as if the date of such damage were the date originally fixed in this Lease for the expiration of the term hereof.

E. Each of Landlord and Tenant hereby releases the other from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused by fire, extended coverage perils, vandalism or malicious mischief, sprinkler leakage or any other perils insured in policies of insurance covering such property, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible, including any other tenants or occupants of the remainder of the Building in which the Leased Premises is located; provided, however, that this release shall be applicable and in force and effect only to the extent that such

release shall be lawful at that time and in any event only with respect to loss or damage occurring during such times as the releasor's policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasor to recover thereunder and then only to the extent of the insurance proceeds payable under such policies. Each Landlord and Tenant agrees that it will request its insurance carriers to include in its policies such a clause or endorsement. If extra cost shall be charged therefor, each party shall advise the other thereof and of the amount of the extra cost, and the other party, at its election, may pay the same, but shall not be obligated to do so. If such other party fails to pay such extra cost, the release provisions of this paragraph shall be inoperative against such other party to the extent necessary to avoid invalidation of such releasor's insurance.

F. In the event of any damage or destruction to the Building or the Leased Premises by any peril covered by the provisions of this Paragraph 9, Tenant shall, upon notice from Landlord, remove forthwith, at its sole cost and expense, such portion or all of the property belonging to Tenant or his licensees from such portion or all of the Building or the Leased Premises as Landlord shall request and Tenant hereby indemnifies and holds Landlord harmless from any loss, liability, costs, and expenses, including attorney's fees, arising out of any claim of damage or injury as a result of any alleged failure to properly secure the Leased Premises prior to such removal and/or such removal.

10. Liability

Landlord shall not be liable for and Tenant will indemnify and hold Landlord harmless from any loss, liability, costs and expenses, including attorney's fees, arising out of any claim of injury or damage on or about the Leased Premises caused by the negligence or misconduct or breach of this Lease by Tenant, its employees, subtenants, invitees or by any other person entering the Leased Premises or the Building or Development under express or implied invitation of Tenant or arising out of Tenant's use of the Leased Premises. Landlord shall not be liable to Tenant or Tenant's agents, employees, invitees or any person entering upon the Development in whole or in part because of Tenant's use of the Leased Premises for any damage to persons or property due to condition, design, or defect in the Building or its mechanical systems which may exist or occur, and Tenant assumes all risks of damage to such persons or property. Landlord shall not be liable or responsible for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority, or other matter beyond control of Landlord, or for any injury or damage or inconvenience, which may arise through repair or alteration of any part of the Building, or failure to make repairs, or from any cause whatever except Landlord's willful acts or gross negligence. Tenant shall procure and maintain throughout the term of this Lease a policy of insurance, in form and substance satisfactory to Landlord, at Tenant's sole cost and expense, insuring both Landlord and Tenant against all claims, demands or actions arising out of or in connection with: (i) the Leased Premises; (ii) the condition of the Leased Premises; (iii) Tenant's operations in and maintenance and use of the Leased Premises; and (iv) Tenant's liability assumed under this Lease; the limits of such policy to be in the amount of not less than $1,000,000 per occurrence in respect of injury to persons (including death) and in the amount of not less than $500,000 per occurrence in respect of property damage or destruction, including loss of use thereof. Such policy shall be procured by Tenant from responsible insurance companies satisfactory to Landlord. A certified copy of such policy, together with receipt evidencing payment of the premium, shall be delivered to Landlord prior to the commencement date of this Lease. Not less than thirty (30) days prior to the expiration date of such policy, a certified copy of a renewal thereof (bearing notations evidencing the payment of the renewal premium) shall be delivered to Landlord. Such policy shall further provide that not less than thirty (30) days' written notice shall be given to Landlord before such policy may be canceled or changed to reduce the insurance coverage provided thereby.

11. Condemnation

A. If any substantial part of the Building, improvements, or Leased Premises should be taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof and the taking would prevent or materially interfere with the use of the Building or Leased Premises for the purpose for which it is then being used, this Lease shall terminate effective when the physical taking shall occur in the same manner as if the date of such taking were the date originally fixed in this Lease for the expiration of the term hereof.

B. If part of the Building, improvements, or Leased Premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and this Lease is not terminated as provided in the subparagraph above, this Lease shall not terminate but the rent payable hereunder during the unexpired portion of this Lease shall be reduced to such extent, if any, as may be fair and reasonable under all of the circumstances and Landlord shall undertake to restore the Building, improvements, and Leased Premises to a condition suitable for Tenant's use, as near to the condition thereof immediately prior to such taking as is reasonably feasible under all the circumstances.

C. In the event of any such taking or private purchase in lieu thereof, Landlord and Tenant shall each be entitled to receive and retain such separate awards and/or portion of lump sum awards as may be allocated to their respective interests in any

condemnation proceedings; provided that Tenant shall not be entitled to receive any award for Tenant's loss of its leasehold interest, the right to such award being hereby assigned by Tenant to Landlord.

12. Holding Over

Tenant will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Landlord. If Tenant retains possession of the Leased Premises or any part thereof after such termination, then Landlord may, at its option, serve written notice upon Tenant that such holding over constitutes any one of (i) renewal of this Lease for one year, and from year to year thereafter, or (ii) creation of a month to month tenancy, upon the terms and conditions set forth in this Lease, or (iii) creation of a tenancy at sufferance, in any case upon the terms and conditions set forth in this Lease; provided, however, that the monthly rental (or daily rental under (iii)) shall, in addition to all other sums which are to be paid by Tenant hereunder, whether or not as additional rent, be equal to double the rental being paid monthly to Landlord under this Lease immediately prior to such termination (prorated in the case of (iii) on the basis of a 365 day year for each day Tenant remains in possession). If no such notice is served, then a tenancy at sufferance shall be deemed to be created at the rent in the preceding sentence. Tenant shall also pay to Landlord all damages sustained by Landlord resulting from retention of possession by Tenant, including the loss of any proposed subsequent tenant for any portion of the Leased Premises. The provisions of this paragraph shall not constitute a waiver by Landlord of any right of re-entry as herein set forth; nor shall receipt of any rent or any other act in apparent affirmance of the tenancy operate as a waiver of the right to terminate this Lease for a breach of any of the terms, covenants, or obligations herein on Tenant's part to be performed.

13. Quiet Enjoyment

Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant, while paying the rental and performing its other covenants and agreements herein set forth, shall peaceably and quietly have, hold and enjoy the Leased Premises for the term hereof without hindrance or molestation from Landlord subject to the terms and provisions of this Lease. In the event this Lease is a sublease, then Tenant agrees to take the Leased Premises subject to the provisions of the prior Leases. Landlord shall not be liable for any interference or disturbance by other tenants or third persons, nor shall Tenant be released from any of the obligations of this Lease because of such interference or disturbance.

In the event of change of ownership of the Landlord or sale of the building, or the leasing of additional space to other tenants, which results in loss of square footage to the Leased Premises, Landlord shall use its best efforts to accommodate Tenant and provide additional square footage to restore to Tenant square footage lost as a result of change of ownership of the Landlord or sale of the building, or the leasing of additional space to other tenants, or adjust the Rent to reflect the diminished square footage.

14. Default

A. Tenant's Default. Tenant shall be in default under this Lease if:

i. Tenant shall fail to pay when or before due any sum of money becoming due to be paid to Landlord hereunder, whether such sum be any installment of the rent herein reserved, any other amount treated as additional rent hereunder, or any other payment or reimbursement to Landlord required herein, whether or not treated as additional rent hereunder, and such failure shall continue for a period of five (5) days from the date such payment was due; or

ii. Tenant shall fail to comply with any term, provision or covenant of this Lease other than by failing to pay when or before due any sum of money becoming due to be paid to Landlord hereunder, and shall not cure such failure within twenty (20) days (forthwith, if the default involves a hazardous condition) after written notice thereof to Tenant; or

iii. Tenant shall abandon or vacate any substantial portion of the Leased Premises; or

iv. Tenant shall fail to vacate the Leased Premises immediately upon termination of this Lease, by lapse of time or otherwise, or upon termination of Tenant's right to possession only; or

v. The leasehold interest of Tenant shall be levied upon under execution or be attached by process of law or Tenant shall fail to contest diligently the validity of any lien or claimed lien and give sufficient security to Landlord to insure payment thereof or shall fail to satisfy any judgment rendered thereon and have the same released, and such default shall continue for ten (10) days after written notice thereof to Tenant; or

vi. Tenant shall become insolvent, admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy or a petition to take advantage of any insolvency statute, make an assignment for the

benefit of creditors, make a transfer in fraud of creditors, apply for or consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable law or statute of the United States or any state thereof; or

vii. A court of competent jurisdiction shall enter an order, judgment or decree adjudicating Tenant a bankrupt, or appointing a receiver of Tenant, or of the whole or any substantial part of its property, without the consent of Tenant, or approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the bankruptcy laws of the United States, as now in effect or hereafter amended, or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within thirty (30) days from the date of entry thereof.

viii. Sale of Shares. If Tenant is a corporation and if the ownership thereof shall materially change at any time or from time to time during the term of this Lease from the present composition of same as it may exist at any time, or if a substantial portion of the assets of Tenant shall be sold, assigned or transferred with or without a specific assignment of this Lease, or if Tenant shall merge or consolidate with any firm or corporation, Landlord at its option may, by giving sixty (60) days' prior written notice to Tenant, declare such change a breach of this Lease subject to the remedies provided for breach in Section 16 hereof.

Ownership of a corporation shall be deemed to have materially changed if a number of its voting shares which constitute fifty percent (50%) of the number thereof outstanding from time to time shall be transferred by either the owners thereof or by the corporation, and such transfer of shares shall not first have been approved in advance in writing by Landlord.

B. Landlord's remedies. Upon the occurrence of any of such events of default described in Paragraph 14 hereof or elsewhere in this Lease, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever:

i. Landlord may, at its election, terminate this Lease or terminate Tenant's right to possession only, without terminating the Lease;

ii. Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of Tenant's right to possession without termination of the Lease, Tenant shall surrender possession and vacate the Leased Premises immediately, and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and upon the Leased Premises in such event with or without process of law and to repossess Landlord of the Leased Premises as of Landlord's former estate and to expel or remove Tenant and any others who may be occupying or within the Leased Premises and to remove any and all property therefrom, without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without incurring any liability for any damage resulting therefrom, Tenant hereby waving any right to claim damage for such reentry and expulsion, and without relinquishing Landlord's right to rent or any other right given to Landlord hereunder or by operation of law;

iii. Upon any termination of this Lease, whether by lapse of time or otherwise, Landlord shall be entitled to recover as damages, all rent, including any amounts treated as additional rent hereunder, and other sums due and payable by Tenant on the date of termination, plus the sum of (i) an amount equal to the then present value of the rent, including any amounts treated as additional rent hereunder, and other sums provided herein to be paid by Tenant for the residue of the stated term hereof, less the fair rental value of the Leased Premises for such residue (taking into account the time and expense necessary to obtain a replacement tenant or tenants, including expenses hereinafter described in subparagraph (d) relating to recovery of the Leased Premises, preparation for reletting and for reletting itself), and (ii) the cost of performing any other covenants which would have otherwise been performed by Tenant;

iv.

(1) Upon any termination of Tenant's right to possession only without termination of the Lease, Landlord may, at Landlord's option, enter into the Leased Premises, remove Tenant's signs and other evidences of tenancy, and take and hold possession thereof as provided in subparagraph (b) above, without such entry and possession terminating the Lease or releasing Tenant, in whole or in part, from any obligation, including Tenant's obligation to pay the rent, including any amounts treated as additional rent, hereunder for the full term. In any such case Tenant shall pay forthwith to Landlord, if Landlord so elects, a sum equal to the entire amount of the rent, including any amounts treated as additional rent hereunder, for the residue of the stated term hereof plus any other sums provided herein to be paid by Tenant for the remainder of the Lease term;

(2) Landlord may, but need not, relet the Leased Premises or any part thereof for such rent and

upon such terms as Landlord, in its sole discretion, shall determine (including the right to relet the Leased Premises for a greater or lesser term than that remaining under this Lease, the right to relet the Leased Premises as a part of a larger area, and the right to change the character or use made of the Leased Premises). If Landlord decides to relet the Leased Premises or a duty to relet is imposed upon Landlord by law, Landlord and Tenant agree that Landlord shall only be required to use the same efforts Landlord then uses to Lease other properties Landlord owns or manages (or if the Leased Premises is then managed for Landlord, then Landlord will instruct such manager to use the same efforts such manager then uses to Lease other space or properties which it owns or manages); provided, however that Landlord (or its manager) shall not be required to give any preference or priority to the showing or teasing of the Leased Premises over any other space that Landlord (or its manager) may be leasing or have available and may place a suitable prospective tenant in any such available space regardless of when such alternative space becomes available; provided, further that Landlord shall not be required to observe any instruction given by Tenant about such reletting or accept any tenant offered by Tenant unless such offered tenant has a creditworthiness acceptable to Landlord, Leases the entire Leased Premises, agrees to use the leased premises in a manner consistent with the Lease and Leases the Leased Premises at the same rent, for no more than the current term and on the same other terms and conditions as in this Lease without the expenditure by Landlord for tenant improvements or broker's commissions. In any such case, Landlord may, but shall not be required to, make repairs, alterations and additions in or to the Leased Premises and redecorate the same to the extent Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the cost thereof, together with Landlord's expenses of reletting, including, without limitation, any broker's commission incurred by Landlord. If the consideration collected by Landlord upon any such reletting plus any sums previously collected from Tenant are not sufficient to pay the full amount of all rent, including any amounts treated as additional rent hereunder and other sums reserved in this Lease for the remaining term hereof, together with the costs of repairs, alterations, additions, redecorating, and Landlord's expenses of reletting and the collection of the rent accruing therefrom (including attorney's fees and broker's commissions), Tenant shall pay to Landlord the amount of such deficiency upon demand and Tenant agrees that Landlord may file suit to recover sums failing due under this section from time to time;

v. Landlord may, at Landlord's option, enter into and upon the Leased Premises, with or without process of law, if Landlord determines in its sole discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or replace anything for which Tenant is responsible hereunder and correct the same, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage resulting therefrom and Tenant agrees to reimburse Landlord, on demand, as additional rent, for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease;

vi. Any and all property which may be removed from the Leased Premises by Landlord pursuant to the authority of the Lease or of law, to which Tenant is or may be entitled, may be handled, removed and stored, as the case may be, by or at the direction of Landlord at the risk, cost and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in Landlord's possession or under Landlord's control. Any such property of Tenant not retaken by Tenant from storage within thirty (30) days after removal from the Leased Premises shall, at Landlord's option, be deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale without further payment or credit by Landlord to Tenant.

In the event Tenant fails to pay any installment of rent, including any amount treated as additional rent hereunder, or other sums hereunder as and when such installment or other charge is due, Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such installment or other charge overdue in any month and five percent (5%) each month thereafter until paid in full to help defray the additional cost to Landlord for processing such late payments, and such late charge shall be additional rent hereunder and the failure to pay such late charge within ten (10) days after demand therefor shall be an additional event of default hereunder. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner.

Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law (all such remedies being cumulative), nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. No act or thing done by Landlord or its agents during the term hereby granted shall be deemed a termination of this Lease or an acceptance of the surrender of the Leased Premises, and no

agreement to terminate this Lease or accept a surrender of said premises shall be valid unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained. Landlord's acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default shall not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord in enforcing one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or of Landlord's right to enforce any such remedies with respect to such default or any subsequent default. If, on account of any breach or default by Tenant in Tenant's obligations under the terms and conditions of this Lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning or to enforce or defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay any attorney's fees so incurred.

Without limiting the foregoing, Tenant hereby: (i) expressly waives any right to trial by jury; and (ii) expressly waives the service of any notice under any existing or future law of the State of Illinois applicable to landlords and tenants.

Tenant hereby constitutes and irrevocably appoints any attorney of any court to be the true and lawful attorney of Tenant, and, in the name, place and stead of Tenant, to appear for and on behalf of Tenant in any court of record at any time in any suit or suits brought against Tenant for the enforcement of any right hereunder by Landlord, to waive the issuance and service of process and trial by jury, and, from time to time, to confess judgment or judgments in favor of Landlord and against Tenant for any rent, including any amounts treated as additional rent hereunder, other charges, and interest thereon due hereunder by Tenant to Landlord and not paid and for costs of suit and for a reasonable attorney's fee in favor of Landlord to be fixed by the court, and to release all errors that may occur or intervene in such proceedings, including the issuance of execution upon any such judgment, and to stipulate that no appeal shall be prosecuted from such judgment or judgments, or that no proceedings in chancery or otherwise shall be filed or prosecuted to interfere in any way with the operation of such judgment or judgments, or of any execution issued thereon or with any supplemental proceedings taken by Landlord to collect the amount of any such judgment or judgments, and to consent that execution on any judgment or decree in favor of Landlord and against Tenant may issue forthwith.

15. Termination by Landlord

Landlord may terminate the Lease prior to the end of the Term by giving one hundred twenty (120) days prior written notice to Tenant. In addition, Landlord shall pay an early termination fee to Tenant according to the following schedule (which fee shall be payable within thirty (30) days of termination of the lease):



When Notice Provided	Termination Fee payable to Tenant
If provided in months 1 - 3 of the Term	$100,000
If provided in months 4 - 12 of the Term	$80,000
If provided in months 13 - 24 of the Term	$60,000
If provided in months 25 - 30 of the Term	$50,000

16. Landlord's Lien

In addition to any statutory lien for rent in Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a continuing security interest for all rentals and other sums of money becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract rights, chattel paper and other personal property of Tenant situated on the Leased Premises, and such property shall not be removed therefrom without the consent of Landlord until all arrearages in rent as well as any and all other sums of money then due to Landlord hereunder shall first have been paid and discharged. In the event of a default under this Lease, Landlord shall have, in addition to any other remedies provided herein or by law, all rights and remedies under the Uniform Commercial Code, including without limitation the right to sell the property described in this Paragraph 16 at public or private sale upon five (5) days' notice to Tenant. Tenant hereby agrees to execute such financing statements and other instruments necessary or desirable in Landlord's discretion to perfect the security interest hereby created. Any statutory lien for rent is not hereby waived, the express contractual lien herein granted being in addition and supplementary thereto.

17. Mortgages

Tenant accepts this Lease subject and subordinate to any mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a first lien or charge upon the Property, or the improvements situated thereon, provided, however, that if the mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant's interest in this Lease superior to any such instrument,

then by notice to Tenant from such mortgagee, trustee or holder, this Lease shall be deemed superior to such lien whether this Lease was executed before or after said mortgage or deed of trust. Tenant shall at any time hereafter on demand execute any instruments, releases or other documents which may be required by any such mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage or for the purpose of evidencing the superiority of this Lease to the lien of any such mortgage, as may be the case.

18. Landlord's Liability

In no event shall Landlord's liability for any breach of this Lease exceed the amount of rental then remaining unpaid for the then current term (exclusive of any renewal periods which have not then actually commenced). This provision is not intended to be a measure or agreed amount of Landlord's liability with respect to any particular breach, and shall not be utilized by any court or otherwise for the purpose of determining any liability of Landlord hereunder, except only as a maximum amount not to be exceeded in any event.

19. Mechanics and Other Liens

Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the Leased Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim shall affect and each such lien shall attach to, if at all, only the leasehold interest granted to Tenant by this Lease. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Leased Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Leased Premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, liability, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Leased Premises or under the terms of this Lease. Tenant will not permit any mechanic's lien or liens or any other liens which may be imposed by law affecting Landlord's or its mortgagees' interest in the Leased Premises or the Building to be placed upon the Leased Premises or the Building arising out of any action or claimed action by Tenant, and in case of the filing of any such lien Tenant will promptly pay same. If any such lien shall remain in force and effect for twenty (20) days after written notice thereof from Landlord to Tenant, Landlord shall have the right and privilege of paying and discharging the same or any portion thereof without inquiry as to the validity thereof, and any amounts so paid, including expenses and interest, shall be so much additional rent hereunder due from Tenant to Landlord and shall be paid to Landlord immediately on rendition of bill therefor. Notwithstanding the foregoing, Tenant shall have the right to contest any such lien in good faith and with all due diligence so long as any such contest, or action taken in connection therewith, protects the interest of Landlord and Landlord's mortgagee in the Leased Premises, and Landlord and any such mortgagee are, by the expiration of said twenty (20) day period, furnished such protection, and indemnification against any loss, liability, cost or expense related to any such lien and the contest thereof as are satisfactory to Landlord and any such mortgagee.

20. Notices

Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment shall be deemed to be complied with when and if the following steps are taken:

(a) All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to American Service Insurance Company, Inc., or to such other entity at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith.

(b) Any notice or other document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not when deposited in the continental United States Mail, postage prepaid, certified or registered mail, addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith:

LANDLORD:

American Service Insurance Company, Inc.

150 Northwest Point Boulevard

Elk Grove Village, IL 60007

TENANT:

Universal Casualty Company

150 Northwest Point Blvd.

Elk Grove Village, IL 60007

All parties included within the terms “Landlord” and “Tenant,” respectively, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice.

21. Miscellaneous

A. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires.

B. The terms, provisions and covenants and conditions contained in this Lease shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise expressly provided herein. Landlord shall have the right to assign any of its rights and obligations under this Lease and Landlord's grantee or Landlord's successor shall upon such assignment, become “Landlord” hereunder, thereby freeing and relieving the grantor or assignor of all covenants and obligations of “Landlord” hereunder; provided, however, that no successor Landlord shall be responsible for the return of any security deposit provided for pursuant to Paragraph 2ii unless such successor receives the deposit. Tenant agrees to furnish promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of Tenant to enter into this Lease. Nothing herein contained shall give any other Tenant in the Building of which the Leased Premises is a part any enforceable rights either against Landlord or Tenant as a result of the covenants and obligations of either party set forth herein.

C. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof.

D. Tenant shall at anytime and from time to time within ten (10) days after written request from Landlord execute and deliver to Landlord or any prospective Landlord or mortgagee or prospective mortgagee a sworn and acknowledged estoppel certificate, in form reasonably satisfactory to Landlord and/or Landlord's mortgagee or prospective mortgagee certifying and stating as follows: (i) this Lease has not been modified or amended (or if modified or amended, setting forth such modifications or amendments); (ii) this Lease (as so modified or amended) is in full force and effect (or if not in full force and effect, the reasons therefor); (iii) the Tenant has no offsets or defenses to its performance of the terms and provisions of this Lease, including the payment of rent (or if there are any such defenses or offsets, specifying the same); (iv) Tenant is in possession of the Leased Premises if such be the case; (v) if an assignment of rents or Leases has been served upon Tenant by a mortgagee or prospective mortgagee, Tenant has received such assignment and agrees to be bound by the provisions thereof; and (vi) any other accurate statements reasonably required by Landlord or its mortgagee or prospective mortgagee. It is intended that any such statement delivered pursuant to this subsection may be relied upon by any prospective purchaser or mortgagee and their respective successors and assigns and Tenant shall be liable for all loss, cost or expense resulting from the failure of any sale or funding of any loan caused by any material misstatement contained in such estoppel certificate. Tenant hereby irrevocably appoints Landlord or if Landlord is a trust, Landlord's beneficiary, as attorney-in-fact for the Tenant with full power and authority to execute and deliver in the name of Tenant such estoppel certificate if Tenant fails to deliver the same within such ten (10) day period and such certificate as signed by Landlord or Landlord's beneficiary, as the case may be, shall be fully binding on Tenant, if Tenant fails to deliver a contrary certificate within five (5) days after receipt by Tenant of a copy of the certificate executed by Landlord or Landlord's beneficiary, as the case may be, on behalf of Tenant. In addition to any other remedy Landlord may have hereunder, Landlord may, at its option, if Tenant does not deliver to Landlord an estoppel certificate as set forth above within fifteen (15) days after Tenant is requested to do so, cancel this Lease effective the last day of the then current month, without incurring any liability on account thereof, and the term hereby granted is expressly limited accordingly.

E. This Lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto.

F. All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including without limitation, all payment obligations with respect to taxes and Operating Costs and all obligations concerning the condition of the premises. Upon the expiration or earlier termination of the term hereof, Tenant shall pay to Landlord the amount, as estimated by Landlord, necessary: (i) to repair and restore the Leased Premises as provided herein; and (ii) to discharge Tenant's obligation for unpaid taxes, Operating Costs or other amounts due Landlord, if any. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant, with Tenant being liable for any additional costs upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied. Any security deposit held by Landlord shall be credited against the

amount payable by Tenant under this subparagraph 21F.

G. If any clause, phrase, provision or portion of this Lease or the application thereof to any person or circumstance shall be invalid or unenforceable under applicable law, such event shall not affect, impair or render invalid or unenforceable the remainder of this Lease nor any other clause, phrase, provision or portion hereof, nor shall it affect the application of any clause, phrase, provision or portion hereof to other persons or circumstances, and it is also the intention of the parties to this Lease that in lieu of each such clause, phrase, provision or portion of this Lease that is invalid or unenforceable, there be added as a part of this Lease contract a clause, phrase, provision or portion as similar in terms to such invalid or unenforceable clause, phrase, provision or portion as may be possible and be valid and enforceable.

H. Submission of this Lease shall not be deemed to be a reservation of the Leased Premises. Landlord shall not be bound hereby until its delivery to Tenant of an executed copy hereof signed by Landlord, already having been signed by Tenant, and until such delivery Landlord reserves the right to exhibit and Lease the Leased Premises to other prospective tenants. Notwithstanding anything contained herein to the contrary, Landlord may withhold delivery of possession of the Leased Premises from Tenant until such time as Tenant has paid to Landlord the security deposit required by subparagraph 2B hereof, the first month's rent as set forth in subparagraph 2A hereof, and any sum owed pursuant to Paragraph 5 hereof.

I. Whenever a period of time is herein prescribed for action to be taken by Landlord, the Landlord shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to causes of any kind whatsoever which are beyond the control of Landlord.

J. Tenant's “proportionate share” as used in this Lease shall mean a fraction, the numerator of which is the gross leasable area of the Leased Premises and the denominator of which is the gross leasable area contained in the Building, in each case as reasonably determined by Landlord. For purposes hereof the numerator is 14,100 and the denominator is 174,000 and Tenant's proportionate share is 8.1%.

K. If there be more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. Any indemnification of, insurance of, or option granted to Landlord shall also include or be exercisable by Landlord's trustee, beneficiary, agents and employees, as the case may be.

L. Each of the parties (i) represents and warrants to the other that it has not dealt with any broker or finder in connection with this Lease; and (ii) indemnifies and holds the other harmless from any and all losses, liability, costs or expenses (including attorneys' fees) incurred as a result of an alleged breach of the foregoing warranty.

22. Substitution of Premises

At any time after date of execution of this Lease, Landlord may substitute for the Leased Premises, other premises in the Development (the “new premises”), in which event the new premises shall be deemed to be the Leased Premises for all purposes under this Lease, provided: (i) the new premises shall be located in the Building or a comparable building and shall be similar to the Leased Premises in square footage and appropriateness for the use of Tenant's purposes; (ii) if Tenant is then occupying the Leased Premises, Landlord shall pay the expense of moving Tenant, its property and equipment to the new premises and such moving shall be done at such time and in such manner so as to cause the least inconvenience to Tenant; (iii) Landlord shall give to Tenant not less than thirty (30) days' prior written notice of such substitution; (iv) Landlord shall, at its sole cost, improve the new premises with improvements substantially similar to those located in the Leased Premises, and (v) Landlord shall reimburse Tenant for all costs ancillary to such move including but not limited to stationery, business card, changes in websites and other public materials referencing Tenant's address, filing fees for notice to regulatory bodies of the change of address, transition and service fees incurred to ensure a smooth transition of computer hardware and software applications.

23. Certain Rights Reserved To The Landlord

The Landlord reserves and may exercise the following rights without affecting Tenant's obligations hereunder:

A. to change the name or street address of the Building;

B. to install and maintain a sign or signs on the exterior of the Building;

C. to have access for the Landlord and the other tenants of the Building to any mail chutes located on the Leased Premises according to the rules of the United States Post Office;

D. to designate all sources furnishing sign painting and lettering, ice, drinking water, towels, coffee cart service and toilet supplies, lamps and bulbs used on the Leased Premises;

E. to retain at all times pass keys to the Leased Premises;

F. to grant to anyone the exclusive right to conduct any particular business or undertaking in the Building;

G. to close the Building after regular working hours and on the legal holidays subject, however, to Tenant's right to admittance, under such reasonable regulations as Landlord may prescribe from time to time, which may include by way of example but not of limitation, that persons entering or leaving the Building identify themselves to a watchman by registration or otherwise and that said persons establish their right to enter or leave the Building;

H. to take any and all measures, including inspections, repairs, alterations, decorations, additions and improvements to the Leased Premises or to the Building, as may be necessary or desirable for the safety, protection or preservation of the Leased Premises or the Building or the Landlord's interests, or as may be necessary or desirable in the operation of the Building; and

I. to add, remove or modify buildings, roadways, walkways, landscaping, lakes, grading and other improvements in or to the Development.

The Landlord may enter upon the Leased Premises and may exercise any or all of the foregoing rights hereby reserved without being deemed guilty of an eviction or disturbance of the Tenant's use or possession and without being liable in any manner to the Tenant and without abatement of rent or affecting any of the Tenant's obligations hereunder.

24. Land Trustee's Exculpation

It is expressly understood and agreed that nothing in this Lease contained shall be construed as creating any liability whatsoever against the Landlord, or its successors and assigns, personally, and in particular without limiting the generality of the foregoing, there shall be no personal liability to pay any indebtedness accruing hereunder or to perform any covenant, either express or implied, herein contained, and that all personal liability of Landlord, or its successors and assigns, of every sort, if any, is hereby expressly waived by Tenant, and every person now or hereafter claiming any right or security hereunder, and that so far as Landlord, or its successors and assigns, is concerned the owner of any indebtedness or liability accruing hereunder shall look solely to the premises hereby Leased for the payment thereof.

25. Exhibits.

The Exhibits attached hereto shall form part of this Lease as if the same were embodied herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Signature Page to UCC Lease Agreement

EXECUTED the 31st day of December, 2010

LANDLORD:

AMERICAN SERVICE INSURANCE COMPANY, INC.

150 Northwest Point Boulevard

Elk Grove Village, IL 60007

By: /s/ Scott D. Wollney

Title: President

TENANT:

UNIVERSAL CASUALTY COMPANY

150 Northwest Point Blvd.

Elk Grove Village, IL 60007

By: /s/ Roger Beck

Title: COO

EXHIBIT A

Floor Plan

EXHIBIT B

Legal Description

EXHIBIT 10.7

PROGRAM MANAGER AGREEMENT

This Program Manager Agreement, based upon good and valuable consideration, dated the first day of January, 2011, and all Endorsements attached hereto and incorporated herein (the "Agreement") is between Kingsway America Inc. and its wholly owned subsidiary· Universal Casualty Company, located at 150 Northwest Point Boulevard, Elk Grove Village, IL 60007 ("Manager"), and American Service Insurance Company, Inc. (hereafter "Company"), located at 150 Northwest Point Boulevard, Elk Grove Village, IL 60007.

NOW, THEREFORE, Manager and Company agree as follows:

ARTICLE I. Term of Agreement

This Agreement is effective on January 1, 2011 and will continue until such time as no private passenger auto business remains in-force with the Company and all claims related to private passenger auto business written by the Company have been adjudicated, or until terminated under the provisions of Article XIV.

ARTICLE II. Appointment of Manager

Within the scope of the authority granted to the Manager, the Company appoints Manager as a non-exclusive manager for the Company as follows:

A. Lines of Authority . Manager's appointment and authority extends to the classes of business, policies of insurance, including all endorsements and certificates (the "Policies"); and lines and limits of insurance described in this Agreement for which Manager holds all appropriate licenses or authority, as may be required (the "Business").

B. Territory . Manager's appointment and authority extends to insureds and prospective insureds with their principal place of business or a portion of the risks located in all states as set forth in this Agreement for which it holds appropriate licenses and for which the Company properly appoints the Manager.

C. Restrictions . Manager's appointment and authority is subject to any restrictions set forth in this Agreement.

D. Reinsurance Availability . Manager's appointment and authority for Business written under this

Agreement is subject to the following:

1. Company is able to obtain and maintain in force at all times reinsurance satisfactory to Company for the Business. The Company's efforts in this regard will at all times be diligent and undertaken in good faith with the intent to maintain reinsurance during the term of this Agreement, however Company cannot guarantee that its efforts will be successful.

2. Obtaining reinsurance is the sole responsibility of Company. When Company obtains satisfactory reinsurance for all or some of the Business, Company will give Manager written notice that Manager may write and bind those classes of business, policies and lines and limits of insurance for which reinsurance has been obtained.

ARTICLE III. Manager's Duties and Responsibilities

Manager will faithfully perform all of its duties in a commercially reasonable manner, to the best of its professional knowledge, skill and judgment The Manager's duties include the following:

A. Solicitation. To solicit, to the extent allowed by applicable law and regulation, risks and classes of risks at limits and for lines of insurance authorized in this Agreement, that, in their pricing and insurability, meet or exceed the underwriting and pricing standards from time to time established by Company in writing. It is understood that the Manager will endeavor to transition private passenger auto policies in-force with the Company, or one of its duly licensed subsidiaries or affiliates, at renewal of such policies beginning on a mutually agreed date that allows sufficient time to meet all contractual and regulatory requirements.

C. Servicing Business .

To direct and implement the production, underwriting, premium collection, accounting, statistical, and other work necessary or incidental to the insurance business Written under this Agreement. To provide for all usual and customary services to sub-producers, insureds and policyholders including, without limitation, delivery of Policies, return of premiums due insureds or policyholders in Manager's possession, premium audits on Policies, and timely, appropriate responses to inquiries or complaints, and comply with any service standards as may be set forth in writing by the Company.

D. Competent Staff. To maintain sufficient supplies and equipment and a staff of competent, trained and licensed (as required) personnel, to produce, develop, underwrite, handle claims and loss control (if allowed by this Agreement), and supervise the Business covered by this Agreement.

E. Premium Rates . To quote and charge accurate premiums, rates, surcharges, taxes and fees for Policies bound or written under this Agreement, as described in and in compliance with the approved and applicable rating manuals or written rating plans of Company provided by the Company to Manager.

F. Compliance with Manuals . To comply fully, timely and promptly with all manuals, rules, regulations, guidelines, instructions and directions issued by Company relating to the Business covered by this Agreement.

G. Binding of Risks . To bind and report all risks in accordance with this Agreement, and any other underwriting and pricing standards established by Company in writing and provided to Manager. Manager is to forward all other risks to Company, for review.

H. Policy Issuance . To timely and properly issue, deliver and execute or countersign Policies, certificates, endorsements, binders and related documents on forms approved by Company and appropriate regulatory authorities, and as required by law, for the Business described in this Agreement. Manager shall ensure Policies will bear any notice requirements of any applicable law.

I. Policy Cancellation . To cancel or non-renew policies and/or certificates for cause as set forth in such policies, or at the direction of the Company, subject to the requirements imposed by law and. in compliance with the applicable provisions contained in this Agreement and the Policies, and file the required reports with the appropriate Insurance Department. This does not preclude the Company from taking such action on its own. At the sole discretion of the Company, the Company has the right to cancel or non-renew any policy and/or certificates issued by the Manager under this Agreement, subject to the relevant state laws, rules, regulations or bulletins.

J. Producers .

1. The Manager shall be responsible to accept Business on behalf of the Company by professional insurance agents, solicitors and brokers, who are properly licensed and appointed ("producers"). The Manager's and/or Company's contracts or agreements with the producers shall reflect their agreement to the return of the producers' commissions on canceled policies, the forwarding of premium funds consistent to this Agreement and to otherwise comply with all applicable laws and regulations involving business generated or serviced under this Agreement.

2. The Manager's and Company's contracts or agreements with the producers shall reflect they are independent contractors. If applicable state laws require the sub producers to be determined to be agents or sub-agents of the Manager, then the Manager is responsible for the supervision, direction and coordination of the efforts of the sub producer.

3. Whether the sub producers are determined to be independent contractors, or agents or sub agents of the Manager, the Manager is responsible for all of the appointment fees, license fees and costs of background checks of the producers.

4. Manager shall be solely responsible for payment of all commissions earned by producers and the return of sub producers' commissions oh canceled policies.

5. Manager may accept business only from producers who have agreed in advance, and in writing, to the return of unearned commissions on canceled Policies, forward all premium funds, and to comply with the applicable laws and regulations involving business generated or serviced under this Agreement.

6. Manager has no authority, whether actual or implied, to appoint agents for Company or to place such volume of business with any sub producer that would cause such sub producer to qualify as a "managing general agent" with respect to the Company under the insurance laws of any jurisdiction.

7. Manager shall not accept business on behalf of Company from any producer that has been convicted of any criminal felony involving dishonesty or a breach of trust, or convicted of a crime under 18 U.S. Code Section 1033.

K. Producers Errors and Omissions . Unless the Company already has this information on file or waives this requirement, Manager will maintain valid evidence of any active producers' professional errors and omissions coverage (a policy copy or certificate of insurance) that specifically covers all activities and entities contemplated herein, to specifically include coverage for violations of Unfair Trade Practices Acts and Bad Faith, in an amount not less than $100,000 with a deductible not greater than $10,000. The evidence of coverage is to be provided to the Company within five (5) business days of Company's request to the Manager

L. Premiums . To charge, collect, and receive all premiums, including but not limited to premium surcharges, fire district and other taxes or assessments levied by any jurisdiction and required to be collected in addition to stated premiums, due on all Policies bound or written under this Agreement. Premium payment will be made directly by policyholders to the Company in accordance with this Agreement and the incorporated Endorsements

M. Uncollected Premium.

1. Manager to assume the obligation for collection activities relating to any Uncollected Premium from insureds, policyholders and producers. ·

2. Manager shall provide Company with a policy-level listing of all Policies with uncollectible amounts due the Company, on a monthly basis, in a format acceptable to the Company.

N. Accounting . To timely account for the Business as follows:

1. All business will be managed on the Company's IT systems, to which Manager will be granted access for the purpose of fulfilling the responsibility under this Agreement. Manager and the Company will ensure that all books and record are maintained in accordance with statutory accounting principles and insurance practices, and the insurance laws and regulations of Illinois, in the state(s) where the Business is located and Manager's state of domicile. All such books, records, and accounts shall be the property of the Company, and Company shall have access to and the right to copy all such books, records and accounts at any time. Upon an order of liquidation of the Company, Manager shall have reasonable access to and the right to copy the files on a timely basis.

2. Collect, compile and transmit to the Company to allow for the timely transmission to the appropriate reporting and regulatory agencies, of any and all of !he requested statistical, underwriting and claims data and information, including but not limited to, premium and loss information in a format or formats and at such frequency as may be determined by the respective reporting and regulatory agencies, and the Company. This data and information shall be furnished to the Company in an electronically transmittable format determined by the Company at no extra charge to the Company. ·

3. To the extent records exist outside of the Company's systems, Manager will furnish, render and provide the Company with an accounting detailing all transactions and insurance written pursuant to this Agreement, including put not limited to all Policies and/or certificates issued (by policy/certificate), changes and cancellations and premium statements on not less than a monthly basis and not later than eight (8) working days after the end of the month in which the transaction occurs and/or the premium is written.

This information shall be furnished to the Company in an electronically transmittable format determined by the Company at no extra charge to the Company beginning at the end of the month in which this Agreement becomes effective, shall encompass, but is not limited to, the following:

(a.) Gross written premium;

(b.) Net written premium;

(c.) Unearned premium;

(d.) Collected premium;

(e.) Gross fees;

(f.) Collected fees;

(g.) Policies issued or bound by insured including location, limits, and effective date;

(h.) Policies canceled;

(i.) Premium adjustments due to endorsements, audits or otherwise;

(j.) Commissions payable to or retained by Manager;

(k.) Net balance due;

(l.) Premium surcharges, fire district and other taxes or assessments levied by any jurisdiction, separated by type of charge or levy;

(m.) Deposits by policy;

(n.) Agency fees; and

(o.) Additional information Company may request in writing.

O. Fiduciary Capacity . Premium payments will be paid directly to the Company, as such Manager will not act in a fiduciary capacity.

P. Confidentiality . The materials or information furnished by the Parties may contain proprietary or confidential information (collectively "Confidential Information"). The Parties agree not to directly or indirectly use or disclose such Confidential Information to any other parties without express written permission. The Parties shall use the same care and discretion to protect the Confidential Information as they use to protect their own Confidential Information, but not less than a commercially reasonable standard of care. The Parties shall use the Confidential Information and shall restrict disclosure of the Confidential Information only to those employees of the Parties who have a need to know the particular Confidential Information disclosed only for purposes strictly limited to the performance under this Agreement.

Q. Manager Expenses .

1. Manager is to assume the obligation for and to be fully responsible for all costs and expenses associated with the Manager's performance under this Agreement. These costs and expenses include, but are not limited to, processing of assigned risk policies, sub producer commissions, loss control reports, premium audits, regulatory exams of the Manager and related fees, fines and settlement costs caused by the Manager, policy and policy jacket printing, motor vehicle reports ("MVRs") and OFAC costs, travel expense, employee salaries, benefits, fees, countersignature fees and expense, postage, advertising, exchanges, appointment and renewal fees, license fees and background checks.

2. Company shall be responsible only for its own costs and expenses unless otherwise agreed by Company. In the event Company is required to pay any costs or expenses that are the responsibility of the Manager, the Manager shall promptly reimburse Company for its payments thirty (30) days from invoice. The Company shall have the right to offset any costs or expenses that it has to pay on behalf of Manager with commissions due under this Agreement.

R. Licenses . To obtain and provide Company with copies of all licenses anti permits required by Manager for the proper conduct of its duties under this Agreement, and to immediately provide copies of such licenses and permits upon request of the Company Manager agrees that it will not transact any business in any jurisdiction covered under this Agreement until Manager has obtained all required licenses and permits, and is properly appointed to represent the Company in such jurisdiction.

S. Legal Compliance . To keep fully informed of and comply fully with all applicable laws and regulations. This includes, but is not limited to compliance with all laws and regulations applicable to insurance producers in the state(s) where the Business is located and where Business is transacted. Manager shall not solicit or bind any risks in any state until all applicable laws, regulations and 180/NCCI or other bureau rules are in full compliance by the Manager.

T. Governmental Contacts. To promptly notify Company of all contacts and correspondence received from insurance regulatory or other governmental authorities relating to the insurance and activities which are the subject of this Agreement, to forward promptly upon receipt all summonses, complaints, subpoenas or other court documents relating to the insurance and activities which are the subject of this Agreement, and to cooperate fully with Company in making any responses. Manager has no authority to represent Company in regulatory matters and shall not respond to any governmental action except as Company may direct in writing or as required by law. All complaints from regulatory agencies shall be forwarded to Compliance Shared Services in the Company's Elk Grove Village, Illinois office, along

with Manager' proposed response specifically addressing the complaint.

U. Premium Financing .

1. Manager will not use any premium ·finance company that is owned to any degree, or affiliated with the Manager, or any of its employees, on Policies issued under this Agreement. The entire premium financed must be forwarded to the Company in a time frame as directed by this Agreement, and will not be sent in installment or partial payments to the Company.

2. Manager will provide all services arising from premium financing including, but not limited to, promptly and appropriately responding to all correspondence and notices related to such premium financing, ensuring compliance with all Consumer Protection laws, rules or regulations, such as Truth in Lending and any relevant Premium Finance statutes in each state where the Manager writes business pursuant to this Agreement.

3. Manager shall ensure that all appropriate refunds of premium due to premium finance companies shall be timely made, and Manager shall be liable for, hold harmless, and indemnify Company against any such amounts improperly paid to the insured, or for refunds not made to the insured or to the premium finance company in accordance with the appropriate governing law.

V. Company Interface . To interface at all times with Company through electronic data processing hardWare and software, networks and communication lines and other means as specified in writing and in advance by Company.

W. Copies of Policies. To maintain in each insured's file all Policies, endorsements, rating worksheets and related documents and correspondence, Policy cancellations, non-renewals and other terminations processed by the Manager. Company is entitled to review files upon five (5) business days prior notice.

X. Records .

1. Manager shall provide to Company any and all records and/or reports relating to the Business covered under this Agreement including but not limited to policy information and claims information, if any, as may be reasonably requested by Company, within seven (7) business days following such request, or such other period of time as the Manager and Company may agree.

2. In addition to the specific reports requested under this Agreement, Manager shall furnish such reports related to the Business covered by this Agreement as required by applicable laws or regulations, orders or directives or as may be reasonably requested by Company, within seven (7) business days following such request, or such other period of time as the Manager and Company may agree.

3. Unless a longer period is required by law, to keep and maintain for a period of seven (7) years from the termination of this Agreement, separate, identifiable, orderly, accurate, complete and timely records and accounts of all business and transactions pertaining to Policies bound or written under this Agreement including complete underwriting and rate files. Such records and files shall be the property of Company, however, a copy of said records and files may at all times be maintained by Manager. Upon request by Company or the insurance regulator or Commissioner of any state having jurisdiction over Company ("Commissioner''), all records and reports maintained pursuant to this Article Ill., shall be provided as hard copies or in an electronic/computer format usable by Company and the Commissioner, within seven (7) business days following such request, or such other period of time as the Manager and Company may agree.

4. Manager shall maintain paid, closed, and outstanding claims files for all claims handled by Manager on behalf of Company, which files shall be the joint property of Company and Manager. However, upon an order of liquidation of Company such files shall become the sole property of the Company or its estate. These files shall remain in the physical possession of Manager for the period of time that Manager continues to administer such claims and for a period of seven (7) years after each claim closed. If Company desires Manager to retain such records beyond that period, Manager shall do so at Company's request and expense. Company shall have the right, but not the obligation, to direct the Manager in the administration of, or assume administration of any claim or all claims at any time. In such case, Manager shall fully cooperate with Company and Company shall have access to all claim files, electronic data, systems and Manager's facilities for purposes of administering the claims, and Manager shall deliver any or all original and electronic claims files to Company promptly upon request.

Manager shall have the right to copy all original files requested by Company and Company and Manager shall share, on a 50-50 basis, the costs of making such copies.

5. Notwithstanding any other provision of this subsection, Manager must receive approval from Company prior to the destruction of any documents or records, electronic or otherwise, generated by Manager under this Agreement.


X.	Audit

1. To permit Company or their designated representative, during the term of this Agreement and for a period of ten (10) years from the termination of this Agreement, to visit, inspect examine, audit and verify, at Manager's offices, during Manager's normal business hours and as often as Company may deem appropriate, with five (5) business days prior notice. The Company will conduct an on-site review of underwriting and claims processing operations of the Manager at least semiannually.

2. The activities of Article X (1) above includes, but is not limited to, any of the properties, accounts, premium trust funds, files, documents, books, reports, work papers, internal controls and other records belonging to or in the possession or control of Manager or of any other person relating to the Business covered by this Agreement.

3. Company may conduct any audit through any person or persons it may designate. The Insurance Department of any state having jurisdiction over this Agreement shall have the right to exercise Company's rights of audit, after consultation with the Company, and the Manager agrees that it may be examined as if it were the Company. Manager agrees to respond to any audit deficiencies within thirty (30) days after notice from the Company.


Y.	Financial Statements .

1. To furnish the Company with an audited financial statement prepared in accordance with Generally Accepted Accounting Practices (GAAP), for the most current year ended December 31st no later than one hundred and eighty (180) days after the execution of this Agreement, or the Company may, at its option, immediately terminate this Agreement.

2. Thereafter, the Manager shall furnish the Company, on an annual basis, an audited financial statement prepared by an independent certified public accountant in accordance with GAAP, as of December 31 of each calendar year, in a form acceptable to the Company, to be received by the Company no later than July 1 of the following year. In addition, quarterly estimates will be supplied to the Company by the Manager within forty-five (45) days of each quarter end.

3. The Company shall notify the Director if the opinion on those statements is other than an unqualified opinion. The notice shall be given to the Director within 10 days of receiving the audited financial statement or becoming aware that such opinion has been given.

Company Property. To promote and safeguard at all times as a fiduciary the best interests and good name of Company and to safeguard, maintain and account for all Policies, forms, manuals, equipment, supplies or anything else furnished by Company or Manager, all of which shall remain the property of Company. Manager will return all such property to Company promptly upon demand. The materials or information furnished to Manager may contain proprietary or confidential information of Company. Manager agrees to treat any such proprietary or confidential information in accordance with the provisions of Article XVIII.

AA. Prohibited Actions . The Manager shall have no authority to:

1. Bind any reinsurance or retro-cessions, including, but not limited to, facultative or treaty, on behalf of Company, or commit Company to participate in insurance or reinsurance syndicates. This responsibility shall remain with the Company.

2. Appoint any producer or sub-producer that is not lawfully licensed to transact the insurance business for which it has been appointed. ·

3. Collect any payment from a reinsurer or commit the Company to any claim settlement with a reinsurer.

4. Jointly employ an individual who is employed with Company.

5. Appoint a sub-manager or Program Administrator.

BB. Ethical Conduct .

1. Manager shall not exploit its relationship with Company or use Company's name in connection with any fraudulent, unethical or dishonest transactions.

2. Manager shall not knowingly use producers, consultants, independent contractors or other representatives that Company could not deal with directly under its Code of Conduct as attached hereto and·incorporated by reference as Exhibit A, and as it may be changed from time to time, or applicable laws or regulations.

3. Manager may use assets of Company for legitimate business purposes only.

4. Manager shall avoid any knowing conflict of interest with the Company relating to the

Business.

5. Manager shall abide by the Company's Privacy Policy as attached hereto and incorporated by reference as Exhibit B, and as it may be changed from time to time, when handling customer information.

CC. Notice of Change in Ownership . Manager must promptly provide Company with written notice of a material change in ownership of Manager.

A RTICLE IV. General Duties of C ompany

The Company. shall:

A. Make all statistical filings and receive all statistical and underwriting data applying to the Program written pursuant to this Agreement, provided that the Manager furnishes all required information and data in a timely manner so as to enable the Company to meet all time requirements.

B. Develop, formulate and file policy forms, rates and rules and all other reports and filings, as may be required by the regulatory authorities in the various states where business under this agreement is to be conducted.

C. Remit to the Manager the Compensation to which it is entitled upon Manager's monthly rendering of the reports due under this Agreement to the Company, beginning at the end of the month in which this Agreement becomes effective.

D. Conduct, at least semi-annually and as often as Company deems prudent, solely at Company's discretion, upon reasonable notice and during normal working hours, an on-site audit of the books, records and accounts of the Manager, including but not limited to those in the underwriting, claims, accounting, IT, marketing, finance and policyholder operations, using either its own employees or independent outside auditors.

E. Observe and comply with all applicable laws, regulations and rulings by any governmental authority, agency} bureau or commission having jurisdiction over the conduct of business under this Agreement.

F. The Company shall have the right to: (i) cancel or non-.renew any policy of insurance subject to applicable laws and regulations concerning those actions; and (ii} require cancellation of any sub producer's contract or agreement after appropriate notice.

G. If Manager qualifies as a "managing general agent" of Company under any applicable state statute;

1. Company shall not permit any of Manager's producers to serve on Company's Board of Directors; nor shall the Company appoint to its board of directors an officer, director, employee, producer or controlling shareholder of Manager unless otherwise permitted by law. ·

2. Manager shall not permit its producers to serve on Manager's board of directors.

ARTICLE V. Representations and Warranties

A. Company warrants and represents that the transactions contemplated hereby:

1. Are within the corporate powers of the Company and have been duly authorized by all necessary corporate action of the Company.

2. Constitute the legal, valid and binding obligations of the Company, enforceable against it in accordance with their terms.

3. Do not and will not conflict with, result in a breach in any of the provisions of, or constitute a default under the provisions of any law, regulation, licensing requirement, charter provision, by-law or other instrument applicable to the Company or its employees or to which the company is a party or may be bound.

B. Manager warrants and represents that the transactions contemplated hereby:

1. Are within the corporate powers o! the Manager and have been duly authorized by all necessary corporate action of the Manager; and Manager is duly authorized to execute this Agreement on behalf of, and to bind, all entities identified as Manager in this Agreement.

2. Constitute the legal, valid and binding obligations of the Manager, enforceable against it in accordance with their terms.

3. Do not and will not conflict with, result in a breach in any of the provisions of, or constitute a default under the provisions of any law, regulation, licensing requirement, charter provision, by-law or other instrument applicable to the Manager or its employees or to which the Manager is a part or may be bound. ·

C. Manager warrants and represents that:

1. It currently holds all necessary licenses or authority necessary to carry out its duties and obligations under this Agreement.

2. Neither Manager, its officers: directors or other principals, nor any of its employees has been convicted of any criminal felony involving dishonesty or a breach of trust, or convicted of a crime under 18 U.S. Code Section 1033 and gives Company the authority to verify same.

3. Manager hereby gives Company the right to verify information about Manager, its officers, directors or other principals by obtaining and using consumer reports, investigative reports, credit reports, D&B reports, criminal background checks or any other similar type of report or check.

D. Manager warrants and represents that:

1. It has the proper right and interest in the business contemplated herein in order to place the business under this Agreement.

2. The business placed under this. Agreement and the incorporated Endorsements is not subject to another entity's claim of interest, including but not limited to, a claim by contract, equity or common law right.

3. In placing business under this Agreement, it is not in violation of any duty or obligation owed to another entity.

4. In the event Manager breaches any of the preceding terms, Manager agrees to indemnify and hold harmless the Company, its directors, officer, employees and agents from any loss or expense arising out of such breach.

E. Manager warrants and represents that the software it employs is designed to fulfill all necessary obligations under this Agreement.

F. Manager warrants and represents that the underwriting guidelines to be used by it will continue for the life of this Agreement to be in conformity with the applicable statutes, regulations, rules, bulletins and opinions

in the various states where business under this agreement is to be conducted.

. .

ARTICLE VI. Program Manager's Compensation

A. Company will pay the Manager as full compensation for all of its duties and responsibilities under this Agreement the amounts set forth in Endorsement E attached hereto.

B. No fees will be allowed to be charged or collected, unless allowed by the Insurance Department of the state in which the risk is located. Any fees collected as installment fees, cancellation, reinstatement, or any other fee related to administration of policies, shall be retained by the Manager. Such fees shall be disclosed to the Company in the manner provided for in this Agreement and the incorporated Endorsements.

ARTICLE VII . Advertising

Manager will not refer to Company or use the Company's logo (or any division, subsidiary or affiliate of Company, or that of its parent company), in any advertisement, letter, circular, pamphlet or other publication or statement without the prior written consent of Company. The Company will not be responsible, under any circumstances, for any advertising expense of Manager. The Manager will insure that any reference to Company pursuant to this Article shall comply with the laws and regulations of the jurisdiction in which such advertising occurs or to which it is directed by Manager.

ARTICLE VIII. Representation With Respect to Policies

A. Manager will not make or permit their employees, agents, producers or any other person to make any representation to applicants, insureds, policyholders or claimants as to the existence or extent of coverage under a Policy or available from the Company that is not consistent with the terms and conditions of coverages available under a Policy or available from the Company.

B. Manager shall establish procedures designed to ensure that Manager and Manager's employees, agents, producers or any other person will make known to any applicant, insured or policyholder the full scope and effect of all exclusions and limitations upon or under coverage provided under the Policy and advise their agents and sub producers of their existing statutory obligations, and Manager's and the Company's expectations in this regard.

ARTICLE IX . Annual Standards for Volume

Manager will comply with any annual maximum and minimum standards of production for premium volume that are made a part of the Endorsements attached to and incorporated into this Agreement.

ARTICLE X. Insurance and Guaranty of Manager

Manager will maintain from the inception of this Agreement until all run off business resulting from this Agreement terminates, policies with unaffiliated insurers for the insurance and security requirements of this Article, and on forms acceptable to the Company:

A. General Liability. Comprehensive general liability or umbrella liability insurance policy in an amount of $1,000,000 per occurrence. The General Liability policy shall list Company as an additional insured.

B. Manager's Guaranties: Manager shall be required to abide by all terms and conditions in Endorsement E to encourage the Manager's prompt and faithful compliance with any and all obligations under this Agreement, to include the Manager's responsibility to comply with Premium Finance statutes in making refunds to insureds or to policyholders. The Company shall also require that· it be named as a beneficiary to the Letter of Credit specified in Endorsement E of this agreement, and in an amount to be determined at the sole discretion of the Company up to the maximum aggregate amount set forth in Endorsement F attached hereto, in order to collateralize the Guaranty.

ARTICLE XI . Indemnification

A. Manager. Manager shall be responsible to Company and shall indemnify, save, defend and hold Company, (or its rehabilitator or liquidator) its affiliates, and all officers, directors and employees of Company and its affiliates,

harmless against any and all claims, suits, hearings, actions, damages of any kind, liability, fines,penalties, loss or expense, including attorneys' fees caused by or resulting from any allegation of any misconduct, error, omission or other act or material breach of this Agreement or material misrepresentation hereunder by Manager, Manager's employees, Third Party Administrator, Adjuster, or any other type of independent contractor employed by Manager or Manager's affiliates unless the conduct giving rise to the allegation was performed at the specific direction of Company provided the Manager has not contributed to or compounded the act alleged.

B. Company . Company or independent contractor employed by the Company shall be responsible to Manager and shall indemnify, save, defend and hold Manager, including its affiliates, and all shareholders, officers, directors and employees harmless against any and all claims, suits, hearings, actions, damages of any kind, liability, fines, penalties, loss or expense, including attorneys' fees caused by or resulting from any allegation of any willful misconduct, gross negligence, or other material breach of this Agreement or material misrepresentation hereunder by Company, provided Manager has not contributed to or compounded the act alleged.

C. Procedures . The party seeking indemnification (the "Indemnified Party") from the other Party (the "Indemnifying Party") shall promptly notify the Indemnifying Party in writing of a claim that it believes gives rise to a claim from indemnification ("Claim"). Failure to ·so give such notice shall not relieve the indemnifying party of its obligations hereunder except to the extent it is prejudiced thereby. The Indemnifying Party will have the right at any time to assume and thereafter conduct the defense of the Claim with counsel of its choice; provided, however, that the. Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Claim without the prior written consent of the Indemnified Party unless the judgment or proposed settlement involves only the payment of money damages and does not impose an injunction or other equitable relief upon the Indemnified Party. Any Indemnified Party will have the right to employ separate counsel in any action and participate in the defense thereof, but the fees and expenses of such counsel will be at the expense of the Indemnified Party unless (i) the employment of such counsel will have been specifically authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party will have failed to assume the defense of such action or employ counsel reasonably satisfactory to the Indemnified Party, (iii) the Indemnified Party shall have reasonably concluded that there may be defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Party, or (iv) the Indemnified Party's counsel shall have advised the Indemnified Party in writing, with a copy delivered to the Indemnifying Party, that there is a conflict of interest that could make it inappropriate under applicable standards of professional conduct to have common counsel, in any which event the Indemnifying Party shall pay the cost of the Indemnified Party's counsel. In no event will the Indemnified Party consent to the entry of any judgment or enter into any settlement with respect to the Claim without the prior written consent of the Indemnifying Party.

ARTICLE XII. Special Investigative Unit (SIU) and Claims Department

The Manager must cooperate fully with the Company's SIU and/or the Claims Department in any review, investigation, requests for documentation or any other activity undertaken, including but not limited to audits, discovery sweeps, fraud investigations or defense of claims and suits. Failure to cooperate fully will be considered a breach of this Agreement, allowing for termination of the Agreement by the Company.

ARTICLE XIII.Suspension of Manager's Authority

A. Notice of Suspension . The Company may suspend the underwriting authority of the Manager to bind the Company only for the reasons and in accordance with the procedures described below. The Company shall give immediate written notice of the suspension of authority and the Manager shall then immediately cease to exercise its authority until the reason for the suspension is resolved. Once resolved, the Company shall reinstate the authority of the Manager. Notwithstanding any action taken pursuant to this Article, the parties may exercise whatever rights they may have to terminate this Agreement.

B. Legal Prohibition . The Company may suspend binding authority for the Program if the Company is legally prohibited from writing insurance for the Program. In such event, the suspension shall remain in effect until the prohibition has been lifted. The suspension shall only apply to the jurisdiction in which the Company is unable to continue writing business.

C. Loss of Reinsurance.

1. The Company may suspend binding authority, if in its sole discretion there has occurred any of the following:

(a.) Impairment of the reinsurance coverage with respect to the Program business.

(b.) Reduction in AM Best's rating of any reinsurer.

(c.) Cancellation or suspension of the reinsurance with respect to all or any material portion of the Program business.

(d.) The failure of a reinsurer to discharge obligations under all or any portion of any reinsurance contract relating to business subject to this Agreement.

(e.)The ceasing of any reinsurer to carry on the particular classes of business subject to this Agreement or having the performance of such reinsurance rendered illegal by any subsequent law or regulation.

(f.) Insolvency of a reinsurer reinsuring all or a material part of the Business.

(g.)Any instance where a reinsurer suspends payment of debts, convenes a meeting of creditors, has a receiver appointed or petition presented for its compulsory liquidation, or has a resolution passed for its voluntary liquidation.

2. The Manager agrees that upon notification from the Company, it shall· immediately cease the binding of any Policies under this Agreement. If reinsurance is terminated or no longer in full force and effect for all or any part of the Business, Manager's authority for the Business affected shall be suspended, or limited immediately upon written notice to Manager from Company, until further notice, said suspension or limitation not affecting in-force policies of insurance except with regard to renewal thereof.

D. Loss of License . The Company may suspend binding authority if a regulatory authority cancels, restricts, suspends or declines to renew either the Company's or the Manager's license or certificate of authority, provided said license or certificate of authority is required to solicit and bind Business pursuant to the terms of this Agreement. In such event, the suspension shall remain in effect until such license or certificate of authority has been granted or reinstated by the regulatory authority and satisfactory evidence of such action has been provided to all parties.


E. Indictment .	The Company may suspend binding authority if the Manager or any of the Manager's principals or executive officers is indicted for a criminal offense the conviction of which would permit termination of the Manager under this Agreement.

F. Grounds for Termination . The Company may suspend binding authority for any reason that would permit termination of the Manager under this Agreement pursuant Article XV.

G. Default and Delinquenc y. The Company may suspend binding authority for failure of the Manager to perform its duties and responsibilities under this Agreement including without limitation, the timely remitting of accounts and monies to Company, insureds or policyholders and timely and full compliance with applicable laws and regulations and Company directives, rules, regulations or manuals.

H. Termination by Manager . The Company ma:y suspend binding authority if the Manager gives notice of termination under Article XIV.


I.	Dispute over Termination . The Company may suspend binding authority in the event of a dispute over the reason for termination of the Agreement.

J. Termination of Key Employees . The Company may suspend the binding authority if the employment of the individuals identified in the attached and incorporated Endorsements, is terminated

ARTICLE XIV.Commencement and Termination

This Agreement shall commence as of the date of .execution of the Agreement, and shall remain in full force until terminated in accordance with the provisions outlined below.

A. Basis for Termination

1. This Agreement may be terminated at any time upon the mutual written agreement of the

Company and the Manager.

2. This Agreement may be terminated at any time by either party, upon one hundred and eighty (180) days prior written notice, to the other party.

3. This Agreement may be terminated at any time by the Company, upon thirty (30) days written notice to Manager in the event of:

(a.) Default. The failure of the Manager to perform its duties and responsibilities under this Agreement including, without limitation, the timely remittance of accounts and monies to the Company, insureds or policyholders and timely and full compliance with applicable laws and regulations and the Company's directives, rules, regulations or manuals;

(b.) Insufficient or Inaccurate Data. The failure of the Manager to properly compute and report all required account data as required by this Agreement and incorporated Endorsements; and

(c.) Ownership Change. A change in the ownership or management of, or in the event of the execution of an agreement of sale, transfer or merger of the Manager, without the prior written notice and consent of the Company.

4. This Agreement may be terminated immediately at any time by either party by written notice

(a.)Act of bankruptcy. If the other party commits any act of bankruptcy, becomes insolvent or assigns all or part of its assets for the benefit of creditors upon or after the filing of a petition for bankruptcy, whether voluntary or involuntary.

(b.) Misconduct. In the event of fraud, abandonment, gross or willful misconduct, material breach of contract, insolvency, or lack of legal capacity to act, including cancellation, suspension or non-renewal of its license or certificate of authority, on the part of either party. Gross or willful misconduct shall include, but shall not be limited to:

(i.) Failure to pay any funds owing to the other party for any reason within ten (10) days after the time set forth in this Agreement other than as provided above regarding minor accounting differences.

(ii.) The delegation of any of Manager's obligations and/or assignment of any rights hereunder without the prior written consent of the Company.

(iii.)Either party being delinquent two (2) times in any consecutive twelv (12) month period in either the accounting for or the payment of any and all monies due the other party for any reason.

(c.) Legal. If the Company determines that, any law or regulation of a federal, state or local government has rendered illegal the performance of any material terms of this Agreement.

(d.) Material breach. If Manager or Company is in material breach of Agreement, provided the other party seeking to terminate this Agreement has given the other party thirty (30) days prior written notice of the nature of the claimed breach and its intent to terminate if the material breach is not cured within the thirty (30) days period.

(e.) Financial Statements. lf Manager fails to furnish the Company with an audited financial statement for the most current year no later than one hundred and eighty (180) days after .the execution of this Agreement, the Company may, at its option, immediately terminate this Agreement.

(f.) Special Investigative Unit ISIUl/Ciaims Department. Manager's failure to fully cooperate with the Company's SIU and/or the Claims Department per Article XII.

(g.) Loss of insurance. If Manager loses, does not renew, or does not have any of their insurance coverages cited in Article X.

B. Business after Termination . In the event of termination of this Agreement, at the election of the Manager, the Company shall continue Policies and binders in force until their stated expiration dates, subject to the following provisions:

1. The Company reserves all its rights to cancel Policies arid binders for nonpayment of premium and to cancel Policies and binders issued in violation of the underwriting guidelines then applicable to this Agreement provided said cancellation comports with applicable state law.

2. The Manager shall continue to be the agent of the Company for the purpose of servicing Policies and binders in force on or before the date of termination of this Agreement. The Manager shall not without prior written approval of the Company, increase or extend the Company's liability or extend the term or change any conditions of any such Policies under this Agreement.

3. Upon termination, the Manager shall cease to have any authority to solicit, underwrite, bind or issue business for the Company under this Agreement.

4. Upon termination of the Agreement, the Company shall have no obligation to pay the Manager for services in settlement of accounts or concluding of affairs between the Company and the Manager.

5. If this Agreement is terminated as provided for herein, neither party shall have any claim against the other for loss of prospective profits or fees or damage to business arising solely as a result of said termination.

6. In the event of termination of the Agreement, any business written hereunder and remaining with the Company shall be permitted to continue to normal eXpiration, provided, however, that if the renewal date of any annual policy shall occur within a period of thirty (30) days after the date of termination of the Agreement, and such renewal shall have had renewal terms already committed, such policy shall be renewed and permitted to continue in force until its next annual renewal date.

7. Should any Policy be extended, continued or renewed due to regulatory or other legal restrictions, the terms of this Agreement shall continue to apply to such policies until such Policies are terminated or expire.

8. Regardless of any dispute, the Company and Manager will fulfill any obligations on Policies.

9. Claims after termination:

(a.)The Company will have the right to determine who will handle claim servicing in the event of termination. This may include reinsurance and/or loss portfolio transfer arrangements.

(b.) In the event this Agreement terminates and the Manager refuses or is unable to administer servicing of business produced under this agreement, then in that event the Manager shall immediately:

(i.) Provide the Company wit.h on-line access to all records necessary to administer business produced hereunder.

(ii.) Provide the Company with a tape back-up of all programs and data libraries, including updated source code, object code, data files, and all related manuals used in the production and administration of business hereunder.

(c.) The Company's obligation to pay the applicable fee. to Manager as set forth in Endorsement C which is attached and incorporated into this Agreement, ceases when this Endorsement or the Agreement terminates, with the last payment of the fee due in the month following termination.

(d.) The Manager agrees to provide for an orderly and timely transition of claim files and support documents to Company. This will be done prior to the termination date, unless

immediate termination was used in which case it will be done within ten (10) days of the termination date. · ·

(e.) Any claims settlement authority granted to Manager. The Company may suspend Manager's settlement authority upon 3 days written notice during the pendency of any dispute or arbitration proceeding regarding the cause for termination.

(f.) Upon such termination or suspension, the Company shall within i 20 days of the effective date thereof, offer to assume by commutation, for losses it reinsures for American Service Insurance Company, Inc. on policies subject to this Agreement.

C. Records Ownership Upon Termination.

1. In the event of termination of this Agreement, all records, including electronic records, for the Business written under this Agreement (which shall not include work processes, work applications, workflows and actuarial pricing models of Manager, which shall remain the confidential and proprietary information of Manager) shall be co-owned by Company and Manager as provided for in this Agreement.

2. Upon termination of this Agreement, the Manager agrees:

(a.) to promptly return to the Company, or destroy with the Company's consent, any and all materials belonging to the Company;

(b.) to immediately discontinue the dissemination or use of any materials, marketing or otherwise, bearing the Company's name or logo; and

(c.) promptly return to Company all original records and all electronic records relating to the

Business.

3. Upon termination of this Agreement, the Company agrees, for a period of seven (7) years from the date of termination, that:

(a.) Following reasonable advance written notice to Company, Manager shall have the right to access and review all records related to the Business generated by Manager.

(b.) Company will provide:

(i.) Quarterly reports of written and earned premium by state and program.

(ii.) Quarterly reports of . claim activity by coverage including paid losses, reserve transactions, salvage/subrogation recoveries, claim counts (pending, opened, closed).

ARTICLE XV. Ownership of Expirations

A. Use and control . The use and control of all expirations, and all records pertaining to insurance written pursuant to this Agreement shall become the Manager's property and remain in the Managers undisputed possession, provided that Manager fulfills their responsibilities in accordance with this Agreement.

ARTICLE XVI. Offset

All amounts due Manager or Company under this or any other agreement between the parties shall be subject to the right of offset, whether or not subject entities are presently listed in this Agreement. For the protection of the Company, the Company shall have the right of offset with respect to any premium not timely refunded to premium finance companies or to insureds in the time allotted by the appropriate state law, or within thirty (30) days after policy cancellation, whichever is greater so long as the premium in question arises from business generated pursuant to this Agreement. For the purposes of this Article, Manager shall include all subsidiaries and affiliates. The Manager may not use the right of offset to remove funds the Manager believes it is owed from the Premium Account without the prior written consent of the Company.

ARTICLE XVII. Arbitration

A. Submission to Arbitration . In the event of any dispute between the Company and the Manager with reference to the interpretation, application, formation, enforcement or validity of this Agreement, or their rights with respect to any transaction involved, whether such dispute arises before or after termination of this Agreement, such dispute, upon written request of either party, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire meeting at the Company's offices unless otherwise mutually agreed. Notwithstanding the generality

of the foregoing, the Company's right to exercise any of the options or rights contained in this Agreement and the incorporated Endorsements or to obtain any other legally available injunctive remedies shall not be limited by the submission of any dispute to arbitration. The board of arbitration will have complete jurisdiction over the entire matter in dispute, including any question as to its arbitrability.

B. Notice . The notice requesting arbitration shall state in particulars all principal issues to be resolved, name the requesting party's arbitrator and shall set a date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred twenty (120) days from the date that the notice requesting arbitration is mailed.

C. Discovery . Each party may obtain discovery from the other through written interrogatories and through requests for documentation, and may depose witnesses upon notice to the other. Any objections to production of documents or to the scope of discovery. shall be submitted to the umpire for·resolution. The umpire may schedule a conference at which the parties may present oral arguments and submit written briefs with respect to the production of documents or the scope of discovery. The umpire shall render a decision within two business days of the conference. The decision shall be binding on the parties.

D. Arbitration Board Membership . The members of the board of arbitration shall be active or retired and disinterested officials of insurance companies or lawyers. Each party shall appoint its own arbitrator and the two arbitrators shall choose a third arbitrator as umpire before the date set for the hearing. The umpire shall be a lawyer. If the party receiving the notice of arbitration fails to appoint its arbitrator within thirty (30) days after having received the written notice of arbitration, the party giving notice shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of the umpire within thirty (30) days after their appointments, each of them shall name three, of whom the other shall decline two and the selection of the umpire from the remaining two nominees shall be made by drawing lots. The umpire shall promptly notify all parties to the arbitration of his selection.

E. Submission of Briefs . The parties shall submit their initial briefs within twenty (20) days from appointment of the umpire. Each may submit reply briefs within ten (10) days after filing the initial briefs.

F. Arbitration Award. The board shall make an award with regard to the custom and usage of the insurance business which shall be in writing and shall state the factual and legal basis for the award. The board may award compensatory money damages and interest thereupon but may not award punitive, exemplary or similar damages arising out of or in connection with a breach of this Agreement. The award shall be based . upon a hearing in which evidence may be introduced without following strict rules of evidence but in which cross-examination and rebuttal shall be allowed. At its own election or at the request of the board, either party may submit a post-hearing brief for consideration of the board within twenty (20) days of the close of the hearing. The board shall make its award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. A decision by the majority of the members of the board shall become the award of the board and shall be final and binding upon all parties to the proceeding.

G. Confirming Court Order . Either party may apply to the United States District Court for the Northern District of Illinois or to the Circuit Court of Cook County, Illinois for an order confirming the award or to enforce any decision by the umpire with respect to discovery. The parties consent to the jurisdiction of any such court. A judgment of such Court shall thereupon be entered. If such an order is issued, the attorney's fees of the party so applying and court costs will be paid by the party against whom confirmation is sought.

H. Arbitration Expense . Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the expense of the umpire. The remaining costs of the arbitration proceedings or any other costs relating to the arbitration may be allocated by the board.

I. Surviva l. This Article shall survive the termination of this Agreement.

J. Procedural Law . Illinois law shall govern the conduct of arbitrations pursuant to this Agreement.

ARTICLE XVIII. Contract Terms

A. Applicable Law . The rights of the parties to this Agreement shall be governed by and construed in accordance with the law(s) of the state. of Illinois without regard to Illinois rules on conflict of laws.

B. Strict Compliance . The failure of the Company or Manager to insist on strict compliance with this Agreement and the incorporated Endorsements, or to exercise any right or remedy shall not constitute a waiver of any rights provided under this Agreement, or stop the parties from thereafter demanding full and complete compliance, or prevent the parties from exercising such a remedy in the future.

C. No Assignment . This contract may not be assigned in whole or part by the Manager.

D . Notices and Service of Process . Any notices given with regard to this Agreement (other than the Company's notices or invoices with respect to amounts due hereunder) shall be sent to the following addresses by U.S. mail or any other means calculated to provide notice:

To Company:

American Service Insurance Company, Inc.

150 Northwest Point Blvd

Elk Grove Village, IL 60007

Attn: Scott Wollney

To Manager:

Universal Casualty Company

150 Northwest Point Boulevard

Elk Grove Village, Illinois 600007

Attn: Roger Beck

For purposes of service of process related to disputes governed by this Agreement only, the parties agree to accept service of process by personal delivery, registered or certified U.S. mail or overnight courier/delivery service to the addresses specified above. Notices and Service of Process is deemed to be given on the date it is received.

E. Jurisdiction . The parties hereby consent to the exclusive jurisdiction of either the United States District Court for the Northern District of Illinois, or to the Circuit Court of Cook County, Illinois, regarding any disputes relating to or arising out of this Agreement.

F. Severability . If any provision hereof is or shall at any time be deemed invalid and unenforceable then, to the fullest extent permitted by law, the other provisions hereof shall remain in full force and effect and shall be liberally construed in favor bf the Company in order to carry out the intentions of the parties hereto subject to subsection XIV. A. 4. (d) as nearly, as may be possible.

G. Entire Agreement; Modifications .

This Agreement and the incorporated Endorsements, constitutes the entire agreement of the parties with respect to the subject matter herein and supersedes any other previous agreements or quotations, whether written or oral, between the Company and the Manager, unless specifically referred to within this Agreement. Except where otherwise provided by the terms of this Agreement, this Agreement may not be released, discharged, amended or modified except in writing signed by both parties. Notwithstanding the foregoing, manuals, rules, regulations, guidelines, instructions arid directions issued in writing by the Company from time to time as provided in this Agreement, shall bind the Manager as though a part of this Agreement.

H. Negotiated Agreement. This Agreement has been negotiated by the parties and the fact that the initial and final draft shall have been prepared by Company shall not be used in any forum in the construction or interpretation of this Agreement or any of its provisions.


I.	Headings . The headings preceding the text of the articles and paragraphs of this Agreement are intended and inserted solely for the convenience of reference and shall not affect the meaning, construction or effect of this Agreement.

J. lndependent Contracto r. This Agreement is not a contract of employment and nothing contained in this Agreement and the incorporated Endorsements shall be construed to create the relationship of joint venture, partnership, or employer and employee between Company and Manager or between Manager and any independent producers, agents or sub-producers. Manager is an independent contractor and shall be free, subject to the terms and conditions of this Agreement, to exercise judgment and discretion with regard to the conduct of business of this Agreement.

K. Honorable Undertaking. This Agreement shall be considered an honorable undertaking made in good faith and shall be subject to a liberal construction for giving effect to the good faith and honorable intentions of Manager and Company.

L. Counterparts. This Agreement may be executed in duplicate counterparts and via facsimile with an original signature to follow promptly via U.S. Mail, each of which shall be deemed an original but both of which when taken together shall be deemed one and the same document.

M. Surviva l. Articles Ill (0) (W) (X) (Z) (AA), XI, XII, XIII, XIV, XV, XVI, XVII, and XVIII, and any other provision related to the parties rights post termination shall survive the termination of this Agreement.

N. Promptly . Unless the context and circumstances require action sooner, "promptly" in this

Agreement and incorporated Endorsements shall mean "within five (5) business days".


O.	Timely . Unless the context and circumstances require action sooner, 'timely" in this Agreement and incorporated Endorsements shall mean "within three (3) business days".

P. Bordereaux . A listing of accounts and/or transactions from an agent for a specific period of time. At a specified time, the agent will send the Company a check for monies due per the bordereaux.

Q. Account current. Is a listing of the same data as contained within a bordereaux, but at the specified time, the Company will send a check to the agent for monies due per the account current.

R. Loss Pick . A measurement of normal loss expectancy for the risk in question.

S. Confidentiality. Manager and Company (each a "Receiving Party") agree, on behalf of themselves and their respective Affiliates, employees and agents, that during the term of this Agreement and for a period of five (5) years after the termination hereof, they shall not, without the prior written consent of the other party, disclose to any third person, corporation, firm or other party or use for any purpose other than as specifically permitted by this Agreement, any Confidential Information disclosed by the other party (the "Disclosing Party"), except where an order of court of competent jurisdiction, a governmental agency, state or federal law, the Company's Privacy Policy, or a third party's rights or interest in such Confidential Information otherwise requires such disclosure.

For purposes of this section, "Confidential Information" means all information relating to a Disclosing Party, its Affiliates or third parties to whom a Disclosing Party owes an obligation of confidentiality that is furnished to a Receiving Party now or in the future by or on behalf of a Disclosing Party or to which a Receiving Party obtains access, in either case whether such information is furnished or made accessible in writing, orally, visually, electronically or by any other means:

For purposes of this section, an "Affiliate" of a person or entity means any person or entity (including any entity acquired or created after the date of this Agreement) that directly or indirectly controls, is controlled by or is under common control with such company.

Notwithstanding the foregoing, the following will not constitute Confidential Information for purposes of this Agreement:

1. information which is or becomes generally available to the public, other than as a result of a disclosure or other act by the Receiving Party or its Affiliates, employees or agents;

2. information which can be shown by the Receiving Party to have been already known to it on a non-confidential basis prior to being furnished to it by or on behalf of the Disclosing Party; and

3. Information which becomes available to a Receiving Party on a non-confidential basis from a third party that is not subject to any prohibition against disclosing the information to the Receiving Party.

4. Notwithstanding anything to the contrary set forth herein, upan any notice of non-renewal or termination under Article XIV, the parties may share such information as may be necessary to secure a replacement insurance carrier or replacement agent, provided that no information will be shared with any party that has not executed a confidentiality agreement no less stringent than the provisions of this Article.

5. A Receiving Party will not be in breach of its obligations under this Paragraph if it discloses Confidential Information as required by an order of court of competent jurisdiction, a governmental agency, state or federal law; provided, however, that the Receiving Party:

a. notifies the Disclosing Party sufficiently prior to disclosure to enable the Disclosing Party to seek to

oppose or restrict the disclosure;

b. cooperates with any attempt by the Disclosing Party to oppose or restrict the disclosure;

c. uses its best efforts, at the expense of the Disclosing Party, to obtain any protective

order reasonably requested by the Disclosing Party; and

d. only discloses such Confidential Information that is required to be disclosed.

IN WITNESS WHEREOF, the parties, intending to be legally bound, have caused their authorized representatives to execute this Agreement and the incorporated Endorsements.




Manager:			Company:

Universal Casualty Company			American Service Insurance Company

/s/ Roger Beck			/s/ Scott D. Wollney
President & COO			President & CEO
1/11/2011			1/11/2011

EXHIBIT A

Code of Business Conduct and Ethics

INTRODUCTION

The Company's goal is to achieve the highest business and personal ethical standards as well as to comply with all the laws and regulations that apply to our business. Adherence to the standards contained in this Code will help to ensure decisions that reflect care for all of our stakeholders. The Code of Business Conduct and Ethics (the "Code") is intended as an overview of the Company's guiding principles and not as a restatement of Company policies and procedures.

Ethical business behavior is the responsibility of every member of the Company's team and is reflected not only in our relations with each other but also with our policyholders, other organizations, suppliers, competitors, government and the public. Whatever the area of activity and whatever the degree of responsibility, the Company expects each employee and agent to act in a manner that will enhance its reputation for honesty, integrity and the faithful performance of its undertakings and obligations.

This Code cannot and is not intended to cover every applicable law or provide answers to all questions that might arise; for that we must ultimately rely on each person's good sense of what is right, including a sense of when it is proper to see guidance from others on the appropriate course of conduct. Because our business depends upon the reputation of the Company and its directors, officers, employees, and agents for integrity and principled business conduct, in many instances this Code goes beyond the requirements of the law.

CONFLICTS OF INTEREST

In exercising our responsibilities, it is vital that we be guided by what is in the best interests of the Company and those clients with whom we have fiduciary relationships. All of our employees are required to conduct their personal and business affairs in such a way so as to avoid conflicts or even the appearance of conflicts with the interests of the Company, its shareholders, brokers, policyholders and its customers.

USE OF INFORMATION .

The insurance business, like other service industries, is based on the collection, organization, evaluation and preservation of information about individuals, organizations and the world at large. To provide the highest quality services to our policyholders and customers, we must be efficient in gathering and storing information, be thorough in our analysis of information collected, and be creative in generating new information. Our ability to remain competitive requires both our willingness and ability to share information within our organization and our awareness that certain types of information need to be. protected from disclosure. . It is especially important to maintain our reputation by safeguarding information entrusted to us by our policyholders, customers and fellow employees; it is also legally required to many cases.

CONFIDENTIALITY OF PERSONAL INFORMATION

Our policyholders and customers entrust us with confidential information about their personal and business operations. The Company will only collect and maintain information for legal and business reasons. This means that only those employees and outside governmental authorities and regulators with legitimate reasons to know should have access to such information.

CONFIDENTIALITY OF BUSINESS INFORMATION

Confidential business information and practices can be defined as information used in trade or business which gives the owner a competitive advantage and which is not generally known to the public. If the owner fails to adequately protect the information or matter, it may lose its confidential status. Such business information and practices could include software code, customer lists, or a new invention that is yet to be patented.

Sometimes you may encounter such business information and/or practices in the course of evaluating a service provided to, or a service or product received from policy holder, customer or vendor. You may be responsible for the loss of such information and/or practice if you reveal it to others, even fellow Company employees, who do not need to know this proprietary information. Both the Company, the employee, and the agent may be held liable for financial losses to the owner of the business information or practice.

USE OF INSIDE INFORMATION

It is the Company's goal to protect shareholder investments through strict enforcement of the prohibition against insider trading set forth in provincial securities laws and regulations. No director, officer or employee may buy or sell securities of Kingsway at a time when in possession of "material non-public information.") There is, however, an exception for trades made pursuant to certain stock plans such as the Kingsway Employee Stock Purchase Plan established in compliance with applicable law.) Passing such information to someone who may buy or sell securities is also prohibited. The prohibition on insider trading applies to Kingsway's securities and to securities of other companies if the director, officer or employee learns of material non-public information about those other companies in the course of his or her duties for Kingsway. This prohibition also extends to certain non-employees who may learn about the "material non-public information" about the Company such as spouses, relatives, and close friends of directors, officers or employees. Insider trading is both unethical and illegal and will be dealt with firmly. If you have any questions in connection with whether or not a trade in the company shares is permitted at any particular time, please contact the Executive Vice-President of Kingsway.

FAIR DEALING

Each director, officer and employee shall endeavor to deal fairly and in good faith with Kingsway customers, shareholders, employees, suppliers, regulators, business partners, competitors and others. No director, officer or employee shall take unfair advantage of anyone through manipulation, concealment, abuse of privileged or confidential information, misrepresentation, fraudulent behavior or any other unfair dealing practice.

PROTEC TION AND USE O F COMPANY ASSETS

Company assets, such. as information. materials, supplies, time, intellectual property, software, hardware, and facilities, among other property, are valuable resources owned, licensed, other otherwise belonging to the Company. Safeguarding Company assets is the responsibility of all directors, officers and employees. All Company assets should be used for legitimate business purposes. The personal use of Company assets without permission is prohibite d.

Employees are expected to use Company equipment and materials (e.g. telephones, computers, software and photocopiers) or Company business only. All Company equipment and materials are dedicated for business use only and the Company reserves the right to monitor and investigate usage of company equipment and materials at its discretion.

Employees should not use Company resources for personal benefit or to benefit persons or entities outside the Company. In certain circumstances, the Company may approve of the use of particular corporate resources for charitable or community purposes.

Employees must maintain accurate records and abide by corporate policies concerning reimbursable expenses, and eligibility for all Company benefits, including sick leave, education and disability payments.

Employees may not make payments or give gifts (other than gifts of nominal value that are generally considered as common business or social courtesies) to government workers or outside suppliers in order to influence regulatory or business decisions.

The Company has established internal control procedures to ensure that assets are protected and properly used, and that financial records and reports are accurate and reliable. Employees and supervisors share the responsibility for maintaining and complying with required internal controls.

The Company's success depends upon the integrity of all of its employees. The Company has instituted a comprehensive set of procedures, rules and controls to prevent fraud and dishonesty and it will take all action necessary arid appropriate to enforce these policies and procedure.

ACCOUNTING PRACTICES

It is the policy of Kingsway to fully and fairly disclose the financial condition of the Company in compliance with applicable accounting principles, laws, rules and regulations. All books and records of Kingsway shall be kept in such a way, as to fully and fairly reflect all company transactions.

RECORDS RETENTION

Officers, employees and agents are expected to become familiar with the Company's policies regarding records retention

applicable to them and to strictly adhere to those procedures. Records may not be destroyed except in accordance with the applicable records retention policy. If you.have any questions in this regard, do not hesitate to contact your supervisor.

COMPLIANCE WITH LAWS, RULES REGULATIONS

As an insurance provider, the Company. is subject to a myriad of laws and regulations on how we conduct our business. Many of these laws are designed to protect consumers in situations where it is perceived that a business because of size, resources or expertise is able to unfairly control or influence customer decisions. It is critically important that both the Company, its employees and agents with the letter and spirit of the laws, which regulate the conduct of our business.

All aspects of Company business are impacted by compliance requirements; for example, sales, underwriting, claims, actuarial, accounting and financial reporting, financial services, investments, and governmental relations.

Kingsway takes a proactive stance on compliance with ail applicable laws, rules and regulations, including insider-trading laws and applicable anti-trust laws.

DUTY TO REPORT AND CONSEQUENCES

Every director, officer and employee has a duty to adhere to this Code of Business conduct and Ethics and all existing company policies and to report to the Company and suspected violations in accordance with applicable procedures.

Employees shall report suspected violations of Company policies contained in the Employee Handbook by following the reporting procedures tor that specific policy in the Employee handbook. All other suspected violations of the code must be reported to that party or, if no specific procedures are stated, the Executive Vice-President at (905-206-2651). The Company will investigate any matter so reported and may take appropriate disciplinary and corrective action, up to and including termination. The Company forbids retaliation against employees who report violations of this Code of Business Conduct and Ethics in good faith.

EXHIBIT B

Privacy Notice To Our Customers

This Privacy Policy is provided to you and other customers of the Company (or "we") to explain our policy relating to maintaining the confidentiality of non-public personal information. We are committed to giving your non-public personal information all the protection required by law. This Privacy Policy outlines the types of non-public personal information that we collect, why we collect it, how we use it, and with whom we share it.

Categories of Non-public Personal Information We Collect: Non-public personal information is personally identifiable financial information about you obtained by the Company in connection with providing products and services to you. It includes information provided by you, obtained by us, or resulting from your transactions with us or others. It does not include information available to the general public. We collect non-public personal information from the following sources:

Information we receive from you on applications or other forms. This information may include your name, address, social security number, health and financial .information, and may be received in person, by mail, by phone, by facsimile, or via the internet.

Information about your transactions with us, our affiliates or others. This could include, among other things, information to adjust, investigate or settle your insurance claims, your claims history, billing and payment information and coverage selections.

Information we receive from consumer reporting agencies. This information is generally used in connection with the application process. It may include motor vehicle reports, claims reports, credit histories and information we receive from a customer report or investigative consumer report.

Categories of Parties to Whom We May Disclose Non-public Personal Information: We will disclose your non-public personal information as permitted or required by law. We do not currently disclose non-public personal information about you to our affiliates, except as permitted by law. If we disclose non-public personal information about you to our affiliates, the information will be disclosed to respond to your needs and to provide information about products or services offered by our affiliates. Non-public personal information is treated with the same standards of confidentially among all Kingsway affiliates. We may share information among our affiliates about your accounts or our experiences or transactions with you. This includes identification information, account balance information and payment histories. To underwrite your insurance, we may share your consumer report or investigative consumer report among our affiliated underwriting. companies. By applying for insurance with us, you consent to our sharing of this information among our affiliated insurance underwriting companies. We will not otherwise share your consumer report or investigative consumer report among our affiliates.

We do not disclose non-public personal information about you to nonaffiliated third parties, except as permitted or required by law. We may disclose non-public personal information in connection with the servicing or processing of an insurance product or service that you request or authorize. These services may include check processing, data processing and claims handling functions. We may also disclose non-public personal information with nonaffiliated third parties that perform marketing services on our behalf, with other financial institutions with whom we have joint marketing agreements, or as permitted by law.

We restrict access to your non-public personal information to those employees and other parties necessary to provide products or services to you. We maintain physical electronic and procedural safeguards to guard your non-public personal information.

Further Information: If you have any additional questions about this privacy policy or concerns regarding your personal information, you may write us at:

American Service Insurance Company, Inc.,

150 Northwest Point Boulevard

Elk Grove Village, Illinois 60007.

ENDORSEMENT A

PROGRAM MANAGER AGREEMENT

ENTITIES AND LINES OF BUSINESS GOVERNED BY THIS AGREEMENT

ARTICLE I. Entities and lines of business.

This Endorsement identifies those entities under common ownership or control that are authorized to conduct business under this Agreement. The Company may apply any provision of this Agreement, including termination and suspension of authority, to one entity, line of business, or territory without necessarily affecting other subject entities, lines of business or territories.



Entity Name	Lines of Business	Effective Date	Governing Endorsements
Universal Casualty Company as Program Manager for American Service Insurance Company, Inc.	Private Passenger Automobile Insurance	January 1, 2011 (including claims for policies written prior to this date)	A, B, C, D, E

ENDORSEMENT B

PROGRAM MANAGER AGREEMENT

CLASSES 01= BUSINESS AND AUTHORITY

ARTICLE I. Classes of busines s.

Manager's authority and responsibility extends to the following classes of business, policies of insurance (including endorsements), lines of business and limits of insurance. Wherever reference is made to Company's Standard Underwriting Guidelines, please note that it is the Manager's responsibility to access and base relevant decisions on the Company's most current (on-line) version of the Standard Underwriting Guidelines. The Manager must follow appropriate Underwriting Guidelines.

A. Authorized classes of business. Manager's authority includes only the following classes of business:

Private Passenger Automobile Insurance

B. Prohibited classes of business. Manager has no authority for all types of business cited as "prohibited" or "risks not written" in the Company's Standard Underwriting Guidelines with the following exceptions and additions:

1. EXCEPTIONS (i.e., Manager's authority is further broadened to include these items): None.

2. ADDITIONS: None.

ARTICLE II.

The Program Manager authority may be terminated at any time by the Company for any breach of the

Restrictive Conditions.

A. Referral classes of business. Manager shall refer to the Company for prior approval for all types of business cited as ."submit" or "conditionally acceptable" in the Company's Standard Underwriting Guidelines with the following exceptions and additions:

1. EXCEPTIONS (i.e., Manager's authority is further broadened to include these items):

(a.) None.

2. ADDITIONS

(a.)None.

ARTICLE Ill. Account Clearance Process. N/A ARTICLE IV. Broker of Record Guidelines.

A. Company does not honor any "broker-oHecord" letters from any of its Program Managers.

B. Company will honor broker-of-record letters against Manager from those Company retail agents duly authorized to represent Company (lor the subject class of business, size of account, territory, etc.) under the following circumstances:

1. If the quote has not yet been released by Manager; OR

2. If the quote has been released by Manager, but more than ten (10) days remain before the proposed effective date.

C. Company will not honor broker-of-record letters against its Program Managers from those Company retail agents duly authorized to represent Company (for the subject class of business, size of account, territory, etc.) if the quote has been released by the Program Manager and less than ten (10) days remain before the proposed effective date.

D. Company reserve s the right to modify the broker-of-record process at its sole discretion.

ARTICLE V. Authority to Bind Risks. Manager's authority to bind qualifying accounts is specified below.

A. Once authorized (as above), your binding authority is limited to accounts within your authority as otherwise stated in this contract and subject to the filed rates, rules and forms of the Company.

B. Binding authority will be suspended immediately if the above individual terminates employment with Manager.

ARTICLE VI. Territory . Manager's authority . and responsibility extends to qualifying accounts headquartered only in the following territories.

A. All states (not territories or possessions) of the United States where the Company has a valid

Certificate of Authority and Filed Forms and Rates.

B. All other Risks outside these territories require prior written Company approval.

C. Company reserves the right to modify the list of approved territories at its sole discretion.

ARTICLE VII. Underwriting Information .

A. Prior to quoting any qualifying account, Manager must obtain at least the requisite underwriting information cited in any applicable Underwriting Guidelines provided by Company with the following exceptions and additions:

1. EXCEPTIONS (i.e., Manager need not secure the following information prior to quoting an authorized account):

None.

2. ADDITIONS (i.e., Manager must secure the following information prior to quoting an

authorized account):

None.

B. At the minimum, Manager will obtain the following information prior to binding any qualifying account:

None

ARTICLE VIII . Renewal Processing

A. Renewal processing must begin a sufficient number of days prior to expiration of policy to satisfy minimum statutory

renewal requirements.

B. For those policies being non-renewed, non-renewal notices on policies must. be issued within state guidelines.

C. For those accounts facing an increase on renewal and with the intent to renew, a letter must be mailed within the time mandated by the state indicating that an increase in premium may occur.

D. Renewal quote must be issued and released to the insured within the state mandated guidelines.

E. Premium audits will be ordered at the sole discretion of the Company.

ARTICLE IX. Policy Processing and Reports to Company.

A. Reports to Company: Manager shall report the following to the Company:

1. Monthly service level reports, as agreed between the Company and Manager

2. Monthly non renewal notice summ ary demonstrating compliance with applicable statutes.

3. Monthly claim compliance reports.

B. Additional Responsibilities of Manager:

1. Manager will comply with all written terms and conditions of Company's "General Rules" provided to Manager by the Company whether expressed in this Endorsement or not.

2. Manager will maintain all correspondence necessary to underwrite, rate and manage risks subject to this Agreement and shall make risk files available to Company for its review at anytime.

3. Account files will contain at least the following information:

( a.) All items fisted in Article V ("Underwriting Information") above.

(b.) All correspondence

(c.) Completed underwriting checklist (if external to Company's system)

(d.) Rating Worksheets (if external to Company's system)

4. Manager is knowledgeable of and agrees to be fully responsible for compliance with all applicable national security and privacy laws and regulations. This includes, but is not limited to, the Office of Foreign Assets Control requirements, the Gramm-Leach-Billey Act, the Fair Credit Reporting Act, the Insurance Information and Privacy Protection Act and those regulations promulgated to support implementation thereof. The Manager shall make all compliance measures and documents available to the Company.

ENDORSEMENT C

PROGRAM MANAGER AGREEMENT

CLAIMS SERVICE AGREEMEN T

Manager claim settlement procedures:

A. In addition to ascertaining that all claims reports are forwarded immediately to Company, the Manager has authority to handle, settle, and resolve all Private Passenger Automobile insurance claims in accordance with any applicable contracts of insurance and reinsurance agreement(s). ·

B. All claims information, whether electronic or otherwise, shall be maintained on the Company's systems or reported to Company in a timely manner.

C. A copy of the claim file must be sent to the Company at its request or as soon as it becomes know that the claim: (1) has the potential to exceed an amount determined by the Company; (ii) involves a coverage dispute; (iii) may exceed the Managers claims settlement authority; (iv) is open for more than 6 months; (v) if a consumer complaint or Insurance Department inquiry is received, or (vi) is closed by payment of an amount set by the company.

D. All claim files will be the joint property of the Company and the Manager. However, upon an order of liquidation of the Company, the files shall become the sole property of the Company or its estate; the Manager shall have reasonable access to and the right to copy the files on a timely basis.

E. Any settlement authority granted to the Manager may be terminated for cause upon the Company's written notice to the Manager or upon the termination of the contract. The Company may suspend the settlement authority during the pendency of any dispute regarding the cause for termination.

F. Manager shall not without prior approval of the Company, pay or commit the Company to pay a claim over $50,000, net of reinsurance.

G. Company will assume responsibility to annually obtain an actuary's opinion attesting to the adequacy of its loss reserves which shall include a review and analysis of loss reserves established for losses incurred and outstanding on business that is produced by the Manager.

H. Managers authority to adjudicate claims on behalf of Company is restricted to the following programs:

a. Private Passenger Automobile Insurance


1.	All claims for programs not listed above will be adjusted directly by the Company or its designated Third Party Administrator.

J. Manager may not collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer without prior approval of the Company. If prior approval is given, a report must be promptly forwarded to the Company.

ENDORSEMENT D

PROGRAM MANAGER AGREEMENT

COMMISSION PAYMENTS

As used in this Endorsement D, the following terms shall have the described meanings:

A. "Allocated Loss Adjustment Expense shall include expenses of litigation, interest upon judgments which doesn't reduce the Company's limit of liability under the Insured Exposure involved, allocated investigation, adjustment and legal expenses. However, salaries of the Company's personnel and office expenses of the .Company shall not be included.

C. "Net Written Premium" shall mean the gross premiums (excluding policy fees) charged on all original and renewal Policies written on behalf of the Company, less return premiums.

D. "Net Premium Collected" shall mean gross premiums (excluding policy fees) collected on behalf of the Company, less return premiums and Manager's commission.

E. "Earned Net Premiums" shall mean unearned net premiums at the beginning of the year; Plus Net Written Premiums, less return premiums (GWP) during the year; less unearned net premiums at the end of the year. ·

F. "Net Policy Fees" shall mean gross policy fees, if any, charged on all original and renewal Policies written on behalf of the Company, less return policy fees.

G. "Accident Year Net Losses Incurred" shall mean: losses outstanding at the end of the year, plus losses paid for the accident year, less accident year recoveries, plus accident year loss adjustment expense and legal fees, plus fee paid under any Claims Service Agreement, plus IBNR reserve at the end of the year, plus all assessments and regulatory required contributions.

ARTICLE II. Compensation

A. The Manager or its subsidiary or affiliate who performed the Service will be entitled to renewal rights relative to ASI's private passenger auto book of business plus payment equal to the difference between .95 X earned premium for the period during which this agreement is in force and the fully developed Accident Year Loss & ALAE amount as recorded on ASI's books for that same period plus 100% of ULAE for personal auto lines business as reserved on the Company's books at the original effective date of this agreement. ·

B. Manager's compensation under this Endorsement, or any other amounts or monies due Manager hereunder, shall be subject to offset by Company, or by any of Company's affiliates ("Affiliates"), with any amounts due from Manager to Company or its Affiliates.

ARTICLE Ill. Miscellaneous Provisions

c. Manager's compensation and any other. monies due Manager shall be subject to offset by Company, or any of its affiliates for any money due from Manager to Company or its affiliates. This provision shall not be affected by the insolvency of the Manager.

D. Upon an uncured breach by the Manager of claim related obligations to Company resulting in the termination of this agreement, Company shall have the right to collect from Manager the amount of money necessary to hire an alternative third party administrator to adjudicate the balance of claims that would have otherwise been handled by the Manager, up to the amount initially paid to the Manager by the Company for the claim handling portion of this agreement

ENDORSEMENT E

PROGRAM MANAGER

AGREEMENT FINANCIAL PROTOCOLS

ARTICLE I. Payment terms

A. Claim related compensation based on ULAE reserved on the effective date of this agreement will be paid by the Company to the Manager on a monthly basis where each monthly amount is based on actuarial work established at year end 2010 projecting the claim payment triangles for business in force on December 31, 2010, totaling the amount provided for in Endorsement D. A schedule of these payments will be incorporated into this agreement upon completion of 2010 year end actuarial work.

B. Renewal rights are granted to Manager immediately upon execution of this agreement by both parties.

C. Other compensation will be paid by the Company on a Monthly basis no later than the 20th calendar day of each month for premium earned in the preceding month.

ARTICLE II. Pass Through Fees

A. Manager shall be responsible for all regulatory fees collected on a per policy basis as mandated by any regulatory agency in assigned territories.

B. All fees shall be accounted for on a monthly report to the Company.

C. All such fees shall be sent to the appropriate regulatory agency in the time frame mandated by statute or regulation.

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE

SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott D. Wollney, certify that:


1.	I have reviewed this Amendment no. 1 to the report on Form 10-K of Atlas Financial Holdings Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 4, 2012

/s/ Scott D. Wollney

Scott D. Wollney
President, Chief Executive Officer and Director

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE

SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paul A. Romano, certify that:


1.	I have reviewed this Amendment no. 1 to the report on Form 10-K of Atlas Financial Holdings Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 4, 2012

/s/ Paul A. Romano

Paul A. Romano
Chief Financial Officer and Vice President

EXHIBIT 32.1

Certification of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Scott D. Wollney, Chief Executive Officer of Atlas Financial Holdings Inc. (the "Company"), certifies in his capacity as an officer of the Company that he has reviewed the amended Annual Report of the Company on Form 10-K/A for the year ended December 31, 2011 (the “Report”) and that to the best of his knowledge:

1. the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 4, 2012

/s/ Scott D. Wollney

Scott D. Wollney

President, Chief Executive Officer and Director

The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United

States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EXHIBIT 32.2

Section 1350

Certification of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

Paul A. Romano, Chief Financial Officer and Vice President of Atlas Financial Holdings Inc. (the "Company"), certifies in his capacity as an officer of the Company that he has reviewed the amended Annual Report of the Company on Form 10-K/A for the year ended December 31, 2011 (the “Report”) and that to the best of his knowledge:

1. the Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 4, 2012

/s/ Paul A. Romano

Paul A. Romano

Chief Financial Officer and Vice President