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PICO Holdings Inc. (NASDAQ:PICO)

2013 Annual Shareholder Meeting

May 15, 2013 2:00 pm ET

Executives

Kristina M. Leslie - Chairman, Chairman of Corporate Governance & Nominating Committee, Member of Audit Committee and Member of Compensation Committee

James F. Mosier - Former Secretary and General Counsel

Carlos C. Campbell - Independent Director, Chairman of Compensation Committee, Member of Audit Committee and Member of Corporate Governance & Nominating Committee

Julie H. Sullivan - Director, Chairman of Audit Committee and Member of Corporate Governance & Nominating Committee

John R. Hart - Chief Executive Officer, President, Director, Chairman of Citation Insurance Company, Chairman of Vidler Water Company Inc, Chairman of Nevada Land & Resource Company Llc, Chairman of Ucp Llc, Chief Executive Officer of Pico Northstar Llc, Chief Executive Officer of Nevada Land & Resource Company Llc, Chief Executive Officer of Physicians Insurance Company of Ohio, Chief Executive Officer of Vidler Water Company Inc, President of Physicians Insurance Company of Ohio and Director of Physicians In

Kristina M. Leslie

Good morning, ladies and gentlemen. I'd like to welcome you, all, to the PICO Holdings 2013 Annual Shareholders Meeting. I am Kristina Leslie, Chair of the Board of Directors.

At this time, I call the meeting to order from the company's office in La Jolla. Thank you for participating in our virtual audio shareholder meeting. We hope that you find this format convenient, efficient and environmentally-friendly. We expect to adjourn our annual meeting at approximately 11:15 a.m. And immediately after that, John Hart, our President and Chief Executive Officer, will provide an update on our company. Following John's comments, John and our Chief Financial Officer, Max Webb, will be available to take your questions. If you are unable to stay on the line, the report, together with the question-and-answer session, will be available on our website for you to replay at your convenience.

There are 4 items of business on today's agenda. The election of directors, the advisory vote on executive compensation, the ratification of the appointment of the company's independent registered public accounting firm and the approval of the performance incentive plan. I will act as Chairman of the meeting. James Mosier, Secretary of the company, will act as recording secretary of this meeting. I'd like to take this opportunity to introduce the directors and officers of the company, who are present at this meeting. From our Board of Directors, we have John Hart, who's also our President and Chief Executive Officer; Carlos Campbell; Robert Deuster; Ronald Langley; Michael Machado; Ken Slepicka and Julie Sullivan. Additional company officers present this morning are Max Webb, our Executive Vice President, Chief Financial Officer and Treasurer; John Perri, Vice President and Chief Accounting Officer; Raymond Webb; Vice President of Investment; and Jim Mosier, our General Counsel and Secretary.

I'd like to note that Michael Machado was unanimously elected to the Board of Directors on March 27, 2013. And on behalf of the company, I wish to welcome Mr. Machado to PICO's Board. The Board of Directors has appointed American Election Services, LLC as our inspector of elections. Many shareholders have already submitted their proxy by Internet, telephone or mail. All proxies will be voted as indicated.

Today's Annual Meeting of Shareholders is being conducted in accordance with the United States Securities and Exchange Commission's full notice and access rules, which allows companies to furnish proxy materials to shareholders over the Internet. In addition, as permitted by law, this will be a virtual audio meeting conducted via the intranet rather than at a rented facility.

On April 2, 2013, we mailed to our shareholders a Notice of Internet Availability of proxy materials. This notice contained instructions on how to access our Proxy Statement and our annual report to shareholders. The notice also contained instructions on how to vote online or by telephone and included instructions on how to receive a paper copy of the proxy material by mail. I have received an affidavit of mailing of the notice from Broadridge Financial Services. Only shareholders of record as of the close of business on March 18, 2013 were entitled to receive notice, attend via Internet and to vote.

Mr. Mosier, do we have a quorum for this meeting?

James F. Mosier

The inspector of elections for this meeting has examined the proxies received and reports that holders of a majority of the shares of common stock outstanding from the record date of March 18 are represented by proxies at this meeting. Therefore, a quorum is present, and you may proceed with the business portion of the meeting.

Kristina M. Leslie

The proposals to be voted on have been described in detail in the Proxy Statement. If you received a Notice of internet Availability of the proxy materials by mail, you did not receive a printed copy of the proxy materials unless you specifically requested a printed copy. The proxy materials described the 3 methods by which you could vote your shares: One, by Internet; two, by telephone; or, three, by mail.

American Election Services, LLC, the inspector of election, has tabulated all proxies voted and has furnished the report to the recording secretary. If you have already sent in your proxy by Internet, telephone or mail and do not wish to change your vote, you do not need to do anything else at this time. If you have not yet voted or if you have previously voted and you now wish to revoke your proxy and change your vote, go to www.proxyvote.com and follow the instructions on the website.

Alternatively, you can now vote, or if you have previously voted and you now wish to revoke your proxy and change or vote, by telephone by calling 1(800) 579-1639. Whether you vote now by Internet or telephone, you will need your control number. Your control number is the personalized 12-digit number printed on your proxy card for voting instruction form. Any proxy may be revoked at any time before the polling is closed by the submission of a later dated vote electronically at the meeting via Internet or by telephone as I just described.

The first item is the election of 3 directors. The Board of Directors has named in the Proxy Statement the following nominees to serve as directors, each to serve until the annual meeting of shareholders in 2016 and until his or her respective successor is elected and qualified. The 3 directors are Carlos Campbell, Kristina Leslie and Kenneth Slepicka. Is there a motion in favor of these individuals?

Unknown Attendee

[indiscernible]

Kristina M. Leslie

Under our bylaws, nominations are made in advance and must comply with the requirements described in our bylaws. Accordingly, nominations for the election of directors are now closed. The polls are now open. Those of you who wish to vote now or who wish to revoke their proxy and change their vote now, you should now submit your vote by Internet or telephone.

[Voting]

Kristina M. Leslie

The next item of business will be to vote on an advisory non-binding resolution, approving the compensation of the company's named executive officers as discussed in the Proxy Statement. The Dodd-Frank Act requires that our stockholders have the opportunity to cast an advisory non-binding vote on executive compensation. This is commonly referred to as the say-on-pay vote. This is a non-binding advisory vote on the compensation of our named executive officers identified and disclosed in the executive compensation section of the Proxy Statement.

Carlos C. Campbell

As the Chair of the Compensation Committee, I'm Carlos Campbell, I move that the advisory non-binding resolution to approve the compensation of the company's named executive officers be submitted to the shareholders for a vote.

Kristina M. Leslie

Thank you, Carlos. The polls are now open. Those of you who wish to vote now or who wish to revoke their proxy and change their vote now should submit your proxy by Internet or telephone.

[Voting]

Kristina M. Leslie

The next item of business will be the ratification of the appointment by the Audit Committee of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2013. [indiscernible] of at least the majority of the shares of our voting stocks entitled to vote and represented by proxy at this meeting is required to ratify the appointment of Deloitte & Touche as our independent registered public accounting firm for the fiscal year ending December 31, 2013.

I now call upon the Chair of the Audit Committee for the recommendation of the Board of Directors in this regard.

Julie H. Sullivan

I move that the proposal to ratify the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2013 be submitted to the shareholders for a vote.

Kristina M. Leslie

Mr. Scott Young, representing Deloitte & Touche, is present and available to answer appropriate questions after the adjournment of the formal part of the meeting. The polls are now open. Those of you wish to vote now or who wish to revoke the proxy and change their vote now should submit your vote now by Internet or telephone.

[Voting]

Kristina M. Leslie

The next item of business will be the approval of the performance incentive plan as discussed in the Proxy Statement. The Board of Directors has approved the performance incentive plan subject to shareholder approval.

Carlos C. Campbell

Again, I'm Carlos Campbell, Chair of the Compensation Committee. I move that the performance incentive plan be submitted to the shareholders for a vote.

Kristina M. Leslie

The polls are now open. Those of you wish to vote now or who wish to revoke their proxy and change their vote now should submit your vote now by Internet or telephone.

[Voting]

Kristina M. Leslie

The polls are now closed, and voting on the matters set forth in the Notice of Annual Meeting is now concluded. All ballots will now be tabulated.

Mr. Mosier, has the counting of proxies been completed by the inspector?

James F. Mosier

Yes, the votes have been tabulated. And I am pleased to report that Mr. Campbell, Mr. Slepicka and Ms. Leslie have been elected as directors. Shareholders have approved the advisory non-binding resolution on executive compensation. Appointment by the Audit Committee of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2013 has been ratified. And finally, the shareholders have approved the performance incentive plan.

Kristina M. Leslie

The inspector elections will furnish to me a written report of the final vote count with respect to the matters voted on today, which shall be included in the minutes of the meeting and reported on a Form 8-K to be filed with the Securities and Exchange Commission.

On behalf of the company, thank you, again, for your participation in our virtual annual meeting and continued support. There being no further business before the meeting, this meeting is now adjourned, and we will proceed with Mr. Hart's remarks and a question-and-answer session.

John R. Hart

Thank you, Kris. After years of planning, capital expenditures and related overhead, our corporate development efforts are starting to transition to revenue-producing operations, thus share revenue for the group increased from approximately $65 million to over $150 million.

It's important to note that the majority of last year's revenue is recurring while nearly half of 2011's revenue is from a one-time sale of the remaining acreage of Nevada Land & Resource Company. UCP's revenue more than doubled from the previous year to $58 million, as the rebound in housing began to accelerate.

For the first quarter of 2013, revenue has more than tripled compared to the same period last year. Income should also share significant growth, as the operations achieved scale, providing a positive contribution to book value as land acquired at low cost after the housing collapse has translated into earnings from land and home sales.

In the current environment, as a going concern, we believe that UCP is worth significantly more than the current carrying value of its assets. Northstar Agri Industries completed construction of the approximately $170 million canola processing plant last year ahead of schedule and under budget. Their operations commenced during the fourth quarter, coinciding with the worst crush margins in the decade. The timing proved to be particularly challenging, as our ability to hedge a significant portion of the commodity risk is limited given the uncertainty regarding output performance and start-up, we will have to manage the lower crush margins until expectations for the new crop start affecting prices.

Revenue in 2012 was over $85 million. For the first quarter of this year, revenue was nearly $40 million. We have a good plant with excellent operations in a strategic location. When crush margins rebound, we expect to see an increase in revenue and a positive contribution to book value from net income. The improvement in real estate market is resulting in an increase in activity for Vidler Water Company. The sale of water to 2 golf courses in Scottsdale, Arizona should close before the end of the second quarter for approximately $10 million.

We also entered into an option agreement to sell up to 7,240 acre feet of water at $12,000 per acre foot to be used by the planned Toquop Power Plant in Lincoln County, Nevada. The option must be exercised by November 30, 2014.

With the projected scarcity of water within these markets, their portfolio of strategic water assets represents substantial value.

In summary, in 2012, the potential of our corporate development efforts started to become more apparent with substantial gains in revenue. We believe the platforms created over the last past few years will become significant contributors to book value for years to come. Thank you.

And now, do we have any questions? There are no questions. Thank you very much for joining our meeting this year.

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