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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period ended September 30, 2004.

For the transition period from                      to                      .

Commission file number 000-28249

AMERINST INSURANCE GROUP, LTD.

(Exact Name of Registrant as Specified in its Charter)

Not Applicable

(Former name, former address and former fiscal year, if changed since last year)

Registrant’s telephone number, including area code: (441) 296-3973

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 is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

As of November 3, 2004, the registrant had 298,164 common shares, $1.00 par value per share outstanding.

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Part I—FINANCIAL INFORMATION

AMERINST INSURANCE GROUP, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements.

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AMERINST INSURANCE GROUP, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS, COMPREHENSIVE INCOME

AND RETAINED EARNINGS

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements.

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AMERINST INSURANCE GROUP, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements.

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AMERINST INSURANCE GROUP, LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2004

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by AmerInst Insurance Group, Ltd. (“AmerInst”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of the results of operations for the periods shown. These statements are condensed and do not incorporate all the information required under generally accepted accounting principles to be included in a full set of financial statements. It is suggested that these condensed statements be read in conjunction with the consolidated financial statements at and for the year ended December 31, 2003 and notes thereto, included in AmerInst’s annual report as of that date.

In March of 2004, the Emerging Issues Task Force (EITF) reached consensus on the guidance provided in EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (EITF 03-1) as applicable to debt and equity securities that are within the scope of SFAS 115 Accounting for Certain Investments in Debt and Equity Securities and equity securities that are accounted for using the cost method specified in Accounting Policy Board Opinion No. 18 The Equity Method of Accounting for Investments in Common Stock. An investment is impaired if the fair value of the investment is less than its cost including adjustments for amortization, accretion, foreign exchange, and hedging. EITF 03-1 outlines that an impairment would be considered other-than-temporary unless a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment and b) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. The investor should consider its cash or working capital needs to assess its intent and ability to hold an investment for a reasonable period of time for the recovery of fair value up to or beyond the cost of the investment. Although not presumptive, a pattern of selling investments prior to the forecasted recovery of fair value may call into question the investor’s intent. In addition, the severity and duration of the impairment should also be considered in determining whether the impairment is other-than-temporary.

This new guidance for determining whether impairment is other-than-temporary was to be effective for reporting periods beginning after June 15, 2004. In September of 2004, the FASB issued FSP EITF Issue 03-1-1, which delayed the effective date for the measurement and recognition guidance included in EITF Issue 03-1 related to other-than-temporary impairment until additional implementation guidance is provided. As a result of the delay, during the three month period ended September 30, 2004, the Company continued to apply existing accounting literature for determining when a decline in fair value is other-than-temporary, including Staff Accounting Bulletin 59, Accounting for Non-current Marketable Equity Securities, SFAS 115, and FASB Staff Implementation Guide to SFAS 115.

The Company continues to evaluate the impact of this new accounting standard on its process for determining other-than-temporary impairment of equity and fixed maturity securities, including the potential impacts from any revisions to the original guidance issued. Adoption of this standard as originally issued may cause the Company to recognize impairment losses in the Consolidated Statements of Operations which would not have been recognized under the current guidance or to recognize such losses in earlier periods, especially those due to increases in interest rates, and would likely also impact the recognition of investment income on impaired securities. Such an impact would likely increase earnings volatility in future periods. However, since fluctuations in the fair value for available-for-sale securities are already recorded in Accumulated Other Comprehensive Income, adoption of this standard is not expected to have a significant impact on equity.

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Part I, Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

OVERVIEW

Unless otherwise indicated by the context, in this quarterly report we refer to AmerInst Insurance Group, Ltd. and its subsidiaries as the “Company”, “we” or “us”. Also, unless otherwise indicated by the context, “AmerInst” means the parent company, AmerInst Insurance Group, Ltd.

Our primary purpose is to maintain an insurance company which over time is intended to exert a stabilizing influence on the design, pricing and availability of accountants’ professional liability insurance. Historically, the sole business activity of our wholly-owned insurance company subsidiary, AmerInst Insurance Company, Ltd., was to act as a reinsurer of professional liability insurance policies that are issued under the Professional Liability Insurance Plan sponsored by the American Institute of Certified Public Accountants (AICPA). The AICPA plan offers professional liability coverage to accounting firms in all 50 states. Currently approximately 24,000 accounting firms are insured under this plan.

In 2003, we reinsured insurance written for attorneys’ professional liability. We terminated this program on December 31, 2003 because the ceding company advised that the treaty was oversubscribed by other reinsurers. We continue to look for ways in which it may be advantageous to expand our business to include the reinsurance of lines of coverage other than accountants’ professional liability. Any such expansion may be subject to our obtaining regulatory approvals.

Our reinsurance activity depends upon agreements with outside parties. We began a reinsurance relationship with CNA, taking a 10% participation of the first $1,000,000 of liability of each policy written under the plan. Effective in December 1999, we began taking a 10% share of CNA’s “value plan” business. The “value plan” provides for separate limits up to $1,000,000 for losses and separate limits up to $1,000,000 for expenses per occurrence and $2,000,000 in the aggregate. Our maximum limits under the “value plan” are $2,000,000 per occurrence and $4,000,000 in the aggregate.

Third-party Managers and Service Providers

USA Risk Group (Bermuda) Ltd. (formerly known as USA Offshore Management, Ltd.) provides the day-to-day services necessary for the administration of our business. The Country Club Bank of Kansas City, Missouri, provides portfolio management of fixed-income securities and directs our investments pursuant to guidelines approved by us. Harris Associates, L.P., Harris Alternatives Investment Group, and Northeast Investment Management, Inc. provide discretionary investment advice with respect to our equity investments.

Professional Liability Coverage.

The form of professional liability policy issued by CNA which we ultimately reinsure is a Professional Liability Company Indemnity Policy form.

The coverage provided under this policy is on a “claims made” basis, which means the policy covers only those losses resulting from claims asserted against the insured during the policy period. The insuring clause of the policy, which indemnifies for losses caused by acts, errors or omissions in the insured’s performance of professional accounting services for others, is in three parts:

Clause A indemnifies the accounting firm insured and, unless excluded by endorsements, any predecessor firms;

Clause B indemnifies any accountant or accounting firm while performing professional accounting services under contract with the insured; and

Clause C indemnifies any former or new partner, officer, director or employee of the firm or predecessor firms.

Depending on the insured, defense costs for the policies issued by CNA (and reinsured by us) are either within the policy limits or in addition to policy limits. CNA charges additional premium to cover the cost of providing defense costs in addition to the policy limits under its “value plan”, which has separate limits for losses and defense costs. There are a few States in which if the insured contests the settlement recommended by the insurer, those policies will only cover costs that do not exceed the lesser of the amount for which the claim could have been settled or the policy limits.

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OPERATIONS

Three months ended September 30, 2004 compared to three months ended September 30, 2003:

We recorded net income of $22,063 for the third quarter of 2004 compared to a net loss of $146,188 for the same period of 2003. The improvement was primarily due to an increase in net realized gain on investments and a decrease in losses incurred. Our net premiums earned for the third quarter of 2004 were $2,302,646 compared to $2,344,673 for the third quarter of 2003, a decrease of 1.8%. Net premiums written for the three months ended September 30, 2004 were $2,472,805, compared to $2,683,275 for the third quarter of 2003, a decrease of $210,470 or 7.8%. The decrease in net premiums written was primarily attributable to $224,820 of premiums written in the third quarter of 2003 for our PDIC treaty, which did not renew in 2004. Comparatively the AICPA Professional Liability Plan treaty premiums are consistent with the prior year writings.

Our loss ratio for the third quarter of 2004 was 79.9%, compared to 89.6% for the same period of 2003. The loss ratio represents our management’s current estimate of the effective loss rate selected in consultation with our independent consulting actuary. To determine total losses for the third quarter of 2004, we multiplied an estimated loss ratio of 80% times the AICPA Professional Liability Insurance Plan current net premiums earned and an estimated loss ratio of 75% times the attorney’s professional liability plan net premiums earned. For the third quarter of 2003, to determine total losses we multiplied an estimated loss ratio of 90% times the AICPA Professional Liability Insurance Plan current premiums earned and an estimated loss ratio of 75% times the attorney’s professional liability plan net premiums earned. Our actual overall loss ratio for the year ended December 31, 2003 was 29.8%. The 80% loss ratio applied to the AICPA Professional Liability Insurance Plan current premiums in 2004 is a decrease from the loss ratio of 90% for the comparable period of 2003 due to favorable loss development.

AMERINST INSURANCE GROUP, LTD.

OPERATIONS—(Continued)

We expensed policy acquisition costs of $675,679 in the third quarter of 2004 compared to $676,828 for the same period of 2003, a decrease of $1,149 or 0.2%. These costs were 29.3% and 28.9% of net premiums earned for the quarters ended September 30, 2004 and 2003, respectively. The decrease in policy acquisition costs in 2004 was due to the decrease in net premiums earned. Policy acquisition costs are the sum of ceding commissions paid to ceding companies which are determined contractually pursuant to reinsurance agreements and federal excise taxes paid on premiums written to ceding companies.

We expensed operating and management expenses of $394,609 in the third quarter of 2004 compared to $182,630 for the same period of 2003, an increase of $211,979 or 116.1%. The increase was primarily due to an increase in audit costs and legal expenses due to the Sarbanes-Oxley legislation and a shareholder proposal.

We recorded a net underwriting loss (net premiums earned less the sum of loss and loss adjustment expenses and policy acquisition costs) of $214,175 for the third quarter of 2004 compared to a net underwriting loss of $428,657 for the same period of 2003, an improvement of $214,482 or 50.0%. The improvement was primarily due to a decrease in recorded losses resulting from using an estimated loss ratio of 80.0% (as a result of favorable loss development) for the third quarter of 2004 compared to an estimated loss ratio of 90.0% for the comparable period in 2003.

We recorded net investment income of $378,898 in the third quarter of 2004 compared to $391,677 for the same period of 2003, a decrease of $12,779 or 3.3%. The decrease was primarily due to the current portfolio containing securities with shorter maturities and lower interest rates than this time last year. Annualized investment yield, calculated as the net average amount of total investments divided by interest and dividend income was 2.9% for the third quarter of 2004. This is a decline from the 3.0% yield earned in the third quarter of 2003. Sales of securities during the third quarter of 2004 resulted in realized capital gains of $251,949, compared to gains of $73,432 in the third quarter of 2003. Gains recorded in the third quarter of 2004 primarily related to sales of equity securities. Proceeds of these sales were subsequently reinvested in other equity securities.

Nine months ended September 30, 2004 compared to nine months ended September 30, 2003:

We recorded a net loss of $227,737 for the nine months ended September 30, 2004 compared to a net loss of $389,303 for the nine months ended September 30, 2003. This improvement in net loss is due to an increase in net premiums earned and a decrease in recorded losses and loss adjustment expenses, offset by an increase in policy acquisition costs and operating and management expenses.

We realized capital gains of $439,000 during the nine months ended September 30, 2004 compared to $366,590 in capital gains in the same period of 2003. Gains recorded in 2004 primarily related to sales of equity securities. Proceeds of these sales were reinvested in other equity securities. Net investment income through September 30, 2004 was $972,095 compared to $1,212,072 for the same period of 2003. Investment yield for the nine months ended September 30, 2004 was approximately 2.5% as compared to 3.2% for the first nine months of 2003.

Our net premiums earned for the first nine months of 2004 were $6,559,066 compared to $6,301,710 for 2003. The change of $257,356 represented a 4.1% increase. The increase in net premiums earned was attributable to timing of net premiums written. Premiums written in the nine months ended September 30, 2004 were $6,258,444 compared to $6,572,013 for the same period in 2003. Premiums written in 2003 included $477,301 related to the PDIC treaty, which did not renew in 2004, as well as a prior period AICPA Professional Liability Insurance Plan premiums written adjustment for $172,841. Not including these premiums, there was a $336,573 or 5.7% increase due to continued growth of the AICPA Professional Liability Insurance Plan as a result of an increase in the number of insureds and certain rate increases.

The loss ratio through the first nine months of 2004 was 79.9% compared to 89.4% for the same period of 2003. The loss ratio represented our management’s current estimate of the effective loss ratio selected in consultation with our independent consulting actuary. We multiply the estimated loss ratio times the net premiums earned to determine total losses.

We expensed policy acquisition costs of $1,915,154 in the first nine months of 2004 compared to $1,830,755 for the same period of 2003, an increase of $84,399 or 4.6%. These costs were 29.2% and 29.1% of premiums earned for the nine-month periods ended September 30, 2004 and 2003, respectively. The increase in policy acquisition costs in 2004 was due to the increase in net premiums earned. Policy acquisition costs are the sum of ceding commissions paid to ceding companies which are determined contractually pursuant to reinsurance agreements and federal excise taxes paid on premiums written to ceding companies.

We incurred a net underwriting loss (net premiums earned less the sum of loss and loss adjustment expenses and policy acquisition costs) of $598,165 for the nine month period ended September 30, 2004 compared to $1,178,113 for the same period in 2003, an improvement of $579,948 or 49.2%. The more favorable underwriting results in 2004 were primarily due to an increase in net premiums earned and a decrease in net incurred losses.

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AMERINST INSURANCE GROUP, LTD.

FINANCIAL CONDITION AND LIQUIDITY

As of September 30, 2004, our total investments were $49,327,585, a decrease of $3,109,468 or 5.9% from $52,437,053 at December 31, 2003. Cash and cash equivalents balances decreased from $2,180,042 at December 31, 2003 to $2,121,419 at September 30, 2004, a decrease of $58,623, or 2.7%. The decrease in total investments and cash and cash equivalents resulted from funds received from CNA for assumed reinsurance premiums receivable as of December 31, 2003 and March 31, 2004, offset by funds due CNA for losses in excess of assumed reinsurance premium as of June 30, 2004, by the dividends paid in January 2004 in the amount of $3.5 million, and three regular payments of dividends in 2004. The amount of cash and cash equivalents varies depending on the maturities of fixed term investments and on the level of funds invested in money market mutual funds. The ratio of cash and total investments to total liabilities at September 30, 2004 was 1.47:1, compared to a ratio of 1.50:1 at December 31, 2003.

Assumed reinsurance balances receivable are current assumed premiums receivable less commissions and losses payable to the issuing carriers. This balance was a receivable of $570,309 at December 31, 2003 and $717,600 at September 30, 2004. This balance fluctuates due to the timing of renewal premiums written and losses due.

On September 8, 2000, the Bermuda Monetary Authority authorized a purchase of up to 15,000 of our shares by AmerInst Insurance Company. Such purchases are made through privately negotiated transactions and are in addition to our practice of repurchasing the shares of individual shareholders who have died or retired from the practice of public accounting. Subsequently, on July 19, 2002, the Bermuda Monetary Authority authorized blanket permission for AmerInst Investment Company to purchase common shares from individual shareholders who have died or retired from the practice of public accounting and on a negotiated, case-by-case basis without limit. From January 1, 2000 through November 3, 2004, we had purchased in negotiated transactions 17,692 common shares for a purchase price of $565,042. In addition, during that period, we had purchased 15,895 common shares from individuals who had died or retired for a purchase price of $715,241.

We paid our thirty-eighth consecutive regular quarterly dividend of $0.65 per share during the third quarter of 2004. Since AmerInst began paying dividends in 1995, our original shareholders have received more than $35.00 in cumulative dividends per share, which when measured by a total rate of return calculation has resulted in an effective annual rate of return of approximately 9.2% from the inception of the Company based on a per share purchase price of $25.00 paid by the original shareholders.

Critical Accounting Policies

Liability for Loss and Loss Adjustment Expense Reserves

The Company’s critical accounting policies are discussed in the Management’s Discussion and Analysis of the results of operations and financial condition contained in our Annual Report on Form 10-K dated March 30, 2004.

Forward-Looking Statements

Certain statements contained in this Form 10-Q, or otherwise made by our officers, including statements related to our future performance and our outlook for our businesses and respective markets, projections, statements of our management’s plans or objectives, forecasts of market trends and other matters, are forward-looking statements, and contain information relating to us that is based on the beliefs of our management as well as assumptions, made by, and information currently available to, our management. The words “goal”, “anticipate”, “expect”, “believe” and similar expressions as they relate to us or our management, are intended to identify forward-looking statements. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Act of 1995. Such statements reflect our management’s current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in any forward-looking statements. Factors that might cause such actual results to differ materially from those reflected in any forward-looking statements include, but are not limited to (i) the occurrence of catastrophic events with a frequency or severity exceeding the Company’s expectations; (ii) a decrease in the level of demand for reinsurance and or an increase in the supply of reinsurance capacity; (iii) increased competitive pressures, including the consolidation and increased globalization of reinsurance providers; (iv) actual losses and loss expenses exceeding the Company’s loss reserves, which are necessarily based on the actuarial and statistical projections of ultimate losses; (v) changing rates of inflation and other economic conditions; (vi) changes in the legal or regulatory environments in which we operate; and (vii) other risks including those risks identified in any of our other filings with the Securities and Exchange Commission. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our management’s analysis only as of the date they are made. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Available Information

AmerInst’s internet website address is www.amerinst.bm. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission.

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AMERINST INSURANCE GROUP, LTD.

Inflation

We do not believe our operations have been materially affected by inflation. The potential adverse impacts of inflation include: (a) a decline in the market value of our fixed term investment portfolio; (b) an increase in the ultimate cost of settling claims which remain unresolved for a significant period of time; and (c) an increase in our operating expenses. However, we generally hold our fixed term investments to maturity and currently believe that the yield is adequate to compensate us for the risk of inflation. In addition, we expect that any increase from inflation in the ultimate cost of settling unpaid claims will be offset by investment income earned during the period when the claim is outstanding. Finally, the increase in operating expenses resulting from inflation should generally be matched by similar inflationary increases in the premium rates.

Market Sensitive Instruments

Market risk generally represents the risk of loss that may result from potential change in the value of a financial instrument due to a variety of market conditions. Our exposure to market risk is generally limited to potential losses arising from changes in the level of interest rates on market values of fixed term holdings and changes in the market values of equity securities. We do not hold or issue derivative financial instruments for either trading or hedging purposes.

(a) Interest Rate Risk.

Interest rate risk results from our holdings in interest-rate-sensitive instruments. We are exposed to potential losses arising from changes in the level of interest rates on fixed rate instruments that we hold. We are also exposed to credit spread risk resulting from possible changes in the issuer’s credit rating. To manage our exposure to interest rate risk we attempt to select investments with characteristics that match the characteristics of our related insurance liabilities. Additionally, we generally only invest in higher-grade interest bearing instruments.

(b) Foreign Exchange Risk.

We only invest in U.S. dollar denominated financial instruments and do not have any exposure to foreign exchange risk.

(c) Equity Price Risk

Equity price risk arises from fluctuations in the value of securities held. We invest in equity securities in order to diversify our investment portfolio, which our management believes will assist us in achieving our goal of long-term growth of capital and surplus. Our management has adopted investment guidelines that set out rate of return and asset allocation targets, as well as degree of risk and equity investment restrictions to minimize exposure to material risk from changes in equity prices.

The table below provides information about our investments available for sale that were sensitive to changes in interest rates at September 30, 2004 and December 31, 2003 respectively.

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AMERINST INSURANCE GROUP, LTD.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There has been no change in our internal control over financial reporting identified in that evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.—OTHER INFORMATION

The Company is not a party to any material legal proceedings.

(a) – (d) None

(e) From time to time the Company has repurchased shares of its common stock from individual shareholders who have died or retired from the practice of accounting. From January 1, 2000 through November 3, 2004, the Company had repurchased 15,895 common shares pursuant to such program. The following table shows information relating to the repurchase of common shares pursuant to the program during the three month period ended September 30, 2004:

From time to time, the Company has also purchased common shares in privately negotiated transactions. From January 1, 2000 through November 3, 2004, the Company had repurchased 17,692 common shares in such privately negotiated transactions.

None

(a) Exhibits

See Index to Exhibits immediately following the signature page.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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AMERINST INSURANCE GROUP, LTD.

INDEX TO EXHIBITS

Quarterly Period Ended September 30, 2004

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