Section 5		Corporate Governance and Management
Item 5.02		Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

     On May 7, 2007, Ronald Langley announced his retirement as Chairman of the Board of Directors (the “Board”) of PICO Holdings, Inc. (“PICO”) as of December 31, 2007. Mr. Langley will continue to serve as a Director of PICO, at least through December 31, 2008, as described in the attached PICO press release dated May 7, 2007, furnished herewith as Exhibit 99.1.

     The PICO Board will elect PICO’s new Chairman at its November 2007 meeting. In the interim, John D. Weil, a PICO Director since 1987, was elected as Lead Director by the Board on May 7, 2007, effective May 7, 2007, as described in the press release.

     On May 7, 2007 a new employment agreement for John R. Hart, PICO’s President and Chief Executive Officer, was approved by the Board, as recommended by the Compensation Committee (the “Employment Agreement”). The Employment Agreement will replace Mr. Hart’s prior employment agreement dated January 1, 2006 and is effective for the period of May 7, 2007 through December 31, 2012.

     The Employment Agreement provides for a base salary in 2007 of $1,228,800, subject to an annual cost of living adjustment approved by the Compensation Committee. Beginning in 2008, $500,000 will be added to adjusted 2007 base salary to determine the base salary for 2008. For the years 2009 through 2012, the base salary shall be subject to annual cost of living adjustments approved by the Compensation Committee.

     The Employment Agreement provides for an annual incentive award based on the growth of the Company’s book value per share, above a threshold. The incentive award is earned when the Company’s percentage increase in book value per share for a given fiscal year exceeds the threshold of 80% of the S&P 500 annualized total return for the five previous calendar years. In that event, the incentive award would be equal to 7.5% of the increase in book value per share multiplied by the number of the Company’s shares outstanding at the beginning of the fiscal year. Any incentive award is paid in cash, less applicable tax withholdings.

     Additionally, the Employment Agreement provides that the Compensation Committee will grant to Mr. Hart no later than December 31, 2008, 419,178 freestanding stock-settled stock appreciation rights (“SARS”) under the PICO Holdings, Inc. 2005 Long-Term Incentive Plan (the “Plan”). The exercise price of the SARs will be the closing market price of the Company’s shares on the Nasdaq Global Market on the date of grant and the SARs will vest one-third on the date of grant and one-third on each anniversary thereafter.

     The Employment Agreement provides that Mr. Hart will be entitled to the standard employee benefits package available to all employees of the Company.

     If Mr. Hart is terminated for any reason other than cause prior to January 1, 2009, the Employment Agreement provides that he (or his beneficiary in the case of death or disability) shall be paid a lump sum of $3,686,400. If Mr. Hart is terminated after January 1, 2009 and prior to December 31, 2012, he (or his beneficiary, as appropriate) shall be paid a lump sum equal to $3,686,400 minus the amount of base salary paid to Mr. Hart after January 1, 2009 to the date of termination. In addition, Mr. Hart (or his beneficiary, as appropriate) shall receive the pro rata portion of the annual incentive award that would have been payable for the year in which termination occurs; the portion of the annual incentive award payable shall be equal to the incentive award payable for the full year times a fraction, the numerator of which shall be the increase in book value per share at the date of termination and the denominator of which shall be the increase in the book value per share at December 31 of the year of termination.

     The Employment Agreement also provides that if Mr. Hart terminates employment for any reason prior to December 31, 2010, the Company shall make a lump sum payment to him. This lump sum amount shall be $400,000 if he terminates employment during calendar year 2007. Such lump sum amount decreases by $100,000 for each subsequent calendar year.

     The foregoing summary of the Employment Agreement is qualified in its entirety by reference to the Employment Agreement, filed herewith as Exhibit 10.15.

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