783603--3/17/2008--AMERICAN_SAFETY_INSURANCE_HOLDINGS

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Risk Factors Relating to American Safety Insurance A downgrade in our A.M. Best rating or increased capital requirements could impair our ability to sell insurance policies. The exclusions and limitations in our policies may not be enforceable. The risks we underwrite are concentrated in relatively few industries. We may respond to market trends by expanding or contracting our underwriting activities in certain business lines, which may cause our financial results to be volatile. Our industry is highly competitive and we may lack the financial resources to compete effectively. Our actual incurred losses may be greater than reserves for our losses and loss adjustment expenses. If we are unable to obtain reinsurance on favorable terms, our ability to write new polices would be adversely affected. We may be unable to recover amounts due from our reinsurers. We rely on independent insurance agents and brokers to market our products. We are subject to credit risk in connection with producers that market our products. Our growth strategy is dependent on several factors, the failure to achieve any one of which may impair our ability to expand our operations or may prevent us from operating profitably. If we lose key personnel or are unable to recruit qualified personnel, our ability to implement our business strategies could be delayed or hindered. We routinely evaluate opportunities to expand our business through acquisitions of other companies or business lines. There are many risks associated with acquisitions that we may be unable to control. We may require additional capital in the future, which may not be available or may only be available on unfavorable terms. Changes in the value of our investment portfolio may have a material impact on our operating results. We rely upon the successful and uninterrupted functioning of our information technology, information processing and telecommunication systems. We are subject to risks related to litigation. Risk Factors Related to Taxation Our Bermuda operations may be subject to U.S. tax. If you acquire 10% or more of the Common Shares, you may be subject to taxation under the controlled foreign corporation ( CFC ) rules. U.S. persons who hold Common Shares may be subject to U.S. federal income taxation at ordinary income rates on their proportionate share of our related party insurance income ( RPII ). U.S. persons who dispose of Common Shares may be subject to U.S. federal income taxation at the rates applicable to dividends on a portion of their gain, if any. U.S. persons who hold Common Shares will be subject to adverse tax consequences if American Safety Insurance is considered to be a Passive Foreign Investment Company (a PFIC ) for U.S. federal income tax purposes. American Safety Insurance, American Safety Re, American Safety Assurance and Ordinance Holdings, Limited may become subject to Bermuda taxes in the future. The impact of Bermuda s letter of commitment to the Organization for Economic Cooperation and Development to eliminate harmful tax practices is uncertain and could adversely affect American Safety Insurance s, American Safety Re s, and American Safety Assurance s tax status in Bermuda. Risk Factors Relating to the Property and Casualty Insurance Industry Policy pricing in our industry is cyclical, and our financial results are impacted by that cyclicality. Our industry is subject to significant and increasing regulatory scrutiny. We operate in a heavily regulated industry, and existing and future regulations may constrain how we conduct our business and could impose liabilities and other obligations upon us. Changes in U.S. federal income tax law could materially adversely affect us.

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783603--3/17/2008--AMERICAN_SAFETY_INSURANCE_HOLDINGS_LTD