946492--3/30/2006--NATIONAL_ATLANTIC_HOLDINGS

related topics

{loss, insurance, financial}

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{cost, regulation, environmental}

{tax, income, asset}

{personnel, key, retain}

{system, service, information}

{loan, real, estate}

{competitive, industry, competition}

{stock, price, share}

{stock, price, operating}

{condition, economic, financial}

{provision, law, control}

{capital, credit, financial}

{control, financial, internal}

{cost, contract, operation}

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{product, market, service}

We have exposure to claims related to severe weather conditions, which may result in an increase in claims frequency and severity. If we are not able to attract and retain independent agents, we would be limited in our ability to sell our insurance products. Established competitors with greater resources may make it difficult for us to market our products effectively and offer our products at a profit. Our failure to maintain a commercially acceptable financial strength rating would significantly and negatively affect our ability to implement our business strategies and sell our products. If our losses and loss adjustment expenses exceed our reserves, we would have to increase our reserves which would lower our earnings. Our management and independent registered public accounting firm have determined that there are material weaknesses in our internal controls over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results. If we lose key current personnel or are unable to recruit new qualified personnel, we could be prevented from implementing our business strategy and our ability to capitalize on market opportunities, grow our business and operate efficiently and profitably could be negatively affected. Market fluctuations and changes in interest rates could reduce the value of our investment portfolio and our asset base which would limit our ability to underwrite more business. We may not be able to successfully alleviate risk through reinsurance arrangements which could cause us to reduce our premiums written in certain lines or could result in losses and we are subject to credit risk with respect to our reinsurers. Because we continue to reduce our use of third party reinsurance, we will retain more risk, which could result in more losses. We rely on our information technology and telecommunication systems, and the failure of these systems could limit our ability to operate efficiently and cause us to lose business. Risks Related to Our Industry As a result of cyclical changes, which may include periods of price competition, excess capacity, high premium rates and shortages of underwriting capacity in the personal auto insurance industry, our results may materially fluctuate, affecting our ability to effectively market and price our products. We are subject to comprehensive regulation in the State of New Jersey, particularly by the New Jersey Department of Banking and Insurance, and we must obtain prior approval to take certain actions which may limit our ability to take advantage of profitable opportunities. We are subject to assessments by the New Jersey Property-Liability Insurance Guaranty Association, which assessments would reduce the capital available to us to operate our business. Our failure to meet risk based capital standards could subject us to examination or corrective action by state regulators. If we fail to satisfy a sufficient number of IRIS Ratios, we would be subject to regulatory action which could negatively affect our ability to operate our business efficiently and profitably. New Jersey Personal Auto Insurance Regulation We are subject to extensive regulation in the New Jersey personal auto insurance industry which is subject to change, and we can give you no assurance that any changes in the regulations would not significantly limit our ability to operate our business profitably. We cannot be certain of the impact that the New Jersey Automobile Insurance Competition Choice Act or any future legislative initiatives will have on our business and operations. We are subject to the New Jersey excess profits requirements which require us to refund or credit excess profits to our policyholders. We are subject to New Jersey s Take All Comers requirements whereby we are not permitted to refuse to issue policies in those rating territories to certain applicants which could negatively impact our underwriting We are subject to New Jersey s urban enterprise zone requirements. Unless we write enough business in designated urban enterprise zones, we may be assigned business in those zones by the State of New Jersey which could negatively impact our underwriting results. The continued threat of terrorism and ongoing military and other actions may result in decreases in our net income, revenue and assets under management and may adversely affect our investment portfolio. Changes in insurance industry practices and regulatory, judicial and consumer conditions and class action litigation are continually emerging in the automobile insurance industry, and these new issues could adversely impact our revenues or our methods of doing business. Risks Related to Our Common Stock We have principal shareholders who have the ability to exert significant influence over our operations, including controlling the election of directors. As a holding company, NAHC is dependent on the results of operations of its operating subsidiaries, particularly Proformance, and the ability of Proformance to pay a dividend to us is limited by the insurance laws and regulations of New Jersey. There are anti-takeover provisions contained in our organizational documents and in laws of the State of New Jersey that could delay or impede the removal of our directors and management and could make a merger, tender offer or proxy contest involving us more difficult, or could discourage a third party from attempting to acquire control of us, even if such a transaction were beneficial to the interest of our shareholders. We may require additional capital in the future, which may not be available or may only be available on unfavorable terms. Future sales of shares of our common stock by our existing shareholders, officers or employees in the public market, or the possibility or perception of such future sales, could adversely affect the market price of our stock.

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946492--3/30/2006--NATIONAL_ATLANTIC_HOLDINGS_CORP