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The National Security Group, Inc. Releases Third Quarter Earnings

The National Security Group, Inc. (the Company) (Nasdaq: NSEC), today reported results for the quarter and nine months ended September 30, 2010 and 2009, based on accounting principles generally accepted in the United States of America, as follows:

Three Months Nine Months
Ended September 30 Ended September 30
2010   2009 2010   2009
Net premiums earned $ 15,248 $ 14,357 $ 46,189 $ 44,950
Net investment income 1,175 1,603 3,696 4,214
Net realized investment gains (losses) 75 79 1,433 (151 )
Other Income 259   208   814 541  
Total Revenues 16,757   16,247   52,132 49,554  
Policyholder benefits paid or provided 10,096 9,131 29,630 28,237
Policy acquisition costs 3,082 3,432 8,800 9,699
General expenses 2,792 2,483 7,532 6,979
Taxes, licenses and fees 525 376 1,492 1,356
Interest expense 294   277   859 842  
Total Expenses
16,789   15,699   48,313 47,113  
(Loss) Income Before Income Taxes (32 ) 548   3,819 2,441  
INCOME TAX (BENEFIT) EXPENSE (255 ) (103 ) 888 217  
Net Income $ 223   $ 651   $ 2,931 $ 2,224  
EARNINGS PER COMMON SHARE $ 0.09   $ 0.26   $ 1.19 $ 0.90  

For the quarter ended September 30, 2010, the Company had net income of $223,000 ($0.09 per share) compared to net income of $651,000 ($0.26 per share) for the same period last year. The most significant factors contributing to the decline in the third quarter of 2010 were a $965,000 increase in policyholder benefits paid or provided coupled with a $309,000 increase in general expenses. The 10.6% increase in policyholder benefits paid or provided was largely related to a $659,000 increase in losses paid during the third quarter of 2010 compared to the same period last year in the P&C segment combined with a $320,000 increase in death and maturity benefits in the Life segment for the same time period. The 12.4% increase in general expenses was primarily related to litigation expense. Positively impacting the quarter were an $891,000 ($0.36 per share) increase in net premiums earned as well as a $350,000 reduction in policy acquisition costs.

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