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DuringTable theof 2013 quarter, corporate and other expenses are down to $0.8 million compared to $1.3 million in 2012 due to lower federal excise taxes for the 2013 period. Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 3130, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-14795

AMERICAN SAFETY INSURANCE HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)


Bermuda		30-0666089
(State of incorporation or organization)		(I.R.S. Employer Identification No.)

31 Queen Street 2^nd Floor Hamilton, Bermuda		HM 11
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number: (441) 296-8560

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

The aggregate number of shares outstanding of Registrant’s common stock, $0.01 par value, on ~~May~~August 1, 2013, was 9,~~598~~641,~~808~~731.

AMERICAN SAFETY INSURANCE HOLDINGS, LTD.

FORM 10-Q

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION
	Page
			Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements			3
Item 1. Financial Statements		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4.	Controls and Procedures			25
Item 4. Controls and Procedures		30
PART II – OTHER INFORMATION	~~PART II – OTHER INFORMATION~~
Item 1.	Legal Proceedings			26
Item 1. Legal Proceedings		31
Item 1A.	Risk Factors			26
Item 1A. Risk Factors		31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3.	Defaults Upon Senior Securities			26
Item 3. Defaults Upon Senior Securities		32
Item 4.	Mine Safety Disclosures			26
Item 4. Reserved		32
Item 5.	Other Information			26
Item 5. Other Information		32
Item 6.	Exhibits			27
Item 6. Exhibits		33

PART I –- FINANCIAL INFORMATION

Item 1.

Financial Statements

American Safety Insurance Holdings, Ltd. ~~And~~and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(dollars in thousands except share data)

	March 31, 2013(unaudited)		December 31, 2012
	June 30, 2013(unaudited)		December 31, 2012
Assets
Investments:
Fixed maturity securities, at fair value (including $10,616 and $9,499 from VIE)	$	817,957	$	829,577
Fixed maturity securities, at fair value (including $9,846 and $9,499 from VIE)	$	311,309	$	829,577
Common stock, at fair value		116,~~481~~073		8,776
Preferred stock, at fair value		~~3,151~~39		3,081
Short-term investments, at fair value (including $1,514 and $2,645 from VIE)		81,101		76,502
Short-term investments, at fair value (including $1,952 and $2,645 from VIE)		611,267		76,502
Trading securities, at fair value		~~13,127~~—		12,712
Total investments		~~926~~928,~~817~~688		930,648
Cash and cash equivalents (including $1,397 and $507 from VIE)		32,800		20,224
Cash and cash equivalents (including $439 and $507 from VIE)		18,567		20,224
Accrued investment income (including $55 and $52 from VIE)		6,179		6,387
Accrued investment income (including $56 and $52 from VIE)		1,693		6,387
Premiums receivable (including $737 and $498 from VIE)		28,404		32,559
Premiums receivable (including $383 and $498 from VIE)		29,249		32,559
Ceded unearned premium (including $323 and $351 from VIE)		30,375		29,821
Ceded unearned premium (including $218 and $351 from VIE)		35,200		29,821
Reinsurance recoverable (including $4,940 and $5,039 from VIE)		184,909		183,562
Reinsurance recoverable (including $4,659 and $5,039 from VIE)		185,644		183,562
Deferred acquisition costs (including $1,043 and $1,100 from VIE)		26,602		26,182
Deferred income taxes (including $121 and $0 from VIE)		2,797		—
Property, plant and equipment, net		12,012		12,082
Deferred acquisition costs (including $715 and $1,100 from VIE)		25,213		26,182
Property, plant and equipment, net		11,942		12,082
Goodwill		20,843		20,843
Funds on deposit (including $98 and $231 from VIE)		30,221		42,088
Funds on deposit (including $114 and $231 from VIE)		36,915		42,088
Accrued premium (including $0 and $0 from VIE)		4535,~~894~~980		42,886
Other assets (including $0 and $1,255 from VIE)		25,819		25,849
Other assets (including $724 and $1,255 from VIE)		18,431		25,849
Total assets	$	1,~~370~~351,~~875~~162	$	1,373,131
Liabilities and Shareholders’ Equity
Liabilities:
Unpaid losses and loss adjustment expenses (including $8,920 and $8,900 from VIE)	$	726,566	$	725,244
Unpaid losses and loss adjustment expenses (including $8,398 and $8,900 from VIE)	$	727,278	$	725,244
Unearned premiums (including $4,086 and $4,325 from VIE)		148,795		146,096
Unearned premiums (including $2,878 and $4,325 from VIE)		151,738		146,096
Ceded premiums payable (including ($200) and $67 from VIE)		17,694		13,386
Ceded premiums payable (including $326 and $67 from VIE)		22,291		13,386
Funds held (including $85 and $113 from VIE)		71,815		76,806
Funds held (including $99 and $113 from VIE)		61,642		76,806
Other liabilities (including $0 and $0 from VIE)		1614,~~660~~967		18,601
Deferred income taxes (including $55 and $30 from VIE)		7,137		8,767
Deferred income taxes (including $0 and $30 from VIE)		—		8,767
Loans payable		39,183		39,183
Total liabilities	$	1,~~027~~017,~~850~~099	$	1,028,083
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 30,000,000 shares; issued and outstanding at March 31, 2013, 9,486,086 shares and at December 31, 2012, 9,505,906 shares		95		95
Common stock, $0.01 par value; authorized 30,000,000 shares; issued and outstanding at June 30, 2013, 9,623,413 shares and at December 31, 2012, 9,505,906 shares		96		95
Additional paid-in capital		8485,~~221~~385		86,568
Retained earnings		~~202~~237,~~517~~327		197,015
Accumulated other comprehensive income, net		483,~~415~~729		53,628
Total American Safety Insurance Holdings, Ltd. shareholders’ equity		~~335~~326,~~248~~537		337,306
Equity in non-controlling interests		7,~~777~~526		7,742
Total equity		~~343~~334,~~025~~063		345,048
Total liabilities and equity	$	1,~~370~~351,~~875~~162	$	1,373,131

See accompanying notes to consolidated interim financial statements (unaudited).

American Safety Insurance Holdings, Ltd. ~~And~~and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

(dollars in thousands except per share data)

	Three Months EndedMarch 31,
	Three Months Ended						Six Months Ended
	2013			2012
	June 30,						June 30,
Revenues:
	2013			2012			2013			2012
Direct earned premiums	$	63,571		$	60,528
Revenues:
Assumed earned premiums		14,929			13,865
Direct earned premiums	$	65,122		$	60,595		$	128,693		$	121,123
Ceded earned premiums		(16,576	)		(12,980	)
Assumed earned premiums		15,795			15,259			30,724			29,124
Net earned premiums		61,924			61,413
Ceded earned premiums		(18,725	)		(13,837	)		(35,301	)		(26,818	)
Net investment income		7,632			7,811
Net earned premiums		62,192			62,017			124,116			123,429
Realized gains		1,454			53
Net investment income		5,582			7,402			13,214			15,214
Fee income		1,228			668
Realized gains (losses)		37,482			(13	)		38,936			39
Other income		12			12
Fee income		335			717			1,563			1,385
Total revenues	$	72,250		$	69,957
Other income		12			12			24			25
Expenses:
Total revenues	$	105,603		$	70,135		$	177,853		$	140,092
Losses and loss adjustment expenses		37,964			37,281
Expenses:
Acquisition expenses		14,752			14,744
Losses and loss adjustment expenses		37,673			40,819			75,636			78,100
Other underwriting expenses		12,141			10,752
Acquisition expenses		13,814			14,337			28,568			29,081
Interest expense		354			417
Other underwriting expenses		12,382			12,013			24,523			22,764
Corporate and other expenses		781			1,256
Interest expense		358			367			712			785
Total expenses	$	65,992		$	64,450
Corporate and other expenses		655			848			1,436			2,104
Earnings before income taxes		6,258			5,507
Total expenses	$	64,882		$	68,384		$	130,875		$	132,834
Income tax expense		677			1,106
Earnings before income taxes		40,721			1,751			46,978			7,258
Net earnings	$	5,581		$	4,401
Income tax expense (benefit)		5,900			(234	)		6,577			872
Less: Net earnings attributable to the non-controlling interest		88			345
Net earnings	$	34,821		$	1,985		$	40,401		$	6,386
Net earnings attributable to American Safety Insurance Holdings, Ltd.	$	5,493		$	4,056
Less: Net earnings (loss) attributable to the non-controlling interest		10			(182	)		98			163
Net earnings per share:
Net earnings attributable to American Safety Insurance Holdings, Ltd.	$	34,811		$	2,167		$	40,303		$	6,223
Basic	$	0.58		$	0.40
Net earnings per share:
Diluted	$	0.56		$	0.39
Basic	$	3.65		$	0.21		$	4.25		$	0.61
Weighted average number of shares outstanding:
Diluted	$	3.54		$	0.21		$	4.12		$	0.59
Basic		9,441,533			10,220,700
Weighted average number of shares outstanding:
Diluted		9,749,263			10,533,732
Basic		9,538,924			10,256,634			9,490,498			10,238,667
Diluted		9,824,228			10,555,222			9,786,953			10,544,627

See accompanying notes to consolidated interim financial statements (unaudited).

American Safety Insurance Holdings, Ltd. ~~And~~and Subsidiaries

Consolidated Statements of Comprehensive Earnings

(Unaudited)

(dollars in thousands)

	Three Months EndedMarch 31,
	Three Months Ended						Six Months Ended
	2013			2012
	June 30,						June 30,
Net earnings	$	5,581		$	4,401
	2013			2012			2013			2012
Other comprehensive income before income taxes:
Net earnings	$	34,821		$	1,985		$	40,401		$	6,386
Unrealized gains (losses) on securities available-for-sale		(5,313	)		3,442
Other comprehensive income before income taxes:
Amortization of (gain) on hedging transactions		(21	)		—
Unrealized gains (losses) on securities available-for-sale		(17,295	)		6,608			(22,609	)		10,050
Reclassification adjustment for realized (gains) included in net earnings		(1,454	)		(53	)
Amortization of (gain) on hedging transactions		(21	)		(41	)		(42	)		(41	)
Total other comprehensive income (loss) before income taxes		(6,788	)		3,389
Reclassification adjustment for realized (gains) losses included in net earnings		(37,482	)		13			(38,936	)		(39	)
Income tax expense (benefit) related to items of other comprehensive income (loss)		(1,521	)		313
Total other comprehensive income (loss) before income taxes		(54,798	)		6,580			(61,587	)		9,970
Other comprehensive income (loss) net of income taxes		(5,267	)		3,076
Income tax expense (benefit) related to items of other comprehensive income (loss)		(9,852	)		1,278			(11,373	)		1,592
Comprehensive income	$	314		$	7,477
Other comprehensive income (loss) net of income taxes		(44,946	)		5,302			(50,214	)		8,378
Less: Comprehensive income attributable to the non-controlling interest		34			186
Comprehensive (loss) income	$	(10,125	)	$	7,287		$	(9,813	)	$	14,764
Comprehensive income attributable to American Safety Insurance Holdings, Ltd.	$	280		$	7,291
Less: Comprehensive (loss) income attributable to the non-controlling interest		(251	)		(151	)		(218	)		34
Comprehensive (loss) income attributable to American Safety Insurance Holdings, Ltd.	$	(9,874	)	$	7,438		$	(9,595	)	$	14,730

See accompanying notes to consolidated interim financial statements (unaudited).

American Safety Insurance Holdings, Ltd. and Subsidiaries

Consolidated Statements of Cash Flow

(Unaudited)

(dollars in thousands)

	Three Months EndedMarch 31,
	Six Months Ended
	June 30,
	2013			2012
Cash flow from operating activities:
Net earnings	$	540,~~581~~401		$	46,~~401~~386
Adjustments to reconcile net earnings to net cash provided by operating activities:
Realized gains on sale of investments		(138,~~454~~936	)		(5339	)
Depreciation expense		~~917~~1,897			~~734~~1,414
Stock based compensation expense		~~612~~1,235			~~604~~1,237
Amortization of deferred acquisition costs, net		~~(420~~969	)		~~474~~(1,390	)
Amortization of investment premium		~~182~~588			~~826~~2,030
Deferred income taxes		(~~116~~205	)		3,~~500~~709
Change in operating assets and liabilities:
Accrued investment income		~~208~~4,694			~~206~~168
Premiums receivable		43,~~155~~310			(~~821~~5,785	)
Reinsurance recoverable		(12,~~347~~082	)		2(4,~~615~~084	)
Ceded unearned premium		(~~554~~5,379	)		67(3,676	)
Funds held		(415,~~991~~164	)		2(7,~~165~~867	)
Unpaid losses and loss adjustment expenses		12,~~322~~034			518,~~489~~264
Unearned premiums		25,~~699~~642			~~(627~~11,067	)
Ceded premiums payable		48,~~308~~905			(2,~~459~~691	)
Other liabilities		(13,~~941~~634	)		(1,~~636~~796	)
Funds on deposit		115,~~867~~173			4(2,~~966~~328	)
Accrued premium		(36,~~008~~906	)		(3,~~657~~846	)
Other assets, net		~~(197~~6,917	)		(2,~~457~~426	)
Net cash provided by operating activities		1723,~~823~~271			1413,~~337~~729
Cash flow from investing activities:
Purchases of fixed maturities		(48274,~~001~~493	)		(~~975~~38,459	)
Proceeds from sales and maturities of fixed maturities		53,496			31,566
Purchases of Common Stocks		(3,120	)		—
Purchases of equity securities		(3,285	)		—
Proceeds from sales of Common Stocks		5,575			—
Increase in short-term investments		(3,876	)		(42,227	)
Proceeds from sales of fixed maturities		778,947			62,311
Purchases of fixed assets		(622	)		(324	)
Purchases of Preferred Stocks		(165	)		(865	)
Net cash used in investing activities		(2,288	)		(11,960	)
Proceeds from sales of Preferred Stocks		5,773			—
Purchase of other investments		—			(3,444	)
Increase in short term investments		(533,775	)		(40,458	)
Purchase of fixed assets		(1,254	)		(781	)
Net cash used in investing activities		(22,512	)		(21,696	)
Cash flow from financing activities:
Shares repurchased to cover employment taxes		(339	)		(~~292~~204	)
Proceeds from exercised stock options		~~103~~646			4485
Purchases of common stock pursuant to the Stock Repurchase Plan		(2,723	)		(92200	)
Net cash used in financing activities		(2,~~959~~416	)		(~~340~~319	)
Net increase in cash and cash equivalents		12(1,~~576~~657	)		2(8,~~037~~286	)
Cash and cash equivalents at beginning of period		20,224			43,481
Cash and cash equivalents at end of period	$	3218,~~800~~567		$	4535,~~518~~195
Supplemental disclosure of cash flow:
Income taxes paid (including $33 and $0 from VIE)	$	41		$	15
Income taxes paid (including $120 and $731 from VIE)	$	133		$	749
Interest paid	$	~~300~~715		$	~~420~~790

See accompanying notes to consolidated interim financial statements (unaudited).

American Safety Insurance Holdings, Ltd. and Subsidiaries

Notes to Consolidated Financial Statements

~~March~~June 3130, 2013

(Unaudited)

Note 1 – Basis of Presentation

The accompanying consolidated financial statements of American Safety Insurance Holdings, Ltd. (“American Safety Insurance”) 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”) as established by the FASB Accounting Standards Codification^© (“Codification” or “ASC”). 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. Certain balance sheet amounts involve accounting estimates and/or actuarial determinations and are therefore subject to change and include, but are not limited to, invested assets, deferred income taxes, reinsurance recoverables, goodwill and the liabilities for unpaid losses and loss adjustment expenses. As additional information becomes available (or actual amounts are determinable), the estimates may be revised and reflected in operating results. While management believes that these estimates are adequate, such estimates may change in the future.

The Company accounts for business combinations using the acquisition method, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired. In the event the net assets acquired exceed the purchase price, the Company will recognize a gain on bargain purchase.

The results of operations for the three and six months ended ~~March~~June 3130, 2013, may not be indicative of the results for the fiscal year ending December 31, 2013. These unaudited interim consolidated financial statements and notes should be read in conjunction with the financial statements and notes included in the audited consolidated ~~financial~~ financial statements on Form 10-K of the Company for the fiscal year ended December 31, 2012.

The unaudited interim consolidated financial statements include the accounts of American Safety Insurance, each of its subsidiaries and American Safety RRG. All significant intercompany balances as well as normal recurring adjustments have been eliminated. Unless otherwise noted, all balances are presented in thousands.

Note 2 – Investments

The amortized cost and estimated fair values of the Company’s available for sale investments at ~~March~~ June 3130, 2013, and December 31, 2012, are as follows (dollars in thousands):

March 31, 2013	Amortizedcost		Grossunrealized gains		Grossunrealized losses			Estimatedfair value
June 30, 2013	Amortizedcost		Grossunrealized gains		Grossunrealized losses			Estimatedfair value
Fixed maturity securities:
U.S. Treasury securities and other government corporations and agencies	$	58258,~~673~~887	$	2,~~754~~017	$	(183,951	)	$	61256,~~409~~953
States of the U.S. and political subdivisions of the states		384,~~580~~516		~~6,115~~92		—(183	)		444,~~695~~425
Corporate securities		~~303~~30,~~535~~401		335,~~029~~074		(~~267~~207	)		~~336~~35,~~297~~268
Mortgage-backed securities		~~229~~4,~~013~~978		~~9,241~~90		(~~687~~202	)		~~237~~4,~~567~~866
Commercial mortgage-backed securities		532,~~533~~684		~~4,116~~141		~~(113~~—	)		572,~~536~~825
Asset-backed securities		766,~~827~~304		~~3,876~~686		(~~250~~18	)		806,~~453~~972
Total fixed maturities	$	~~760~~307,~~161~~770	$	598,~~131~~100	$	(14,~~335~~561	)	$	~~817~~311,~~957~~309
Common stock	$	126,~~124~~926	$	~~226~~—	$	(~~869~~853	)	$	116,~~481~~073
Preferred stock	$	~~2,789~~—	$	~~382~~39	$	~~(20~~—	)	$	~~3,151~~39
December 31, 2012	Amortizedcost		Grossunrealized gains		Grossunrealized losses			Estimatedfair value
Fixed maturity securities:
U.S. Treasury securities and other government corporations and agencies	$	53,591	$	2,961	$	(11	)	$	56,541
States of the U.S. and political subdivisions of the states		40,100		6,064		—			46,164
Corporate securities		304,725		36,089		(85	)		340,729
Mortgage-backed securities		237,653		11,088		(501	)		248,240
Commercial mortgage-backed securities		57,521		5,694		—			63,215
Asset-backed securities		71,769		3,138		(219	)		74,688
Total fixed maturities	$	765,359	$	65,034	$	(816	)	$	829,577
Common stock	$	9,004	$	6	$	(234	)	$	8,776
Preferred stock	$	2,789	$	317	$	(25	)	$	3,081

During the three months ended March 31, 2013 and 2012, available for sale fixed maturity securities were sold for total proceeds of $11.2 million and $5.2 million, respectively, resulting in gross realized gains to the Company. The gross realized gains on these sales totaled $1.1 million and $0.1 million in 2013 and 2012, respectively. For the purpose of determining gross realized gains, the cost of securities sold is based on specific identification.


December 31, 2012	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
Fixed maturity securities:
U.S. Treasury securities and other government corporations and agencies	$	53,591	$	2,961	$	(11	)	$	56,541
States of the U.S. and political subdivisions of the states		40,100		6,064		—			46,164
Corporate securities		304,725		36,089		(85	)		340,729
Mortgage-backed securities		237,653		11,088		(501	)		248,240
Commercial mortgage-backed securities		57,521		5,694		—			63,215
Asset-backed securities		71,769		3,138		(219	)		74,688

Total fixed maturities	$	765,359	$	65,034	$	(816	)	$	829,577

Common stock	$	9,004	$	6	$	(234	)	$	8,776

Preferred stock	$	2,789	$	317	$	(25	)	$	3,081

~~Trading~~During ~~securities~~the ~~are~~six ~~reported~~months atended ~~fair~~June 30, ~~value~~2013 and 2012, ~~with~~available-for-sale and trading fixed maturity securities were sold for total ~~unrealized~~proceeds ~~holding~~of ~~gains~~$778.9 million and ~~losses~~$18.4 ~~reported~~million, asrespectively, ~~part~~resulting ofin ~~net~~gross ~~earnings~~realized gains and losses to the Company. ~~Net~~The ~~unrealized~~gross ~~holding~~realized gains ~~from~~on ~~trading~~these ~~securities~~sales totaled $42.7 million and $0.05 million in 2013 and 2012, respectively. The gross realized losses on these sales totaled $4.9 million ~~for~~and $0.01 million in 2013 and 2012, respectively. During the ~~three~~six months ended ~~March~~June 3130, 2013, available-for-sale and trading equity securities were sold for total proceeds of $11.3 million, ~~These~~compared ~~holding~~to ~~gains~~none ~~are~~in ~~included~~2012, resulting in ~~net~~gross realized gains ~~and~~ ~~losses~~to ~~for~~ the ~~period~~company of $1.1 million and $0.0 million. There were no ~~trading~~gross realized losses tied to sales of equity securities ~~within~~in 2013 and 2012. Sales during the ~~portfolio~~second asquarter of ~~March 31~~2013 were in compliance with the Merger Agreement. For the purpose of determining gross realized gains and losses, ~~2012~~the cost of securities sold is based on specific identification.

Trading securities are reported at fair value, with unrealized holding gains and losses reported as part of net earnings. Net unrealized holding losses from trading securities totaled $0.0 million and $0.01 million for the six months ended June 30, 2013 and 2012. These holding losses are included in net realized gains and losses for the period.

The amortized cost and estimated fair value of fixed maturity securities at ~~March~~ June 3130, 2013, is shown below by contractual maturity.

	Amortizedcost		~~Estimatedfair~~Estimated fair value
	(dollars in thousands)
Due in one year or less	$	304,~~684~~026	$	314,~~163~~056
Due after one year through five years		~~104~~19,~~517~~261		~~112~~20,~~750~~340
Due after five years through ten years		~~196~~19,~~764~~259		~~213~~19,~~185~~533
Due after ten years		68251,~~823~~258		85252,~~303~~717
Mortgage and asset-backed securities		~~359~~13,~~373~~966		~~375~~14,~~556~~663
Total	$	~~760~~307,~~161~~770	$	~~817~~311,~~957~~309

The following tables summarize the gross unrealized losses of the Company’s investment portfolio as of ~~March~~June 3130, 2013 and December 31, 2012, by category and length of time that the securities have been in an unrealized loss position.

	Less than 12 months					12 months or longer					Total
March 31, 2013	Fair Value		UnrealizedLosses			Fair Value		UnrealizedLosses			Fair Value		UnrealizedLosses
	Fair Value		UnrealizedLosses			Fair Value		UnrealizedLosses			Fair Value		UnrealizedLosses
	(dollars in thousands)
June 30, 2013	(dollars in thousands)
Fixed maturity securities:
U.S. Treasury securities and other government corporations and agencies	$	5185,~~426~~593	$	(183,951	)	$	—	$	—		$	5185,~~426~~593	$	(183,951	)
States of the U.S. and political subdivisions of the states		—3,247		—(183	)		—		—			—3,247		—(183	)
Corporate securities		243,~~527~~100		(~~267~~207	)		—		—			243,~~527~~100		(~~267~~207	)
Mortgage-backed securities		573,~~730~~266		(~~685~~202	)		~~257~~—		(2—	)		573,~~987~~266		(~~687~~202	)
Commercial mortgage-backed securities		~~12,275~~—		~~(113~~—	)		—		—			~~12,275~~—		~~(113~~—	)
Asset-backed securities		~~13,250~~—		~~(235~~—	)		5148		(1518	)		~~13,301~~48		(~~250~~18	)
Subtotal, fixed maturity securities		~~113~~195,~~208~~206		(14,~~318~~543	)		~~308~~48		(1718	)		~~113~~195,~~516~~254		(14,~~335~~561	)
Common stock		~~1,163~~—		~~(16~~—	)		3,573		(853	)		43,~~736~~573		(~~869~~853	)
Preferred stock		—		—			~~507~~—		~~(20~~—	)		~~507~~—		~~(20~~—	)
Total temporarily impaired securities	$	~~114~~195,~~371~~206	$	(14,~~334~~543	)	$	43,~~388~~621	$	(~~890~~871	)	$	~~118~~198,~~759~~827	$	(25,~~224~~414	)

	Less than 12 months					12 months or longer					Total
December 31, 2012	Fair Value		UnrealizedLosses			Fair Value		UnrealizedLosses			Fair Value		UnrealizedLosses
	Fair Value		UnrealizedLosses			Fair Value		UnrealizedLosses			Fair Value		UnrealizedLosses
	(dollars in thousands)
December 31, 2012	(dollars in thousands)
Fixed maturity securities:
U.S. Treasury securities and other government corporations and agencies	$	4,985	$	(11	)	$	—	$	—		$	4,985	$	(11	)
States of the U.S. and political subdivisions of the states		—		—			—		—			—		—
Corporate securities		24,489		(85	)		—		—			24,489		(85	)
Mortgage-backed securities		36,345		(336	)		3,751		(165	)		40,096		(501	)
Commercial mortgage-backed securities		—		—			—		—			—		—
Asset-backed securities		7,536		(210	)		59		(9	)		7,595		(219	)
Subtotal, fixed maturity securities		73,355		(642	)		3,810		(174	)		77,165		(816	)
Common stock		1,067		(14	)		4,206		(220	)		5,273		(234	)
Preferred stock		490		(2	)		504		(23	)		994		(25	)
Total temporarily impaired securities	$	74,912	$	(658	)	$	8,520	$	(417	)	$	83,432	$	(1,075	)

We hold a total of ~~1,322~~203 available-for sale securities, of which ~~100~~67 were in an unrealized loss position for less than twelve months and two ~~four~~ were in an unrealized loss position for a period of twelve months or greater as of ~~March~~June 3130, 2013. Unrealized losses greater than twelve months on fixed maturities were the result of increased credit spreads and higher market yields ~~relative~~ relative to the date the securities were purchased. We do not consider these investments to be other-than-temporary impaired at ~~March~~June 3130, 2013.

We routinely review our investments that have experienced declines in fair value to determine if the decline is other than temporary. These reviews are performed with consideration of the facts and circumstances of an issuer in accordance with the Securities and Exchange Commission (“SEC”), Accounting for Non-Current Marketable Equity Securities; ASC-320-10-05, Accounting for Certain Investments in Debt and Equity Securities, and related guidance. The identification of distressed investments and the assessment of whether a decline is other-than-temporary involve significant management judgment and require evaluation of factors including but not limited to:

•

percentage decline in value and the length of time during which the decline has occurred;

•

recoverability of principal and interest;

•

market conditions;

•

ability and intent to hold the investment to recovery;

•

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.

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 (“OTTI”). 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 and interest rate risk. Therefore, if an investment’s cost exceeds its market value solely due to changes in interest rates, recognizing impairment may not be appropriate. For the ~~three~~six months ended ~~March~~June 3130, 2013 and 2012, the Company did not incur any OTTI losses.

Note 3 – Segment Information

Our business is classified into insurance operations and other, with the insurance operations consisting of three divisions: E&S ~~lines~~, ART and Reinsurance. E&S includes eight products: environmental, construction, products liability, excess, property, surety, healthcare, and professional liability. ART includes two business lines: specialty programs and fully funded. In ~~our~~ our Assumed Re segment, the Company assumes specialty property and casualty business from unaffiliated insurers and reinsurers.

Within E&S, our environmental insurance products provide general contractor pollution and/or professional liability coverage for contractors and consultants in the environmental remediation industry and property owners. Construction provides general ~~liability~~ liability insurance for residential and commercial contractors. Products liability provides general liability and product liability coverages for smaller manufacturers and distributors, non-habitational real estate and certain real property owner, ~~landlord~~ landlord and tenant risks. Excess provides excess and umbrella liability coverages over our own and other carriers’ primary casualty polices, with a focus on construction risks. Our property coverage encompasses surplus lines commercial ~~property~~ property business and commercial multi-peril (CMP) policies. Surety ~~provides~~products provide payment and performance bonds primarily to the environmental remediation and construction industries. Healthcare provides customized liability insurance solutions primarily for long-term care facilities. Professional liability provides coverage for primary and following-form excess directors and officers liability for public, private and non-profit entities; standalone employment practices liability insurance (EPLI); and fiduciary liability. Primary and excess coverage for miscellaneous professional liability risks such as lawyers and insurance agents.

In our ART division, specialty programs provide insurance to homogeneous niche groups through third-party program managers. Our specialty programs consist primarily of property and casualty insurance coverages for certain classes of specialty risks ~~including~~. Fully funded policies provide our insureds the ability to fund their liability exposure via a self-insurance vehicle. WeFully ~~write~~funded ~~fully~~policies ~~funded~~consist of general and professional liability for businesses operating primarily in the healthcare and construction industries.

Our Reinsurance division focuses on treaty reinsurance for captives, Risk Retention Groups and specialty insurance companies. Lines of business ~~written~~assumed include medical malpractice, general liability across multiple sectors, commercial automobile liability, professional liability, workers compensation and one property catastrophe treaty that provides a finite limit over the exposure period. Business is sourced from a combination of London, U.S. and Bermuda based reinsurance brokers. The portfolio is a spread of ~~smaller~~ treaties across multiple lines of business written on both an excess of loss and quota ~~share~~ share basis.

Our Other segment includes lines of business that we have placed in run-off, such as workers’ compensation, excess liability insurance for municipalities, other commercial lines and real estate and other ancillary product lines.

The reportable insurance divisions are measured based on underwriting profit (loss) and pre-tax operating income (loss).

The following table presents key financial data by segment for the three months ended ~~March~~June 3130, 2013 and 2012, respectively (dollars in thousands):

	Three Months Ended March 31, 2013
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	47,953		$	16,602		$	16,644		$	—		$	81,199
Net written premiums		37,546			9,879			16,644			—			64,069
Net earned premiums		36,541			11,162			14,221			—			61,924
Fee & other income		332			771			—			137			1,240
Losses & loss adjustment expenses		22,028			7,393			8,543			—			37,964
Acquisition & other underwriting expenses		16,595			4,830			4,648			820			26,893
Underwriting profit (loss)		(1,750	)		(290	)		1,030			(683	)		(1,693	)
Net investment income		4,598			1,230			1,670			134			7,632
Pre-tax operating income (loss)		2,848			940			2,700			(549	)		5,939
Net realized gains														1,454
Interest and corporate expenses														1,135
Earnings before income taxes														6,258
Income tax expense														677
Net earnings													$	5,581
Less: Net earnings attributable to the non-controlling interest														88
Net earnings attributable to ASIH, Ltd.													$	5,493
Loss ratio		60.3	%		66.2	%		60.1	%		NM			61.3	%
Expense ratio		44.5	%		36.4	%		32.7	%		NM			41.4	%
Combined ratio(2)		104.8	%		102.6	%		92.8	%		(1)NM			102.7	%

American Safety Insurance Holdings, Ltd. and Subsidiaries

	Three Months Ended March 31, 2012
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	38,611		$	21,178		$	13,976		$	—		$	73,765
Net written premiums		30,733			16,143			13,976			—			60,852
Net earned premiums		31,150			16,344			13,919			—			61,413
Fee & other income		—			663			—			17			680
Losses & loss adjustment expenses		18,917			9,987			8,349			28			37,281
Acquisition & other underwriting expenses		13,916			6,388			4,330			862			25,496
Underwriting profit (loss)		(1,683	)		632			1,240			(873	)		(684	)
Net investment income		4,625			1,429			1,621			136			7,811
Pre-tax operating income (loss)		2,942			2,061			2,861			(737	)		7,127
Net realized gains														53
Interest and corporate expenses														1,673
Earnings before income taxes														5,507
Income tax expense														1,106
Net earnings													$	4,401
Less: Net earnings attributable to the non-controlling interest														345
Net earnings attributable to ASIH, Ltd.													$	4,056
Loss ratio		60.7	%		61.1	%		60.0	%		NM			60.7	%
Expense ratio		44.7	%		35.0	%		31.1	%		NM			40.4	%
Combined ratio(2)		105.4	%		96.1	%		91.1	%		(1)NM			101.1	%

Segment Data

(Unaudited) (Dollars in thousands)


	Three Months Ended June 30, 2013
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	52,063		$	16,156		$	15,641		$	—		$	83,860
Net written premiums		41,669			3,000			15,641			—			60,310
Net earned premiums		38,844			8,093			15,255			—			62,192
Fee & other income		(362	)		697			—			12			347
Losses & loss adjustment expenses		23,317			5,226			9,130			—			37,673
Acquisition & other underwriting expenses		17,275			3,528			4,623			770			26,196

Underwriting profit (loss)		(2,110	)		36			1,502			(758	)		(1,330	)
Net investment income		3,380			815			1,304			83			5,582

Pre-tax operating income (loss)		1,270			851			2,806			(675	)		4,252
Net realized gains														37,482
Interest and corporate expenses														1,013

Earnings before income taxes														40,721
Income tax expense														5,900

Net earnings													$	34,821
Less: Net earnings attributable to the non-controlling interest														10

Net earnings attributable to ASIH, Ltd.													$	34,811

Loss ratio		60.0	%		64.6	%		59.8	%		NM			60.6	%
Expense ratio		45.4	%		35.0	%		30.3	%		NM			41.6	%

Combined ratio⁽²⁾		105.4	%		99.6	%		90.1	%		⁽¹⁾NM			102.2	%


	Three Months Ended June 30, 2012
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	50,448		$	21,498		$	15,603		$	—		$	87,549
Net written premiums		39,735			14,579			15,603			—			69,917
Net earned premiums		33,600			13,157			15,260			—			62,017
Fee & other income		—			738			—			(9	)		729
Losses & loss adjustment expenses		20,221			11,875			8,751			(28	)		40,819
Acquisition & other underwriting expenses		15,140			5,865			4,471			874			26,350

Underwriting profit (loss)		(1,761	)		(3,845	)		2,038			(855	)		(4,423	)
Net investment income		4,285			1,348			1,595			174			7,402

Pre-tax operating income (loss)		2,524			(2,497	)		3,633			(681	)		2,979
Net realized losses														(13	)
Interest and corporate expenses														1,215

Earnings before income taxes														1,751
Income tax benefit														(234	)

Net earnings													$	1,985
Less: Net loss attributable to the non-controlling interest														(182	)

Net earnings attributable to ASIH, Ltd.													$	2,167

Loss ratio		60.2	%		90.3	%		57.3	%		NM			65.8	%
Expense ratio		45.1	%		39.0	%		29.3	%		NM			41.3	%

Combined ratio⁽²⁾		105.3	%		129.3	%		86.6	%		⁽¹⁾NM			107.1	%

(1)	NM = Ratio is not meaningful

(2)	The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of losses and loss adjustment expenses, acquisition and other underwriting expenses net of fee income to earned premiums.

The following table presents key financial data by segment for the six months ended June 30, 2013 and 2012, respectively (dollars in thousands):

American Safety Insurance Holdings, Ltd. and Subsidiaries

Segment Data

(Unaudited) (Dollars in thousands)


	Six Months Ended June 30, 2013
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	100,016		$	32,758		$	32,285		$	—		$	165,059
Net written premiums		79,215			12,879			32,285			—			124,379
Net earned premiums		75,385			19,255			29,476			—			124,116
Fee & other income		(30	)		1,468			—			149			1,587
Losses & loss adjustment expenses		45,344			12,619			17,673			—			75,636
Acquisition & other underwriting expenses		33,871			8,358			9,272			1,590			53,091

Underwriting profit (loss)		(3,860	)		(254	)		2,531			(1,441	)		(3,024	)
Net investment income		7,978			2,045			2,974			217			13,214

Pre-tax operating income (loss)		4,118			1,791			5,505			(1,224	)		10,190
Net realized gains														38,936
Interest and corporate expenses														2,148

Earnings before income taxes														46,978
Income tax expense														6,577

Net earnings													$	40,401
Less: Net earnings attributable to the non-controlling interest														98

Net earnings attributable to ASIH, Ltd.													$	40,303

Loss ratio		60.1	%		65.5	%		60.0	%		NM			60.9	%
Expense ratio		45.0	%		35.8	%		31.5	%		NM			41.5	%

Combined ratio⁽²⁾		105.1	%		101.3	%		91.5	%		⁽¹⁾NM			102.4	%


	Six Months Ended June 30, 2012
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	89,059		$	42,676		$	29,579		$	—		$	161,314
Net written premiums		70,468			30,722			29,579			—			130,769
Net earned premiums		64,750			29,501			29,178			—			123,429
Fee & other income		—			1,402			—			8			1,410
Losses & loss adjustment expenses		39,138			21,862			17,100			—			78,100
Acquisition & other underwriting expenses		29,057			12,253			8,801			1,734			51,845

Underwriting profit (loss)		(3,445	)		(3,212	)		3,277			(1,726	)		(5,106	)
Net investment income		8,910			2,778			3,216			310			15,214

Pre-tax operating income (loss)		5,465			(434	)		6,493			(1,416	)		10,108
Net realized gains														39
Interest and corporate expenses														2,889

Earnings before income taxes														7,258
Income tax expense														872

Net earnings													$	6,386
Less: Net earnings attributable to the non-controlling interest														163

Net earnings attributable to ASIH, Ltd.													$	6,223

Loss ratio		60.4	%		74.1	%		58.6	%		NM			63.3	%
Expense ratio		44.9	%		36.8	%		30.2	%		NM			40.9	%

Combined ratio⁽²⁾		105.3	%		110.9	%		88.8	%		⁽¹⁾NM			104.2	%

(1)	NM = Ratio is not meaningful

(2)	The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of losses and loss adjustment expenses, acquisition and other underwriting expenses net of fee income to earned premiums.

The Company conducts business in two geographic segments: the United States and Bermuda. Significant differences exist in the regulatory environment in each country.

The following table provides financial data about the geographic locations for the three months ended ~~March~~June 3130, 2013 and 2012 (dollars in thousands):

	United States			Bermuda		Total
March 31, 2013
June 30, 2013
Income tax expense	$	~~677~~5,900		$	—	$	~~677~~5,900
Net earnings attributable to American Safety Insurance Holdings, Ltd.	$	~~944~~11,483		$	423,~~549~~328	$	534,~~493~~811
Assets	$	677,289		$	693,586	$	1,370,875
Equity	$	138,318		$	204,707	$	343,025
	United States			Bermuda		Total
March 31, 2012
June 30, 2012
Income tax expense	$	1,106		$	—	$	1,106
Income tax benefit	$	(234	)	$	—	$	(234	)
Net earnings attributable to American Safety Insurance Holdings, Ltd.	$	1,539		$	2,517	$	4,056
Net earnings (loss) attributable to American Safety Insurance Holdings, Ltd.	$	(273	)	$	2,440	$	2,167
Assets	$	687,542		$	611,431	$	1,298,973
Equity	$	108,689		$	233,730	$	342,419

The following table provides financial data about the geographic locations for the six months ended June 30, 2013 and 2012 (dollars in thousands):


	United States		Bermuda		Total
June 30, 2013
Income tax expense	$	6,577	$	—	$	6,577
Net earnings attributable to American Safety Insurance Holdings, Ltd.	$	12,426	$	27,877	$	40,303
Assets	$	662,631	$	688,531	$	1,351,162
Equity	$	132,400	$	201,663	$	334,063

	United States		Bermuda		Total
June 30, 2012
Income tax expense	$	872	$	—	$	872
Net earnings attributable to American Safety Insurance Holdings, Ltd.	$	1,266	$	4,957	$	6,223
Assets	$	690,251	$	637,806	$	1,328,057
Equity	$	144,004	$	206,370	$	350,374

Note 4 – Income Taxes

United States federal and state income tax (benefit) expense from operations consists of the following components (dollars in thousands):

	Three Months Ended						Six Months Ended
	March 31,
	June 30,						June 30,
	2013			2012			2013			2012
Current	$	~~793~~5,989		$	(~~2,394~~443	)	$	6,782		$	(2,837	)
Deferred		(~~116~~89	)		~~3,500~~209			(205	)		3,709
Total	$	~~677~~5,900		$	~~1,106~~(234	)	$	6,577		$	872

~~Income~~14 tax expense for the periods ended March 31, 2013 and 2012, differed from the amount computed by applying the United States Federal income tax rate of 34% to earnings before Federal income taxes as a result of the following (dollars in thousands):

	Three Months Ended
	March 31,
	2013			2012
Expected income tax expense	$	2,128		$	1,872
Foreign earned income not subject to U.S. taxation		(1,546	)		(855	)
Tax-exempt interest		(3	)		(3	)
State taxes and other		98			92
Total	$	677		$	1,106

Income tax (benefit) expense for the periods ended June 30, 2013 and 2012 differed from the amount computed by applying the United States Federal income tax rate of 34% to earnings before Federal income taxes as a result of the following (dollars in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Expected income tax expense	$	13,845		$	596		$	15,972		$	2,468
Foreign earned income not subject to U.S. taxation		(7,932	)		(830	)		(9,478	)		(1,685	)
Tax-exempt interest		(4	)		(3	)		(7	)		(6	)
State taxes and other		(9	)		3			90			95

Total	$	5,900		$	(234	)	$	6,577		$	872

Note 5 – Equity Based Compensation

The Company’s incentive stock plan grants incentive stock options to employees. The majority of the options outstanding under the plan vest evenly over a three year period and have a term of 10 years. The Company uses the Black-Scholes option pricing model to value stock options. The Company’s methodology for valuing stock options has not changed from December 31, 2012. During the first ~~three~~six months of 2013 and 2012, the Company did not grant any stock options. Stock based compensation expense related to outstanding stock options was $8510 and $~~118~~69 for the three months ended ~~March~~June 3130, 2013 and 2012, respectively and $56 and $187 for the six months ended June 30, 2013 and 2012, respectively, and is reflected in the Consolidated Statement of Operations in other underwriting expenses.

In addition to stock options discussed above, the Company ~~may~~grants ~~grant~~ restricted shares to employees under the incentive stock plan. During the three month period ended June 30, 2013, no restricted stock shares were granted compared to 5,000 in 2012. During the first ~~three~~six months of 2013, the Company granted 380,839 shares of restricted stock compared to 9196,330 for the same period in 2012. Of the shares granted, 79,339 shares vest on the grant date anniversary ratably over three years at 25%, 25%, and 50%, respectively. The remaining 301,500 shares vest pursuant to a vesting schedule based on certain performance criteria. Stock based compensation expense related to the restricted shares was $~~444~~570 and $~~404~~481 for the three months ended ~~March~~June 3130, 2013 and 2012, respectively and is reflected in the Consolidated Statement of Operations in other underwriting expenses. For the six months ended June 30, 2013 and 2012, $1,014 and $885 of compensation expense, respectively, is reflected in the Consolidated Statement of Operations in other underwriting expenses. Additionally, the Company ~~recorded~~expensed $8382 and $8283 in expense for the ~~first~~ three months ended ~~March~~June 3130, 2013 and 2012, respectively, related to stock awards ~~issued~~related to ~~its~~Director ~~Board~~compensation. For the six months ended June 30, the company expensed $165 and $165 in 2013 and 2012, respectively, related to stock awards made as a portion of ~~Directors~~Director compensation.

Note 6 – Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market. Market participants are buyers and sellers in the principal (or most advantageous) market that are independent, knowledgeable, able to transact for the asset or liability, and willing to transact for the asset or liability.

We determined the fair values of certain financial instruments based on the fair value hierarchy established in “Fair Value Measurements”, topic ASC 820-10-05. Valuation techniques consistent with the market approach, income approach and/or cost approach are used to measure fair value. The inputs of these valuation techniques are categorized into three levels. The guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

Our Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed at the reporting date. The Company receives one quote per instrument for Level 1 inputs.

Our Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These fair value measurements are provided by using quoted prices of securities with similar characteristics.

Our Level 3 inputs are valuations based on inputs that are unobservable. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The Company receives fair value prices from its third-party investment managers who use an independent pricing service. These prices are determined using observable market information such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other things. The Company has reviewed the processes used by the third party providers for pricing the securities, and has determined that these processes result in fair values consistent with the GAAP requirements. In addition, the Company reviews these prices for reasonableness and has not adjusted any prices received from the third-party providers as of ~~March~~June 3130, 2013.

14Assets measured at fair value on a recurring basis for June 30, 2013 and December 31, 2012 are summarized below:

~~Table~~As of ~~Contents~~June 30, 2013

Assets measured at fair value on a recurring basis for March 31, 2013 and December 31, 2012 are summarized below:

As of March 31, 2013

Fair Value Measurements Using

(dollars in thousands)

Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)

Significant OtherObservableInputs(Level 2)

SignificantUnobservableInputs(Level 3)

Total

Quoted Prices inActive Marketsfor IdenticalAssets

Significant OtherObservable Inputs

SignificantUnobservableInputs

(Level 1)

(Level 2)

(Level 3)

Total

Fixed maturity securities:

U.S. Treasury securities and obligations of U.S. Government corporations and agencies

36242,~~161~~555

2514,~~248~~398

—

61256,~~409~~953

States of the U.S. and political subdivisions of the states

—

444,~~695~~425

—

444,~~695~~425

Corporate securities

—

~~336~~35,~~297~~268

—

~~336~~35,~~297~~268

Mortgage-backed securities

—

~~237~~4,~~567~~866

—

~~237~~4,~~567~~866

Commercial mortgage-backed securities

—

572,~~536~~825

—

572,~~536~~825

Asset-backed securities

—

806,~~453~~972

—

806,~~453~~972

Total fixed maturity securities

36242,~~161~~555

~~781~~68,~~796~~754

—

~~817~~311,~~957~~309

Equity securities

~~8,559~~—

—39

6,073

146,~~632~~112

Short term investments

81611,~~101~~267

—

81611,~~101~~267

Trading securities

~~266~~—

~~12,861~~—

—

~~13,127~~—

Total

~~126~~853,~~087~~822

~~794~~68,~~657~~793

6,073

~~926~~928,~~817~~688

As of December 31, 2012

Fair Value Measurements Using

(dollars in thousands)

	Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)		Significant OtherObservableInputs(Level 2)		SignificantUnobservableInputs (Level 3)		Total
	Quoted Prices inActive Marketsfor IdenticalAssets		Significant OtherObservable Inputs		SignificantUnobservableInputs
	(Level 1)		(Level 2)		(Level 3)		Total
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	31,032	$	25,509	$	—	$	56,541
States of the U.S. and political subdivisions of the states		—		46,164		—		46,164
Corporate securities		—		340,729		—		340,729
Mortgage-backed securities		—		248,240		—		248,240
Commercial mortgage-backed securities		—		63,215		—		63,215
Asset-backed securities		—		74,688		—		74,688
Total fixed maturity securities		31,032		798,545		—		829,577
Equity securities		5,151		—		6,706		11,857
Short term investments		76,502		—		—		76,502
Trading securities		990		11,722		—		12,712
Total	$	113,675	$	810,267	$	6,706	$	930,648

15A reconciliation of the beginning and ending balances for the investments categorized as Level 3 at June 30, 2013 and December 31, 2012 are as follows:


	As of June 30, 2013
	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
	Equity Securities
Balance at December 31, 2012	$	6,706
Total gains (losses) realized (unrealized):
Included in earnings		—
Included in other comprehensive income		(633	)
Purchases		—
Sales		—
Issuance and settlements		—
Net transfers in (out of) Level 3		—

Balance at June 30, 2013	$	6,073

Change in net unrealized losses relating to assets still held at reporting date	$	(633	)

A reconciliation of the beginning and ending balances for the investments categorized as Level 3 at March 31, 2013 and December 31, 2012 are as follows:


	As of December 31, 2012
	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	(dollars in thousands)
	Equity Securities
Balance at December 31, 2011	$	6,751
Total gains (losses) realized (unrealized):
Included in earnings		—
Included in other comprehensive income		(45	)
Purchases		—
Sales		—
Issuance and settlements		—
Net transfers in (out of) Level 3		—

Balance at December 31, 2012	$	6,706

Change in net unrealized losses relating to assets still held at reporting date	$	(45	)

	As of March 31, 2013Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3) (dollars in thousands)Equity Securities
Balance at December 31, 2012	$	6,706
Total gains(losses) realized (unrealized):
Included in earnings		—
Included in other comprehensive income		(633	)
Purchases		—
Sales		—
Issuance and settlements		—
Net transfers in (out of) Level 3		—
Balance at March 31, 2013	$	6,073
Change in net unrealized losses relating to assets still held at reporting date	$	(633	)

	As of December 31, 2012Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3) (dollars in thousands)Equity Securities
Balance at December 31, 2011	$	6,751
Total gains(losses) realized (unrealized):
Included in earnings		—
Included in other comprehensive income		(45	)
Purchases		—
Sales		—
Issuance and settlements		—
Net transfers in (out of) Level 3		—
Balance at December 31, 2012	$	6,706
Change in net unrealized losses relating to assets still held at reporting date	$	(45	)

There were no transfers in and out of Level 1 and 2 categories during 2013 or 2012.

A description of the Company’s inputs used to measure fair value is as follows:

Fixed maturities (Available-for-Sale and Trading) Levels 1 and 2

•

United States Treasury securities are valued using quoted (unadjusted) prices in active markets and are therefore shown as Level 1.

•

United States Government agencies are reported at fair value utilizing Level 2 inputs. These fair value measurements are provided by using quoted prices of securities with similar characteristics.

•

States of the U.S. and political subdivisions of the states are reported at fair value utilizing Level 2 inputs. These fair value measurements are provided by using quoted prices of securities with similar characteristics.

•

Corporate securities are reported at fair value utilizing Level 2 inputs. These fair value measurements are provided by using quoted prices of securities with similar characteristics.

•

Mortgage-backed securities are reported at fair value utilizing Level 2 inputs. These fair value measurements are provided by using quoted prices of securities with similar characteristics.

•

Commercial mortgage-backed securities are reported at fair value utilizing Level 2 inputs. These fair value measurements are provided by using quoted prices of securities with similar characteristics.

•

Asset-backed securities are reported at fair value utilizing Level 2 inputs. These fair value measurements are provided by using quoted prices of securities with similar characteristics.

Equity securities (Level 1) – For these securities, fair values are based on quoted market prices (unadjusted) in active markets.

Equity securities (Level 2) – These fair value measurements are provided by using quoted prices of securities with similar characteristics.

Equity securities (Level 3) – Includes private equity investments which are carried at the Company’s equity in the estimated net assets of the investments based on valuations provided by the investee or other relevant market data.

We assess the reasonableness of those fair values by evaluating the financial statements and discussions with the investees. Due to the delay of reported information, our estimates are based on the most recent available information. These inputs are considered unobservable and therefore the private equity investments are being classified as Level 3 measurements.

Short-term investments are reported at fair value using Level 1 inputs.

As management is ultimately responsible for determining the fair value measurements for all securities, we validate prices received from our investment advisor by comparing the fair value estimates to our knowledge of the current market and investigate any prices deemed not to be representative of fair value.

The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of financial instruments as of ~~March~~June 3130, 2013 and December 31, 2012.

			March 31, 2013								December 31, 2012
	Level in Fair				June 30, 2013								December 31, 2012
	Level in FairValueHierarchy		CarryingAmount				EstimatedFair Value				CarryingAmount				EstimatedFair Value
	ValueHierarchy				CarryingAmount				EstimatedFair Value				CarryingAmount				EstimatedFair Value
Assets:
Cash and cash equivalents	~~Level 1~~	Level 1	$	~~32,800~~	$	18,567	$	~~32,800~~	$	18,567	$	~~20,224~~	$	20,224	$	~~20,224~~	$	20,224
Fixed maturities	*	*	$	~~817,957~~	$	311,309	$	~~817,957~~	$	311,309	$	~~829,577~~	$	829,577	$	~~829,577~~	$	829,577
Equity securities	*	*	$	~~14,632~~	$	6,112	$	~~14,632~~	$	6,112	$	~~11,857~~	$	11,857	$	~~11,857~~	$	11,857
Short-term investments	*	*	$	~~81,101~~	$	611,267	$	~~81,101~~	$	611,267	$	~~76,502~~	$	76,502	$	~~76,502~~	$	76,502
Trading securities	*	*	$	~~13,127~~	$	—	$	~~13,127~~	$	—	$	~~12,712~~	$	12,712	$	~~12,712~~	$	12,712
Premiums receivable	~~Level 2~~	Level 2	$	~~28,404~~	$	29,249	$	~~28,404~~	$	29,249	$	~~32,559~~	$	32,559	$	~~32,559~~	$	32,559
Reinsurance recoverable	~~Level 2~~	Level 2	$	~~184,909~~	$	185,644	$	~~184,909~~	$	185,644	$	~~183,562~~	$	183,562	$	~~183,562~~	$	183,562
Liabilities:
Loans payable	~~Level 2~~	Level 2	$	~~39,183~~	$	39,183	$	~~39,183~~	$	39,183	$	~~39,183~~	$	39,183	$	~~39,183~~	$	39,183

* See investment assets measured at fair value on a recurring basis summary within this note for disclosure of levels for classes of these financial assets.

Cash and cash equivalents – The carrying amounts approximate fair value because of the short-term maturity of those instruments.

Premiums receivable – The carrying value of premiums receivable approximate fair value due to its short-term nature.

Reinsurance ~~recoverable~~recoverables – The carrying value of reinsurance receivables approximate fair value. The Company has established an allowance for bad debts associated with reinsurance balances recoverable and is primarily related to specific counterparties.

Loans payable – The carrying value of those notes is a reasonable estimate of fair value. Due to the variable interest rate of these instruments, carrying value approximates market value.

Note 7 – Credit Facility

The Company has an unsecured line of credit facility for $20 million that expires August 20, 2013. The principal amount outstanding under the credit facility provides for interest at ~~Libor~~LIBOR plus 200 basis points with a 3% floor. In addition, the credit facility provides for an unused facility fee of 15 basis points payable monthly. The line of credit facility contains certain covenants and at ~~March~~June 3130, 2013, the Company was in compliance with all covenants. The Company has no outstanding borrowings at ~~March~~June 3130, 2013.

Note 8 – Loans Payable

Trust Preferred Offerings

In 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 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 at the Company’s option any time.

In 2005, the American Safety Capital Trust III, a non-consolidated wholly-owned subsidiary of the Company, issued a 30-year trust preferred securities in the amount of $25 million. The securities require interest payments of LIBOR + 3.4%. The securities may be redeemed at any time.

The balance of loans payable at ~~March~~June 3130, 2013, was $39.2 million.

Note 9 – Variable Interest Entity

The Risk Retention Act of 1986 (the “Risk Retention Act”) allowed companies with specialized liability insurance needs that could not be met in the standard insurance market to create a new type of insurance vehicle called a risk retention group. We assisted in the formation of American Safety RRG in 1988 in order to establish a U.S. insurance company to market and underwrite specialty environmental coverages.

American Safety RRG is a variable interest entity (“VIE”) which is consolidated in our financial statements in accordance with ASC 810-10-5, as through the contractual relationships, the Company has the power to direct the activities of American Safety RRG that most significantly impact its economic performance and the right to receive benefits from American Safety RRG that could be significant to American Safety RRG. Due to these criteria being met, American Safety is the primary beneficiary of the variability of the underwriting profits of American Safety RRG. The liabilities of American Safety RRG consolidated by the Company do not represent additional claims on the Company’s general assets; rather, they represent claims against the specific assets of American Safety RRG. Similarly, the assets of American Safety RRG consolidated by the Company do not represent additional assets available to satisfy claims against the Company’s general assets.

The creditors of American Safety RRG do not have recourse to the Company for the obligations outside of obligations that exist due to contractual loss sharing or reinsurance arrangements that exist between American Safety RRG and other entities under common control in the ordinary course of the business. The equity of American Safety RRG is for the benefit of the policyholders and is considered a non-controlling interest in the shareholders’ equity section of the Company’s Consolidated Balance Sheets. Should RRG incur net losses and the equity of RRG decline below regulatory minimum capital levels or result in a deficit, there is no legal obligation of the Company to fund those losses or contribute capital to the VIE. The profit and loss of the VIE increases or decreases the value of the non-controlling interest on the balance sheet of the Company and does not contribute to earnings or equity attributable to American Safety Insurance Holdings, Ltd.

Assets and Liabilities of the VIE as consolidated in the Consolidated Balance Sheets (dollars in thousands):

	March 31, 2013			December 31, 2012
	June 30,2013			December 31,2012
Investments	$	1211,~~130~~798		$	12,144
Cash and cash equivalents		~~1,397~~439			507
Accrued investment income		5556			52
Premiums receivable		~~737~~383			498
Ceded unearned premium		~~323~~218			351
Reinsurance recoverable		4,~~940~~659			5,039
Deferred acquisition costs		1,043			1,100
Deferred income taxes		121			—
Funds on deposit		98			231
Deferred acquisition costs		715			1,100
Other assets		—			1,255
Funds on deposit		114			231
Total Assets	$	20,723		$	21,177
Other assets		724			1,255
Unpaid losses and loss adjustment expenses		8,920			8,900
Total Assets	$	19,227		$	21,177
Unearned premiums		4,086			4,325
Unpaid losses and loss adjustment expenses		8,398			8,900
Ceded premiums payable		(200	)		67
Unearned premiums		2,878			4,325
Funds held		85			113
Ceded premiums payable		326			67
Deferred income taxes		55			30
Funds held		99			113
Total Liabilities	$	12,946		$	13,435
Deferred income taxes		—			30
Total Liabilities	$	11,701		$	13,435

Note 10 – Commitments and Contingencies

At ~~March~~June 3130, 2013, the Company had aggregate outstanding irrevocable letters of credit which had not been drawn amounting to $41.38 million. Those letters of credit included $1.0 million for the benefit of the Vermont Department of Banking, ~~Insurance, Securities~~ and ~~Health Care Administration, as well as~~ $~~2.5 million issued pursuant to a contingent payment obligation, and $~~0.8 million issued to various other parties.

American Safety Reinsurance, Ltd., (“ASRe”), our reinsurance subsidiary, provides reinsurance protection for risk retention groups, captives and insurance companies and may be required to provide letters of credit to collateralize a portion of the reinsurance protection. In the normal course of business they may provide letters of credit to the companies ~~that~~ they reinsure. As of ~~March~~June 3130, 2013, ASRe had $84.54 million in letters of credit issued and outstanding, secured by pledged investment assets of $89.4 million.

Litigation Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Based on the information presently available, management does not believe that any pending or threatened litigation or arbitration disputes will have any material adverse effect on our final condition or operating results.

Note 11 – ~~Business~~Merger ~~Acquisition~~with Fairfax Financial Holdings Limited

On ~~July~~June 2, ~~2012~~2013, ~~American~~the ~~Safety~~Company ~~Holdings~~entered ~~Corp.,~~into aan ~~wholly-owned~~Agreement ~~subsidiary~~and Plan of ~~the~~Merger ~~Registrant, acquired~~ (the ~~100%~~“Merger ~~voting~~Agreement”) ~~equity~~with ofFairfax ~~Bluestone~~Financial ~~Agency,~~Holdings ~~Inc.~~Limited, ana ~~Arizona~~Canadian corporation (“Fairfax”), and ~~its~~Fairfax ~~wholly-owned~~Bermuda ~~subsidiary,~~Holdings ~~Bluestone Surety,~~ Ltd., ana Bermuda exempted company ~~incorporated under the laws of the Cayman Islands. Bluestone Agency~~ and Bluestone Surety are referred to collectively as “Bluestone”. All issued and outstanding capital stock of Bluestone was purchased from Pearlstein Associates, LLP, a South Carolina limited liability company, for a purchase price of $20.0 million. The purchase price includes an ~~earnout provision~~indirect ~~consisting~~wholly-owned ofSubsidiary ~~a payout~~ of ~~up to $6~~Fairfax.0 ~~million. The cash paid at closing was $14.0 million. The earnout provision is contingent upon the future performance of Bluestone.~~

~~Bluestone~~At ~~primarily~~the ~~offers~~effective ~~transactional~~time ~~commercial~~of ~~surety~~the ~~products.~~Merger In(the ~~2011~~“Effective Time”), ~~Bluestone~~each ~~wrote~~issued ~~approximately~~and ~~$16~~outstanding ~~million~~common inshare ~~premium~~of the Company (the “Shares”), ~~primarily~~owned ~~composed~~by Fairfax, or any direct or indirect wholly-owned subsidiary of ~~low~~Fairfax, ~~limit~~or ~~transactional~~owned ~~commercial~~by ~~surety~~any ~~bonds~~shareholders who are entitled to and who properly exercise appraisal rights under Bermuda law, will be cancelled and converted into the right to receive $29.25 in cash, without interest (the ~~The~~“Merger ~~purchase~~Consideration”). ~~was~~At ~~accounted~~the ~~for~~Effective Time, each outstanding option to purchase Shares granted under the ~~guidance~~Company’s ofequity ~~ASC~~plans ~~805-10~~that is outstanding and unexercised as aof ~~business~~immediately ~~combination~~prior to the Effective Time, whether vested or unvested or exercisable, shall become fully vested and exercisable, and all restricted Shares granted under the ~~acquisition~~Company’s ~~method.~~equity ~~All~~plans ~~identifiable~~shall ~~assets~~become fully vested and ~~liabilities~~transferable ~~acquired~~and ~~were~~all ~~recognized~~restrictions ~~using~~on ~~fair~~such ~~value~~restricted ~~measurement~~shares shall lapse. Each ~~Pursuant~~holder of an option that is outstanding and unexercised as of the Effective Time and has an exercise price per Share that is less than the per Share Merger Consideration shall be entitled to ~~fair~~receive ~~value measurement,~~in exchange for the ~~earnout~~cancellation of ~~provision~~such ~~was~~option ~~valued~~an atamount ~~$4.0~~in ~~million.~~cash ~~Under~~equal ~~ASC~~to ~~805-10~~the ~~utilizing~~product of (i) the ~~acquisition~~difference ~~method,~~between the ~~purchase~~per Share Merger Consideration and the applicable exercise price ~~was~~of ~~valued~~such atoption ~~$18.0~~and ~~million~~(ii) the aggregate number of Shares that remain issuable upon exercise of such option, subject to applicable withholding requirements.

~~The~~21 ~~following table summarizes the Company’s fair value of the assets acquired, identifiable intangible assets acquired and liabilities assumed at July 2, 2012 (in thousands):~~

Assets:
Short-term investments, at fair value	$	3,541
Cash and cash equivalents		3,176
Premiums receivable		2,698
Deferred acquisition costs		1,186
Goodwill		11,526
Intangibles and other assets		9,784
Total Assets	$	31,911
Liabilities:
Unpaid losses and loss adjustment expenses	$	(2,135	)
Unearned premiums		(2,358	)
Ceded premiums payable		(1,797	)
Funds held		(3,504	)
Other Liablilities		(1,057	)
Deferred income taxes		(3,060	)
Total Liabilities	$	(13,911	)

For the three months ended March 31, 2013, the effects of this acquisition were not material to the Company’s consolidated financial statements and basic and diluted earnings per share and, as such, pro forma information has not been presented.

The Company has made customary representations, warranties and covenants in the Merger Agreement, which generally expire at the Effective Time. The Company has agreed not to (i) solicit, encourage or initiate any inquiries or the implementation or submission of any proposal that constitutes or could reasonably be expected to lead to, any Acquisition Proposal (as defined in the Merger Agreement), (ii) engage in, continue or otherwise participate in discussions or negotiations regarding, or furnish to any person any non-public information in connection with, any Acquisition Proposal, (iii) otherwise knowingly facilitate any effort or attempt to make an Acquisition Proposal or (iv) enter into any agreement with respect to any Acquisition Proposal.

The consummation of the Merger is subject to various conditions, including adoption of the Merger Agreement and approval of the Merger by the Company’s shareholders, expiration or termination of applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt of certain insurance regulatory approvals and other customary closing conditions. The consummation of the Merger is not subject to a financing condition. The companies expect to close the transaction during the fourth quarter of 2013.

The Merger Agreement contains termination rights for both the Company and Fairfax, including (i) the right of either party to terminate if the Effective Time has not occurred on or before the End Date (as defined in the Merger Agreement), provided that either party may extend such date by an additional three months under certain circumstances; (ii) the right of either party to terminate following certain breaches by the other party of its representations, warranties and covenants in the Merger Agreement and (iii) the right of the Company to enter into an agreement with respect to a Superior Proposal (as defined in the Merger Agreement) if the Company complies with certain notice and other requirements set forth in the Merger Agreement, including paying Fairfax a termination fee of $9,186,000.

The Merger Agreement provides that upon termination of the Merger Agreement under certain specified circumstances, including the termination by Fairfax if the Company’s Board of Directors changes its recommendation to the Company’s shareholders that they adopt the Merger Agreement and approve the Merger, the Company will be required to pay Fairfax a termination fee of $9,186,000. Upon the termination of the Merger Agreement under certain other circumstances, including if the Company’s shareholders do not adopt the Merger Agreement and approve the Merger, the Company will be required to reimburse Fairfax for its transaction expenses up to a maximum amount of $1.5 million.

The parties to the Merger Agreement are entitled to specific performance of the terms and provisions of the Merger Agreement, in addition to any other remedy to which they are otherwise entitled, including damages for any breach of the Merger Agreement by the other party.

Note 12 – Accounting Pronouncements

In February 2013, the FASB issued an accounting update to improve the reporting of reclassifications out of accumulated other comprehensive income. An entity is required to report the effect of significant reclassifications, by component, out of accumulated other comprehensive income on the respective line items in net income if the item is required under GAAP to be reclassified in its entirety in the same reporting period. The required disclosures of the update are allowed either in the Statement of Operations or in the notes. The amendments in the update are effective for reporting periods beginning after December 15, 2012. This update did not have an impact on our financial disclosures.

~~The~~At ~~required~~June ~~disclosures~~30, of2013, ~~the~~there ~~update~~were ~~are~~no ~~allowed~~recently ~~either~~issued inaccounting ~~the~~pronouncements ~~Statement~~where ~~of Operations~~our oradoption inof ~~the~~such ~~notes.~~guidance ~~The~~was ~~amendments in the update are effective for reporting periods beginning after December 15, 2012~~pending. ~~This update did not have an impact on our financial disclosures.~~

Note 13 – Subsequent Events

~~None~~On July 29, 2013, American Safety Insurance Holdings, Ltd. received an offer from Catalina Holdings (Bermuda) Ltd. (“Catalina”), outlining the acquisition of American Safety by Catalina Holdings (Bermuda) LTD. at a cash price of $29.75. This offer was substantially the same terms as those contained in the initial proposed Merger Agreement with Fairfax Financial Holdings Limited.

On August 7th, 2013, Fairfax Financial Holdings Limited increased its offer to purchase American Safety to $30.25 per share from the previously announced offer of $29.25 per share.

The board of directors of American Safety approved an amendment to the Merger Agreement among American Safety, Fairfax and Fairfax Holdings Bermuda Ltd. reflecting the revised price and an increase in the termination fee to $13.4 million from $9.1 million. The transaction is subject to customary conditions, including approval of American Safety’s shareholders and regulatory approvals.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our business is classified into insurance operations and other, with the insurance operations consisting of three divisions: Excess and Surplus Lines (“E&S ~~lines~~”), ART and Reinsurance. E&S includes eight products: environmental, construction, products liability, excess, property, surety, healthcare, and professional liability. ART includes two ~~business lines~~products: specialty programs and fully funded. In our Assumed Re segment, the Company assumes specialty property and casualty business from unaffiliated insurers and reinsurers.

Within E&S, our environmental insurance products provide general contractor pollution and/or professional liability coverage for contractors and consultants in the environmental remediation industry and property owners. Construction provides general liability insurance for residential and commercial contractors. Products liability provides general liability and product liability coverages for smaller manufacturers and distributors, non-habitational real estate and certain real property owner, landlord and tenant risks. Excess provides excess and umbrella liability coverages over our own and other carriers’ primary casualty polices, with a focus on construction risks. Our property coverage encompasses surplus lines commercial property business and commercial multi-peril (CMP) policies. Surety ~~provides~~products provide payment and performance bonds primarily to the environmental remediation and construction industries. Healthcare provides customized liability insurance solutions primarily for long-term care facilities. Professional liability provides coverage for primary and following-form excess directors and officers liability for public, private and non-profit entities; standalone employment practices liability insurance (EPLI); and fiduciary liability. Primary and excess coverage for miscellaneous professional liability risks such as lawyers and insurance agents.

In our ART division, specialty programs provide insurance to homogeneous niche groups through third-party program managers. Our specialty programs consist primarily of property and casualty insurance coverages for certain classes of specialty risks including. Fully funded policies provide our insureds the ability to fund their liability exposure via a self-insurance vehicle. We write fully funded policies consist of general and professional liability for businesses operating primarily in the healthcare ~~and~~ and construction industries.

Our Reinsurance division focuses on treaty reinsurance for captives, Risk Retention Groups and specialty ~~insurance~~ insurance companies. Lines of business written include medical malpractice, general liability ~~across multiple sectors~~, commercial automobile liability, professional liability, workers compensation and one property catastrophe treaty that provides a finite limit over the exposure period. Business is sourced from a combination of London, U.S. and Bermuda based reinsurance brokers. The portfolio is a spread of smaller treaties across multiple lines of business written on both an excess of loss and quota share basis.

2123

The ~~Company~~following ~~measures~~table ~~segments~~presents ~~using~~key ~~net~~financial ~~income,~~data ~~total~~by ~~assets~~segment ~~and~~for ~~total~~the ~~equity.~~three ~~The~~months ~~reportable~~ended ~~insurance divisions~~June 30, ~~are~~2013 ~~measured~~and 2012, ~~based~~respectively ~~on underwriting profit~~ (~~loss)~~dollars ~~and~~in ~~pre-tax operating income (loss~~thousands).:

The following information is presented on the basis of accounting principles generally accepted in the United States of America (“GAAP”).

American Safety Insurance Holdings, Ltd. and Subsidiaries

Segment Data

(Unaudited) (Dollars in thousands)

	Three Months Ended March 31, 2013
	Three Months Ended June 30, 2013
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	4752,~~953~~063		$	16,~~602~~156		$	1615,~~644~~641		$	—		$	8183,~~199~~860
Net written premiums		3741,~~546~~669			93,~~879~~000			1615,~~644~~641			—			6460,~~069~~310
Net earned premiums		3638,~~541~~844			118,~~162~~093			1415,~~221~~255			—			6162,~~924~~192
Fee & other income		~~332~~(362	)		~~771~~697			—			~~137~~12			~~1,240~~347
Losses & loss adjustment expenses		2223,~~028~~317			75,~~393~~226			89,~~543~~130			—			37,~~964~~673
Acquisition & other underwriting expenses		1617,~~595~~275			43,~~830~~528			4,~~648~~623			~~820~~770			26,~~893~~196
Underwriting profit (loss)		(12,~~750~~110	)		~~(290~~36	)		1,~~030~~502			(~~683~~758	)		(1,~~693~~330	)
Net investment income		43,~~598~~380			~~1,230~~815			1,~~670~~304			~~134~~83			75,~~632~~582
Pre-tax operating income (loss)		21,~~848~~270			~~940~~851			2,~~700~~806			(~~549~~675	)		54,~~939~~252
Net realized gains														137,~~454~~482
Interest and corporate expenses														1,~~135~~013
Earnings before income taxes														640,~~258~~721
Income tax expense														~~677~~5,900
Net earnings													$	534,~~581~~821
Less: Net earnings attributable to the non-controlling interest														8810
Net earnings attributable to ASIH, Ltd.													$	534,~~493~~811
Loss ratio		60.30	%		6664.26	%		6059.18	%		NM			6160.36	%
Expense ratio		4445.54	%		3635.40	%		3230.73	%		NM			41.46	%
Combined ratio(2)		~~104~~105.84	%		~~102~~99.6	%		9290.81	%		(1)NM			102.72	%
	Three Months Ended June 30, 2012
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	50,448		$	21,498		$	15,603		$	—		$	87,549
Net written premiums		39,735			14,579			15,603			—			69,917
Net earned premiums		33,600			13,157			15,260			—			62,017
Fee & other income		—			738			—			(9	)		729
Losses & loss adjustment expenses		20,221			11,875			8,751			(28	)		40,819
Acquisition & other underwriting expenses		15,140			5,865			4,471			874			26,350
Underwriting profit (loss)		(1,761	)		(3,845	)		2,038			(855	)		(4,423	)
Net investment income		4,285			1,348			1,595			174			7,402
Pre-tax operating income (loss)		2,524			(2,497	)		3,633			(681	)		2,979
Net realized losses														(13	)
Interest and corporate expenses														1,215
Earnings before income taxes														1,751
Income tax benefit														(234	)
Net earnings													$	1,985
Less: Net loss attributable to the non-controlling interest														(182	)
Net earnings attributable to ASIH, Ltd.													$	2,167
Loss ratio		60.2	%		90.3	%		57.3	%		NM			65.8	%
Expense ratio		45.1	%		39.0	%		29.3	%		NM			41.3	%
Combined ratio(2)		105.3	%		129.3	%		86.6	%		(1)NM			107.1	%

	Three Months Ended March 31, 2012
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	38,611		$	21,178		$	13,976		$	—		$	73,765
Net written premiums		30,733			16,143			13,976			—			60,852
Net earned premiums		31,150			16,344			13,919			—			61,413
Fee & other income		—			663			—			17			680
Losses & loss adjustment expenses		18,917			9,987			8,349			28			37,281
Acquisition & other underwriting expenses		13,916			6,388			4,330			862			25,496
Underwriting profit (loss)		(1,683	)		632			1,240			(873	)		(684	)
Net investment income		4,625			1,429			1,621			136			7,811
Pre-tax operating income (loss)		2,942			2,061			2,861			(737	)		7,127
Net realized gains														53
Interest and corporate expenses														1,673
Earnings before income taxes														5,507
Income tax expense														1,106
Net earnings													$	4,401
Less: Net earnings attributable to the non-controlling interest														345
Net earnings attributable to ASIH, Ltd.													$	4,056
Loss ratio		60.7	%		61.1	%		60.0	%		NM			60.7	%
Expense ratio		44.7	%		35.0	%		31.1	%		NM			40.4	%
Combined ratio(2)		105.4	%		96.1	%		91.1	%		(1)NM			101.1	%

(1)	NM = Ratio is not meaningful

(2)	The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of losses and loss adjustment expenses, acquisition and other underwriting expenses net of fee income to earned premiums.

2224

Three Months Ended ~~March~~June 3130, 2013, compared to ~~Three Months Ended March 31, 2012~~

Three Months Ended June 30, 2012

Net Earnings

Net earnings attributable to ASIH were $534.58 million, or $03.5654 per diluted share, for the three months ended ~~March~~June 3130, 2013, compared to $42.12 million, or $0.3921 per diluted share, for the same period of 2012. ~~While~~due ~~underwriting~~primarily ~~results~~to ~~remained stable~~after ~~(see~~tax ~~discussion below), the increase was driven by~~ net realized gains of $131.54 million ~~compared to $0~~.1 ~~million for the same quarter in 2012, and increased fee income of $1.2 million compared to $0.7 million in 2012 attributable to the purchase of Bluestone Agency effective July 1, 2012.~~

Combined Ratio

Our underwriting results are measured by the combined ratio, which is the sum of (a) the ratio of incurred losses and loss adjustment expenses to net earned premiums (loss ratio), and, (b) the ratio of ~~policy~~ acquisition ~~costs~~expenses and other ~~operating~~ underwriting expenses, net of fee income, to net earned premiums (expense ratio). A combined ratio below 100% indicates that an insurer has an underwriting profit, and a combined ratio above 100% indicates that an insurer has an underwriting loss.

The combined ratio ~~was~~of 102.72%, ~~composed~~consists of a loss ratio of 6160.36% and an expense ratio of 41.46%., ~~The~~compared ~~loss~~to ~~ratio~~65.8% ~~increased~~and ~~slightly from 60~~41.73%, respectively, for the same quarter inof 2012 ~~to 61~~.~~3%.~~ The ~~increase~~decrease in the loss ratio is ~~attributable~~ primarily attributable to ~~the~~lower ~~products~~weather ~~primary~~related ~~casualty~~losses ~~and~~experienced ~~specialty~~in ~~programs~~the ~~product~~second ~~lines~~quarter ~~based~~of on2013 ~~historical~~as ~~loss~~compared ~~trends and~~to ~~pricing~~the 2012 quarter. ~~The~~Net ~~2013~~operating ~~expense~~earnings ~~ratio~~for ~~increased~~the toquarter 41ended June 30, 2013 and 2012 were $3.4% ~~compared~~million toand 40$2.4%2 million, respectively. Operating earnings in ~~2012~~the ~~due~~second ~~primarily~~quarter toof ~~newly~~2012 ~~acquired~~includes ~~underwriting~~$3.0 ~~units~~million ~~and~~of ~~the~~weather ~~Bluestone~~related ~~aquisition~~losses.

Gross Written Premiums

Gross written premiums ~~increased~~decreased 4.2% to $8183.29 million from $7387.85 million for the three months ended ~~March~~June 3130, 2013 and 2012, respectively. ~~E&S~~The ~~gross~~growth ~~written~~in ~~premiums~~the ~~increased~~E&S ~~24.2%~~division to $4852.01 million, ~~ART~~from ~~gross~~$50.4 ~~written~~million ~~premiums~~was ~~declined~~primarily ~~21.6%~~attributable to ~~$16.6~~increased ~~million~~production of the construction, surety and ~~Reinsurance~~excess ~~gross~~lines. Gross written premiums ~~increased~~ ~~19.1%~~in toAssumed Reinsurance were at $1615.6 million. ~~E&S~~for ~~gross~~both ~~written~~three ~~premiums~~months ~~increased~~ended ~~in the environmental~~June 30, ~~professional~~2013 ~~liability~~ and ~~surety product lines~~2012. The ART Division’s gross written ~~premiums~~premium declined ~~due~~ to ~~the~~$16.2 ~~de-emphasis~~million offrom ~~the specialty program business~~$21.5 ~~The increase~~million in ~~the~~2012 ~~Reinsurance~~due ~~gross~~to ~~written~~the ~~premiums~~non-renewal ~~was~~of certain ~~attributable~~programs ~~primarily~~and tothe ~~new~~de-emphasis ~~business~~of ~~generated from~~ the ~~London marketing office~~business.

Net Earned Premiums

Net earned premiums increased 0.8% to $61.9 million for the three months ended March 31, 2013, compared to $61.4 million for the same period of 2012. Net earned premiums increased in the E&S and Reinsurance divisions reflective of the gross written premium growth which was offset by a reduction in ART net earned premiums (see discussion above).

Net Investment Income

Net investment income is derived from the investment portfolio net of investment expenses. Net investment income ~~decreased~~was ~~slightly to~~ $75.6 million for the three months ended ~~March~~June 3130, 2013, compared to $7.84 million for the same period of 2012. ~~due~~Invested toassets ~~higher~~increased ~~invested~~to ~~assets~~$928.7 ~~invested~~million at ~~lower~~June 30, ~~yields.~~2013, ~~Invested~~as ~~assets~~compared ~~grew~~to ~~from~~ $~~897~~908.26 million tofor ~~$926.8~~the ~~million~~same atperiod ~~March 31,~~of 2012. ~~and~~Investment ~~2013,~~income decreased as a result of the sale of the majority of the fixed income and ~~respectively~~equity investment assets. ~~While~~During the ~~gross~~quarter ~~yield~~ended ~~decreased~~June 30, 2013 the Company sold $778.9 million of its investment portfolio in compliance with the ~~2013~~merger ~~period~~agreement towith ~~3.5%~~Fairfax ~~from~~Financial 3Holdings Limited.8% The decline in net investment income in the ~~first~~2013 quarter ~~2012,~~was due to the ~~duration~~liquidation ~~increased~~of toa 4substantial portion of the investment portfolio and subsequent reinvestment of the proceeds.45 ~~from~~The 3Company reinvested the proceeds in treasuries with a lower risk and yield.~~74.~~

~~Fee~~Acquisition ~~Income~~Expenses and Other Underwriting Expenses

~~Fee~~Acquisition ~~income~~expenses ~~increased~~are commissions paid to producers that are partially offset by ceding commissions or fronting fees. Acquisition expenses also include premium taxes paid to states in which we are admitted to conduct business. Policy acquisition expenses were $13.8 million or 22.2% of earned premium for the ~~quarter~~three months ended June 30, 2013, as compared to $14.3 million or 23.1% of earned premium for the same period of 2012.2 Acquisistion expenses as a percentage of net earned premiums decreased primarily to increased ceding commissions in the ART division. Other underwriting expenses were $12.4 million for the three months ended June 30, 2013, compared to $012.7 0 million for the same 2012 ~~primarily~~period. As a percentage of net earned premiums, other underwriting expenses increased to 19.9% from 19.4% for the same three months of 2012. Other underwriting expenses increased due to the acquisition of ~~Bluestone~~underwriting ~~Agency~~teams and technology investments placed in service during the later part of 2012.

2325

Income Taxes

The income tax expense for the three months ended June 30, 2013, was $5.9 million compared to a benefit of $0.2 million for the same period of 2012. The increase is due to taxes on U.S. realized gains on sales of investments. Total realized gains for the quarter were $37.5 million, of which $17.8 million were in the U.S.

The following table presents key financial data by segment for the six months ended June 30, 2013 and 2012, respectively (dollars in thousands):

American Safety Insurance Holdings, Ltd. and Subsidiaries

Segment Data

(Unaudited) (Dollars in thousands)


	Six Months Ended June 30, 2013
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	100,016		$	32,758		$	32,285		$	—		$	165,059
Net written premiums		79,215			12,879			32,285			—			124,379
Net earned premiums		75,385			19,255			29,476			—			124,116
Fee & other income		(30	)		1,468			—			149			1,587
Losses & loss adjustment expenses		45,344			12,619			17,673			—			75,636
Acquisition & other underwriting expenses		33,871			8,358			9,272			1,590			53,091

Underwriting profit (loss)		(3,860	)		(254	)		2,531			(1,441	)		(3,024	)
Net investment income		7,978			2,045			2,974			217			13,214

Pre-tax operating income (loss)		4,118			1,791			5,505			(1,224	)		10,190
Net realized gains														38,936
Interest and corporate expenses														2,148

Earnings before income taxes														46,978
Income tax expense														6,577

Net earnings													$	40,401
Less: Net earnings attributable to the non-controlling interest														98

Net earnings attributable to ASIH, Ltd.													$	40,303

Loss ratio		60.1	%		65.5	%		60.0	%		NM			60.9	%
Expense ratio		45.0	%		35.8	%		31.5	%		NM			41.5	%

Combined ratio⁽²⁾		105.1	%		101.3	%		91.5	%		⁽¹⁾NM			102.4	%


	Six Months Ended June 30, 2012
	Insurance									Other
	E&S			ART			Reinsurance			Run-off			Total
Gross written premiums	$	89,059		$	42,676		$	29,579		$	—		$	161,314
Net written premiums		70,468			30,722			29,579			—			130,769
Net earned premiums		64,750			29,501			29,178			—			123,429
Fee & other income		—			1,402			—			8			1,410
Losses & loss adjustment expenses		39,138			21,862			17,100			—			78,100
Acquisition & other underwriting expenses		29,057			12,253			8,801			1,734			51,845

Underwriting profit (loss)		(3,445	)		(3,212	)		3,277			(1,726	)		(5,106	)
Net investment income		8,910			2,778			3,216			310			15,214

Pre-tax operating income (loss)		5,465			(434	)		6,493			(1,416	)		10,108
Net realized gains														39
Interest and corporate expenses														2,889

Earnings before income taxes														7,258
Income tax expense														872

Net earnings													$	6,386
Less: Net earnings attributable to the non-controlling interest														163

Net earnings attributable to ASIH, Ltd.													$	6,223

Loss ratio		60.4	%		74.1	%		58.6	%		NM			63.3	%
Expense ratio		44.9	%		36.8	%		30.2	%		NM			40.9	%

Combined ratio⁽²⁾		105.3	%		110.9	%		88.8	%		⁽¹⁾NM			104.2	%

(1)	NM = Ratio is not meaningful

(2)	The U.S. GAAP combined ratio is a measure of underwriting performance and represents the relationship of losses and loss adjustment expenses, acquisition and other underwriting expenses net of fee income to earned premiums.

Six Months Ended June 30, 2013, compared to

Six Months Ended June 30, 2012

Net Earnings

Net earnings for the six months ended June 30, 2013, were $40.3 million, or $4.12 per diluted share, compared to $6.2 million, or $0.59 per diluted share, for the same period in 2012 due primarily to after tax net realized gains of $32.6 million, or $3.33 per share. Net operating earnings, exclusive of weather related property losses, were $7.7 million for the six months ended June 30, 2013 compared to $9.2 million in the same period in 2012. The decrease in net operating earnings is primarily attributable to lower net investment income due to the sales of the investment portfolio noted in the quarterly results.

Combined Ratio

The combined ratio was 102.4% compared to 104.2%, composed of a loss ratio of 60.9% and an expense ratio of 41.5%, compared to 63.9% and 40.9%, respectively, in the prior year. Weather related losses during 2012 impacted the 2012 loss ratio by 2.9 points while for the six months ended June 30, 2013 weather related losses were minimal. The increase in expense ratio for the six months ended June 30, 2013 is primarily attributable to the July 1, 2012 acquisition of a surety managing general agency.

Gross Written Premiums

Gross written premiums increased 2.3% to $165.1 million from $161.3 million for the six months ended June 30, 2013 and 2012, respectively. The growth in the E&S division to $100.0 million from $89.1 million was primarily attributable to increased production of the construction, surety and excess lines. ART gross written premiums declined due to non-renewed programs during 2013 and the de-emphasis of the business. Gross written premiums in Assumed Reinsurance increased approximately $2.7 million.

Net Earned Premiums

Net earned premiums increased 0.6% to $124.1 million for the six months ended June 30, 2013, compared to $123.4 million for the same period of 2012 as a result of increased E&S premium production offset for the most part by reduced gross written premiums in the ART division.

Net Investment Income

Net investment income is derived from the investment portfolio net of investment expenses. Net investment income was $13.2 million for the six months ended June 30, 2013, compared to $15.2 million for the same period of 2012 decreasing as a result of lower yields. These lower yields are attributable to the sales of the majority of the Fixed Income and Equity investments and reinvestment in lower yield, lower risk treasuries. Average invested assets increased to $927.8 million at June 30, 2013, as compared to $897.6 million for the same period of 2012. The book yield on the portfolio was 1.0% net of investment fees compared to 3.6% in 2012.

Acquisition Expenses and Other Underwriting Expenses

Acquisition expenses are commissions paid to producers that are partially offset by ceding commissions or fronting fees. Acquisition expenses also include premium taxes paid to states in which we are admitted to conduct business. ~~Policy~~Acquisition ~~acquisition~~ expenses were $1428.86 million, or 23.80% of earned premium for the ~~three~~six months ended ~~March~~June 3130, 2013, as compared to $1429.7 1 million, or 2423.06% of earned premium for the same period of 2012. The decrease is due to the increase in ceding commissions in the ART division. Other underwriting expenses were $1224.15 million for the ~~three~~six months ended ~~March~~June 3130, 2013, compared to $1022.78 million for the same 2012 period. As a percentage of net earned premiums, other underwriting expenses increased to 19.68% from 1718.54% for the same ~~three~~six months of 2012. ~~The~~Other ~~increase~~underwriting isexpenses ~~attributable~~increased due to the ~~Bluestone~~acquisition ~~Agency~~of ~~acquisition~~underwriting teams and ~~new~~technology ~~underwriting teams~~investments.

~~Corporate~~28 ~~and Other Expenses~~

Income Taxes

The income tax expense for the ~~three~~six months ended ~~March~~June 3130, 2013, was $06.76 million compared to a $10.19 million ~~tax expense~~ for the same period of 2012. ~~The~~due ~~decrease~~to isincreased ~~due~~earnings toin ~~lower~~the U.S. ~~earnings~~as ina result of realized gains generated from the sale of investment assets. Total realized gains for the six months ended June 30, 2013 aswere ~~compared~~$38.9 tomillion, ~~2012~~of which $18.7 million were in the U.S.

Liquidity and Capital Resources

The Company meets its cash requirements and finances its growth principally through cash flows generated from operations. The Company has experienced a reduction in premium rates due to the entrance of new competitors and overall market conditions. The Company’s primary sources of short-term cash flow are premium writings and investment income. Short-term cash requirements relate to claims payments, reinsurance premiums, commissions, salaries, employee benefits, and other operating expenses. Due to the uncertainty regarding the timing and amount of settlements of unpaid claims, the Company’s future liquidity requirements may vary; therefore, the Company has structured its investment portfolio to mitigate those factors. The Company believes its current cash flows are sufficient for the short-term needs of its business and its invested assets are sufficient for the long-term needs of its insurance business.

The Company has a line of credit facility of $20 million. The facility is unsecured and expires August 20, 2013. At ~~March~~June 3130, 2013, the Company had not drawn on the facility.

Net cash provided by operations was $1723.83 million for the ~~three~~six months ended ~~March~~June 3130, 2013, compared to net cash provided by operations of $1413.3 7 million for the same period of 2012. ~~The~~Cash ~~increase~~provided increased ~~in cash flow from operations is~~ primarily ~~attributable~~as toa ~~liquidity~~result ~~resulting~~of ~~from~~the ~~premium~~collection ~~collections and return~~ of ~~funds~~accrued ~~on deposit~~premiums.

~~During~~Our ~~2012,~~ability ~~the~~to ~~Company~~pay ~~Board~~future ofdividends ~~Directors~~to ~~authorized~~shareholders ~~the~~will ~~purchase~~depend, ofto 1a significant degree,~~000,000~~ ~~shares~~on the ability of ~~common~~our ~~stock~~subsidiaries to generate earnings from which to pay dividends. The ~~Company~~jurisdictions ~~purchased,~~in ~~pursuant~~which towe ~~that~~and ~~authorization,~~our ~~136,968~~insurance ~~shares~~and atreinsurance asubsidiaries ~~cost~~are ofdomiciled ~~$2.7~~place ~~million~~limitations on the amount of dividends or other ~~$19~~distributions payable by insurance companies in order to protect the solvency of insurers.89 ~~per~~Given ~~share~~the ~~during~~capital requirements associated with our business plan, we do not anticipate paying dividends on the ~~2013~~common ~~quarter~~shares in the near future.

Our ability to pay future dividends to shareholders will depend, to a significant degree, on the ability of our subsidiaries to generate earnings from which to pay dividends. The jurisdictions in which we and our insurance and reinsurance subsidiaries are domiciled places limitations on the amount of dividends or other distributions payable by insurance companies in order to protect the solvency of insurers. Given the capital requirements associated with our business plan, we do not anticipate paying dividends on the common shares in the near future.

Forward Looking Statements

This report contains forward-looking statements. These forward-looking statements reflect the Company’s current views with respect to future events and financial performance, including insurance market conditions, premium growth, acquisitions and new products, and the impact of new accounting standards. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially, including competitive conditions in the insurance industry, levels of new and renewal insurance business, developments in loss trends, adequacy and changes in loss reserves and actuarial assumptions, timing or collectability of reinsurance recoverables, market acceptance of new coverages and enhancements, changes in reinsurance costs and availability, potential adverse decisions in court and arbitration proceedings, the integration and other challenges attendant to acquisitions, and changes in levels of general business activity and economic conditions. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of American Safety to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the timing and completion of the merger, the outcome of any legal proceedings relating to the merger, the effect on American Safety’s customer relationships, operating results and business generally. Such factors also include, but are not limited to, the risks and uncertainties described in Fairfax’s reports filed with the SEC and securities regulatory authorities in Canada, which are available at www.sec.gov and www.sedar.com, and in American Safety’s reports, including its Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC, which are available at www.sec.gov. Fairfax and American Safety disclaim any intention or obligation to update or revise any forward- looking statements, except as required by law.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

For an in-depth discussion of the Company’s market risks, see Management’s Discussion and Analysis of Quantitative and Qualitative Disclosures about Market Risk in Item 7A of the Company’s Form 10-K for the year ended December 31, 2012.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Report, concluded that, as of such date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company (including consolidated subsidiaries) would be made known to them.

Changes in Internal Control

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation described above that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2530

PART II –- OTHER INFORMATION

Item 1.

Legal Proceedings

The Company, through its subsidiaries, is routinely party to pending or threatened litigation or arbitration disputes in the normal course of or related to its business. Based upon information presently available, in view of reserve practices and legal and other defenses available to our subsidiaries, management does not believe that any pending or threatened litigation or arbitration disputes will have any material adverse effect on our financial condition or operating results.

Item 1A.

Risk Factors

For an in-depth discussion of risk factors affecting the Company, see Part I, Item 1A. “Risk Factors” of the Company’s Form 10-K for the year ended December 31, 2012.

The following are material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Failure to complete the pending merger with Fairfax could materially and adversely affect our results of operations and our stock price.

On June 2, 2013, American Safety Insurance Holdings, Ltd., a Bermuda exempted company (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Fairfax Financial Holdings Limited, a Canadian corporation (“Fairfax”), and Fairfax Bermuda Holdings Ltd., a Bermuda exempted company and an indirect wholly-owned Subsidiary of Fairfax. Under the terms of the Merger Agreement, the Company will be an indirect wholly-owned subsidiary of Fairfax.

At the effective time of the Merger (the “Effective Time”), each issued and outstanding common share of the Company (the “Shares”), other than Shares held in the Company’s treasury or owned by Fairfax, or any direct or indirect wholly-owned subsidiary of Fairfax, or owned by any shareholders who are entitled to and who properly exercise appraisal rights under Bermuda law, will be cancelled and converted into the right to receive $29.25 in cash, without interest (the “Merger Consideration”). At the Effective Time, each outstanding option to purchase Shares granted under the Company’s equity plans that is outstanding and unexercised as of immediately prior to the Effective Time, whether vested or unvested or exercisable, shall become fully vested and exercisable, and all restricted Shares granted under the Company’s equity plans shall become fully vested and transferable and all restrictions on such restricted shares shall lapse. Each holder of an option that is outstanding and unexercised as of the Effective Time and has an exercise price per Share that is less than the per Share Merger Consideration shall be entitled to receive in exchange for the cancellation of such option an amount in cash equal to the product of (i) the difference between the per Share Merger Consideration and the applicable exercise price of such option and (ii) the aggregate number of Shares that remain issuable upon exercise of such option, subject to applicable withholding requirements.

In addition, the pendency of the Merger could adversely affect our operations because:

•

the attention of our management and our employees may be diverted from day-to-day operations as they focus on the Merger;

•

our insureds, distribution partners and other business partners may cease or delay conducting business with us as a result of the announcement of the Merger, which could cause our revenues to materially decline or any anticipated increases in revenues to be lower than expected;

•

our ability to attract new employees and retain our existing employees may be harmed by uncertainties associated with the Merger, and we may be required to incur substantial costs to recruit replacements for lost personnel or consultants; and

•

stockholder lawsuits could be filed against us challenging the Merger. If this occurs, even if the lawsuits are groundless and we ultimately prevail, we may incur substantial legal fees and expenses defending these lawsuits, and the Merger could be prevented or delayed.

The occurrence of any of these events individually or in combination could have a material adverse affect on our results of operations and our stock price. As a result of the occurrence of any of these events, if the Merger is not completed, our business and operating results could be materially adversely affected.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchase of Equity Securities

On January 24, 2012 and subsequently on October 23, 2012, the Company’s Board of Directors authorized the repurchase of up to 500,000 shares of common stock with a total authorized repurchase of 1,000,000 shares. Pursuant to this authorization, the Company had repurchased a total of 916,002 shares of common stock as of ~~March~~June 3130, 2013, at an average cost of $18.0351 per share or approximately $1617.58 million during 2012 and 2013.

During the quarter, ~~136~~42,~~968~~969 shares were purchased at an average cost of $1928.8992 per share pursuant to the exercise of stock options.

The following table provides information with respect to shares of our common stock that were repurchased or surrendered during the three months ended ~~March~~ June 3130, 2013:

Period	~~Total Numberof SharesPurchased~~		~~AveragePrice Paidper Share~~		Total Number ~~ofShares Purchasedas Part~~ of ~~PubliclyAnnounced Planor Program~~		Maximum ~~Numberof SharesThat May Yet BePurchased Under thePlan or Program~~Number
January 1, 2013 through January 31, 2013		96,060	$	19.86		96,060		124,906
					Shares Purchased		of Shares
February 1, 2013 through February 28, 2013		40,908	$	19.96		40,908		83,998
	Total Number		Average		as Part of Publicly		That May Yet Be
March 1, 2013 through March 31, 2013		—	$	—		—		83,998
	of Shares		Price Paid		Announced Plan		Purchased Under the
Total		136,968	$	19.89		136,968
	Purchased		per Share		or Program		Plan or Program
April 1, 2013 through April 30, 2013		0	$	—		0		83,998
May 1, 2013 through May31, 2013		0	$	—		0		83,998
June 1, 2013 through June 30, 2013		42,969	$	28.92		0		83,998
Total		42,969	$	28.92		0

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

2632

Item 6.

Exhibits

The following exhibits are filed as part of this report:

Exhibit No.		Description
11		Computation of Earnings Per Share
31.1		Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification Pursuant to § 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification Pursuant to § 906 of the Sarbanes-Oxley Act of 2002
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Label Linkbase Document.
101.PRE*		XBRL Taxonomy Presentation Linkbase Document.

Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the ~~10th~~ ~~day~~8th day of ~~May~~August, 2013.


American Safety Insurance Holdings, Ltd.

By:		/s/ Stephen R. Crim
		Stephen R. Crim
		President and Chief Executive Officer

By:		/s/ Mark W. Haushill
		Mark W. Haushill
		Chief Financial Officer

2733

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

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