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Bermuda		6411		Not applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

W. Brinkley Dickerson, Jr. Troutman Sanders LLP 600 Peachtree Street, Suite 5200 Atlanta, Georgia 30308 (404) 885-3000 FAX: (404) 962-6743		Nancy H. Corbett Sidley Austin llp 787 Seventh Avenue New York, New York 10019 (212) 839-5300 FAX: (212) 839-5599

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Information contained in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

Proceeds to

Underwriting Discounts

American Safety

Price to Public

and Commissions(1)

Insurance(2)

Per Share

$

$

$

Total(3)

$

$

$

(1)	American Safety Insurance has agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See “Underwriting.”
(2)	Before deducting expenses of this offering payable by us estimated at $600,000.
(3)	This is a firm commitment underwriting. The Company has granted the underwriters the right to purchase up to an additional 480,000 Common Shares to cover over-allotments. The underwriters expect to deliver the shares to purchasers on or about                     . For further discussion, see “Underwriting.”

	Raymond James

	BB&T Capital Markets

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		Page
Prospectus Summary			1
The Offering			7
Summary Financial Data			8
Risk Factors			10
Note Regarding Forward-Looking Statements			22
Use of Proceeds			23
Selling Shareholders			24
Dividend Policy			25
Capitalization			26
Market for our Common Equity and Related Stockholder Matters			27
Selected Financial Data			28
Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Business			54
Management			81
Principal Shareholders			89
Certain Relationships and Related Party Transactions			90
Description of the Common Shares			91
Shares Eligible for Future Sale			95
Certain Bermuda Law Considerations			96
Certain Tax Considerations			97
Underwriting			105
Legal Matters			106
Experts			106
Where You Can Find More Information			107
Enforcement of Civil Liabilities Under U.S. Federal Securities Laws and Other Matters			107
Index to Consolidated Financial Statements and Financial Statement Schedules			F-1
EX-23.3 CONSENT OF KPMG LLP
EX-23.4 CONSENT OF BDO SEIDMAN LLP

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	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.

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	The risks we underwrite are concentrated in relatively few industries.

	We may respond to market trends by expanding or contracting our underwriting activities, 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.

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	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.

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	We are subject to risks related to litigation.

	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.

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	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.

	•	identify insurable risks not adequately served by the standard insurance market;
	•	maintain adequate levels of capital;
	•	obtain reinsurance on favorable terms;
	•	obtain necessary regulatory approvals when writing on an admitted basis;
	•	attract and retain qualified personnel to manage our expanded operations; and
	•	maintain our financial strength ratings.

	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.

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	Changes in the value of our investment portfolio may have a material impact on our operating results.

	•	credit risk, which is the risk that our invested assets will decrease in value due to unfavorable changes in the financial prospects or a downgrade in the credit rating of an entity in which we have invested;
	•	interest rate risk, which is the risk that our invested assets may decrease due to changes in interest rates;
	•	equity price risk, which is the risk that we will incur economic loss due to a decline in equity prices; and
	•	duration risk, which is the risk that our invested assets may not adequately match the duration of our insurance liabilities.

	We rely upon the successful and uninterrupted functioning of our information technology, information processing and telecommunication systems.

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	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”).

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	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.

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	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 and American Safety Assurance 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.

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	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.

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	Our stock price may be subject to significant fluctuations.

	•	quarterly variations in our operating results;
	•	changes in expectations about our future operating results;
	•	changes in financial estimates and recommendations by securities analysts concerning us or the insurance industry generally;
	•	operating and stock price performance of other companies that investors may deem comparable;
	•	news reports relating to our business and trends in our markets;
	•	changes in the laws and regulations affecting our business;
	•	acquisitions and financings by us or others in the insurance industry; and
	•	sales, or the possibility of future sales, of substantial amounts of Common Shares by our executive officers, directors or principal shareholders, or the perception that these sales will or could occur.

	The trading market for the Common Shares is thin, which could result in illiquidity of an investment in the Common Shares.

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	Limitations on share ownership and voting rights might prevent a third party from acquiring us.

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	•	general economic conditions and other factors, including prevailing interest rate levels and stock market performance, which may affect our ability to sell our insurance products and services, the market value of our investments and the lapse rate and profitability of our policies;
	•	the availability and terms of future strategic acquisitions;
	•	changes in the federal income tax laws and regulations which may affect the relative tax advantages of some of our products;
	•	legal or regulatory changes or actions, including those relating to the underwriting of insurance products, regulation of the sale, underwriting and pricing of insurance products and services;
	•	our ability to maintain or improve our current rating by A.M. Best;
	•	expectations regarding the adequacy of our reserves for losses and loss adjustment expenses;
	•	our ability to leverage our relationships with producers;
	•	our areas of projected growth, growth opportunities and growth strategy;
	•	our ability to expand our information technology capabilities;
	•	the diversification of our insurance risk portfolio; and
	•	our future liquidity requirements.

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			As of
			March 31,				As Adjusted
			2006				for this Offering
			(In thousands)
Short-term debt			$	—			$	—
Long-term debt				37,794				37,794
Total debt				37,794				37,794
Shareholders’ equity
	Preferred stock, $.01 par value; authorized 5,000,000 shares; no shares issued and outstanding			—				—
	Common stock, $.01 par value; authorized 15,000,000 shares; 6,779,031 shares issued and outstanding at March 31, 2006 and 10,030,165 shares issued and outstanding as adjusted for this Offering			68				100
Additional paid-in capital				49,787				98,265
Accumulated other comprehensive income loss				(4,706	)			(4,706	)
Retained earnings				74,558				74,558
Total shareholders’ equity				119,707				168,217
Total capitalization			$	157,501			$	206,011

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Fiscal Year Ended December 31, 2003		High				Low				Close
First Quarter		$	7.33				6.69			$	6.95
Second Quarter			9.15				6.18				8.98
Third Quarter			13.60				9.03				12.35
Fourth Quarter			14.00				11.85				13.11

Fiscal Year Ended December 31, 2004		High				Low				Close
First Quarter		$	16.00			$	13.00			$	14.56
Second Quarter			18.30				13.50				15.01
Third Quarter			15.21				9.94				13.70
Fourth Quarter			16.45				12.83				16.34

Fiscal Year Ended December 31, 2005		High				Low				Close
First Quarter		$	16.24			$	14.27			$	14.90
Second Quarter			15.75				14.20				15.28
Third Quarter			17.98				15.17				17.24
Fourth Quarter			18.00				16.01				16.74

Fiscal Year Ended December 31, 2006		High				Low				Close
First Quarter		$	16.97			$	15.60			$	16.71
Second Quarter (through June 19, 2006)		$	17.58			$	15.30			$	16.24

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																							Three Months Ended
			Year Ended December 31,																				March 31,
			2001				2002				2003				2004				2005				2005				2006
			(In thousands, except per share data and ratios)
Statement of Operations Data:
	Gross premiums written		$	163,018			$	159,290			$	212,667			$	221,576			$	237,880			$	64,211			$	53,183
	Net premiums written			87,958				86,922				131,478				131,921				140,552				36,770				33,578
	Net premiums earned			73,311				73,582				109,334				136,391				138,536				34,621				35,057
	Net investment income			4,064				4,388				5,801				9,773				14,316				3,156				4,544
	Net realized gains (losses)			752				685				3,139				208				(54	)			52				363
	Real estate sales			27,561				51,780				57,555				67,967				3,000				2,309				—
	Total revenue			108,418				130,663				175,991				214,656				155,874				40,140				40,028
	Losses and loss adjustment expenses incurred			45,585				42,031				65,834				93,503				84,406				20,781				22,155
	Acquisition expenses			15,859				14,507				21,818				26,529				28,512				7,126				6,977
	Real estate expenses			25,126				48,527				53,999				55,480				2,439				2,265				67
	Earnings before income taxes			5,304				3,403				10,090				18,453				16,048				3,897				4,117
	Net earnings			4,154				2,484				7,414				14,757				14,656				3,646				4,101
	Net earnings per share:
	Basic		$	0.87			$	0.52			$	1.45			$	2.15			$	2.18			$	0.54			$	0.61
	Diluted		$	0.84			$	0.51			$	1.42			$	2.01			$	2.05			$	0.50			$	0.57
	Common shares and common share equivalents used in computing net basic earnings per share			4,797				4,736				5,106				6,864				6,737				6,791				6,763
	Common shares and common share equivalents used in computing net diluted earnings per share			4,933				4,871				5,234				7,343				7,164				7,266				7,164
Balance Sheet Data (at end of period):
	Total investments, excluding real estate		$	90,078			$	111,926			$	222,418			$	327,037			$	415,497			$	339,951			$	421,544
	Total assets			322,520				389,342				514,260				584,160				697,135				609,382				709,575
	Unpaid losses and loss adjustment expenses			137,391				179,164				230,104				321,624				394,873				336,843				403,197
	Unearned premiums			59,768				71,675				99,939				93,798				100,241				102,757				96,828
	Loans payable			16,403				22,182				30,441				13,019				37,810				12,637				37,794
	Total liabilities			262,540				326,890				418,916				475,380				578,700				500,321				589,867
	Total shareholders’ equity			59,980				62,452				95,344				108,780				118,435				109,061				119,707

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																							Three Months Ended
			Year Ended December 31,																				March 31,
			2001				2002				2003				2004				2005				2005				2006
			(In thousands, except per share data and ratios)
GAAP Underwriting Ratios:
	Losses and loss adjustment expenses ratio(1)			62.1	%			57.1	%			60.2	%			68.6	%			60.9	%			60.0	%			63.2	%
	Expense ratio(2)			40.8	%			44.2	%			36.6	%			34.1	%			36.9	%			34.5	%			36.4	%
	Combined ratio(3)			102.9	%			101.3	%			96.8	%			102.7	%			97.8	%			94.5	%			99.6	%
Other Data:
	Return on average shareholders’ equity(4)			6.3	%			3.3	%			6.9	%			14.6	%			13.0	%			11.4	%			12.5	%
	Debt to total capitalization (5)			21.5	%			26.2	%			24.2	%			10.7	%			24.2	%			10.4	%			24.0	%
	Net premiums written to equity			1.4	x			1.4	x			1.4	x			1.2	x			1.2x				1.3	x			1.1	x

(1)	Losses and loss adjustment expenses ratio: The losses and loss adjustment expenses ratio is the ratio, expressed as a percentage, of losses and loss adjustment expenses to net premiums earned, net of the effects of reinsurance.
(2)	Expense ratio: The expense ratio is the ratio, expressed as a percentage, of acquisition and other operating expenses to net premiums earned. Our reported expense ratio excludes certain holding company expenses such as interest expense as well as real estate and rescission expenses.
(3)	Combined ratio: The combined ratio is the sum of the losses and loss adjustment expenses ratio and the expense ratio.
(4)	Return on average shareholders’ equity: Return on average shareholders’ equity is the ratio, expressed as a percentage, of net earnings, excluding realized gains and losses, to the average of the beginning of period and end of period total shareholders’ equity, excluding accumulated other comprehensive income.
(5)	Debt to total capitalization ratio: The debt to total capitalization ratio is the ratio, expressed as a percentage, of total debt to the sum of total debt and shareholders’ equity. The Company’s total debt consists solely of loans payable.

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																																Three Months
																																Ended
																Three Months Ended								Year Ended December 31,								March 31,
				Year Ended December 31,												March 31,
																								2003 to				2004 to				2005 to
				2003				2004				2005				2005				2006				2004				2005				2006
				(In thousands)
Net premiums written:
	Excess and Surplus Lines
		Environmental		$	27,233			$	35,024			$	41,477			$	10,967			$	8,071				28.6	%			18.4	%			(26.4	)%
		Construction			73,572				77,894				78,026				22,185				20,353				5.9				0.2				(8.3	)
		Surety			734				1,174				1,345				250				440				59.9				14.6				76.0
		Total			101,539				114,092				120,848				33,402				28,864				12.4				5.9				(13.6	)
	Alternative Risk Transfer
		Specialty Programs			15,152				17,273				19,712				3,270				4,526				13.9				14.1				38.4
		Fully-Funded			—				257				2,037				133				188				n/a				692.6				41.4
		Total			15,152				17,530				21,749				3,403				4,714				15.7				24.1				38.5
Runoff					14,787				299				(2,045	)			(35	)			—				(97.9	)			(783.9	)			n/a
Total net premiums written				$	131,478			$	131,921			$	140,552			$	36,770			$	33,578				0.3	%			6.5	%			(8.7	)%
Net premiums earned:
	Excess and Surplus Lines
		Environmental		$	22,446			$	32,152			$	38,081			$	8,745			$	8,320				43.2	%			18.4	%			(4.9	)%
		Construction			57,379				79,781				81,908				21,104				21,035				39.0				2.7				(0.3	)
		Surety			670				1,138				1,148				219				353				69.8				0.9				61.2
		Total			80,495				113,071				121,137				30,068				29,708				40.5				7.1				(1.2	)
	Alternative Risk Transfer
		Specialty Programs			14,068				16,516				18,297				4,309				4,981				17.4				10.8				15.6
		Fully-Funded			—				89				956				89				368				n/a				974.2				313.5
		Total			14,068				16,605				19,253				4,398				5,349				18.0				15.9				21.6
Runoff					14,771				6,715				(1,854	)			155				—				(54.5	)			(127.6	)			n/a
Total net premiums earned					109,334				136,391				138,536				34,621				35,057				24.7				1.6				1.3
Net investment income					5,801				9,773				14,316				3,156				4,544				68.5				46.5				44.0
Net realized gains (losses)					3,140				208				(54	)			52				363				(93.4	)			(125.9	)			598.1
Real estate income					57,555				67,967				3,000				2,309				—				18.1				(95.6	)			n/a
Other income					161				318				76				2				64				97.5				(76.1	)			3,100.0
Total Revenues				$	175,991			$	214,657			$	155,874			$	40,140			$	40,028				22.0	%			(27.4	)%			(0.3	)%

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																Three Months
				Year Ended December 31,												Ended March 31,
				2003				2004				2005				2005				2006
Insurance Operations
	Losses & Loss Adjustment Expenses Ratio				60.2	%			68.6	%			60.9	%			60.0	%			63.2	%
	Expense Ratio				36.6				34.1				36.9				34.5				36.4
		Combined Ratio			96.8	%			102.7	%			97.8	%			94.5	%			99.6	%

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	Net Premiums Earned

	Excess and Surplus Lines

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	Alternative Risk Transfer

	Runoff

	Net Investment Income

	Net Realized Gains

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	Real Estate Income

	Losses and Loss Adjustment Expenses

	Acquisition Expenses

	Interest Expense

	Real Estate Expenses

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	Minority Interest Expense

	Payroll and Other Expenses

	Income Taxes

	Operations by Geographic Segment

March 31, 2005		U.S.				Bermuda				Total
Income tax		$	251			$	—			$	251
Net earnings			1,593				2,053				3,646
Assets			471,346				138,036				609,382
Equity			55,927				53,134				109,061

March 31, 2006		U.S.				Bermuda				Total
Income tax		$	16			$	—			$	16
Net earnings			1,046				3,055				4,101
Assets			537,187				172,388				709,575
Equity			58,348				61,359				119,707

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		Year Ended				Year Ended
		December 31, 2004				December 31, 2005
Insurance Operations		$	4,263			$	13,618
Real Estate Operations			7,816				209
Other, including realized gains and (losses) from sale of investments and rescission expenses			2,678				829
Net Earnings		$	14,757			$	14,656

	Net Premiums Earned

	Excess and Surplus Lines

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	Alternative Risk Transfer

	Runoff

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	Net Investment Income

	Net Realized Gains

	Real Estate Income

	Losses and Loss Adjustment Expenses

			Year Ended
			December 31,
			2004				2005
Excess and Surplus Lines
	Environmental		$	94			$	(754	)
	Construction			7,700				2,204
	Surety			37				311
				7,831				1,761
Alternative Risk Transfer
	Specialty Programs			1,496				(266	)
Runoff				5,075				1,111
Total			$	14,402			$	2,606

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	Acquisition Expenses

	Real Estate Expenses

	Payroll Expenses

	Other Expenses

	Rescission Litigation

	Income Taxes

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	Operations by Geographic Segment

December 31, 2005		U.S.				Bermuda				Total
Income tax		$	1,392			$	—			$	1,392
Net earnings			4,396				10,260				14,656
Assets			529,768				167,367				697,135
Equity			59,002				59,433				118,435

December 31, 2004		U.S.				Bermuda				Total
Income tax		$	3,696			$	—			$	3,696
Net earnings			5,543				9,214				14,757
Assets			449,322				134,838				584,160
Equity			56,126				52,654				108,780

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		Year Ended				Year Ended
		December 31, 2003				December 31, 2004
Insurance Operations		$	7,076			$	4,263
Real Estate Operations			2,218				7,816
Other, including realized gains and (losses) from sale of investments and rescission expenses			(1,880	)			2,678
Net Earnings		$	7,414			$	14,757

	Net Premiums Earned

	Excess and Surplus Lines

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	Alternative Risk Transfer

	Runoff

	Net Investment Income

	Net Realized Gains

	Real Estate Income

		2003				2004
Condominium Units			197				203
Boat Slips			17				4
Total			214				207

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	Losses and Loss Adjustment Expenses

			Year Ended
			December 31,
			2003				2004
Excess and Surplus Lines
	Environmental		$	(457	)		$	94
	Construction			1,602				7,700
	Surety			(791	)			37
				354				7,831
Alternative Risk Transfer
	Specialty Programs			191				1,496
Runoff				4,691				5,075
Total			$	5,236			$	14,402

	Acquisition Expenses

	Real Estate Expenses

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	Payroll and Other Expenses

	Rescission Litigation

	Income Taxes

	Operations by Geographic Segment

December 31, 2004		U.S.				Bermuda				Total
Income tax		$	3,696			$	—			$	3,696
Net earnings			5,543				9,214				14,757
Assets			449,322				134,838				584,160
Equity			56,126				52,654				108,780

December 31, 2003		U.S.				Bermuda				Total
Income tax		$	2,675			$	—			$	2,675
Net earnings			5,827				1,587				7,414
Assets			410,177				104,083				514,260
Equity			50,445				44,898				95,343

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																		More
						Less Than				1-3				3-5				Than 5
		Total				1 Year				Years				Years				Years
Long-term debt		$	37,810			$	—			$	—			$	—			$	37,810
Interest(1)			95,062				3,026				6,155				6,471				79,410
Operating leases			1,262				661				590				11				—
Total Contractual Obligations		$	134,134			$	3,687			$	6,745			$	6,482			$	117,220

(1)

The above table includes all interest payments through the expiration of interest rate swaps as discussed in Note 8 to our consolidated financial statements. At that time we may redeem the debt or continue with variable interest payments. All amounts are reflected based on final maturity dates. Variable rate interest obligations are estimated based on current interest rates. Fixed rates include, where applicable, the effects of interest rate derivatives employed to manage interest rate risk.

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	•	Percentage decline in value and the length of time during which the decline has occurred;
	•	Recoverability of principal and interest;
	•	Market conditions;
	•	Ability to hold the investment to maturity;
	•	A pattern of continuing operating losses of the issuer;
	•	Rating agency actions that affect the issuer’s credit status;
	•	Adverse changes in the issuer’s availability of production resources, revenue sources, technological conditions; and
	•	Adverse changes in the issuer’s economic, regulatory or political environment.

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Estimated

Hypothetical

Fair Value

Percentage

Estimated

Hypothetical

After

Increase

Fair Value at

Change in Interest

Hypothetical

(Decrease) in

March 31,

Rate (bp=basis

Change in

Shareholders’

2006

points)

Interest Rate

Equity

Total Fixed Maturity Investments

$

391,980

200bp decrease

$

421,814

24.9

%

(including short-term investments)

100bp decrease

407,423

12.9

100bp increase

375,953

(13.4

)

200bp increase

360,190

(26.6

)

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	Excess and Surplus Lines

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	Alternative Risk Transfer

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	•	Environmental. We underwrite various types of environmental risks, including contractors’ pollution liability, environmental consultants’ professional liability and environmental impairment liability. We do not provide coverage for manufacturers or installers of products containing asbestos that have been the subject of class action lawsuits, but instead insure the contractors who remediate asbestos. For the year ended December 31, 2005, we had gross premiums written of $51.0 million and net premiums written of $41.5 million in our environmental business line, representing 21.4% and 29.5% of our total gross and net premiums written, respectively. For the three months ended March 31, 2006, we had gross premiums written of $12.6 million and net premiums written of $8.1 million in our environmental business line, representing 23.8% and 24.0% of our total gross and net premiums written, respectively. From 2000 through 2005, we achieved a compounded annual growth rate in gross premiums written of 30.4% in our environmental business line.

	•	Contractors’ Pollution Liability. Includes general and pollution liability coverage for third party claims for bodily injury and property damage, including clean-up costs resulting from pollution conditions. Many of these contractors operate in the pollution remediation industry, engaging in activities such as hazardous waste remediation, soil remediation, emergency response and storage tank installation or removal. This coverage is offered on either an occurrence basis or a claims made and reported basis. Coverage written on an occurrence basis provides coverage to the insured for occurrences during the coverage period while coverage written on a claims made and reported basis provides coverage to the insured only for losses reported during the coverage period.
	•	Environmental Consultants’ Professional Liability. Includes professional liability coverage for the unique exposures inherent to environmental professionals including consultants, engineers, design professionals and laboratories. We provide coverage for third party claims resulting from professional services rendered by the insured. This coverage is written on a claims made and reported basis.

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	•	Environmental Impairment Liability. Includes coverage for both off-site and on-site third party bodily injury, property damage and clean-up costs arising from pollution conditions emanating from or at sites owned or operated by an insured. Our typical insureds for this coverage include waste treatment and disposal facilities, manufacturing facilities, chemical manufacturers and blenders, electric utilities, recyclers, owners and operators of storage tank facilities, dry cleaners, convenience stores, gasoline stations, trucking and distribution centers and petroleum marketers. Coverage is written on a claims made and reported basis.

	•	Construction. We underwrite various types of residential and commercial construction risks. Our construction insurance coverages consist mostly of primary general and excess general liability coverages for insureds located primarily in the western U.S. For the year ended December 31, 2005, we had gross premiums written of $95.4 million and net premiums written of $78.0 million in our construction business line, representing 40.1% and 55.5% of our total gross premiums written and net premiums written, respectively. For the three months ended March 31, 2006, we had gross premiums written of $23.1 million and net premiums written of $20.4 million in our construction business line, representing 43.4% and 60.6% of our total gross premiums written and net premiums written, respectively. From 2000 through 2005, we achieved a compounded annual growth rate in gross premiums written of 51.6% in our construction business line.

	•	Residential Construction. We provide coverage for contractors involved with the construction and remodeling of residential homes. The types of residential contractors we insure primarily include graders, framers, concrete workers and drywall installers. For the year ended December 31, 2005, residential construction represented 57.0% of our total construction gross premiums written. For the three months ended March 31, 2006, residential construction represented 63.0% of our total construction gross premiums written.
	•	Commercial Construction. The commercial contractors we insure primarily include framers (predominantly for apartments), concrete workers and graders. Many of the commercial contractors we insure derive a portion of their revenues from residential construction work, and consequently, most standard market insurance companies will not offer them coverage. Due to our understanding of the residential construction market, we are able to fill a market void for certain commercial contractors and can insure these contractors for an attractive premium per dollar of risk and with customized policy terms. For the year ended December 31, 2005, commercial construction represented 34.0% of our total construction gross premiums written. For the three months ended March 31, 2006, commercial construction represented 26.4% of our total construction gross premiums written.

Also included in our construction business line are other excess and surplus lines coverages for underserved markets, including general liability for building owners and equipment dealers and products liability for product manufacturers and distributors. The gross premiums written associated with these excess and surplus lines policies represented 9.0% of our total construction gross premiums written for the year ended December 31, 2005. For the three months ended March 31, 2006, gross premiums written associated with these excess and surplus lines policies represented 10.6% of our total construction gross premiums written.

	•	Surety. “Surety” is a contract under which an insurer guarantees certain obligations of a second party to a third party. We are listed as an acceptable surety on federal bonds, commonly known as a “Treasury-listed” or “T-listed” surety, primarily providing contract performance and payment bonds to environmental contractors and general construction contractors in 47 states and the District of Columbia. For the year ended December 31, 2005, we had gross premiums written of $2.6 million and net premiums written of $1.3 million in our surety business line, representing 1.1% and 1.0% of our total gross premiums written and net premiums written, respectively. For the three months ended March 31, 2006, we had gross premiums written of $870,000 and net premiums

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		written of $440,000 in our surety business line, representing 1.6% and 1.3% of our total gross premiums written and net premiums written, respectively.

	•	Specialty Programs. Working with third party program managers, reinsurance intermediaries and reinsurers, we target small and medium-sized businesses with homogenous groups of specialty risks where the principal insurance requirements are general, professional or pollution liability. We outsource the underwriting and program administration duties for these programs to program managers with established underwriting expertise in the specialty program area. Our specialty programs consist primarily of casualty insurance coverages for construction contractors, pest control operators, small auto dealers, real estate brokers, apartment owners, restaurant owners, tavern owners, bail bondsmen and Hawaii taxicab operators.

	We differentiate ourselves from our program competitors in primarily two ways. First, we typically require the originators of the business, the program managers, to share in the risk and profits of the business they produce by assuming a portion of the premiums and the losses on the coverage being offered through the provision of collateral. Our Bermuda segregated account captive, American Safety Assurance, facilitates the risk sharing position of program managers by providing a vehicle through which program managers collateralize their portion of the risk. The requirement to share a portion of the risk encourages program managers to focus on underwriting profitability rather than solely on the production of commission income through premium volume. Second, we choose to focus on smaller programs where there are fewer competitors, thereby allowing us to obtain terms and conditions more favorable to us.
	In 2005, we had gross premiums written of $85.1 million and net premiums written of $19.7 million in our specialty programs business line, representing 35.8% and 14.0% of our total gross and net premiums written, respectively. For the three months ended March 31, 2006, we had gross premiums written of $16.3 million and net premiums written of $4.5 million in our specialty programs business line, representing 30.7% and 13.5% of our total gross and net premiums written, respectively. From 2000 through 2005, we have achieved a compounded annual growth rate in gross premiums written of 20.2% in our specialty programs business line. We also earn fee income on certain specialty program business that we write.

	•	Fully-Funded. Fully-funded policies allow us to meet the needs of insureds that, due to the nature of their businesses, pay very high insurance premiums or are unable to find adequate insurance coverage. Typically, our insureds are required to maintain insurance coverage to operate their business and the fully-funded product allows these insureds to provide evidence of insurance, yet at the same time maintain more control over insurance costs and handling of claims. Our fully-funded product accomplishes this by giving our insureds the ability to fund their liability exposures via a self-insurance vehicle, such as our segregated account captive, American Safety Assurance, or through another captive vehicle established by the insured. We do not assume underwriting risk on these policies, but instead earn fees for providing the policies, which are recorded as premiums. Policy limits are set based on the requirements of the insured, and the insured funds the entire aggregate limit through a combination of cash and irrevocable letters of credit. These cash amounts are not accounted for as premiums written. The aggregate policy limit caps the total damages payable under the policy, including all defense costs. We write fully-funded general and professional liability policies for businesses operating primarily in the healthcare and construction industries. During 2005 we generated $1.2 million in fees from fully-funded business. Fee income for the three months ended March 31, 2006 was $492,000 compared to $160,000 for the three months ended March 31, 2005.

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	•	Workers’ Compensation. In 1994, we began writing workers’ compensation insurance for environmental contractors. During 2003, we placed this business line into runoff due to unfavorable loss experience as well as the high expenses associated with servicing this business line. The claims associated with this business line are being administered by a third party. At December 31, 2005, we were carrying net reserves of $12.0 million related to this business line.
	•	Excess Liability Insurance for Municipalities. We began writing excess liability insurance for municipalities in 2000. During 2003, we placed this business line into runoff due to a lack of premium production and difficulty in obtaining affordable reinsurance coverage. At December 31, 2005, we were carrying net reserves of $11.1 million related to this business line.

	•	Focus on underserved insurance markets. We focus on providing insurance products and solutions to niche, underserved markets which exhibit less competition than the standard insurance market and where we have specialized expertise. The coverages we provide are typically nondiscretionary for the insurance buyer, where the purchase of the insurance coverage is required for the continued operation of the insured’s business. We believe that we have developed an effective approach to identifying voids in the insurance market where we have more flexibility over the premiums we can charge and the terms and conditions we can offer for our policies.
	•	Versatile organizational structure. Unlike many of our specialty market competitors, our structure includes both Bermuda-domiciled reinsurance and captive companies and U.S.-domiciled admitted and non-admitted insurance companies and a non-affiliated risk retention group. This structure gives us the flexibility to utilize our U.S.-domiciled insurance companies to write admitted and non-admitted policies, our Bermuda reinsurance companies to act as a reinsurer of those policies, our Bermuda captive to serve as a risk sharing vehicle for program managers and insureds and our risk retention group to write policies without having to qualify to do so in each state. Our organizational structure allows us to effectively respond to market trends and to meet the needs of our producers and insureds.
	•	Commitment to underwriting discipline. Our assessment of our ability to produce an underwriting profit is a driving factor in deciding whether or not to expand our business or, conversely, to contract our capacity in the markets we serve. Our loss ratio, as compared to the property and casualty industry average, is a testament to our underwriting discipline. According to A.M. Best’s Aggregates and Averages for Property and Casualty Insurers, from 1998 through 2004 the average net loss ratio for the property and casualty industry was 79.2%, while our average net loss ratio over the same period was 58.2%.
	•	Proactive claims management and loss control practices. We emphasize a fair but firm claims handling philosophy. Our adjusters promptly and thoroughly investigate claims and strictly adhere to the terms and conditions of our policies. We also employ loss control practices designed to monitor and improve our insureds’ safety and quality control procedures. Claims management and loss control play an important part in our underwriting process by enhancing our underwriters’ awareness of emerging issues.
	•	Valuable distribution relationships. We utilize the services of producers to attract new business and to retain existing clients. During our twenty-year history, we have developed strong relationships with producers who we believe consider us to be a preferred source for insurance solutions for unique or difficult to place risks. We currently market our products through over 230 producers in all 50 states and the District of Columbia.

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	•	Strong financial strength rating. We are rated “A” (Excellent), with a “negative” outlook, and have been assigned a financial size category of VIII by A.M. Best. We believe our rating from A.M. Best is important to our producers and insureds because it instills confidence in our capital strength and ability to pay claims. A.M. Best assigned a “negative” outlook to the rating in September 2004 in response to our reserve strengthening in the second quarter of 2004 because of a concern by A.M. Best with the underwriting results from our core business lines and the potential for further reserve strengthening in the future. A.M. Best reaffirmed this rating and outlook in November 2005. A.M. Best’s rating and outlook should not be considered as an investment recommendation. For additional information on our A.M. Best rating, see “Risk Factors” and “— Rating.”

	•	Increase our retention of the business we currently write. In the past, we have relied heavily on reinsurance due to capital and rating agency considerations. In July 2005, however, we ceased purchasing reinsurance on the primary general liability portion of our construction business line. We made this decision after performing a loss cost and dynamic financial analysis and concluding that our reinsurance purchases were uneconomical. We believe retaining this exposure will enhance our financial results and returns on capital. We also plan to reduce our dependence on reinsurance and increase our retention of the business that we write in other areas such as specialty programs, environmental and surety.
	•	Grow opportunistically our core business lines. We plan to grow opportunistically our business in markets where we have specialized expertise to control risk and maximize underwriting profits, both by expanding premium writings in existing products and by expanding in geographic areas where we have less market presence.

	•	In our environmental business line, approximately 4.0% of our gross premiums written were generated from our environmental impairment liability product for the three months ended March 31, 2006. We plan to expand writings in this product and have recently added underwriting expertise necessary to support this growth. We also intend to contribute to the expansion of the environmental business line by increasing our online distribution capabilities.
	•	In our construction business line, 93.0% of our gross premiums written were generated from policies written in the western U.S., primarily California, for the three months ended March 31, 2006. We plan to expand geographically in response to decreasing availability of general liability insurance for residential contractors in other areas of the U.S.
	•	In our alternative risk transfer segment, we plan to expand writings of our fully-funded product by increasing our distribution sources. A significant portion of our fully-funded fees are generated through five producers. We also plan to expand our specialty programs business line by adding new programs as well as increasing our capacity in existing programs. For example, in January 2006 we implemented a new program providing general liability coverage for owners of senior habitational facilities.

	•	Grow into new product lines. In the past, we have identified profitable opportunities in underserved sectors of the insurance industry to expand our business lines and products. We plan opportunistically to develop new insurance products outside our core business lines for customers in underserved markets. As an example, in 2004 we introduced our fully-funded business line, which reflected our ability to expand our product offerings to meet the specific insurance needs of our customers.
	•	Pursue potential acquisitions on a selective basis. We continually pursue opportunities to acquire managing general agents, program managers, specialty books of business and experienced underwriting teams with a demonstrated history of profitable underwriting in specialty business

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		lines. The acquisition of managing general agents and program managers would present an opportunity to grow our specialty program business, and the acquisition of specialty books of business and experienced underwriting teams would provide an opportunity to expand our product offerings. Historically, acquisitions have not played a large role in our business, but we expect them to be an important part of our strategy in the future.
	•	Leverage our investments in information technology and enhance operational efficiencies. We have worked extensively to increase the efficiency and decrease the cost of processing the business we produce. We believe our technology is scalable and can be modified at minimal cost to accommodate our growth. We expect that our investment in information technology and improved operational efficiency will contribute to a lower expense ratio as we achieve premium growth over time. For more information on the investments we have made in information technology, see “— Technology.”
	•	Actively manage our capital. The level of capital that we maintain, and how we deploy that capital, is an important factor in maintaining our “A” (Excellent) financial strength rating from A.M. Best. In evaluating our strategic initiatives, we actively consider the associated impact that these initiatives may have on our capital requirements. We believe our rating from A.M. Best is a competitive advantage to us and maintaining it will be a principal consideration in our decisions regarding growth and capital management.

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	•	ProStar. Launched in 2001, ProStar is an online electronic submission, rating and quoting system used to process new and renewal business submissions for smaller businesses with environmental risks. The policies we process through ProStar are combined general, professional and pollution liability policies designed for environmental contractors and consultants with annual revenues of $3.0 million or less. ProStar increases product distribution for smaller environmental accounts while reducing associated underwriting and operating costs. In 2005, gross premiums written generated through ProStar totaled approximately $27.0 million, representing a 103.0% increase from 2004. In addition, policy counts were up 25.0% in 2005 as compared to 2004. For the three months ended March 31, 2006, gross premiums written generated through ProStar totaled approximately $7.5 million, representing a 30.8% increase from the same period of 2005. ProStar policy counts

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		increased 7.4% for the three months ended March 31, 2006 as compared to the same period of 2005. We believe this technology is scalable to other products and can be modified to accommodate our growth.
	•	Integrated Software Package. We purchased an integrated software package in 2003 that addresses underwriting, premium accounting, claims and forms processing functions and is a secure and consolidated collection of primary insurance data that feeds a data warehouse for management reporting and analysis. The system has been implemented in our construction and environmental business lines, and we believe it is scalable to other products as they are developed.
	•	WorkSmart Initiative. In 2004, we began a process improvement initiative in our underwriting and claims departments, which we internally refer to as “WorkSmart.” This initiative has resulted in the restructuring of workflow within the Company. As a result, we have improved both the efficiency of how we process business and the productivity of our underwriting and claims personnel. We believe this initiative will result in our ability to expand our operations without increasing personnel.

	Excess and Surplus Lines

	Alternative Risk Transfer

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	Excess and Surplus Lines

	Alternative Risk Transfer

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	Our Reinsurers

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						Total
						Recoverables at				Collateral at				Net Exposure at
		A.M. Best				December 31,				December 31,				December 31,
Reinsurers		Rating				2005(1)				2005				2005(2)
		(In thousands)
Berkley Insurance Company			A			$	27,377			$	—			$	27,377
American Constantine Insurance Company, Ltd.(3)			N/A				22,678				22,936				—
Alea Group of Companies			NR-4				16,856				8,068				8,788
Folksamerica Reinsurance Company			A				14,638				1,251				13,387
QBE Reinsurance Corporation			A				10,799				906				9,893
Partner Reinsurance Company			A+				10,752				1,098				9,654
Aspen Insurance UK Limited			A				10,592				1,453				9,139
Louisiana Pest Control Insurance Company			N/A				8,944				8,965				—
Transatlantic Reinsurance Company			A+				8,230				1,311				6,919
Daimler Chrysler Insurance Company			A				7,886				2,780				5,106
America Re-insurance Company			A				7,334				323				7,011
Odyssey American Reinsurance Corporation			A				7,182				114				7,068
Other							51,421				23,006				28,415
Total							204,689				72,211				132,757
Less Valuation Allowance							(1,318	)			—				(1,318	)
Total Reinsurance Recoverable						$	203,371			$	72,211			$	131,439

(1)	Total recoverables includes recoverable amounts for paid losses, case reserves, incurred but not reported reserves and ceded unearned premiums.
(2)	For purposes of this table, for a reinsurer who is overcollateralized, net exposure is reflected as zero.
(3)	Constitutes a captive supporting risk positions assumed by program managers on certain specialty programs.

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	Gross Premiums Written

																							Percentage of Total
			Gross Premiums Written																				Gross Premiums Written
															Three Months																				Three Months
															Ended								Year Ended												Ended
			Year Ended December 31,												March 31,								December 31,												March 31,
			2003				2004				2005				2005				2006				2003				2004				2005				2005				2006
E&S
	Environmental		$	34,603			$	44,157			$	51,014			$	13,594			$	12,641				16.3	%			19.9	%			21.4	%			21.2	%			23.8	%
	Construction			85,793				96,905				95,406				27,053				23,064				40.3				43.7				40.1				42.1				43.4
	Surety			737				1,725				2,581				497				870				0.3				0.8				1.1				0.8				1.6
	Total			121,133				142,787				149,001				41,144				36,575				56.9				64.4				62.6				64.1				68.8
ART
	Specialty Programs			73,152				76,264				85,138				22,743				16,345				34.4				34.4				35.8				35.4				30.7
	Fully-Funded			538				1,281				3,822				317				263				0.3				0.6				1.6				0.5				0.5
	Total			73,690				77,545				88,960				23,060				16,608				34.7				35.0				37.4				35.9				31.2
Runoff				17,844				1,243				(81	) (1)			7				—				8.4				0.6				—				—				—
Total			$	212,667			$	221,575			$	237,880			$	64,211			$	53,183				100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

(1)	Represents premiums returned to insureds by us.

	Net Premiums Written

																							Percentage of Total
			Net Premiums Written																				Net Premiums Written
															Three Months																				Three Months
															Ended								Year Ended												Ended
			Year Ended December 31,												March 31,								December 31,												March 31,
			2003				2004				2005				2005				2006				2003				2004				2005				2005				2006
E&S
	Environmental		$	27,233			$	35,024			$	41,477			$	10,967			$	8,071				20.7	%			26.5	%			29.5	%			29.8	%			24.0	%
	Construction			73,572				77,894				78,026				22,185				20,353				55.9				59.0				55.5				60.3				60.6
	Surety			734				1,174				1,345				250				440				0.6				0.9				1.0				0.7				1.3
	Total			101,539				114,092				120,848				33,402				28,864				77.2				86.4				86.0				90.8				85.9
ART
	Specialty Programs			15,152				17,273				19,712				3,270				4,526				11.5				13.1				14.0				8.9				13.5
	Fully-Funded			—				257				2,037				133				188				—				0.2				1.4				0.3				0.6
	Total			15,152				17,530				21,749				3,403				4,714				11.5				13.3				15.5				9.2				14.1
Runoff				14,787				299				(2,045	) (1)			(35	) (1)			—				11.3				0.3				(1.5	)			—				—
Total			$	131,478			$	131,921			$	140,552			$	36,770			$	33,578				100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

(1)	Represents premiums returned to insureds by us.

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	Combined Ratio

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			Year Ended December 31,
			2003				2004				2005
			(In thousands)
Excess and Surplus Lines
	Environmental		$	20,700			$	32,889			$	45,205
	Construction			60,176				106,739				142,919
	Surety			340				270				220
	Total			81,216				139,898				188,344
Alternative Risk Transfer
	Specialty Programs			13,746				17,560				21,412
Runoff				20,081				26,582				24,222
Total			$	115,043			$	184,040			$	233,978

		Year Ended December 31,
		2003				2004				2005
		(In thousands)
Gross reserves, beginning of year		$	179,164			$	230,104			$	321,623
Ceded reserves, beginning of year			109,543				115,061				137,583
Net reserves, beginning of year			69,621				115,043				184,040
Incurred related to:
Current year			60,598				79,101				81,800
Prior years			5,236				14,402				2,606
Total incurred			65,834				93,503				84,406
Claim payments related to:
Current year			2,490				2,567				2,501
Prior years			17,922				21,939				31,967
Total claim payments			20,412				24,506				34,468
Net reserves, end of year			115,043				184,040				233,978
Ceded reserves, end of year			115,061				137,583				160,895
Gross reserves, end of year		$	230,104			$	321,623			$	394,873

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			Year Ended December 31,
			2003				2004				2005
			(In thousands)
Excess and Surplus Lines
	Environmental		$	(457	)		$	94			$	(754	)
	Construction			1,602				7,700				2,204
	Surety			(791	)			37				311
	Total			354				7,831				1,761
Alternative Risk Transfer
	Specialty Programs			191				1,496				(266	)
Runoff				4,691				5,075				1,111
Total			$	5,236			$	14,402			$	2,606

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		Year Ended December 31,(1)
		1995				1996				1997				1998				1999				2000				2001				2002				2003				2004				2005
		(In thousands)
Gross reserves			$8,294			$	8,914			$	11,572			$	14,701			$	20,413				$50,509			$	137,391			$	179,164			$	230,104			$	321,623				$394,873
Re-estimated at 12/31/05			5,712				11,591				13,486				15,322				29,498				91,793				206,276				251,745				303,217				343,390
Cumulative redundancy (deficiency) on gross reserves			2,582				(2,677	)			(1,914	)			(621	)			(9,085	)			(41,284	)			(68,885	)			(72,581	)			(73,113	)			(21,767	)
Ceded reserves			6				45				779				1,842				6,065				27,189				89,697				109,543				115,061				137,583				160,895
Re-estimated at 12/31/05			—				3,769				3,103				3,304				12,995				61,558				130,377				145,481				159,134				156,744
Cumulative redundancy (deficiency) on ceded reserves			6				(3,724	)			(2,324	)			(1,463	)			(6,930	)			(34,369	)			(40,721	)			(35,938	)			(44,073	)			(19,161	)
Net reserves for unpaid losses and loss adjustment expenses			8,288				8,869				10,793				12,860				14,348				23,320				47,734				69,621				115,043				184,040				233,978
Net Reserves re-estimated at December 31:
1 year later			7,482				9,850				11,460				12,298				15,498				24,837				49,469				74,857				129,445				186,646
2 years later			7,518				9,926				12,244				12,967				15,541				26,853				53,912				93,943				144,083				—
3 years later			7,398				9,606				12,550				12,677				16,452				29,242				67,072				106,264				—				—
4 years later			7,027				9,767				11,556				13,054				16,510				28,708				75,899				—				—				—
5 years later			7,251				8,677				11,558				11,995				16,208				30,235				—				—				—				—
6 years later			6,261				8,646				10,505				11,697				16,503				—				—				—				—				—
7 years later			6,329				7,952				10,303				12,018				—				—				—				—				—				—
8 years later			5,767				7,862				10,383				—				—				—				—				—				—				—
9 years later			5,813				7,822				—				—				—				—				—				—				—				—
10 years later			5,712				—				—				—				—				—				—				—				—				—
Cumulative redundancy (deficiency) on net reserves			2,576				1,047				410				842				(2,155	)			(6,915	)			(28,164	)			(36,643	)			(29,040	)			(2,606	)
Cumulative amount of net liability paid through December 31:
1 year later			931				1,827				2,880				3,612				5,243				10,514				15,406				17,873				21,939				31,967
2 years later			2,056				3,506				6,057				6,565				9,616				15,865				28,577				35,642				48,426				—
3 years later			2,906				4,918				7,443				9,058				11,060				22,750				38,290				55,094				—				—
4 years later			3,656				6,034				8,991				9,086				13,558				24,131				47,756				—				—				—
5 years later			4,619				6,638				8,479				9,895				13,646				25,739				—				—				—				—
6 years later			4,906				6,362				9,320				9,816				14,173				—				—				—				—				—
7 years later			4,793				7,017				9,073				10,301				—				—				—				—				—				—
8 years later			5,266				7,016				9,267				—				—				—				—				—				—				—
9 years later			5,266				7,029				—				—				—				—				—				—				—				—
10 years later			5,269				—				—				—				—				—				—				—				—				—
Net reserves December 31			8,288				8,869				10,793				12,860				14,348				23,320				47,734				69,621				115,043				184,040				233,978
Ceded Reserves			6				45				779				1,841				6,065				27,189				89,657				109,543				115,061				137,583				160,895
Gross Reserves			$8,294			$	8,914			$	11,572			$	14,701			$	20,413				$50,509			$	137,391			$	179,164			$	230,104			$	321,623				$394,873

(1)	Only years ended December 31, 2001, 2002, 2003, 2004 and 2005 include the consolidated values of American Safety RRG.

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				December 31, 2004
												Percent of
Type of Investment				Fair Value				Amortized Cost				Amortized Cost
				(In thousands)
Cash and Short-Term Investments				$	50,742			$	50,742				14.4	%
Fixed Income Securities:
	U.S. Government Securities				66,221				65,887				18.7
	States of the U.S. and Political Subdivisions of the States				31,324				31,067				8.8
	Mortgage-Backed Securities				96,802				97,244				27.7
	Corporate Bonds				91,710				90,742				25.8
		Total Fixed Income Securities			286,057				284,940				81.0
Common and Preferred Stocks					15,081				14,002				4.0
Real Estate					2,005				2,005				0.6
Total				$	353,885			$	351,689				100.0	%

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				December 31, 2005
												Percent of
Type of Investment				Fair Value				Amortized Cost				Amortized Cost
				(In thousands)
Cash and Short-Term Investments				$	48,617			$	48,617				11.0	%
Fixed Income Securities:
	U.S. Government Securities				85,976				86,740				19.7
	States of the U.S. and Political Subdivisions of the States				64,628				64,740				14.7
	Mortgage-Backed Securities				130,469				132,992				30.1
	Corporate Bonds				83,784				84,764				19.2
		Total Fixed Income Securities			364,857				369,236				83.7
Common and Preferred Stocks					25,313				23,484				5.3
	Total			$	438,787			$	441,337				100.0	%

				March 31, 2006
												Percent of
				Fair Value				Amortized Cost				Amortized Cost
				(In thousands)
Cash and Short-Term Investments				$	46,239			$	46,239				10.2	%
Fixed Income Securities:
	U.S. Government Securities				82,551				84,432				18.6
	States of the U.S. and Political Subdivisions of the States				65,716				66,966				14.8
	Mortgage-Backed Securities				140,933				145,216				32.0
	Corporate Bonds				81,341				83,214				18.4
		Total Fixed Income Securities			370,541				379,828				83.8
Common and Preferred Stocks					29,564				27,170				6.0
	Total			$	446,344			$	453,237				100.0	%

		December 31, 2004
										Percent of
S&P’s/Moody’s Rating(1)		Fair Value				Amortized Cost				Fair Value
		(In thousands)
AAA/Aaa (including U.S. Treasuries of $40,056)		$	190,476			$	189,941				66.6	%
AA/Aa			15,083				16,757				5.3
A/A			69,487				65,221				24.3
BBB/Baa			11,011				13,021				3.8
Total		$	286,057			$	284,940				100.0	%

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		December 31, 2005
										Percent of
S&P’s/Moody’s Rating(1)		Fair Value				Amortized Cost				Fair Value
		(In thousands)
AAA/Aaa (including U.S. Treasuries of $46,076)		$	276,625			$	279,883				75.8	%
AA/Aa			16,542				16,644				4.5
A/A			60,718				61,556				16.6
BBB/Baa			8,346				8,374				2.3
Less than BBB/Baa(2)			2,626				2,779				0.8
Total		$	364,857			$	369,236				100.0	%

		March 31, 2006
										Percent of
S&P’s/Moody’s Rating(1)		Fair Value				Amortized Cost				Fair Value
AAA/Aaa (including U.S. Treasuries of $45,171)		$	264,618			$	271,404				71.4	%
AA/Aa			13,812				14,031				3.7
A/A			85,633				87,863				23.1
BBB/Baa			5,751				5,751				1.6
Less than BBB/Baa(2)			727				779				0.2
Total		$	370,541			$	379,828				100.0	%

(1)	Ratings are assigned by S&P or, if no S&P rating is available, by Moody’s Investors Service Inc.
(2)	The BB rated securities were investment grade rated at the time of investment; they mature in 2006.

		December 31, 2005								March 31, 2006
		Fair				Amortized				Fair				Amortized
Maturity		Value				Cost				Value				Cost
		(In thousands)
Due in one year or less		$	35,834			$	36,205			$	3,873			$	3,475
Due from one to five years			107,332				108,951				119,651				122,376
Due from five to ten years			53,865				54,521				76,431				78,784
Due after ten years			37,357				36,567				29,652				29,978
Mortgage-backed securities			130,469				132,992				140,934				145,215
Total		$	364,857			$	369,236			$	370,541			$	379,828

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	•	business development services for developing new producer relationships and new business opportunities;
	•	program management services for the overall management and administration of a program;
	•	underwriting services for evaluating individual risks or classes of risk;
	•	reinsurance services for placing reinsurance for a program;
	•	loss control services for evaluating the risks posed by a particular class of risk, as well as the ability of insureds to control their losses;
	•	claims administration services for the prompt reporting and handling of claims, and the supervision of claims adjusters and TPAs;
	•	marketing services for designing and placing advertisements and other marketing materials, as well as marketing insurance programs to producers; and

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	•	administrative services, including policy and endorsement issuance, data processing, billing, collecting and reporting premiums, producing financial reports and paying claims.

	Insurance Regulation Generally

	Bermuda Regulation

	U.S. Regulation

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	Regulation of Our Non-Subsidiary Affiliate

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		2003				2004				2005
Condominium Units			197				203				7
Boat Slips			17				4				0
Total			214				207				7

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Name		Age				Position
Stephen R. Crim			42			President, Chief Executive Officer and Director (E)
Joseph D. Scollo, Jr.			42			Executive Vice President and Chief Operating Officer
William C. Tepe			48			Chief Financial Officer
Steven B. Mathis			38			Vice President - Planning and Treasurer
Ambuj Jain			45			Vice President - Planning and Operations Support
Dorothy J. Giglio			51			Secretary
Pamela M. Moniz			45			Vice President - Finance
Cody W. Birdwell			53			Director and Chairman(E)(F)
David V. Brueggen			59			Director(A)(E)(N)
Lawrence I. Geneen			62			Director(C)(N)
Frank D. Lackner			37			Director(C)(F)
William O. Mauldin, Jr.			65			Director(C)(N)
Thomas W. Mueller			52			Director(E)
William A. Robbie			55			Director(A)(E)(F)
Jerome D. Weaver			51			Director(A)

(A)		Audit Committee Member
(C)		Compensation Committee Member
(E)		Executive Committee Member
(F)		Finance Committee Member
(N)		Nominating and Corporate Governance Committee Member

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																			Long-Term
																			Compensation Awards
							Annual Compensation																Securities
																			Restricted				Underlying
Name and Principal							Base								Other Annual				Stock				Options				All Other
Position			Year				Salary				Bonus				Compensation				Awards				Granted				Compensation(1)
Stephen R. Crim				2005			$	360,000			$	180,000			$	20,000				—				—			$	8,400
	Chief Executive			2004			$	325,000				—				—				—				18,000			$	6,500
	Officer and President(2)			2003			$	290,000			$	195,000				—				—				107,000			$	6,000
Joseph D. Scollo, Jr.				2005			$	270,000			$	135,000			$	15,000				—				—			$	8,400
	Executive Vice			2004			$	250,000				—				—				—				12,000			$	6,500
	President — Operations(3)			2003			$	239,583			$	105,000				—				—				61,000			$	6,000
William C. Tepe				2005			$	40,157			$	100,000				—				—				25,000				—
	Chief Financial Officer(4)
Steven B. Mathis				2005			$	173,250			$	48,500				—				—				5,000			$	7,479
	Vice President —			2004			$	166,750				—				—				—				9,000			$	6,500
	Planning and Treasurer(5)			2003			$	150,000				—				—				—				23,000			$	6,000

(1)	Represents amounts accrued for contributions by us with respect to our 401(k) plan.
(2)	Mr. Crim’s “Other Annual Compensation” for 2005 consists of $20,000 for annual insurance premiums paid by the Company.
(3)	Mr. Scollo became Executive Vice President and Chief Operating Officer, effective January 1, 2006. Mr. Scollo’s “Other Annual Compensation” for 2005 consists of $15,000 for annual insurance premiums paid by the Company.
(4)	Mr. Tepe became Chief Financial Officer, effective November 14, 2005.
(5)	Mr. Mathis became Vice President - Planning and Treasurer, effective November 14, 2005.

Percent of

Potential Realizable

Number

Total

Value at Assumed Annual

of

Options

Rates of Stock Price

Securities

Granted

Appreciation for Option

Underlying

to

Exercise

Term(1)

Options

Employees

Price per

Expiration

Name

Granted

in 2005

Share

Date

5%

10%

William C. Tepe

25,000

81

$

16.18

11/14/15

$

254,388

$

644,669

Steven B. Mathis

5,000

16

$

16.72

9/22/15

$

52,576

$

133,237

(1)	The dollar amounts calculated represent hypothetical values that may be realized upon exercise of the options immediately prior to the expiration of their term, assuming that the stock price on the date of grant appreciates at the specified annual rates of appreciation, compounded annually over the term of the option. These calculations are based on rules promulgated by the SEC.

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										Number of Securities								Value of Unexercised
		Number of								Underlying Unexercised								In-the-Money
		Shares								Options at Year-End								Options at Year-End(1)
		Acquired on				Value
Name		Exercise				Realized				Exercisable				Unexercisable				Exercisable				Unexercisable
Stephen R. Crim			0				0				127,000				101,000			$	958,440			$	794,570
Joseph D. Scollo, Jr.			0				0				58,000				54,000			$	434,110			$	420,780
William C. Tepe			0				0				0				25,000			$	0			$	14,000
Steven B. Mathis			0				0				43,000				23,000			$	326,100			$	131,860

(1)	The dollar value was calculated determining the difference between the fair market value of the underlying securities at December 31, 2005 ($16.74 per share) and the exercise price of the options.

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						Shares that
						May be
		Number of				Acquired				Percentage
Name of Beneficial Owner		Common Shares				Within 60 Days				Ownership
Thomas W. Mueller(1)			329,392								4.82	%
David V. Brueggen(2)			294,221								4.31
William O. Mauldin, Jr.(3)			235,775								3.45
Cody W. Birdwell(4)			203,601								2.98
Jerome D. Weaver			4,869								*
Frank L. Lackner			3,542								*
William A. Robbie			3,521								*
Lawrence I. Geneen			2,792								*
Steven L. Groot			2,000								*
Stephen R. Crim(5)			84,914				127,000				3.05
Joseph D. Scollo, Jr.			2,005				58,000				*
Steven B. Mathis			1,250				43,000				*
William C. Tepe			0				0				0
Frederick C. Treadway(6)			834,716				232,000				15.10
Walsh R.E., Ltd.(7)			475,889								6.97
Royce and Associates(8)			422,000								6.18
Goldman Capital Management(9)			363,200								5.32
All directors and executive officers as a group (13 persons)			1,167,882				228,000				19.78	%

*	Less than 1%
(1)	Includes Common Shares held of record by The Mark C. Mueller Trust for which Mr. Thomas W. Mueller is the sole trustee. Mark C. Mueller is a brother of Thomas W. Mueller. Includes 160,000 Common Shares held of record by The Thomas W. Mueller Trust for which Mark C. Mueller is the sole trustee.
(2)	Includes 291,218 Common Shares held of record by Anning-Johnson Company, of which Mr. Brueggen is the Chief Financial Officer.
(3)	Includes 226,074 Common Shares held of record by A.R.I. Incorporated. Mr. Mauldin and his wife are the sole owners of A.R.I. Incorporated.
(4)	Includes 98,250 Common Shares of record held by The Cody Birdwell Family Limited Partnership, over which Mr. Birdwell has sole voting power with respect to the Common Shares.
(5)	Includes 83,340 Common Shares owned by his spouse and 144 Common Shares held of record as custodian for a child.

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(6)	Includes 644,027 Common Shares held of record by Treadway Associates, L.P., a limited partnership owned by Mr. Treadway and his children. Mr. Treadway’s address is 9406 Promontory Circle, Indianapolis, Indiana 46236.
(7)	Includes 270,005 Common Shares held of record by Walsh R.E., Ltd. Its address is 588 Washburn Road, Tallmadge, Ohio 44278 according to a Schedule 13(d) as filed with the SEC. Also includes Common Shares held of record by individuals within the Walsh family or entities owned by those individuals.
(8)	Its address is 1414 Avenue of the Americas, New York, New York 10019 according to a Schedule 13(d) as filed with the SEC.
(9)	Its address is 220 East 42nd Street, New York, New York, 10017 according to Schedule 13(d) as filed with the SEC.

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	•	require the prior resolution of the “continuing directors” of our Board of Directors or the affirmative vote of at least 662/3 % of the outstanding voting shares entitled to vote to approve a “business combination” as described below under “— Bye-Laws — Restrictions on Certain Business Combinations”;
	•	require the affirmative vote of at least 662/3 % of the outstanding voting shares to amend, repeal or adopt any provision inconsistent with the foregoing provision of the Bye-Laws;
	•	provide for a classified or “staggered” Board of Directors; and
	•	reduce the voting power of any shareholder (other than the persons described above) who owns greater than 9.5% of the voting shares of American Safety Insurance so that the voting power of that shareholder will be limited to 9.5% of the voting power of American Safety Insurance, regardless of the percentage of voting shares owned.

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	•	more than 50% of its equity is owned beneficially, directly or indirectly, by individual residents of the U.S. or Bermuda or U.S. citizens; and
	•	its income is not used in substantial part, directly or indirectly, to make disproportionate distributions to, or to meet certain liabilities to, persons who are not residents of the U.S. or Bermuda or U.S. citizens.

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	Taxation of Dividends

	Taxation of Capital Gains

	Classification as a Controlled Foreign Corporation

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	Related Person Insurance Income

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	Disposition of Shares in a CFC or RPII CFC

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	Source of Income

	Passive Foreign Investment Company

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	Information Reporting and Backup Withholding

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Underwriter		Shares
Keefe, Bruyette & Woods, Inc.
Raymond James & Associates, Inc.
BB&T Capital Markets, a division of Scott & Stringfellow, Inc.
Total

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Underwriter		No Exercise				Exercise
Keefe, Bruyette & Woods, Inc.
Raymond James & Associates, Inc.
BB&T Capital Markets, a division of Scott & Stringfellow, Inc.
Total

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		Page
Report of BDO Seidman, LLP, Independent Registered Public Accounting Firm			F-2
Report of KPMG LLP, Independent Registered Public Accounting Firm			F-3
Consolidated Balance Sheets for the years ended December 31, 2004 and 2005			F-4
Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005			F-5
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2003, 2004 and 2005			F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005			F-7
Consolidated Statements of Comprehensive Income for the years ended December 31, 2003, 2004 and 2005			F-8
Notes to Consolidated Financial Statements			F-9
Consolidated Balance Sheets as of December 31, 2005 and March 31, 2006 (unaudited)			F-35
Consolidated Statements of Earnings (unaudited) for the three months ended March 31, 2005 and 2006			F-36
Consolidated Statements of Cash Flow (unaudited) for the three months ended March 31, 2005 and 2006			F-37
Consolidated Statements of Comprehensive Earnings (unaudited) for the three months ended March 31, 2005 and 2006			F-38
Notes to the Consolidated Financial Statements (unaudited)			F-39
Schedule II — Condensed Financial Statements (Parent Only)			F-46
Schedule III — Supplemental Information			F-50
Schedule IV — Reinsurance			F-51

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			2004				2005
ASSETS
Investments:
Fixed maturity securities available-for-sale, at fair value			$	286,057,489			$	364,856,826
Common stock, at fair value				15,081,360				21,706,103
Preferred stock, at fair value				—				3,607,000
Investment in real estate, at cost				2,005,440				—
Short-term investments				25,898,131				25,326,648
	Total investments			329,042,420				415,496,577
Cash and cash equivalents				24,843,736				23,289,927
Restricted cash				144,500				—
Accrued investment income				3,308,463				4,037,573
Premiums receivable				21,093,810				17,315,778
Ceded unearned premium				25,454,691				29,880,672
Reinsurance recoverable				145,524,068				173,490,056
Deferred income taxes				9,080,990				11,933,791
Deferred policy acquisition costs				11,559,188				10,628,874
Property, plant and equipment, net				3,900,473				4,489,608
Other assets				10,207,637				6,572,007
	Total assets		$	584,159,976			$	697,134,863
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses			$	321,623,730			$	394,872,581
Unearned premiums				93,798,378				100,241,061
Reinsurance on paid losses and loss adjustment expenses				6,486,149				—
Ceded premiums payable				11,852,028				16,505,732
Escrow deposits				144,500				—
Accounts payable and accrued expenses				15,370,443				13,066,758
Funds held				8,334,794				11,190,989
Loans payable				13,019,489				37,810,099
Minority interest				4,750,782				5,012,396
	Total liabilities			475,380,293				578,699,616
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized 5,000,000 shares; no shares issued and outstanding				—				—
Common stock, $0.01 par value; authorized 15,000,000 shares; issued and outstanding at December 31, 2004 6,781,721 shares, and at December 31, 2005 6,753,731 shares				67,817				67,537
Additional paid-in capital				51,067,506				49,460,019
Retained earnings				55,800,942				70,457,352
Accumulated other comprehensive income (loss), net				1,843,418				(1,549,661	)
	Total shareholders’ equity			108,779,683				118,435,247
	Total liabilities and shareholders’ equity		$	584,159,976			$	697,134,863

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			2003				2004				2005
Revenues:
Direct premiums earned			$	175,916,243			$	223,715,154			$	231,518,793
Assumed premiums earned				8,486,420				4,000,601				(81,311	)
Ceded premiums earned				(75,068,826	)			(91,325,127	)			(92,901,413	)
	Net premiums earned			109,333,837				136,390,628				138,536,069
Net investment income				5,800,536				9,772,722				14,315,891
Net realized gains (losses)				3,139,907				208,135				(54,101	)
Real estate income				57,555,194				67,967,125				3,000,078
Other income				161,785				317,784				76,286
	Total revenues			175,991,259				214,656,394				155,874,223
Expenses:
Losses and loss adjustment expenses incurred				65,833,743				93,503,285				84,406,158
Acquisition expenses				21,817,717				26,528,722				28,511,675
Payroll and related expenses				9,048,799				10,297,037				12,130,136
Real estate expenses				53,998,892				55,480,408				2,439,022
Other expenses				14,635,404				9,635,383				13,158,004
Minority interest				311,774				988,202				515,233
Expenses due to (recovered from) rescission				255,145				(229,568	)			(1,334,162	)
	Total expenses			165,901,474				196,203,469				139,826,066
	Earnings before income taxes			10,089,785				18,452,925				16,048,157
Income taxes				2,675,375				3,695,950				1,391,747
	Net earnings		$	7,414,410			$	14,756,975			$	14,656,410
Net earnings per share:
Basic			$	1.45			$	2.15			$	2.18
Diluted			$	1.42			$	2.01			$	2.05
Weighted average number of shares outstanding
Basic				5,105,770				6,863,619				6,736,938
Diluted				5,233,716				7,342,879				7,163,892

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				2003				2004				2005
Common stock — number of shares:
	Balance at beginning of period				4,739,888				6,910,766				6,781,721
	Issuance of common shares				2,170,878				87,855				173,583
	Repurchase of common shares				—				(219,900	)			(201,573	)
	Balance at end of period				6,910,766				6,781,721				6,753,731
Common stock:
	Balance at beginning of period			$	47,399			$	69,108			$	67,817
	Issuance of common shares				21,709				879				1,735
	Repurchase of common shares				—				(2,170	)			(2,015	)
	Balance at end of period			$	69,108			$	67,817			$	67,537
Additional paid-in capital:
	Balance at beginning of period			$	25,889,904			$	52,744,720			$	51,067,506
	Issuance of common shares				26,854,816				805,825				1,336,211
	Repurchase of common shares				—				(2,483,039	)			(2,943,698	)
	Balance at end of period			$	52,744,720			$	51,067,506			$	49,460,019
Retained earnings:
	Balance at beginning of period			$	33,629,557			$	41,043,967			$	55,800,942
	Net earnings				7,414,410				14,756,975				14,656,410
	Balance at end of period			$	41,043,967			$	55,800,942			$	70,457,352
Accumulated other comprehensive income:
	Balance at beginning of period			$	2,884,989			$	1,485,328			$	1,843,418
	Unrealized gain (loss) during the period (net of deferred tax benefit (expense) of $630,673, $(65,933), and $783,353, respectively)				(1,399,661	)			358,090				(3,393,079	)
	Balance at end of period			$	1,485,328			$	1,843,418			$	(1,549,661	)
		Total shareholders’ equity		$	95,343,123			$	108,779,683			$	118,435,247

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						2003				2004				2005
Cash flow from operating activities:
Net earnings						$	7,414,410			$	14,756,975			$	14,656,410
Adjustments to reconcile net earnings to net cash provided by operating activities:
	Realized (gains) losses on sale of investments						(3,139,907	)			(208,135	)			54,101
	Depreciation expense						505,883				1,174,770				1,116,386
	Amortization of deferred acquisition costs, net						(3,409,574	)			401,307				930,314
	Reinsurance recoverable allowance						(1,122,570	)			—				1,318,000
	Impairment of notes receivable						3,900,198				—				—
	Real estate impairment allowance						315,000				—				—
	Amortization of premium						928,757				2,450,153				2,326,835
		Deferred income taxes					(3,456,444	)			2,537,686				(2,063,916	)
		Change in operating assets and liabilities:
				Accrued investment income			(912,803	)			(536,772	)			(729,110	)
				Premiums receivable			(8,298,084	)			6,850,698				3,778,032
				Reinsurance recoverable and ceded unearned premiums			931,432				(16,883,317	)			(40,196,118	)
				Funds held			(934,646	)			3,383,326				2,856,195
				Unpaid losses and loss adjustment expenses			50,940,161				91,519,976				73,248,851
				Unearned premiums			28,263,973				(6,140,184	)			6,442,683
				Ceded premiums payable			8,654,275				(5,870,903	)			4,653,704
				Accounts payable and accrued expenses			240,457				1,109,634				(2,303,685	)
				Deferred revenue			243,361				(1,817,775	)			—
			Other, net				(840,610	)			(2,891,671	)			4,270,129
Net cash provided by operating activities							80,223,269				89,835,768				70,358,811
Cash flow from investing activities:
Purchase of fixed maturities							(189,680,363	)			(107,194,605	)			(150,861,495	)
Purchase of common stock							(3,117,176	)			(12,854,116	)			(7,106,043	)
Purchase of preferred stocks							—				—				(3,500,900	)
Proceeds from sales of fixed maturities							68,628,271				32,172,791				64,219,528
Proceeds from sales of equity securities							612,080				1,380,010				1,195,954
Decrease (increase) in short-term investments							12,917,926				(20,217,314	)			571,483
Decrease in notes receivable							989,518				1,435,000				—
Decrease of investment in real estate							3,195,372				35,850,109				2,005,440
Purchases of fixed assets							(2,483,550	)			(980,480	)			(1,705,521	)
Net cash used in investing activities							(108,937,922	)			(70,408,605	)			(95,181,554	)
Cash flow from financing activities:
Proceeds from sale of common stock							26,998,725				638,495				1,218,455
Stock repurchase payments							—				(2,485,209	)			(2,945,714	)
Proceeds from (repayment of) loan payable							8,259,075				(17,421,859	)			24,996,193
Proceeds from redemption of escrow deposits							(5,572,681	)			(9,091,347	)			(144,500	)
Dividends paid							(570,113	)			—				—
Withdrawals from restricted cash, net							5,749,231				1,623,114				144,500
Net cash provided by financing activities							34,864,237				(26,736,806	)			23,268,934
Net increase (decrease) in cash							6,149,584				(7,309,643	)			(1,553,809	)
Cash and cash equivalents at beginning of period							26,003,795				32,153,379				24,843,736
Cash and cash equivalents at end of period						$	32,153,379			$	24,843,736			$	23,289,927
Supplemental disclosure of cash flow:
	Income taxes paid					$	6,693,941			$	3,525,270			$	287,617
	Interest paid					$	581,868			$	1,121,713			$	983,195

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		2003				2004				2005
Net earnings		$	7,414,410			$	14,756,975			$	14,656,410
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for sale, net of minority interest of $(141,761), $(108,334) and$(259,129) for 2003, 2004 and 2005, respectively			1,154,202				463,260				(4,541,890	)
Unrealized gains (losses) on hedging transactions			(95,953	)			81,912				311,359
Reclassification adjustment for realized (gains) losses included in net earnings, net of minority interest of $(51,324), $(86,986) and $0 for 2003, 2004 and 2005 respectively			(3,088,583	)			(121,149	)			54,101
Total other comprehensive income (loss) before income taxes			(2,030,334	)			424,023				(4,176,430	)
Income tax expense (benefit) related to items of other comprehensive income, net of minority interest of $0 for 2003 and 2004 and $(5,534) for 2005 respectively			(630,673	)			65,933				(783,351	)
Other comprehensive income (loss)			(1,399,661	)			358,090				(3,393,079	)
Total comprehensive income		$	6,014,749			$	15,115,065			$	11,263,331

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(1)	Summary of Significant Accounting Policies

(a)	Basis of Presentation

The accompanying consolidated financial statements of American Safety Insurance Holdings, Ltd. (“American Safety”) and its subsidiaries and American Safety Risk Retention Group Inc. (“American Safety RRG”), a non-subsidiary risk retention group affiliate (collectively, the “Company”) are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates, based on the best information available, in recording transactions resulting from business operations. The balance sheet amounts that involve a greater extent of accounting estimates and/or actuarial determinations subject to future changes are the Company’s invested assets, deferred income taxes, and the liabilities for unpaid losses and loss adjustment expenses. As additional information becomes available (or actual amounts are determinable), the recorded estimates may be revised and reflected in operating results. While management believes that these estimates are adequate, such estimates may change in the future.

(b)	Description of Common Stock — Voting and Ownership Rights

	The authorized share capital of the Company is 20 million shares, consisting of 15 million common shares, par value $.01 per share (“Common Shares”), and 5 million preferred shares, par value $.01 per share (“Preferred Shares”). The Common Shares are validly issued, fully paid, and non-assessable. There are no provisions of Bermuda law or the Company’s Bye-Laws which impose any limitations on the rights of shareholders to hold or vote Common Shares by reason of such shareholders not being residents of Bermuda. Holders of Common Shares are entitled to receive dividends ratably when and as declared by the Board of Directors out of funds legally available therefore.
	Each holder of Common Shares is entitled to one vote per share on all matters submitted to a vote of the Company’s shareholders, subject to the 9.5% voting limitation described below. All matters, including the election of directors, voted upon at any duly held shareholders meeting shall be authorized by a majority of the votes cast at the meeting by shareholders represented in person or by proxy, except (i) approval of a merger, consolidation or amalgamation; (ii) the sale, lease, or exchange of all or substantially all of the assets of the Company; and (iii) amendment of certain provisions of the Bye-Laws, which each require the approval of at least 662/3 % of the outstanding voting shares (in addition to any regulatory or court approvals). The Common Shares have non cumulative voting rights, which means that the holders of a majority of the Common Shares may elect all of the directors of the Company and, in such event, the holders of the remaining shares will not be able to elect any directors.
	The Bye-Laws contain certain provisions that limit the voting rights that may be exercised by certain holders of Common Shares. The Bye-Laws provide that each holder of Common Shares is entitled to one vote per share on all matters submitted to a vote of the Company’s shareholders, except that if, and so long as, the Controlled Shares (as defined below) of any person constitute 9.5% or more of the issued and outstanding Common Shares, the voting rights with respect to the Controlled Shares owned by such person shall be limited, in the aggregate, to a voting power of 9.5%, other than the voting rights of Frederick C. Treadway or Treadway Associates, L.P., affiliates of a founding shareholder of the Company. “Controlled Shares” mean (i) all shares of the Company directly, indirectly, or constructively owned by any person and (ii) all shares of the Company directly, indirectly, or beneficially owned by such person within the meaning of Section 13(d) of the Exchange Act (including any shares owned by a group of persons, as so

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	defined and including any shares that would otherwise be excluded by the provisions of Section 13(d)(6) of the Exchange Act). Under these provisions, if, and so long as, any person directly, indirectly, or constructively owns Controlled Shares having more than 9.5% of the total number of votes exercisable in respect of all shares of voting stock of the Company, the voting rights attributable to such shares will be limited, in the aggregate, to 9.5% of the total number of votes.
	No holder of Common Shares of the Company shall, by reason only of such holder, have any preemptive right to subscribe to any additional issue of shares of any class or series nor to any security convertible into such shares.

(c)	Principles of Consolidation

	The consolidated financial statements include the accounts of American Safety Insurance Holdings, Ltd., a Bermuda company, American Safety Reinsurance, Ltd.(“American Safety Re”), American Safety Assurance Ltd., (“ASA”) two 100%-owned licensed Bermuda insurance companies, American Safety Holdings Corp. (“American Safety Holdings”), a 100%-owned insurance holding company and American Safety Risk Retention Group, Inc. (“American Safety RRG”), a non-subsidiary risk retention group affiliate. American Safety Holdings in turn wholly owns American Safety Casualty Insurance Company (“American Safety Casualty”), a property and casualty insurance company, American Safety Insurance Services, Inc. (“ASI Services”), an underwriting and administrative subsidiary, Ponce Lighthouse Properties, Inc. (“Ponce”), the development company of the Harbour Village project, and Rivermar Contracting Company (“Rivermar”), the general contractor of the Harbour Village project. American Safety Casualty wholly owns American Safety Indemnity Company, a property and casualty excess and surplus lines insurance company. ASI Services wholly owns the following subsidiaries: Sureco Bond Services, Inc. (“Sureco”), a bonding agency; Environmental Claims Services, Inc. (“ECSI”), a claims consulting firm; American Safety Financial Corp., a financial services subsidiary; and American Safety Purchasing Group, Inc., which acts as a purchasing group for the placement of business with American Safety Casualty.
	In accordance with FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities (VIEs) and FASB Interpretation No. 46 Revised (FIN 46R), the accompanying financial statements consolidate American Safety RRG, based on its status as VIE and the Company’s status as the primary beneficiary of the VIE. A minority interest has been established for the equity holders of American Safety RRG. The accompanying financial statements also de-consolidate American Safety Capital Trust, American Safety Capital Trust II and American Safety Capital Trust III (“American Safety Capital”, “American Safety Capital II” and “American Safety Capital III”, respectively) based on their status as variable interest special purpose entities of the Company’s status as not being the primary beneficiary. American Safety Capital, American Safety Capital II and American Safety Capital III are accounted for under the equity method.
	All significant intercompany balances have been eliminated, as appropriate, in consolidation.

(d)	Business Environment

	The following is a description of certain risks facing the Company and its subsidiaries:
	Legal/ Regulatory Risk is the risk that changes in the legal or regulatory environment in which an insurer operates will create additional expenses not anticipated by the insurer in pricing its products and beyond those recorded in the financial statements. That is, regulatory initiatives

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	designed to reduce insurer profits or otherwise affecting the industry in which the insurer operates, new legal theories or insurance company insolvencies through guaranty fund assessments, may create costs for the insurer beyond those recorded in the financial statements. The Company attempts to mitigate this risk by actively writing insurance business in several states, thereby spreading this risk over a large geographic area.
	The Potential Risk of United States Taxation of Bermuda Operations. Under current Bermuda law, American Safety is not required to pay any taxes in Bermuda on either income or capital gains. American Safety has received an undertaking from the Minister of Finance in Bermuda that will exempt American Safety from taxation until the year 2016 in the event of any such taxes being imposed. Whether a foreign corporation is engaged in a United States trade or business or is carrying on an insurance business in the United States depends upon the level of activities conducted in the United States. If the activities of a foreign company are “continuous, regular, and considerable,” the foreign company will be deemed to be engaged in a United States trade or business. Due to the fact that American Safety will continue to maintain an office in Bermuda and American Safety’s, American Safety Re’s and American Safety Assurance’s, sole business is reinsuring contracts via treaty reinsurance agreements, which are all signed outside of the United States, American Safety does not consider itself to be engaged in a trade or business in the United States and, accordingly, does not expect to be subject to United States income taxes. This position is consistent with the position taken by various other entities that have similar operational structures as American Safety.
	However, because the Internal Revenue Code of 1986, as amended, the Treasury Regulations and court decisions do not definitively identify activities that constitute being engaged in a United States trade or business, and because of the factual nature of the determination, there can be no assurance that the Internal Revenue Service will not contend that American Safety or its Bermuda insurance subsidiary are engaged in a United States trade or business. In general, if American Safety or its Bermuda insurance subsidiaries are considered to be engaged in a United States trade or business, it would be subject to (i) United States Federal income tax on its taxable income that is effectively connected with a United States trade or business at graduated rates and (ii) the 30 percent branch profits tax on its effectively connected earnings and profits deemed repatriated from the United States. Certain subsidiaries of American Safety are, however subject to U.S. Federal and state income tax, as they are domiciled and conduct business in the United States.
	Credit Risk is the risk that issuers of securities owned by the insurer or secured notes receivable will default or that other parties, including reinsurers that have obligations to the insurer, will not pay or perform. The Company attempts to mitigate this risk by adhering to a conservative investment strategy, by obtaining sufficient collateral for secured note obligations and by maintaining sound reinsurance, credit and collection policies.
	Interest Rate Risk is the risk that interest rates will change and cause a decrease in the value of an insurer’s investments. The Company attempts to mitigate this risk by attempting to match the maturities of its assets with the expected payouts of its liabilities.

(e)	Investments

Fixed maturity securities for which the Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and are reported at amortized cost. Fixed maturity and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as “trading” and are reported at fair value, with unrealized gains and losses included in earnings. Fixed maturity and equity securities not classified as either held to

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	maturity or trading are classified as “available for sale” and are reported at fair value, with unrealized gains and losses (net of deferred taxes) charged or credited as a component of accumulated other comprehensive income.
	While it is the Company’s intent to hold fixed maturity securities until the foreseeable future or until maturity, it may sell such securities in response to, among other things, market conditions, liquidity needs, or interest rate fluctuations. At December 31, 2004 and 2005, the Company considered all of its fixed maturity securities as available-for-sale.
	Investment income is recorded as earned on the accrual basis and includes amortization of premiums and accretion of discounts using the interest method. Realized gains or losses on disposal of investments are determined on a specific identification basis and are included in revenues. Investments in real estate are carried at the lower of cost or fair value plus capitalized development costs. Premiums and discounts arising from the purchase of mortgage-backed securities are treated as yield adjustments over their estimated lives.
	The Company’s portfolio managers routinely monitor and evaluate the difference between the cost and fair value of our investments. Additionally, credit analysis and/or credit rating issues related to specific investments may trigger more intensive monitoring to determine if a decline in market value is other than temporary. For investments with a market value below cost, the process includes evaluating the length of time and the extent to which cost exceeds market value, the prospects and financial condition of the issuer, and evaluation for a potential recovery in market value, among other factors. This process is not exact and further requires consideration of risks such as credit risk, which to a certain extent can be controlled, and interest rate risk, which cannot be controlled. Therefore, if an investment’s cost exceeds its market value solely due to changes in interest rates, impairment may not be appropriate. If, after monitoring and analysis, the Company believes that a decline in fair value is other than temporary, the Company adjusts the amortized cost of the security and reports a realized loss in the consolidated statements of earnings.

(f)	Recognition of Premium Income

General liability premiums are estimated based upon the annual revenues of the underlying insureds. Additional or return premiums are recognized for differences between provisional premiums billed and estimated ultimate general liability premiums due when the final audit is complete after the policy has expired. General liability, surety, commercial auto, other commercial lines and workers’ compensation premiums are recorded ratably over the policy period with unearned premium calculated on a pro rata basis over the lives of the underlying coverages.

(g)	Deferred Policy Acquisition Costs

The costs of acquiring business, primarily commissions and premium tax expenses, are deferred (to the extent they are recoverable from future premium income) and amortized to earnings in relation to the amount of premiums earned. If necessary, investment income is considered in the determination of the recoverability of deferred policy acquisition costs. Deferred revenue results when reinsurance ceding commissions received exceed the related deferred acquisition costs for direct and assumed business.

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	An analysis of deferred policy acquisition costs follows:

		Years Ended December 31,
		2003				2004				2005
Balance, beginning of period		$	8,550,919			$	11,960,495			$	11,559,188
Acquisition costs deferred			25,227,293				26,127,415				27,581,361
Costs amortized during the period			(21,817,717	)			(26,528,722	)			(28,511,675	)
Balance, end of period		$	11,960,495			$	11,559,188			$	10,628,874

(h)	Unpaid Losses and Loss Adjustment Expenses

The Company provides a liability for unpaid losses and loss adjustment expenses based upon aggregate case estimates for reported claims and estimates for incurred but not reported losses. Because of the length of time required for the ultimate liability for losses and loss adjustment expenses to be determined for certain lines of business underwritten, the Company has limited experience upon which to base an estimate of the ultimate liability. For these lines, management has established loss and loss adjustment expense reserves based on actuarial methods that determine ultimate losses and loss adjustment expenses utilizing a combination of both industry and the Company’s reporting and settlement patterns, as appropriate. One primary set of actuarial methods utilized, Bornhuetter-Ferguson, entails developing an initial expected loss ratio based upon gross ultimate losses from prior accident years, estimating the portion of ultimate losses expected to be reported and unreported, and adding the actual reported losses to the expected unreported losses to derive the indicated ultimate losses. However, the net amounts that will ultimately be paid to settle the liability may be more or less than the estimated amounts provided.

(i)	Income Taxes

For subsidiaries subject to taxation, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(j)	Reinsurance

Reinsurance contracts do not relieve the Company from its obligation to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk to minimize its exposure to significant losses from reinsurer insolvencies. Reinsurance recoverables on unpaid losses and prepaid reinsurance represent amounts recoverable from reinsurers for unpaid losses and unearned ceded reinsurance premiums, respectively.

(k)	Goodwill and Intangibles

	The Company adopted SFAS 142 on January 1, 2002. Under SFAS 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Prior to adoption, the Company amortized goodwill

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	over a 20 year period. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives (but with no maximum life).
	At December 31, 2004 and 2005, the Company had $1,467,000 of goodwill.
	In accordance with the disclosure requirements of SFAS 142 goodwill and intangibles there was no amortization recorded in net income for the years ended December 31, 2003, 2004 and 2005 respectively.

(l)	Net Earnings Per Share

	Basic earnings per share and diluted earnings per share are computed by dividing net earnings by the weighted average number of shares outstanding for the period (basic EPS) plus dilutive shares subject to stock options (diluted EPS).
	Earnings per share are as follows:

		2003				2004				2005
Weighted average shares outstanding			5,105,770				6,863,619				6,736,938
Shares attributable to stock options			127,946				479,260				426,954
Weighted average common and common equivalents			5,233,716				7,342,879				7,163,892
Earnings per share:
Basic		$	1.45			$	2.15			$	2.18
Diluted		$	1.42			$	2.01			$	2.05

(m)	Employee Stock Options

At December 31, 2005, the Company had an employee stock option plan, which is described more fully in Note 13. The Company applies the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting to the plan. No compensation expense is reflected in net earnings as all options granted under the stock option plan have an exercise price equal to the market value of the underlying common stock on the date of grant. The majority of options in the plan vest evenly over a three year period. The following table illustrates the effect on net earnings and earnings per share,

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	assuming the fair value recognition provisions of SFAS No. 123R Accounting for Share Based Payments had been applied.

				Year Ending December 31,
				2003				2004				2005
				(In thousands, except per
				share amounts)
Net earnings
	As reported			$	7,414			$	14,757			$	14,656
	Effect of stock options				(188	)			(199	)			(454	)
		Pro forma net earnings		$	7,226			$	14,558			$	14,202
Net earnings per share:
	Basic — as reported			$	1.45			$	2.15			$	2.18
	Basic — pro forma			$	1.42			$	2.12			$	2.11
	Diluted — as reported			$	1.42			$	2.01			$	2.05
	Diluted — pro forma			$	1.40			$	1.98			$	1.99

(n)	Accounting Pronouncements

	During the last two years, the Financial Accounting Standard Board (FASB) has issued a number of accounting pronouncements with various effective dates.
	In December 2004, the FASB issued a revised version of SFAS 123, SFAS 123(R), Share- Based Payments, which finalizes the accounting for stock options. The statement requires that compensation related to share based payment transactions be recognized in the financial statements. The cost will be measured based on the grant date fair value of the equity instrument issued. The Company plans to adopt SFAS 123(R) in the first quarter of 2006.
	In November 2005, the FASB issued Staff Position Number FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (FSP 115-1). FSP 115-1 addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in FSP 115-1 amends FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and was effective January 1, 2006.

(o)	Revenue Recognition of Real Estate

The Company recognizes revenue from the sale of real estate when the title to each individual unit or boat slip passes to the purchaser. When the title passes, the Company uses a percentage of completion method, based on the ratio of actual costs to total estimated costs (including allocated common costs that may not yet have been expended) to recognize revenue. The revenue recognized relates only to units and boat slips that have closed that meet the criteria in paragraph 37 for SFAS 66, Accounting for Sales of Real Estate. The actual and estimated costs refer to costs that are allocated to each individual unit or boat slip. The difference between total sales price and the revenue recognized is set up as deferred revenue and is recognized as the additional costs of each unit are incurred. Please see Note 3 herein for more information regarding the Company’s real estate operations.

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(p)	Capitalizing Costs on Real Estate

The Company capitalizes the following costs with respect to real estate: (a) project costs, which include acquisition, design and planning costs, and construction costs, all of which are directly associated with the project; (b) taxes and insurance incurred during the planning, design and construction periods; (c) costs of amenities (since these items will transfer to an owner’s association at no charge when the project is complete); (d) interest costs on qualifying assets until the assets are ready for their intended use; and (e) indirect costs of construction management and supervision.

(q)	Cash and Cash Equivalents

	Cash and cash equivalents include cash on hand, money market instruments and other debt instruments with a maturity of 90 days or less when purchased.

(r)	Derivatives

The Company has limited activity with derivative financial instruments. They are not used for trading purposes, nor does the Company engage in leveraged derivative transactions. At December 31, 2005, the Company’s outstanding derivative contracts were interest swaps related to certain of its trust preferred obligations. See note 8. The Company recognizes unrealized gain or loss on these interest rate swaps as interest rates change.

(s)	Reclassifications

	Certain items in the prior periods’ financial statements have been reclassified to conform to the 2005 presentation. In 2005 the Company changed its segment presentation, see Note 10.

(2)	Investments

	Net investment income is summarized as follows:

		Years Ended December 31,
		2003				2004				2005
Fixed maturities		$	5,735,889			$	9,695,664			$	13,567,965
Common stock securities			12,264				195,009				367,697
Preferred stock securities			—				—				23,149
Short-term investments and cash			337,367				298,305				914,171
			6,085,520				10,188,978				14,872,982
Less investment expenses			284,984				416,256				557,091
Net investment income		$	5,800,536			$	9,772,722			$	14,315,891

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	Realized and unrealized gains and losses were as follows:

			Years Ended December 31,
			2003				2004				2005
Realized gains:
	Fixed maturities		$	3,125,760			$	182,336			$	91,077
	Common stock securities			57,806				118,952				154,906
	Total gains			3,183,566				301,288				245,983
Realized losses:
	Fixed maturities			(36,756	)			(66,977	)			(250,383	)
	Common stock securities			(6,903	)			(26,176	)			(49,701	)
	Total losses			(43,659	)			(93,153	)			(300,084	)
Net realized gains (losses)			$	3,139,907			$	208,135			$	(54,101	)
Changes in unrealized gains (losses):
	Fixed maturities		$	(2,493,177	)		$	(758,834	)		$	(5,496,515	)
	Common stock securities			173,806				905,625				643,499
	Preferred stock securities			—				—				106,100
Net change in unrealized gains (losses)			$	(2,319,371	)		$	146,791			$	(4,746,916	)

	At December 31, 2004 and 2005, the Company did not hold fixed-maturity securities, which individually exceeded 10% of shareholders’ equity, except U.S. government, and government agency securities.

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	The amortized cost and estimated fair values of investments at December 31, 2004 and 2005 are as follows:

							Gross				Gross
			Amortized				Unrealized				Unrealized				Estimated
			Cost				Gains				Losses				Fair Value
December 31, 2004
	Fixed maturities:
	U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	65,887,315			$	800,811			$	467,383			$	66,220,743
	States of the U.S. and political subdivisions of the states			31,067,197				425,269				168,348				31,324,118
	Corporate securities			90,742,305				1,618,821				650,822				91,710,304
	Mortgage-backed securities			97,243,632				306,453				747,761				96,802,324
	Total fixed maturities		$	284,940,449			$	3,151,354			$	2,034,314			$	286,057,489
	Common stock		$	14,001,929			$	1,455,131			$	375,700			$	15,081,360
December 31, 2005
	Fixed maturities:
	U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	86,740,033			$	547,669			$	1,311,628			$	85,976,073
	States of the U.S. and political subdivisions of the states			64,740,408				386,303				498,465				64,628,246
	Corporate securities			84,763,525				618,765				1,598,413				83,783,877
	Mortgage-backed securities			132,992,335				56,265				2,579,971				130,468,629
	Total fixed maturities		$	369,236,301			$	1,609,002			$	5,988,477			$	364,856,826
	Common stock		$	19,983,174			$	2,721,304			$	998,374			$	21,706,103
	Preferred stock		$	3,500,900			$	106,100			$	—			$	3,607,000

	The amortized cost and estimated fair values of fixed maturities at December 31, 2005, by contractual maturity are shown below. Expected maturities may differ from contractual maturities as certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalty.

			Amortized				Estimated Fair
			Cost				Value
Due in one year or less			$	36,205,149			$	35,833,780
Due after one year through five years				108,950,946				107,332,422
Due after five years through ten years				54,520,516				53,864,556
Due after ten years				36,567,355				37,357,439
Mortgage-backed securities				132,992,335				130,468,629
	Total		$	369,236,301			$	364,856,826

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	Bonds with an amortized cost of $24,206,791 and $34,405,204 were on deposit with insurance regulatory authorities at December 31, 2004 and 2005 in accordance with statutory requirements.
	The fair value of the investments in debt securities can fluctuate greatly as a result of changes in interest rates. The Company believes that the declines in fair value noted below primarily resulted from changes in interest rates rather then credit issues.
	Therefore, the Company has no concern regarding the ultimate collectibility of the security value, and accordingly, has not recorded any impairment write-down. The tables below show the securities the Company is holding which have been held at a loss for less than 12 months and greater than 12 months at December 31, 2004 and December 31, 2005 respectively.

		Less Than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2004
US Treasury Securities & other government corp and agencies		$	34,809,793			$	(235,002	)		$	5,228,784			$	(232,381	)		$	40,038,577			$	(467,383	)
States of the US and political subdivisions of the states			9,673,457				(85,510	)			6,793,847				(82,838	)			16,467,304				(168,348	)
Corporate securities			38,933,122				(413,969	)			7,147,250				(236,853	)			46,080,372				(650,822	)
Mortgage-backed securities			31,599,014				(145,174	)			19,610,565				(602,587	)			51,209,579				(747,761	)
Subtotal, fixed maturities			115,015,386				(879,655	)			38,780,446				(1,154,659	)			153,795,832				(2,034,314	)
Common stock			3,163,470				(339,797	)			165,743				(35,903	)			3,329,213				(375,700	)
Total temporarily impaired securities		$	118,178,856			$	(1,219,452	)		$	38,946,189			$	(1,190,562	)		$	157,125,045			$	(2,410,014	)

		Less Than 12 Months								12 Months or Longer								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
December 31, 2005
US Treasury Securities & other government corp and agencies		$	39,303,992			$	(546,902	)		$	25,829,191			$	(764,727	)		$	65,133,183			$	(1,311,628	)
States of the US and political subdivisions of the states			27,795,435				(329,164	)			5,921,758				(169,302	)			33,717,193				(498,465	)
Corporate securities			30,765,595				(614,456	)			34,496,894				(983,957	)			65,262,490				(1,598,413	)
Mortgage-backed securities			85,185,338				(1,360,455	)			34,261,657				(1,219,516	)			119,446,995				(2,579,971	)
Subtotal, fixed maturities			183,050,361				(2,850,976	)			100,509,500				(3,137,501	)			283,559,861				(5,988,477	)
Common stock			4,590,179				(502,397	)			1,994,090				(495,977	)			6,584,269				(998,374	)
Total temporarily impaired securities		$	187,640,540			$	(3,353,372	)		$	102,503,590			$	(3,633,479	)		$	290,144,130			$	(6,986,851	)

(3)	Investment in Real Estate

	The Company’s investment in real estate is known as Harbour Village Golf and Yacht Club (“Harbour Village”) comprised of 173 acres of property in Ponce Inlet, Florida that was acquired in

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	foreclosure during April 1999. At the date of foreclosure the Company evaluated the carrying value of its investment in real estate by comparing the fair value of the foreclosed collateral to the book value of the underlying loan and accrued interest. As the book value of the loan and accrued interest was less than the fair value of the collateral, no loss was recognized on foreclosure and the book balance of the loan and accrued interest became the basis of the real estate.
	The Harbour Village project is substantially complete as all units are sold and closed. The Company does not expect to engage in any further real estate activities. No additional revenue from Harbour Village is expected. There will be some ongoing expenses for the project associated with legal, insurance and other matters.

(4)	Financial Instruments

	The carrying amounts for short-term investments, cash, premiums receivable, commissions receivable, accrued investment income, ceded premiums payable, funds held, collateral held and accounts payable and accrued expenses approximate their fair values due to the short-term nature of these instruments.
	Estimated fair values for fixed maturities were provided by outside consultants using market quotations, prices provided by market makers or estimates of fair values obtained from yield data relating to investment securities with similar characteristics.

(5)	Reinsurance

	Excess and Surplus Lines

	Environmental

	The Company has excess of loss reinsurance treaties with various reinsurers for the Company’s general liability line of business. These treaties provide varying levels of reinsurance protection depending on the date the underlying insurance policy was written.

	Construction

	The Company previously had excess of loss treaties with various reinsurers for the Company’s construction line of business. These treaties provide varying levels of reinsurance protection depending on the date the underlying insurance policy was written.
	Effective July 1, 2005, the Company discontinued purchasing excess of loss reinsurance on our construction insurance business. The Company made this decision after performing a loss cost and dynamic financial analysis and concluding that our reinsurance purchases were uneconomical. The Company believes that retaining this exposure and not ceding a large percentage of premiums to the reinsurance market will enhance our balance sheet.

	Surety

	For our surety business, we entered into a quota share reinsurance treaty during the second quarter of 2004 which provides reinsurance for a single bond limit not to exceed $3.0 million, subject to a maximum for any one principal of $6.0 million. We retain a 50% participation in this treaty with the balance reinsured by unaffiliated reinsurers.

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	Alternative Risk Transfer

	Specialty Programs

	The Company’s program business division buys various forms of reinsurance on both a quota share basis as well as an excess of loss basis. These treaties cover the majority of risks written by the Company in this division. Where appropriate, collateral is obtained from the reinsurers to secure their obligations.

	Runoff

	Workers’ Compensation

	The Company has excess of loss treaties with various reinsurers. These treaties provide varying levels of reinsurance protection depending on the date the underlying insurance policy was written.
	The approximate effects of reinsurance on the financial statement accounts listed below are as follows:

				Years Ended December 31,
				2003				2004				2005
				(In thousands)
Written premiums:
	Direct			$	203,586			$	221,733			$	237,961
	Assumed				9,081				(157	)			(81	)
	Ceded				(81,189	)			(89,655	)			(97,328	)
		Net		$	131,478			$	131,921			$	140,552
Earned premiums:
	Direct			$	175,916			$	223,715			$	231,518
	Assumed				8,486				4,000				(81	)
	Ceded				(75,068	)			(91,324	)			(92,901	)
		Net		$	109,334			$	136,391			$	138,536
Losses and loss adjustment expenses incurred:
	Direct			$	119,114			$	153,167			$	159,668
	Assumed				7,309				4,379				2,031
	Ceded				(60,589	)			(64,043	)			(77,293	)
		Net		$	65,834			$	93,503			$	84,406
Unpaid loss and loss adjustment expenses:
	Direct			$	218,741			$	307,185			$	379,332
	Assumed				11,363				14,438				15,541
	Ceded				(115,061	)			(137,583	)			(160,895	)
		Net		$	115,043			$	184,040			$	233,978

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(6)	Income Taxes

	Total income tax expense for the years ended December 31, 2003, 2004 and 2005 was allocated as follows:

			2003				2004				2005
Tax expense attributable to:
income from continuing operations			$	2,675,375			$	3,695,950			$	1,391,747
Unrealized gain on hedging transactions				32,624				27,851				105,861
Unrealized gain (losses) on securities available-for-sale				(663,297	)			38,082				(894,746	)
	Total		$	2,044,702			$	3,761,883			$	602,862

	U.S. Federal and state income tax expense (benefit) from continuing operations consists of the following components:

		2003				2004				2005
Current		$	6,323,726			$	2,300,361			$	3,455,663
Deferred			(3,648,351	)			1,395,589				(2,063,916	)
Total		$	2,675,375			$	3,695,950			$	1,391,747

	The state income tax components aggregated $213,718, $677,840 and $307,485 for the years ended December 31, 2003, 2004 and 2005, respectively.
	Income tax expense from continuing operations for the years ended December 31, 2003, 2004 and 2005 differed from the amount computed by applying the U.S. Federal income tax rate of 34% to earnings before Federal income taxes as a result of the following:

		2003				2004				2005
Expected income tax		$	3,430,527			$	6,273,995			$	5,456,373
Foreign earned income not subject to direct taxation			(540,000	)			(3,132,853	)			(3,488,277	)
Valuation allowance			—				—				(554,515	)
State taxes and other			(215,152	)			554,808				(21,834	)
Total income tax		$	2,675,375			$	3,695,950			$	1,391,747

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	Deferred income taxes are based upon temporary differences between the financial statement and tax bases of assets and liabilities. The following deferred taxes are recorded:

			December 31,
			2004				2005
Deferred tax assets:
	Loss reserve discounting		$	7,565,625			$	9,288,244
	Unearned premium reserves			3,145,646				3,118,965
	Difference between tax and GAAP basis of Harbour Village project			366,348				—
	Difference between tax and GAAP method of Harbour Village project			146,738				—
	Warranty reserve			282,556				154,980
	Unrealized loss on securities			—				500,823
	Other			611,443				348,009
Gross deferred tax assets				12,118,356				13,411,021
	Valuation allowance			(554,515	)			—
Gross deferred tax assets after valuation allowance				11,563,841				13,411,021
Deferred tax liabilities:
	Deferred acquisition costs			2,033,536				1,477,230
	Unrealized gain on securities			288,062				—
	NOL Carryforward			(88,443	)			—
	Other			249,696				—
Gross deferred tax liabilities				2,482,851				1,477,230
Net deferred tax assets			$	9,080,990			$	11,933,791

The Company believes it is more likely than not that it will realize the full benefit of the deferred tax assets; therefore, a valuation allowance has not been established against these assets. However, given the historical loss position of American Safety RRG (RRG), it had established a 100% valuation allowance on its net deferred tax assets totaling $554,515 at December 31, 2004. In 2005, RRG reduced income tax expense by reversing this valuation allowance as the realizability of the deferred tax assets changed due to RRG’s profitability. This reduction in income tax expense was offset by an increase in minority interest expense and had no overall effect on the earnings or shareholders’ equity of the Company.

(7)	Insurance Accounting

The consolidated financial statements have been prepared in conformity with GAAP which vary in certain respects, for the Company, American Safety Casualty, American Safety Indemnity and American Safety RRG, from statutory accounting practices prescribed or permitted by regulatory authorities. Statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (the “NAIC”). In its March 1998 meeting, the NAIC membership adopted the Codification of Statutory Accounting Principles Project (the “Codification”) as the NAIC-supported basis of accounting. The Codification was approved with a provision allowing for commissioner discretion in

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	determining appropriate statutory accounting for insurers. Accordingly, such discretion will continue to allow prescribed or permitted accounting practices that may differ from state to state.
	The maximum amount of dividends the Company’s insurance subsidiaries can pay out without prior written approval from the subsidiaries’ domicile state insurance commissioners, is limited to the greater of 10% of surplus as regards to policyholders or net income, excluding realized capital gains of the preceding year. Dividends are also limited to the amount of unassigned surplus.
	The National Association of Insurance Commissioners (the “NAIC”) has established risk-based capital (“RBC”) requirements to help state regulators monitor the financial strength and stability of property and casualty insurers by identifying those companies that may be inadequately capitalized. Under the NAIC’s requirements, each insurer must maintain its total capital above a calculated threshold or take corrective measures to achieve the threshold. The threshold of adequate capital is based on a formula that takes into account the amount of risk each company faces on its products and investments. The RBC formula takes into consideration four major areas of risk: (i) asset risk which primarily focuses on the quality of investments; (ii) insurance risk which encompasses coverage-related issues and anticipated frequency and severity of losses when pricing and designing insurance coverages; (iii) interest rate risk which involves asset/liability matching issues; and (iv) other business risks.
	American Safety Casualty, American Safety Indemnity and American Safety RRG have calculated their RBC level and have determined that their capital and surplus is in excess of threshold requirements.
	The Bermuda Insurance Act of 1978 and related regulations (the “Act”) requires American Safety Re to meet a minimum solvency margin. American Safety Re’s statutory capital and surplus as of December 31, 2003, 2004 and 2005 was $19,333,539, $30,292,863 and $38,586,734, respectively, and the amounts required to be maintained by the Company were $7,530,329 $9,576,055 and $12,868,524, respectively. American Safety Assurance, Ltd (ASA) capital and surplus as of December 31, 2004 and 2005 was $44,646 and $1,480,424 respectively. ASA is required to maintain a minimum of $120,000 in capital. In addition, a minimum liquidity ratio must be maintained whereby relevant assets, as defined by the Act, must exceed 75% of relevant liabilities. Once these requirements have been met, there is no restriction on the remaining retained earnings available for distribution.

(8)	Loans Payable

	Trust Preferred Offerings

	During 2003 American Safety Capital and American Safety Capital II, both non-consolidated, wholly-owned subsidiaries of the Company, issued $8 million and $5 million, respectively, of variable rate 30-year trust preferred securities. The proceeds are being used by the Company to support the growth of its insurance business. The securities require interest payments on a quarterly basis calculated at a floating rate of LIBOR + 4.2% and LIBOR + 3.95% for American Safety Capital and American Safety Capital II, respectively. The securities can be redeemed by the Company commencing five years from the date of original issuance.
	During 2005, the American Safety Capital Trust III a non-consolidated wholly-owned subsidiary of the Company, issued a 30-year trust preferred obligation in the amount of $25 million. This obligation bears a fixed interest rate of 8.31% for the first five years and LIBOR plus 3.4% thereafter. Interest is payable on a quarterly basis and the securities may be called at the Company’s option in five years.

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	The underlying debt obligations between the Company and American Safety Capital and American Safety Capital II expose the Company to variability in interest payments due to changes in interest rates. Management entered into an interest rate swap for these trust preferred offerings to manage that variability. Under each interest rate swap, the Company receives variable interest payments and makes fixed interest rate payments to the applicable capital trust entity, thereby creating fixed rate long-term debt. The overall effective fixed rate expense as a result of this hedge is 7.1% and 7.6% for American Safety Capital and American Safety Capital II, respectively, over the first five years of the obligation.
	Interest expense for the twelve months ended December 31, 2004 and December 31, 2005 includes no gains or losses from the interest rate swaps. Changes in fair value of the interest rate swaps designated as hedging instruments of the variability of cash flow associated with a floating rate, long-term debt obligation are reported in accumulated other comprehensive income. The gross unrealized gains and (losses) on the interest rate swaps at December 31, 2004 and December 31, 2005 were $192,589 and $347,481 for American Safety Capital and $(14,724) and $141,742 for American Safety Capital II, respectively. The interest rate swaps are 100% effective at December 31, 2005.

	Other Borrowings

	The Company has trust preferreds payable totaling $37,810,099 that mature after 2010.

(9)	Related Party and Affiliate Transactions

	ASI Services, American Safety’s underwriting and administrative services subsidiary, leases office space from an entity which is owned by certain directors, officers and shareholders of the Company. The lease commenced on March 1, 2001 and expires on August 31, 2007. The Company paid rent of $533,093 and $512,666 in 2005 and 2004, respectively.

(10)	Segment Information

	The Company initially segregates its business into the following segments: Real Estate Operations, Insurance Operations, and Other. The Insurance Operations segment is further classified into three additional lines: Excess and Surplus Lines (E&S), Alternative Risk Transfer (ART), and Runoff lines. The E&S lines is then further classified into three reportable lines of business: Environmental Specialty (Env.), Construction (Const.), and Surety. ART is then further classified into two reportable lines of business: Specialty Programs (Programs) and Fully Funded (FF).
	Real estate consists of the Harbour Village project in Ponce Inlet, Florida as discussed in Note 3 herein.
	In our E&S line, Environmental Specialty writes insurance coverages for the environmental remediation industry. Construction provides commercial casualty insurance coverages, generally in the area of construction and products liability. Surety provides payment and performance bonds to the environmental remediation industry.
	In our ART line, Specialty Programs facilitates the offering of insurance to homogeneous niche groups of risks. Fully funded provides a mechanism for insureds to post collateral and self-insure their risks. We are paid a fee for arranging this type of transaction.
	The Other segment consists of amounts associated with realized gains and losses on investments and also for rescission expenses.

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The Company measures all segments using net income, total assets and total equity. The Reportable Insurance Operations segments are measured by net premiums earned, incurred losses and loss adjustment expenses and acquisition expenses. Assets are not allocated to the Reportable Insurance Operations segments. The following table presents key financial data by segment for years ended December 31, 2003, December 31, 2004 and December 31, 2005 (in thousands):

							Insurance
							E&S												ART
			Real
December 31, 2003			Estate				Env.				Const.				Surety				Programs				FF				Runoff				Other				Total
Gross premiums written				—				34,603				85,793				737				73,152				538				17,844				—				212,667
Net premiums written				—				27,233				73,572				734				15,152				—				14,787				—				131,478
Net premiums earned				—				22,446				57,379				670				14,068				—				14,771				—				109,334
Loss & loss adjustment expenses				—				9,361				34,440				(635	)			8,200				—				14,468				—				65,834
Acquisition expenses				—				6,441				12,413				175				589				(62	)			2,262				—				21,818
Underwriting profit (loss)				—				6,644				10,526				1,130				5,279				62				(1,959	)			—				21,682
Income tax expense (benefit)				1,338											381																	956				2,675
	Net earnings (loss)			2,218											7,076																	(1,880	)			7,414
	Assets			53,327											460,721																	212				514,260
	Equity			15,661											79,845																	(163	)			95,343

							Insurance
							E&S												ART
			Real
December 31, 2004			Estate				Env.				Const.				Surety				Programs				FF				Runoff				Other				Total
Gross premiums written				—				44,157				96,905				1,725				76,264				1,281				1,243				—				221,575
Net premiums written				—				35,024				77,894				1,174				17,273				257				299				—				131,921
Net premiums earned				—				32,152				79,781				1,138				16,516				89				6,715				—				136,391
Loss & loss adjustment expenses				—				15,094				56,131				477				10,929				—				10,872				—				93,503
Acquisition expenses				—				7,729				17,767				249				324				(120	)			579				—				26,528
Underwriting profit (loss)				—				9,329				5,883				412				5,263				209				(4,736	)			—				16,360
Income tax expense (benefit)				4,670											(1,368)																	394				3,696
	Net earnings			7,816											4,263																	2,678				14,757
	Assets			8,729											575,148																	283				584,160
	Equity			5,547											103,319																	(86	)			108,780

							Insurance
							E&S												ART
			Real
December 31, 2005			Estate				Env.				Const.				Surety				Programs				FF				Runoff				Other				Total
Gross premiums written				—				51,014				95,406				2,581				85,138				3,822				(81	)			—				237,880
Net premiums written				—				41,477				78,026				1,345				19,712				2,037				(2,045	)			—				140,552
Net premiums earned				—				38,081				81,908				1,148				18,297				956				(1,854	)			—				138,536
Loss & loss adjustment expenses				—				19,253				51,925				1,411				10,298				—				1,519				—				84,406
Acquisition expenses				—				9,848				17,745				342				1,112				(240	)			(295	)			—				28,512
Underwriting profit (loss)				—				8,980				12,238				(605	)			6,887				1,196				(3,078	)			—				25,618
Income tax expense (benefit)				351											604																	437				1,392
	Net earnings			209											13,618																	829				14,656
	Assets			3,031											694,104																	—				697,135
	Equity			756											117,679																	—				118,435

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	Additionally, the Company conducts business in the following geographic segments: United States and Bermuda. Significant differences exist in the regulatory environment in each country. Those differences include laws regarding the measurable information about the insurance geographic segments for the years ended December 31, 2003, December 31, 2004 and December 31, 2005 (in thousands):

December 31, 2003		United States				Bermuda				Total
Income tax			2,675				—				2,675
Net earnings			5,827				1,587				7,414
Assets			410,177				104,083				514,260
Equity			50,445				44,898				95,343

December 31, 2004		United States				Bermuda				Total
Income tax			3,696				—				3,696
Net earnings			5,543				9,214				14,757
Assets			449,322				134,838				584,160
Equity			56,126				52,654				108,780

December 31, 2005		United States				Bermuda				Total
Income tax			1,392				—				1,392
Net earnings			4,396				10,260				14,656
Assets			529,768				167,367				697,135
Equity			59,002				59,433				118,435

(11)	Commitments and Contingencies

	At December 31, 2004 and 2005, the Company had aggregate outstanding irrevocable letters of credit which had not been drawn amounting to $2,000,000 in favor of the Vermont Department of Banking, Insurance, Securities and Health Care Administration. Investments in the amount of $2,000,000 have been pledged as collateral to the issuing bank.

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(12)	Liability for Unpaid Loss and Loss Adjustment Expenses

	Activity in the liability for unpaid claims and claim adjustment expenses is summarized as follows:

			Years Ended December 31,
			2003				2004				2005
			(In thousands)
Unpaid loss and loss adjustment expenses, January 1			$	179,164			$	230,104			$	321,623
Reinsurance recoverable on unpaid losses and loss adjustment expenses January 1				109,543				115,061				137,583
Net unpaid loss and loss adjustment expenses, January 1				69,621				115,043				184,040
Incurred related to:
	Current year			60,598				79,101				81,800
	Prior years			5,236				14,402				2,606
Total incurred				65,834				93,503				84,406
Paid related to:
	Current year			2,490				2,567				2,501
	Prior years			17,922				21,939				31,967
Total paid				20,412				24,506				34,468
Net unpaid loss and loss adjustment expenses, December 31				115,043				184,040				233,978
Reinsurance recoverable on unpaid loss and loss adjustment expenses, December 31				115,061				137,583				160,895
Unpaid loss and loss adjustment expenses, December 31			$	230,104			$	321,623			$	394,873

	The reserve development for prior years for 2003, 2004 and 2005 occurred in the following business lines:

			Year Ended December 31,
			2003				2004				2005
			(In thousands)
Excess and Surplus Lines
	Environmental		$	(457	)		$	94			$	(754	)
	Construction			1,602				7,700				2,204
	Surety			(791	)			37				311
				354				7,831				1,761
Alternative Risk Transfer
	Programs			191				1,496				(266	)
Runoff				4,691				5,075				1,111
Total			$	5,236			$	14,402			$	2,606

Construction line reserve development in 2005 for prior years was primarily attributable to the commutation of reinsurance contracts with a former reinsurer. This transaction resulted in the Company recognizing losses of $1.0 million. In 2005, the runoff lines’ reserve development for prior years was due to $1.2 million of increases in reserves on the Company’s excess municipality program. Construction line reserve development in 2004 was attributable to developing losses on

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	(i) certain New York contractor risks written in 2001 and (ii) a change in actuarial reserving methodologies to reflect risk categories. Exposure to New York contractor risks was significantly reduced during 2002 and 2003.
	Management continually attempts to improve its loss estimation process by refining its ability to analyze loss development patterns, claims payments and other information, but many reasons remain for potential adverse development of estimated ultimate liabilities. For example, the uncertainties inherent in the loss estimation process have become increasingly subject to changes in legal trends. In recent years, this trend has expanded the liability of insureds, established new liabilities and reinterpreted contracts to provide unanticipated coverage long after the related policies were written. Such changes from past experience significantly affect the ability of insurers to estimate the liabilities for unpaid losses and related expenses.
	Management recognizes the higher variability associated with certain exposures and books of business and considers this factor when establishing liabilities for losses. Management currently believes the Company’s gross and net liabilities are adequate.
	The net liabilities for losses and loss adjustment expenses maintained by the Company’s insurance subsidiaries are equal under both statutory accounting practices and GAAP.

(13)	Stock Options

	The Company’s stock option plan grants incentive stock options to employees. The options have a term of 10 years. The exercise price is equal to the fair market value at the date of grant. The majority of our options generally vest over three years. At December 31, 2005, 430,627 shares were available for future grants.
	The intrinsic value method is used to value stock options in accordance with APB No. 25. Under this method, we do not recognize compensation cost for stock options provided the option price equals fair market value at the date of grant. Under the terms of the stock option plan, the exercise price is equal to the fair market value at the date of grant.

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	The following table shows the stock option activity for the Company during 2003, 2004 and 2005.

							Weighted Average
			Option Shares				Exercise Price
Outstanding at December 31, 2002				958,350			$	8.34
2003 activity:
	Granted			307,000				8.85
	Exercised			(1,500	)
	Canceled			(253,800	)			—
Outstanding at December 31, 2003				1,010,050			$	7.57
2004 activity:
	Granted			136,500				13.68
	Exercised			(77,005	)			—
	Canceled			(20,764	)			—
Outstanding at December 31, 2004				1,048,781			$	8.25
2005 activity:
	Granted			31,000				16.26
	Exercised			(165,768	)			—
	Canceled			(32,580	)			—
Outstanding at December 31, 2005				881,433			$	8.62

	Of the 1,010,050 outstanding options at December 31, 2003, 636,550 were exercisable.
	Of the 1,048,781 outstanding options at December 31, 2004, 633,615 were exercisable.
	Of the 881,433 outstanding options at December 31, 2005, 599,183 were exercisable.

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	The following table summarizes information about stock options outstanding at December 31, 2005:

						Weighted
						Average				Weighted												Weighted
						Remaining				Average												Average
		Number				Contractual				Exercise				Grant				Number				Exercise
Range of Exercise Price		Outstanding				Life				Price				Year				Exercisable				Price
$11.00			50,000				2.13				11.00				1998				50,000			$	11.00
9.50			63,450				3.13				9.50				1999				63,450				9.50
6.00			51,900				5.11				6.00				2000				51,900				6.00
6.00			258,000				5.04				6.00				2001				258,000				6.00
8.85			64,416				6.17				8.85				2002				64,416				8.85
6.75			65,584				9.04				6.75				2003				46,056				6.75
8.57			195,000				9.46				8.57				2003				25,000				8.57
11.20			1,000				7.54				11.20				2003				667				11.20
13.62			500				8.42				13.62				2004				167				13.62
13.77			10,000				8.58				13.77				2004				3,333				13.77
13.67			90,583				8.08				13.67				2004				36,194				13.67
15.99			1,000				9.08				15.99				2005				—				—
16.72			5,000				9.75				16.72				2005				—				—
16.18			25,000				9.90				16.18				2005				—				—
$ 6.00-16.72			881,433				6.63			$	8.62								599,183			$	7.77

	For the pro-forma information presented in Note 1(m), the fair value of each option granted during 2003, 2004 and 2005 was estimated on the date of grant using the Black-Scholes multiple option approach with the following assumptions: dividend yield of 0.0% in 2003, 2004 and 2005, respectively; expected volatility of 41.80%, 41.33% and 39.29% in 2003, 2004 and 2005, respectively; risk-free interest rate of 3.5% for 2003 through 2005 and expected life from the grant dates ranging from 0.50 years to 10.00 years.
	The Company expects to grant additional awards in future years. The Company granted options in 2003, 2004 and 2005 at an amount deemed to be fair market value at the date of grant. See Note 1(m) for more information.

(14)	Litigation

	The Company, through its subsidiaries, is routinely a party to pending or threatened litigation or arbitration disputes in the normal course of its business. Based upon information presently available, in view of legal and other defenses available to the Company’s subsidiaries, management does not believe that any pending or threatened litigation or arbitration disputes will have any material adverse effect on the Company’s financial condition or operating results, except for the following matters.
	Acquisition Rescission Litigation. In April 2000, the Company filed a lawsuit in the U.S. District Court for the Northern District of Georgia for damages and, alternatively, to rescind the stock purchase of a Michigan insurance agency and two related insurance companies specializing in insurance program business based upon the sellers’ breach of the representations and warranties made in the definitive agreements concerning the business affairs and financial condition of the acquired companies. This case and related litigation were settled in December 2005 with the release of 109,716 shares of escrowed stock and cash of $355,000 payable to the various defendants.

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	Assumed Reinsurance Litigation. The Company is a defendant in several cases, liquidation actions and reinsurance claims, collectively identified as the “National Warranty” issue. American Safety Reinsurance was an excess of loss reinsurer through a reinsurance treaty with National Warranty Risk Retention Group (“National Warranty”) that, in turn, provided insurance coverage to automobile dealerships and other providers that became obligors pursuant to extended automobile warranty contracts they sold to consumers. National Warranty filed for liquidation in the Cayman Islands (the location of its legal creation). This liquidation had a cascading effect, including the subsequent filing of bankruptcy by various obligors of vehicle service contracts insured by National Warranty. As a result, there are potentially over one million vehicle service contracts that are not being honored by the obligors.
	The liquidators of National Warranty have made claims in excess of $24 million pursuant to two reinsurance contracts issued by American Safety Reinsurance to National Warranty. In addition, purchasers of vehicle service contracts have made claims against American Safety Reinsurance, including a claim by one purchaser group for $10 million. Lastly, claims have been made by sellers/obligors of the vehicle service contracts who were insured by National Warranty. One case has been certified as a class action, although the Company is appealing that determination. The Company continues to believe that American Safety Reinsurance has valid defenses to the claims including, among others, that it had commuted its obligations under reinsurance treaties, its liability is limited to the amount of coverage provided under the policies and that most of the claimants cannot make claims directly against it.
	Donald Griggs et al. v. American Safety Reinsurance, Ltd. Et al., Case No 2003-31509, Circuit Court, Seventh District, Volusia County, Florida. Seven plaintiffs filed suit against the Company and three of its subsidiaries seeking to recover a $2,100,000 loan made by the plaintiffs in 1986 to Ponce Marina, Inc., the former owner of the Harbour Village property. The plaintiffs claimed that the Company was responsible for the repayment of the loan, with interest. The plaintiffs propounded four theories of liability and the court granted judgment for the Company on three of the theories. However, the court entered judgment on August 10, 2005 against the Company for $3,426,703, which includes interest, on the remaining theory. The court held that the Company, as a condition of its loan, required the former owner to demand that the plaintiffs take certain actions as to their loan, to their detriment and to the benefit of the Company, and thus, the Company had entered into a quasi-contract with the plaintiffs to repay their loan with interest.
	The Company filed an appeal in December 2005. Based on the merits of the case and the likelihood of ultimate payment, the Company has not established an accrual for the decision.
	Dick Sizemore v. American Safety Insurance Services, Inc. Et al., Case No 2005-31704, Circuit Court of Volusia County, Florida. ASI Services, its parents and a number of its affiliates are defendants in a suit brought by an individual who contends that defendants are liable to him for a debt owed to him by ASI Services’ former borrowers, Ponce Marina, Inc. and Herman McMurray, in the amount of $400,000 plus interest and costs. The plaintiff also intends to seek class certification for the case on these claims. On January 27, 2006, the trial court dismissed the case. The plaintiff was permitted to file an amended complaint on or before March 6, 2006. The plaintiff filed an amended complaint on March 7, 2006, alleging various theories of recovery. The Company continues to vigorously defend this case, as it believes that the case is without merit.
	Baber v. Boroweic v. American Safety Casualty Insurance Company This case arises out of a claim brought by the Baber family against two lawyers (“the Boroweics”) for legal malpractice who were insured by American Safety Casualty Insurance Company (“American Safety Casualty”) under a lawyer’s professional liability program underwritten and managed through American Safety Casualty’s program manager Professional Coverage Managers, Inc. During the adjustment of this

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	claim, American Safety Casualty issued a reservation of rights letter, denied the claim based on a coverage issue, rejected a policy limits demand and intervened into the underlying suit.
	The Babers and Boroweics eventually entered into a “Morris Agreement” wherein the Babers agreed not to pursue any judgment against the Boroweics. Rather, the Boroweics assigned their bad faith rights against American Safety Casualty to the Babers. The court found this to be reasonable and also found that the Babers, as a result of the accident, had incurred $11 million in damages. The Babers sued American Safety Casualty for bad faith. This case was settled out of court in December 2005 for $5.5 million.
	American Safety Casualty is billing reinsurers under a 90/10 Quota Share treaty with a $2.0 million ECO/ XPL limit and also has a Clash Cover treaty with a $5.0 million limit, and anticipates $1.3 million of the loss to be its ultimate exposure, which was recorded in 2005.

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2004			Mar. 31				June 30				Sept. 30				Dec. 31
Operating revenues*			$	50,173			$	54,629			$	57,096			$	52,758
Income before taxes				4,811				4,541				4,448				4,652
Net earnings				3,650				4,097				3,258				3,753
Comprehensive income (loss)				5,933				(1,439	)			6,639				3,982
Net earnings per share:
Basic			$	0.53			$	0.59			$	0.47			$	0.56
Diluted				0.49				0.55				0.45				0.52
Common stock price ranges:
	High		$	16.00			$	18.30			$	15.21			$	16.45
	Low			13.00				13.50				9.94				12.83

2005			Mar. 31				June 30				Sept. 30				Dec. 31
Operating revenues*			$	40,088			$	38,687			$	34,911			$	42,243
Income before taxes				3,897				3,431				4,430				4,290
Net earnings				3,646				3,139				3,347				4,524
Comprehensive income				147				7,002				344				3,770
Net earnings per share:
Basic			$	0.54			$	0.47			$	0.50			$	0.67
Diluted				0.50				0.44				0.47				0.63
Common stock price ranges:
	High		$	16.24			$	15.75			$	17.98			$	17.98
	Low			14.27				14.20				15.17				16.10

*	Operating revenues are total revenues less realized gains and losses.

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				December 31,				March 31,
				2005				2006
								(Unaudited)
ASSETS
Investments:
	Fixed maturity securities available for sale, at fair value			$	364,856,826			$	370,540,951
	Common stock, at fair value				21,706,103				24,513,436
	Preferred stock, at fair value				3,607,000				5,050,200
	Short-term investments				25,326,648				21,439,122
		Total investments			415,496,577				421,543,709
Cash and cash equivalents					23,289,927				24,800,308
Accrued investment income					4,037,573				3,707,622
Premiums receivable					17,315,778				21,115,489
Ceded unearned premium					29,880,672				27,946,517
Reinsurance recoverable					173,490,056				174,484,812
Deferred income taxes					11,933,791				12,751,580
Deferred policy acquisition costs					10,628,874				10,505,500
Property, plant and equipment					4,489,608				4,590,880
Other assets					6,572,007				8,128,127
		Total assets		$	697,134,863			$	709,574,544
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
	Unpaid losses and loss adjustment expenses			$	394,872,581			$	403,197,196
	Unearned premiums				100,241,061				96,827,843
	Ceded premiums payable				16,505,732				21,373,500
	Accounts payable and accrued expenses				13,066,758				10,873,834
	Loans payable				37,810,099				37,793,777
	Funds held				11,190,989				15,418,879
	Minority interest				5,012,396				4,382,017
		Total liabilities			578,699,616				589,867,046
Shareholders’ equity:
	Preferred stock, $0.01 par value; authorized 5,000,000 shares; no shares issued and outstanding				—				—
	Common stock, $0.01 par value; authorized 15,000,000 shares; issued and outstanding at December 31, 2005, 6,753,731 and March 31, 2006, 6,779,031 shares				67,537				67,790
	Additional paid-in capital				49,460,019				49,787,701
	Retained earnings				70,457,352				74,558,351
	Accumulated other comprehensive income, net				(1,549,661	)			(4,706,344	)
		Total shareholders’ equity			118,435,247				119,707,498
		Total liabilities and shareholders’ equity		$	697,134,863			$	709,574,544

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				Three Months Ended March 31,
				2005				2006
Revenues:
	Direct premiums earned			$	55,245,400			$	56,595,812
	Assumed premiums earned				6,662				—
	Ceded premiums earned				(20,631,451	)			(21,538,347	)
		Net premiums earned			34,620,611				35,057,465
	Net investment income				3,156,381				4,543,643
	Net realized gains				52,232				362,984
	Real estate income				2,309,000				—
	Other income				1,949				64,070
		Total revenues			40,140,173				40,028,162
Expenses:
	Losses and loss adjustment expenses				20,781,044				22,155,055
	Acquisition expenses				7,126,379				6,977,322
	Payroll and related expenses				2,966,986				3,542,467
	Real estate expenses				2,264,529				67,040
	Other expenses				2,238,640				2,738,489
	Interest expense				266,679				903,046
	Minority interest				587,898				(472,456	)
	Expense due to rescission				10,868				—
		Total expenses			36,243,023				35,910,963
		Earnings before income taxes			3,897,150				4,117,199
Income taxes					250,807				16,200
Net earnings				$	3,646,343			$	4,100,999
Net earnings per share:
	Basic			$	0.54			$	0.61
	Diluted			$	0.50			$	0.57
Weighted Average number of shares outstanding
	Basic				6,791,476				6,762,687
	Diluted				7,265,523				7,164,244

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					Three Months Ended March 31,
					2005				2006
Cash flow from operating activities:
	Net earnings				$	3,646,343			$	4,100,999
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Realized gains on investments				(52,232	)			(362,984	)
		Depreciation expense				218,597				379,550
		Stock option expense				—				140,556
		Amortization of deferred acquisition costs, net				392,121				123,374
		Amortization of premiums on investments				611,941				465,986
		Deferred income taxes				(324,115	)			139,362
		Change in:
			Accrued investment and interest income			232,239				329,951
			Premiums receivable			(5,440,565	)			(3,799,711	)
			Reinsurance recoverable, payable and ceded unearned premiums			(12,886,486	)			939,399
			Funds held			(402,513	)			4,227,890
			Unpaid losses and loss adjustment expenses			15,218,983				8,324,615
			Unearned premiums			8,958,786				(3,413,218	)
			Ceded premiums payable			5,134,676				4,867,768
			Accounts payable and accrued expenses			(535,618	)			(2,192,924	)
			Other, net			3,071,437				(1,972,196	)
		Net cash provided by operating activities				17,843,594				12,298,417
Cash flow from investing activities:
	Purchases of fixed maturities					(42,342,488	)			(34,467,012	)
	Purchases of common stock					(4,835,288	)			(3,704,770	)
	Purchases of preferred stock					—				(1,490,750	)
	Proceeds from sale of fixed maturities					10,311,929				23,556,591
	Proceeds from sale of common stock					802,383				1,723,822
	Decrease in short-term investments					17,664,266				3,887,526
	Decrease in real estate investment					1,514,652				—
	Purchase of fixed assets, net					(268,867	)			(480,822	)
		Net cash used in investing activities				(17,153,413	)			(10,975,415	)
Cash flow from financing activities:
	Proceeds from issuance of common stock					134,867				187,379
	Repayment of loan payable					(382,873	)			—
		Net cash (used in) provided by financing activities				(248,006	)			187,379
		Net increase in cash and cash equivalents				442,175				1,510,381
Cash and cash equivalents at beginning of period						24,843,736				23,289,927
Cash and cash equivalents at end of period					$	25,285,911			$	24,800,308
Supplemental disclosure of cash flow information:
	Income taxes paid				$	264,810			$	1,540,990
	Interest paid				$	248,067			$	951,576

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		Three Months Ended March 31,
		2005				2006
Net earnings		$	3,646,343			$	4,100,999
Other comprehensive earnings before income taxes:
Unrealized losses on securities available-for-sale, net of minority interest of $(212,671) and $(239,276) for 2005 and 2006, respectively			(4,660,086	)			(3,742,196	)
Unrealized gains on hedging transaction			280,785				72,697
Reclassification adjustment for realized gains included in net earnings			(52,232	)			(362,984	)
Total other comprehensive loss before taxes			(4,431,533	)			(4,032,483	)
Income tax benefit related to items of other comprehensive income, net of minority interest of $(1,363) and $(81,352) for March 31, 2005 and 2006 respectively			(931,758	)			(875,800	)
Other comprehensive loss net of income taxes			(3,499,775	)			(3,156,683	)
Total comprehensive earnings		$	146,568			$	944,316

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	Legal/ Regulatory Risk is the risk that changes in the legal or regulatory environment in which an insurer operates will create additional expenses not anticipated by the Company in pricing its products and beyond those recorded in the financial statements. That is, regulatory initiatives designed to reduce insurer profits or otherwise affecting the industry in which the insurer operates, new legal theories or insurance company insolvencies through guaranty fund assessments may create costs for the insurer beyond those recorded in the financial statements. The Company attempts to mitigate this risk by writing insurance business in several states, thereby spreading this risk over a large geographic area.
	The Potential Risk of United States Taxation of Bermuda Operations. Under current Bermuda law, American Safety is not required to pay any taxes in Bermuda on either income or capital gains. American Safety has received an undertaking from the Minister of Finance in Bermuda that will exempt American Safety from taxation until the year 2016 in the event of any such taxes being imposed. Whether a foreign corporation is engaged in a United States trade or business or is carrying on an insurance business in the United States that would subject it to United States taxation depends upon the level of activities conducted in the United States. If the activities of a foreign company are “continuous, regular, and considerable,” the foreign company will be deemed to be engaged in a United States trade or business. Management believes that American Safety and its Bermuda subsidiaries have been operated and in the future will continue to be operated in a manner that will not cause any of them to be treated as being engaged in a U.S. trade or business.
	However, because the Internal Revenue Code of 1986, as amended, Treasury Regulations and court decisions do not definitively identify activities that constitute being engaged in a United States trade or business, and because of the factual nature of the determination, there can be no assurance that the Internal Revenue Service will not contend that American Safety and/or its Bermuda subsidiaries are engaged in a United States trade or business. In general, if American Safety or its Bermuda subsidiaries were engaged in a United States trade or business, each could be subject to (i) United States Federal income tax on income effectively connected with that trade or business and (ii) United States branch profits tax. Certain subsidiaries of American Safety are, however, subject to United States federal and state income tax as they are domiciled and conduct business in the United States.
	Credit Risk is the risk that issuers of securities owned by the insurer or secured notes receivable will default or that other parties, including reinsurers that have obligations to the insurer, will not pay or perform. The Company attempts to mitigate this risk by adhering to a conservative investment strategy, by obtaining sufficient collateral for secured note obligations and by maintaining sound reinsurance, credit and collection policies.
	Interest Rate Risk is the risk that interest rates may change and cause a decrease in the value of an insurer’s investments.
	The Company’s fixed maturity holdings are invested predominantly in high quality corporate, government and municipal bonds with relatively short durations. The fixed maturity portfolio is exposed to interest rate fluctuations; as interest rates rise, their fair values decline and as interest rates fall, their fair values rise. The changes in the fair market value of the fixed maturity portfolio are presented as a component of shareholders’ equity in accumulated other comprehensive income, net of taxes.

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We work to manage the impact of interest rate fluctuations on our fixed maturity portfolio. The effective duration of the fixed maturity portfolio is managed with consideration given to the estimated payout timing of our liabilities. We have investment policies which limit the maximum duration and maturity of individual securities within the portfolio and set target levels for average duration and maturity of the entire portfolio.

								Gross				Gross
				Amortized				Unrealized				Unrealized				Estimated
				Cost				Gains				Losses				Fair Value
December 31, 2005:
	Securities available for sale:
		Fixed maturities:
		U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	86,740,033			$	547,669			$	1,311,628			$	85,976,073
		States of the U.S. and political subdivisions of the states			64,740,408				386,303				498,465				64,628,246
		Corporate securities			84,763,525				618,765				1,598,413				83,783,877
		Mortgage-backed securities			132,992,335				56,265				2,579,971				130,468,629
		Total fixed maturities		$	369,283,174				1,609,002				5,988,477				364,856,826
	Common Stock			$	19,983,174			$	2,721,304			$	998,374			$	21,706,103
	Preferred Stock			$	3,500,900			$	106,100			$	—			$	3,607,000
March 31, 2006:
Securities available for sale:
		Fixed maturities:
		U.S. Treasury securities and obligations of U.S. Government corporations and agencies		$	84,432,281			$	204,267			$	2,086,039			$	82,550,509
		States of the U.S. and political subdivisions of the states			66,966,030				80,675				1,331,072				65,715,633
		Corporate securities			83,214,382				288,511				2,161,799				81,341,094
		Mortgage-backed securities			145,216,025				474				4,282,784				140,933,715
		Total fixed maturities		$	379,828,718			$	573,927			$	9,861,694			$	370,540,951
Common stock				$	22,179,120			$	3,282,358			$	948,042			$	24,513,436
Preferred stock				$	4,991,650			$	74,450			$	15,900			$	5,050,200

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									Insurance
									E&S												ART
					Real
March 31, 2005					Estate				Env.				Const.				Surety				Specialty Programs				FF				Runoff				Other				Total
Gross premiums written					$	—				$13,594			$	27,053			$	497			$	22,743			$	317			$	7			$	—			$	64,211
	Net premiums written					—				10,967				22,185				250				3,270				133				(35	)			—				36,770
	Net premiums earned					—				8,745				21,104				219				4,309				89				155				—				34,621
Losses & loss adjustment expenses						—				4,809				12,888				377				2,448				5				254				—				20,781
	Acquisition expenses					—				2,393				4,546				47				211				(71	)			—				—				7,126
Underwriting profit (loss)					$	—				$ 1,543			$	3,670			$	(205	)		$	1,650			$	155			$	(99	)		$	—			$	6,714
	Income tax expense (benefit)				$	16			$    222																								$	13			$	251
		Net earnings			$	28			$  3,604																								$	14			$	3,646
			Assets		$	3,439			$605,940																								$	3			$	609,382
			Equity		$	2,575			$106,585																								$	(99	)		$	109,061

									Insurance
									E&S												ART
					Real
March 31, 2006					Estate				Env.				Const.				Surety				Programs				FF				Runoff				Other				Total
Gross premiums written					$	—			$	12,641			$	23,064			$	870			$	16,345			$	263			$	—			$	—			$	53,183
	Net premiums written					—				8,071				20,353				440				4,526				188				—				—				33,578
	Net premiums earned					—				8,320				21,035				353				4,981				368				—				—				35,057
Losses & loss adjustment expenses						—				5,695				13,558				125				3,077				—				(300	)			—				22,155
	Acquisition expenses					—				2,641				4,142				88				184				(78	)			—				—				6,977
Underwriting profit (loss)					$	—			$	(16	)		$	3,335			$	140			$	1,720			$	446			$	300			$	—			$	5,925
Income tax expense (benefit)					$	(25	)		$    (41)																								$	82			$	16
		Net earnings			$	(42	)		$  3,863																								$	280			$	4,101
			Assets		$	2,468			$707,107																								$	—			$	709,575
			Equity		$	715			$119,095																								$	(103	)		$	119,707

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March 31, 2005		United States				Bermuda				Total
Income tax		$	251			$	—			$	251
Net earnings		$	1,593			$	2,053			$	3,646
Assets		$	471,346			$	138,036			$	609,382
Equity		$	55,927			$	53,134			$	109,061

March 31, 2006		United States				Bermuda				Total
Income tax		$	16			$	—			$	16
Net earnings		$	1,046			$	3,055			$	4,101
Assets		$	537,187			$	172,388			$	709,575
Equity		$	58,348			$	61,359			$	119,707

				Three Months Ended
				March 31,
				2005				2006
Tax expense (benefit) attributable to:
	Income from continuing operations			$	250,807			$	16,200
	Change in unrealized gains (losses) on hedging transactions				95,467				24,717
	Change in unrealized gains (losses) on available for sale securities				(1,028,588	)			(981,869	)
		Total		$	(682,314	)		$	(940,952	)

		Three Months Ended
		March 31,
		2005				2006
Current		$	574,926			$	(123,162	)
Deferred			(324,119	)			139,362
Total		$	250,807			$	16,200

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		Three Months Ended
		March 31,
		2005				2006
Expected income tax expense		$	1,325,031			$	1,399,848
Foreign earned income not subject to direct taxation			(698,292	)			(1,038,762	)
Valuation allowance			(554,515	)			—
State taxes and other			178,583				(344,886	)
Total income tax		$	250,807			$	16,200

				December 31,				March 31,
				2005				2006
Deferred tax assets:
	Loss reserve discounting			$	9,288,244			$	9,472,998
	Unearned premium reserves				3,118,965				3,015,087
	Unrealized loss on securities				667,159				1,649,028
	Other				502,989				495,790
Gross deferred tax assets					13,577,357				14,632,903
Deferred tax liabilities:
	Deferred acquisition costs				1,477,230				1,690,270
	Unrealized gains on hedging transaction				166,336				191,053
Gross Deferred tax liabilities					1,643,566				1,881,323
		Net deferred tax asset		$	11,933,791			$	12,751,580

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				Three Months Ending
				March 31, 2005
				(In thousands,
				except per share
				amounts)
Net earnings:
	As reported			$	3,646
	Effect of stock options				(487	)
		Pro forma net earnings		$	3,159
Net earnings per share
	Basic — as reported			$	0.54
	Basic — pro forma			$	0.47
	Diluted — as reported			$	0.50
	Diluted — pro forma			$	0.43

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			2004				2005
ASSETS
Investment in subsidiaries			$	91,915,835			$	104,160,885
Other investments:
	Fixed maturities			10,246,304				4,753,607
	Common Stock			5,839,306				9,125,625
	Short term investments			392,576				110,231
	Secured note receivable from affiliate			2,500,000				2,500,000
	Total other investments			18,978,186				16,489,463
Cash and cash equivalents				67,040				1,518
Accrued investment income				84,137				48,615
Other assets				165,497				21,570
Total assets			$	111,210,695			$	120,722,051
LIABILITIES AND SHAREHOLDERS’ EQUITY
Due to related party			$	2,322,556			$	2,107,973
Accounts payable and accrued expenses				8,456				78,831
Total liabilities				2,331,012				2,186,804
Preferred stock				100,000				100,000
Common stock				67,817				67,537
Additional paid in capital				51,067,506				49,460,019
Accumulated other comprehensive earnings (losses), net				1,843,418				(1,549,661	)
Retained earnings				55,800,942				70,457,352
Total shareholders’ equity				108,779,683				118,435,247
Total liabilities and shareholders’ equity			$	111,210,695			$	120,722,051

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				2003				2004				2005
Revenues:
	Investment income			$	79,077			$	515,024			$	314,437
	Realized gains (losses) on sales of investments				—				7,283				(20,140	)
	Other income (loss)				(500,000	)			—				—
Total Revenues					(420,923	)			522,304				294,297
Expenses:
	Losses and LAE incurred				(630,077	)			—				—
	Other underwriting expenses				853,030				1,792,178				1,398,267
		Total Expenses			222,953				1,792,178				1,398,267
Net loss before equity in net earnings of subsidiary					(643,876	)			(1,269,874	)			(1,103,970	)
	Equity in net earnings of subsidiary				8,058,286				16,026,849				15,760,380
Net earnings				$	7,414,410			$	14,756,975			$	14,656,410

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				2003				2004				2005
Cash flow from operating activities:
	Net loss before equity in earnings of subsidiary			$	(643,876	)		$	(1,269,874	)		$	(1,103,970	)
	Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
	Change in operating assets and liabilities:
		Accrued investment income			326,175				104,179				35,522
		Premiums receivable/payable			485,225				—				—
		Due from/to affiliate			856,898				(752,043	)			(214,583	)
		Unpaid losses and loss adjustment expenses			(1,715,525	)			—				—
		Accounts payable and accrued expenses			52,974				(176,678	)			70,375
		Assumed loss and LAE payable			(199,991	)			—				—
	Other, net				(245,507	)			797,694				135,766
Net cash used in operating activities					(1,083,627	)			(1,296,722	)			(1,076,890	)
Cash flow from investing activities:
	Decrease (increase) in investments				(29,339,562	)			7,428,345				2,456,282
	Investment in subsidiary				—				(4,307,242	)			—
	Decrease (increase) in short term investments				(431,372	)			52,796				282,345
Net cash provided by (used in) investing activities					(29,770,934	)			3,173,899				2,738,627
Cash flow from financing activities:
	Proceeds from sale of common stock				26,876,525				638,495				1,218,455
	Stock repurchase payments				—				(2,485,209	)			(2,945,714	)
Net cash provided by (used in) financing activities					26,876,525				(1,846,714	)			(1,727,259	)
Net (decrease) increase in cash					(3,978,036	)			30,463				(65,522	)
	Cash and cash equivalents, beginning of year				4,014,613				36,577				67,040
	Cash and cash equivalents, end of year			$	36,577			$	67,040			$	1,518

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		2003				2004				2005
Net earnings		$	7,414,410			$	14,756,975			$	14,656,410
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for sale, net of minority interest of $(141,761) $(108,334) and $(259,129) for 2003, 2004 and 2005, respectively			1,154,202				463,260				(4,541,890	)
Unrealized gains (losses) on hedging transactions			(95,953	)			81,912				311,359
Reclassification adjustment for realized (gains) losses included in net earnings, net of minority interest of $(51,324) ($86,986) and $0 for 2003, 2004 and 2005, respectively			(3,088,583	)			(121,149	)			54,101
Total other comprehensive income (loss) before income taxes			(2,030,334	)			424,023				(4,176,430	)
Income tax expense (benefit) related to items of other comprehensive income, net of minority interest of $0 for 2003 and 2004 and $(5,534) for 2005 respectively			(630,673	)			65,933				(783,351	)
Other comprehensive income (loss)			(1,399,661	)			358,090				(3,393,079	)
Total comprehensive income		$	6,014,749			$	15,115,065			$	11,263,331

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			Column B				Column C				Column D				Column E				Column F				Column G				Column H								Column I				Column J				Column K
																											Claims and
																											Claim
																											Adjustment
							Reserves for																				Expenses
							Unpaid																				Incurred
			Deferred				Claims and				Discount,																Related to								Amortization of
			Policy				Claim				if any,				Net				Net				Net												Deferred Policy				Other				Net
			Acquisition				Adjustment				Deducted in				Unearned				Earned				Investment				Current				Prior				Acquisition				Operating				Premiums
			Costs				Expenses				Column C				Premiums				Premiums				Income(1)				Year				Years				Costs				Expenses(1)				Written
			(Dollars in thousands)
2003
E&S
Environmental			$	3,318			$	20,700				—			$	16,528			$	22,446				—			$	9,818			$	(457	)		$	6,148				—			$	27,233
Construction				7,700				60,176				—				43,280				57,379				—				32,838				1,602				12,712				—				73,572
Surety				44				340				—				159				670				—				156				(791	)			174				—				734
				11,062				81,216								59,967				80,495								42,812				354				19,034								101,539
ART
	Program			134				13,746				—				6,257				14,068				—				8,009				191				643				—				15,152
	Fully Funded			(46	)			—				—				—				—				—				—				—				(62	)			—				—
				88				13,746				—				6,257				14,068								8,009				191				581								15,152
Runoff				810				20,081				—				6,605				14,771				—				9,777				4,691				2,203				—				14,787
Total			$	11,960			$	115,043							$	72,829			$	109,334			$	5,801			$	60,598			$	5,236			$	21,818			$	23,684			$	131,478
2004
E&S
Environmental			$	4,107			$	32,889				—			$	19,384			$	32,152				—			$	15,000			$	94			$	5,714				—			$	35,024
Construction				7,337				107,414				—				41,393				79,781				—				48,431				7,700				19,352				—				77,894
Surety				38				270				—				195				1,138				—				440				37				249				—				1,174
				11,482				140,573								60,972				113,071								63,871				7,831				25,315								114,092
ART
	Programs			269				18,810				—				6,993				16,516				—				9,433				1,496				(2,910	)			—				17,273
	Fully Funded			(192	)			0				—				168				89				—				—				—				(120	)			—				257
				77				18,810								7,161				16,605								9,433				1,496				(3,030	)							17,530
Runoff				—				24,657				—				211				6,715				—				5,797				5,075				4,244				—				299
Total			$	11,559			$	184,040							$	68,344			$	136,391			$	9,773			$	79,101			$	14,402			$	26,529			$	19,932			$	131,921
2005
E&S
Environmental			$	4,569			$	45,205				—			$	27,779			$	38,081				—			$	20,007			$	(754	)		$	9,848				—			$	41,477
Construction				6,457				142,919				—				37,510				81,908				—				49,721				2,204				17,745				—				78,026
Surety				91				220				—				391				1,148				—				1,100				311				342				—				1,345
				11,117				188,344								60,680				121,138								70,828				1,761				27,935								120,848
ART
	Programs			(234	)			21,412				—				8,432				18,297				—				10,375				(266	)			1,112				—				19,712
	Fully Funded			(254	)			—				—				1,248				956				—				189				—				(240	)			—				2,037
				(488	)			21,412								9,680				19,253								10,564				(266	)			872								21,749
Runoff				—				24,222				—				—				(1,854	)			—				408				1,111				(295	)			—				(2,045	)
Total			$	10,629			$	233,978							$	70,360			$	138,536			$	14,316			$	81,800			$	2,606			$	28,512			$	23,970			$	140,552

(1)	The Company does not allocate net investment income or other operating expenses to the various business segments. See accompanying independent auditors’ report.

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										Assumed								Percentage of
						Ceded to				from								Amount
Property-Liability Insurance		Gross				Other				Other				Net				Assumed to
Premiums Earned		Amount				Companies				Companies				Amount				Net
		(Dollars in thousands)
United States
December 31, 2003		$	175,916			$	75,268			$	8,486			$	109,134				7.8	%
December 31, 2004		$	223,715			$	91,324			$	4,000			$	136,391				2.9
December 31, 2005		$	231,518			$	92,901			$	(81	)		$	138,536				(0.1	)
Bermuda
December 31, 2003			—			$	(200	)			—			$	200				—
December 31, 2004			—				—				—				—				—
December 31, 2005			—				—				—				—				—
Combined Total
December 31, 2003		$	175,916			$	75,068			$	8,486			$	109,334				7.8
December 31, 2004		$	223,715			$	91,324			$	4,000			$	136,391				2.9
December 31, 2005		$	231,518			$	92,901			$	(81	)		$	138,536				(0.1	)

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	Raymond James

	BB&T Capital Markets

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ITEM 13.	OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

SEC Registration Statement filing fees			$	10,630
NASD fees				10,434
Listing fees				19,266
Accounting fees and expenses				130,000
Legal fees				215,000
Printing and preparation of Registration Statement, Prospectus, etc.				150,000
Blue Sky fees and expenses				5,000
Miscellaneous				59,670
	Total		$	600,000

ITEM 14.	INDEMNIFICATION OF DIRECTORS AND OFFICERS.

	American Safety Insurance Holdings, Ltd.

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ITEM 15.	RECENT SALES OF UNREGISTERED SECURITIES

ITEM 16.	EXHIBITS

Exhibit				Description
	*1	.1		Form of Underwriting Agreement
	3	.1		Memorandum of Association of American Safety Insurance Holdings, Ltd. (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-42749) as filed with the SEC on January 27, 1998) and the Certificate of Incorporation of Change of Name (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-109799) as filed with the SEC on October 17, 2003)
	3	.2		Bye-Laws of American Safety Insurance Holdings, Ltd. (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-42749) as filed with the SEC on January 27, 1998)
	4	.1		Specimen Common Share Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-42749) as filed with the SEC on January 27, 1998)
	4	.2		Amended and Restated Declaration of Trust of American Safety Capital Trust dated as of May 22, 2003 among Wilmington Trust Company, as institutional trustee and Delaware trustee, American Safety Holdings Corp., as sponsor, American Safety Insurance Holdings, Ltd. (formerly known as American Safety Insurance Group, Ltd.), as guarantor, Steven B. Mathis, Stephen R. Crim and Fred J. Pinckney, as administrators (incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed May 22, 2003 (File No. 001-14795))
	4	.3		Indenture dated as of May 22, 2003 between American Safety Holdings Corp., American Safety Insurance Holdings, Ltd. (formerly known as American Safety Insurance Group, Ltd.), as guarantor, and Wilmington Trust Company, as trustee (incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed May 22, 2003 (File No. 001-14795))

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Exhibit				Description
	4	.4		Guarantee Agreement dated as of May 22, 2003, between American Safety Insurance Holdings, Ltd. (formerly known as American Safety Insurance Group, Ltd.), as guarantor, and Wilmington Trust Company, as trustee (incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed May 22, 2003 (File No. 001-14795))
	4	.5		Amended and Restated Trust Agreement of American Safety Capital Trust II dated as of September 30, 2003 among American Safety Holdings Corp. as depositor, JPMorgan Chase Bank, as property trustee, Chase Manhattan Bank USA, National Association, as Delaware trustee, and Steven B. Mathis, Stephen R. Crim and Fred J. Pinckney, as administrative trustees (incorporated by reference to the Exhibits to the Current Report on Form 8-K filed October 15, 2003 (File No. 001-14795))
	4	.6		Junior Subordinated Indenture dated as of September 30, 2003 between American Safety Holdings Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to the Exhibits to the Current Report on Form 8-K filed October 15, 2003 (File No. 001-14795))
	4	.7		Guarantee Agreement dated as of September 30, 2003 among American Safety Holdings Corp., as guarantor, American Safety Insurance Holdings, Ltd., as parent guarantor and JPMorgan Chase Bank, as guarantee trustee (incorporated by reference to the Exhibits to the Current Report on Form 8-K filed October 15, 2003 (File No. 001-14795))
	4	.8		Common Securities Subscription Agreement dated as of September 30, 2003 between American Safety Holdings Corp. and American Safety Capital Trust II, together as offerors (incorporated by reference to the Exhibits to the Current Report on Form 8-K filed October 15, 2003 (File No. 001-14795))
	4	.9		Amended and Restated Declaration of Trust of American Safety Capital Trust III dated as of November 17, 2005 among American Safety Holdings Corp., as sponsor, Wilmington Trust Company, as institutional trustee and Delaware trustee, and Steven B. Mathis and Stephen R. Crim, as administrators (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	4	.10		Indenture dated as of November 17, 2005 between American Safety Holdings Corp. and Wilmington Trust Company, as trustee (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	4	.11		Guarantee Agreement dated as of November 17, 2005 between American Safety Holdings Corp., as guarantor, and Wilmington Trust Company, as guarantee trustee (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	4	.12		Parent Guarantee Agreement dated as of November 17, 2005 between American Safety Insurance Holdings, Ltd. and Wilmington Trust Company (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	4	.13		Subscription Agreement dated as of November 17, 2005 among American Safety Capital Trust III, American Safety Holdings Corp. and Keefe, Bruyette & Woods, Inc. (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	*5	.1		Opinion of Appleby Spurling Hunter
	*8	.1		Tax Opinion of Troutman Sanders LLP
	10	.1+		Employment Agreement between American Safety Insurance Services, Inc. and Stephen R. Crim (incorporated by reference to Exhibit 10.1 to American Safety Insurance Holdings, Ltd.’s Current Report on Form 8-K dated March 21, 2005. (File No. 001-14795))
	10	.2+		Employment Agreement between American Safety Insurance Services, Inc. and Joseph D. Scollo (incorporated by reference to Exhibit 10.2 to American Safety Insurance Holdings, Ltd.’s Current Report on Form 8-K dated March 21, 2005 (File No. 001-14795))
	10	.2a+		Amendment No. 1 to Employment Agreement between American Safety Insurance Services, Inc. and Joseph D. Scollo (incorporated by reference to Exhibit 10.1 to American Safety Insurance Holdings, Ltd.’s Current Report on Form 8-K dated January 1, 2006 (File No. 001-14795))
	10	.3+		Employment Agreement between American Safety Insurance Services, Inc. and William C. Tepe (incorporated by reference to Exhibit 10.1 to American Safety Insurance Holdings, Ltd.’s Current Report on Form 8-K dated November 15, 2005 (File No. 001-14795))
	10	.4+		Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd.(Registration No. 333-42749) as filed with the SEC on January 27, 1998)

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Exhibit				Description
	10	.5+		First Amendment to the Incentive Stock Option Plan (incorporated by reference to Exhibit 10.49(b) to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-100065) as filed with the SEC on September 25, 2002)
	10	.6+		1998 Director Stock Award Plan (as amended through June 23, 2005) (incorporated by reference to Exhibit 10.3 to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.7		Lease Agreement between 1845 Tenants-In-Common (formerly known as Windy Hill Exchange, L.L.C.) and American Safety Insurance Services, Inc. (formerly known as Environmental Management Services, Inc.) for office space in Atlanta, Georgia (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-42749) as filed with the SEC on December 19, 1997)
	10	.7(a)		First Amendment to Commercial Lease Agreement dated July 1, 1998 (incorporated by reference to Exhibit 10.4(a) to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.7(b)		Second Amendment to Commercial Lease Agreement dated March 1, 2001 (incorporated by reference to Exhibit 10.4(b) to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.7(c)		Third Amendment to Commercial Lease Agreement dated March 1, 2002 (incorporated by reference to Exhibit 10.4(c) to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.7(d)		Fourth Amendment to Commercial Lease Agreement dated August 1, 2002 (incorporated by reference to Exhibit 10.4(d) to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.8		Amended and Restated Program Management Agreement dated as of May 31, 2002 among American Safety Insurance Services, Inc., American Safety Casualty Insurance Company, American Safety Indemnity Company and American Safety Risk Retention Group, Inc. (incorporated by reference to the Exhibits to Registrant’s Registration Statement filed September 25, 2002 on Form S-1 (Registration No. 333-100065))
	12	.1		Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit 12 to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	16			Letter from KPMG LLP regarding change in Certifying Accountant (incorporated by reference to the Exhibit to the Current Report on Form 8-K filed August 2, 2004 (File No. 001-4795))
	21	.1		Subsidiaries of American Safety Insurance Holdings, Ltd. (incorporated by reference to Exhibit 21 to the Form 10-K for American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	*23	.1		Consent of Appleby Spurling Hunter (included in Exhibit 5.1)
	*23	.2		Consent of Troutman Sanders LLP (included in Exhibit 8.1)
	23	.3		Consent of KPMG LLP
	23	.4		Consent of BDO Seidman, LLP
	*24	.1		Power of Attorney
	*99	.1		Consent of Steven L. Groot

*	Previously filed.

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ITEM 17.	UNDERTAKINGS

	(a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
	(b) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
	(c) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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	American Safety Insurance Holdings, Ltd.

	By:	/s/ Stephen R. Crim

	Stephen R. Crim
	President and Chief Executive Officer

Signature				Title		Date
By:		/s/ Stephen R. Crim   Stephen R. Crim		President and Chief Executive Officer (Principal Executive Officer) and Director		June 20, 2006
By:		/s/ William C. Tepe   William C. Tepe		Chief Financial Officer (Principal Financial and Accounting Officer)		June 20, 2006
By:		*   Cody W. Birdwell		Chairman of the Board, Director		*
By:		*   David V. Brueggen		Director		*
By:		*   Lawrence I. Geneen		Director		*
By:		Steven L. Groot		Director
By:		*   Frank D. Lackner		Director		*
By:		*   William O. Mauldin, Jr.		Director		*
By:		*   Thomas W. Mueller		Director		*
By:		*   William A. Robbie		Director		*

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Signature				Title		Date
By:		*   Jerome D. Weaver		Director		*
*By:		/s/ Stephen R. Crim   Stephen R. Crim Attorney-in-Fact				June 20, 2006

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Exhibit				Description
	*1	.1		Form of Underwriting Agreement
	3	.1		Memorandum of Association of American Safety Insurance Holdings, Ltd. (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-42749) as filed with the SEC on January 27, 1998) and the Certificate of Incorporation of Change of Name (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-109799) as filed with the SEC on October 17, 2003)
	3	.2		Bye-Laws of American Safety Insurance Holdings, Ltd. (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-42749) as filed with the SEC on January 27, 1998)
	4	.1		Specimen Common Share Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-42749) as filed with the SEC on January 27, 1998)
	4	.2		Amended and Restated Declaration of Trust of American Safety Capital Trust dated as of May 22, 2003 among Wilmington Trust Company, as institutional trustee and Delaware trustee, American Safety Holdings Corp., as sponsor, American Safety Insurance Holdings, Ltd. (formerly known as American Safety Insurance Group, Ltd.), as guarantor, Steven B. Mathis, Stephen R. Crim and Fred J. Pinckney, as administrators (incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed May 22, 2003 (File No. 001-14795))
	4	.3		Indenture dated as of May 22, 2003 between American Safety Holdings Corp., American Safety Insurance Holdings, Ltd. (formerly known as American Safety Insurance Group, Ltd.), as guarantor, and Wilmington Trust Company, as trustee (incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed May 22, 2003 (File No. 001-14795))
	4	.4		Guarantee Agreement dated as of May 22, 2003, between American Safety Insurance Holdings, Ltd. (formerly known as American Safety Insurance Group, Ltd.), as guarantor, and Wilmington Trust Company, as trustee (incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed May 22, 2003 (File No. 001-14795))
	4	.5		Amended and Restated Trust Agreement of American Safety Capital Trust II dated as of September 30, 2003 among American Safety Holdings Corp. as depositor, JPMorgan Chase Bank, as property trustee, Chase Manhattan Bank USA, National Association, as Delaware trustee, and Steven B. Mathis, Stephen R. Crim and Fred J. Pinckney, as administrative trustees (incorporated by reference to the Exhibits to the Current Report on Form 8-K filed October 15, 2003 (File No. 001-14795))
	4	.6		Junior Subordinated Indenture dated as of September 30, 2003 between American Safety Holdings Corp. and JPMorgan Chase Bank, as trustee (incorporated by reference to the Exhibits to the Current Report on Form 8-K filed October 15, 2003 (File No. 001-14795))
	4	.7		Guarantee Agreement dated as of September 30, 2003 among American Safety Holdings Corp., as guarantor, American Safety Insurance Holdings, Ltd., as parent guarantor and JPMorgan Chase Bank, as guarantee trustee (incorporated by reference to the Exhibits to the Current Report on Form 8-K filed October 15, 2003 (File No. 001-14795))
	4	.8		Common Securities Subscription Agreement dated as of September 30, 2003 between American Safety Holdings Corp. and American Safety Capital Trust II, together as offerors (incorporated by reference to the Exhibits to the Current Report on Form 8-K filed October 15, 2003 (File No. 001-14795))

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Exhibit				Description
	4	.9		Amended and Restated Declaration of Trust of American Safety Capital Trust III dated as of November 17, 2005 among American Safety Holdings Corp., as sponsor, Wilmington Trust Company, as institutional trustee and Delaware trustee, and Steven B. Mathis and Stephen R. Crim, as administrators (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	4	.10		Indenture dated as of November 17, 2005 between American Safety Holdings Corp. and Wilmington Trust Company, as trustee (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	4	.11		Guarantee Agreement dated as of November 17, 2005 between American Safety Holdings Corp., as guarantor, and Wilmington Trust Company, as guarantee trustee (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	4	.12		Parent Guarantee Agreement dated as of November 17, 2005 between American Safety Insurance Holdings, Ltd. and Wilmington Trust Company (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	4	.13		Subscription Agreement dated as of November 17, 2005 among American Safety Capital Trust III, American Safety Holdings Corp. and Keefe, Bruyette & Woods, Inc. (incorporated by reference to the Exhibits to the Current Report on Form 8-K dated November 16, 2005 (File No. 001-14795))
	*5	.1		Opinion of Appleby Spurling Hunter
	*8	.1		Tax Opinion of Troutman Sanders LLP
	10	.1+		Employment Agreement between American Safety Insurance Services, Inc. and Stephen R. Crim (incorporated by reference to Exhibit 10.1 to American Safety Insurance Holdings, Ltd.’s Current Report on Form 8-K dated March 21, 2005. (File No. 001-14795))
	10	.2+		Employment Agreement between American Safety Insurance Services, Inc. and Joseph D. Scollo (incorporated by reference to Exhibit 10.2 to American Safety Insurance Holdings, Ltd.’s Current Report on Form 8-K dated March 21, 2005 (File No. 001-14795))
	10	.2a+		Amendment No. 1 to Employment Agreement between American Safety Insurance Services, Inc. and Joseph D. Scollo (incorporated by reference to Exhibit 10.1 to American Safety Insurance Holdings, Ltd.’s Current Report on Form 8-K dated January 1, 2006 (File No. 001-14795))
	10	.3+		Employment Agreement between American Safety Insurance Services, Inc. and William C. Tepe (incorporated by reference to Exhibit 10.1 to American Safety Insurance Holdings, Ltd.’s Current Report on Form 8-K dated November 15, 2005 (File No. 001-14795))
	10	.4+		Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd.(Registration No. 333-42749) as filed with the SEC on January 27, 1998)
	10	.5+		First Amendment to the Incentive Stock Option Plan (incorporated by reference to Exhibit 10.49(b) to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-100065) as filed with the SEC on September 25, 2002)
	10	.6+		1998 Director Stock Award Plan (as amended through June 23, 2005) (incorporated by reference to Exhibit 10.3 to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.7		Lease Agreement between 1845 Tenants-In-Common (formerly known as Windy Hill Exchange, L.L.C.) and American Safety Insurance Services, Inc. (formerly known as Environmental Management Services, Inc.) for office space in Atlanta, Georgia (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1 of American Safety Insurance Holdings, Ltd. (Registration No. 333-42749) as filed with the SEC on December 19, 1997)
	10	.7(a)		First Amendment to Commercial Lease Agreement dated July 1, 1998 (incorporated by reference to Exhibit 10.4(a) to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))

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Exhibit				Description
	10	.7(b)		Second Amendment to Commercial Lease Agreement dated March 1, 2001 (incorporated by reference to Exhibit 10.4(b) to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.7(c)		Third Amendment to Commercial Lease Agreement dated March 1, 2002 (incorporated by reference to Exhibit 10.4(c) to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.7(d)		Fourth Amendment to Commercial Lease Agreement dated August 1, 2002 (incorporated by reference to Exhibit 10.4(d) to the Form 10-K of American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	10	.8		Amended and Restated Program Management Agreement dated as of May 31, 2002 among American Safety Insurance Services, Inc., American Safety Casualty Insurance Company, American Safety Indemnity Company and American Safety Risk Retention Group, Inc. (incorporated by reference to the Exhibits to Registrant’s Registration Statement filed September 25, 2002 on Form S-1 (Registration No. 333-100065))
	12	.1		Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit 12 to the Form 10-K for American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	16			Letter from KPMG LLP regarding change in Certifying Accountant (incorporated by reference to the Exhibit to the Current Report on Form 8-K filed August 2, 2004 (File No. 001-4795))
	21	.1		Subsidiaries of American Safety Insurance Holdings, Ltd. (incorporated by reference to Exhibit 21 to the Form 10-K for American Safety Insurance Holdings, Ltd. for the year ended December 31, 2005 (File No. 001-14795))
	*23	.1		Consent of Appleby Spurling Hunter (included in Exhibit 5.1)
	*23	.2		Consent of Troutman Sanders LLP (included in Exhibit 8.1)
	23	.3		Consent of KPMG LLP
	23	.4		Consent of BDO Seidman, LLP
	*24	.1		Power of Attorney
	*99	.1		Consent of Steven L. Groot

*		Previously filed.
+		Management contract or compensatory plan or arrangement.

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