<PAGE>   1
================================================================================
                       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 QUARTER ENDED SEPTEMBER 30, 1999

      Transition report pursuant to Section 13 or 15(d) of the
      Securities Exchange Act of 1934

For the Period From _________ to __________.

                        Commission File Number: 001-14593
                          THE MIIX GROUP, INCORPORATED
             (Exact name of Registrant as specified in its charter)

                  DELAWARE                      22-3586492
        (State or other jurisdiction          (I.R.S. employer
             of incorporation or            identification number)
                organization)


               TWO PRINCESS ROAD, LAWRENCEVILLE, NEW JERSEY 08648
             (Address of principal executive offices and zip code)

                                 (609) 896-2404
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:
                     Common Stock, par value $.01 per share

        Securities registered pursuant to Section 12(g) of the Act: None

         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 periods as 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 [ ]

         As of November 11, 1999, the number of outstanding shares of the
Registrant's Common Stock was 15,452,735.

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<PAGE>   2
TABLE OF CONTENTS

<TABLE>
<S>            <C>                                                                                                <C>
PART I         FINANCIAL INFORMATION..............................................................................5

ITEM 1.        CONSOLIDATED FINANCIAL STATEMENTS..................................................................5

ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............13

ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................19

PART II        OTHER INFORMATION.................................................................................20

ITEM 1.        LEGAL PROCEEDINGS.................................................................................20

ITEM 2.        CHANGES IN SECURITIES AND USE OF PROCEEDS.........................................................20

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES...................................................................20

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................21

ITEM 5.        OTHER INFORMATION.................................................................................21

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K..................................................................21

SIGNATURES     ..................................................................................................22
</TABLE>
<PAGE>   3
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Form 10-Q, the Company's Annual Report to
Stockholders, any Form 10-K or any Form 8-K of the Company or any other written
or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to uncertainties and other factors that could cause
actual results to differ materially from such statements. These uncertainties
and other factors include, but are not limited to: (i) the Company having
sufficient liquidity and working capital; (ii) the Company's strategy to seek
consistent profitable growth; (iii) the Company's ability to increase its market
share; (iv) the Company's ability to diversify its product lines; (v) the
Company's ability to expand into additional states; (vi) the Company's avoidance
of any material loss on collection of reinsurance recoverables; and (vii) the
continued adequacy of the Company's loss and LAE reserves. The words "believe,"
"expect," "anticipate," "project," and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

                                                                               3
<PAGE>   4
                        REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors
The MIIX Group, Incorporated

We have reviewed the accompanying consolidated balance sheet of The MIIX Group,
Incorporated and subsidiaries as of September 30, 1999, and the related
consolidated statements of income for the three and nine-month periods ended
September 30, 1999 and 1998 and the consolidated statements of cash flows for
the nine-month periods ended September 30, 1999 and 1998 and the consolidated
statement of equity for the nine-month period ended September 30, 1999. These
financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.

Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of The MIIX Group, Incorporated and
subsidiaries (formerly the Medical Inter-Insurance Exchange and subsidiaries) as
of December 31, 1998 and 1997, and the related consolidated statements of
income, equity, and cash flows for each of the three years in the period ended
December 31, 1998, not presented herein, and in our report dated March 24, 1999,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.


                                                            ERNST & YOUNG LLP

New York, New York
November 12, 1999

                                                                               4
<PAGE>   5
PART I   FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                          THE MIIX GROUP, INCORPORATED

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                   SEPTEMBER 30,        DECEMBER 31,
                                                                                                   ------------         ------------

                                                                                                       1999                 1998
                                                                                                    ----------           ----------
                                    ASSETS                                                         (Unaudited)
<S>                                                                                                <C>                    <C>
Securities available-for-sale:
   Fixed-maturity investments, at fair value (amortized cost: 1999 -
     $1,116,114; 1998 - $1,041,192) .......................................................         $ 1,080,157          $ 1,057,739
   Equity investments, at fair value (cost: 1999 - $10,988; 1998 - $3,159) ................              10,710                3,159
   Short-term investments, at cost which approximates fair value ..........................             110,514              104,800
                                                                                                    -----------          -----------
         Total investments ................................................................           1,201,381            1,165,698

Cash ......................................................................................               2,346                1,408
Accrued investment income .................................................................              13,404               13,563
Premium receivable, net ...................................................................              22,317               23,876
Reinsurance recoverable on unpaid losses ..................................................             352,107              325,795
Prepaid reinsurance premiums ..............................................................              17,931               26,921
Reinsurance recoverable on paid losses, net ...............................................                 301                  724
Deferred policy acquisition costs .........................................................               5,270                2,810
Due from Attorney-in-Fact .................................................................                  --                3,949
Deferred income taxes .....................................................................              61,512               34,731
Receivable for securities .................................................................                  19                3,414
Net investment in direct financing leases .................................................              24,955                   --
Other assets ..............................................................................              85,962               71,373
                                                                                                    -----------          -----------
         Total assets .....................................................................         $ 1,787,505          $ 1,674,262
                                                                                                    ===========          ===========

                            LIABILITIES AND EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses ................................................         $ 1,009,988          $   951,659
Unearned premiums .........................................................................             103,249               54,139
Premium deposits ..........................................................................                  --               28,392
Funds held under reinsurance treaties .....................................................             239,026              228,148
Payable for securities ....................................................................               2,287               34,115
Notes payable and other borrowings ........................................................              19,528                   --
Other liabilities .........................................................................              75,091               54,966
                                                                                                    -----------          -----------
         Total liabilities ................................................................         $ 1,449,169          $ 1,351,419
                                                                                                    -----------          -----------

Commitments and contingencies (Note 3)

STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000,000 shares authorized, 16,445,933 shares
   issued, 15,850,333 shares outstanding...................................................                 164
Additional paid-in capital ................................................................              52,930
Surplus/retained earnings .................................................................             323,228              312,087
Treasury stock, at cost (1999 - 595,600 shares) ...........................................              (9,863)                  --
Stock purchase loans and unearned stock compensation ......................................              (4,457)
Accumulated other comprehensive income (loss) .............................................             (23,666)              10,756
                                                                                                    -----------          -----------
         Total stockholders' equity .......................................................             338,336              322,843
                                                                                                    -----------          -----------
         Total liabilities and stockholders' equity .......................................         $ 1,787,505          $ 1,674,262
                                                                                                    ===========          ===========
</TABLE>

See accompanying notes

                                                                               5
<PAGE>   6
                          THE MIIX GROUP, INCORPORATED

                        CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                             SEPTEMBER 30,                      SEPTEMBER 30,
                                                                      ---------------------------        ---------------------------
                                                                         1999             1998             1999              1998
                                                                      ---------         ---------        ---------         ---------
<S>                                                                   <C>               <C>              <C>               <C>
REVENUES
Net premiums earned ..........................................        $  58,798         $  40,286        $ 150,285         $ 114,666
Net investment income ........................................           19,479            16,769           55,214            47,623
Realized investment gains (losses) ...........................           (1,668)           29,317           (5,100)           33,563
Other revenue ................................................            2,838               180            3,111             1,526
                                                                      ---------         ---------        ---------         ---------
     Total revenues ..........................................           79,447            86,552          203,510           197,378
                                                                      ---------         ---------        ---------         ---------

EXPENSES
Losses and loss adjustment expenses ..........................           54,318            40,098          140,537           113,050
Underwriting expenses ........................................           12,037            10,419           31,616            27,738
Funds held charges ...........................................            3,342             4,085           10,003            11,885
Other expenses ...............................................            1,168                --            1,168                --
Restructuring charge .........................................               --                --            2,409                --
Impairment of capitalized system development costs ...........               --                --               --            12,656
                                                                      ---------         ---------        ---------         ---------
     Total expenses ..........................................           70,865            54,602          185,733           165,329
                                                                      ---------         ---------        ---------         ---------

Income before income taxes ...................................            8,582            31,950           17,777            32,049
Provision for income taxes ...................................            2,140            10,453            3,835             8,621
                                                                      ---------         ---------        ---------         ---------
     Net income ..............................................        $   6,442         $  21,497        $  13,942         $  23,428
                                                                      =========         =========        =========         =========

Basic earnings per share of common stock .....................        $     .44         $    1.79        $    1.09         $    1.95
                                                                      =========         =========        =========         =========

Diluted earnings per share of common stock ...................        $     .44         $    1.79        $    1.08         $    1.95
                                                                      =========         =========        =========         =========

Dividend per share of common stock ...........................        $     .05                --        $     .05                --
                                                                      =========                          =========
</TABLE>

See accompanying notes

                                                                               6
<PAGE>   7
                          THE MIIX GROUP, INCORPORATED

                        CONSOLIDATED STATEMENT OF EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                            STOCK
                                                                                           PURCHASE
                                 NUMBER                                                             LOANS AND     ACCUMULATED
                                   OF       COMMON    ADDITIONAL                           UNEARNED        OTHER           TOTAL
                                 SHARES     STOCK      PAID-IN      RETAINED   TREASURY      STOCK      COMPREHENSIVE  STOCKHOLDER'S
                             OUTSTANDING    ISSUED     CAPITAL      EARNINGS    STOCK     COMPENSATION   INCOME (LOSS)     EQUITY
                             ------------   ------    ----------    --------   --------   ------------  -------------- -------------
<S>                            <C>         <C>      <C>            <C>         <C>         <C>          <C>            <C>
Balance at January 1, 1999...                                       $312,087                             $ 10,756       $322,843
 Net income..................                                         13,942                                              13,942

 Other comprehensive income,
  net of tax:

  Unrealized depreciation on
   securities available-for-
   sale, net of deferred
   taxes.....................                                                                             (34,422)       (34,422)
 Shares issued to
  distributees...............  11,846,731   118                         (118)

 Proceeds from initial public
  offering, net of offering
  and reorganization costs...   3,450,000    35      37,315                                                               37,350
 Acquisition of NJSMU........     814,815     8      10,992                                                               11,000

 Shares issued for execution
  of stock purchase and loan
  agreements.................     288,518     3       3,892                                  (3,928)                         (33)
 Purchase of treasury stock..    (595,600)                                       (9,863)                                  (9,863)
 Cash dividends to
  stockholders...............                                           (797)                                               (797)

 Cash issued to distributees,
  in lieu of common stock....                                         (1,886)                                             (1,886)

 Restricted stock grants and
  unearned stock
  compensation...............      45,869               731                                    (529)                         202
                               ----------   -----   -------         --------    -------     -------      --------       --------
Balance at
 September 30, 1999..........  15,850,333   $164    $52,930         $323,228    $(9,863)    $(4,457)     $(23,666)      $338,336
                               ==========   =====   =======         ========    =======     =======      ========       ========

</TABLE>

See accompanying notes

                                                                               7
<PAGE>   8
                          THE MIIX GROUP, INCORPORATED

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)
                                NINE MONTHS ENDED

<TABLE>
<CAPTION>
                                                                                                               SEPTEMBER 30,
                                                                                                       ----------------------------
                                                                                                         1999               1998
                                                                                                       ---------          ---------
<S>                                                                                                    <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................................................         $  13,942          $  23,428
Adjustments to reconcile net income to net cash provided by
  operating activities (net of balances acquired):
Unpaid losses and loss adjustment expenses ...................................................            30,044             60,351
Unearned premiums ............................................................................            49,088             56,691
Premium deposits .............................................................................           (28,392)           (21,024)
Premium receivable, net ......................................................................             1,559              2,439
Reinsurance balances, net ....................................................................            (6,021)           (24,825)
Deferred policy acquisition costs ............................................................            (2,460)            (4,259)
Realized (gains) losses ......................................................................             5,100            (33,563)
Depreciation, accretion and amortization .....................................................            (1,092)              (149)
Deferred income tax provision ................................................................            (5,236)            (5,246)
Due from Attorney-in-Fact ....................................................................              (594)            (3,013)
Impairment of capitalized system development costs ...........................................                --             12,656
Accrued investment income ....................................................................               207             (2,170)
Net investment in direct financing leases ....................................................             1,521                 --
Other assets .................................................................................            26,573             19,036
Other liabilities ............................................................................             6,704             16,799
                                                                                                       ---------          ---------
Net cash provided by operating activities ....................................................         $  90,943          $  97,151
                                                                                                       ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from fixed-maturity investment sales ................................................           839,573            546,041
Proceeds from fixed-maturity investments matured, called, or prepaid .........................            77,033             80,321
Proceeds from equity investment sales ........................................................                --            102,789
Cost of investments acquired .................................................................          (998,346)          (834,366)
Purchase of NJSMU (net of cash acquired) .....................................................              (198)                --
Realized loss on equity collar termination ...................................................                --            (14,000)
Change in short-term investments, net ........................................................            (4,693)           (24,223)
Net receivable/payable for securities ........................................................           (28,433)            41,910
                                                                                                       ---------          ---------
Net cash used in investing activities ........................................................          (115,064)          (101,528)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from initial public offering, net of offering and reorganization costs ..............            37,350                 --
Proceeds from notes payable and other borrowings .............................................            16,228                 --
Repayment of notes payable ...................................................................           (15,965)                --
Purchase of treasury stock ...................................................................            (9,863)                --
Cash dividends to stockholders ...............................................................              (797)                --
Cash in lieu of stock paid to distributees ...................................................            (1,886)                --
Subordinated loan certificates redeemed ......................................................                (8)                --
                                                                                                       ---------          ---------
Net cash provided by financing activities ....................................................         $  25,059                 --

Net change in cash ...........................................................................               938             (4,377)
Cash at beginning of period ..................................................................             1,408              4,739
                                                                                                       ---------          ---------
Cash at end of period ........................................................................         $   2,346          $     362
                                                                                                       =========          =========
</TABLE>

See accompanying notes

                                                                               8
<PAGE>   9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.       BASIS OF PRESENTATION
The consolidated financial statements for the interim periods included herein,
which include the accounts of The MIIX Group Incorporated ("The MIIX Group"),
MIIX Insurance Company and its wholly owned subsidiaries Lawrenceville Holdings,
Inc. ("LHI"), Lawrenceville Property and Casualty Company ("LP&C"), MIIX
Insurance Company of New York ("MIIX New York"), and, from August 4, 1999, New
Jersey State Medical Underwriters, Inc. ("NJSMU"), and its wholly owned
subsidiaries, Medical Brokers, Inc., Pegasus Advisors, Inc., Hamilton National
Leasing Corporation, MIIX Healthcare Group, Inc., Medical Group Management,
Inc., Healthcare Reinsurance Management Services, Inc. (HRMS), and Lawrenceville
Re., Ltd., (collectively, "the Company"), are unaudited. However, they have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in the opinion of management, such information
reflects all adjustments considered necessary for a fair presentation. Such
adjustments are of a normal recurring nature. Operating results for the interim
period are not necessarily indicative of the results to be expected for the full
year.

These consolidated financial statements and notes should be read in conjunction
with the audited consolidated financial statements and notes of the Company for
the year ended December 31, 1998 which were filed with the Securities and
Exchange Commission on Form 10-K.

2.       PLAN OF REORGANIZATION AND INITIAL PUBLIC OFFERING

The reorganization of the Medical Inter-Insurance Exchange (Exchange) from a
reciprocal to a stock insurer was consummated on August 4, 1999. In consummating
the reorganization, the Exchange distributed common stock of The MIIX Group and
cash to distributees, and the remaining assets and liabilities of the Exchange
were assumed by MIIX Insurance Company, after which the Exchange was dissolved.
The assumption of assets and liabilities of MIIX Insurance Company was accounted
for at historical cost as the transfers were between entities under common
control. In addition, simultaneously with the reorganization, The MIIX Group
acquired New Jersey State Medical Underwriters, Inc. and its subsidiaries for
814,815 shares of The MIIX Group common stock and $100,000 in cash. The
acquisition was accounted for using the purchase method and gave rise to $7.8
million of goodwill to be amortized on a straight line basis over a 15-year
period. The accompanying consolidated statements of income reflect NJSMU's
results of operations from the date of purchase, August 4, 1999, to September
30, 1999.

The MIIX Group sold 3 million shares of its common stock in an underwritten
public offering (the Offering) that closed on August 4, 1999. Of the offered
shares, 90,000 shares were reserved for sale, and subsequently sold at the
Offering Price ($13.50 per share), to officers and employees of the Company. On
August 11, 1999, an additional 450,000 shares were sold to underwriters of the
Offering pursuant to an over-allotment option contained in the Offering
underwriting agreement. Proceeds from the Offering and related expenses are
summarized as follows:

<TABLE>
<CAPTION>
                                                                     (in thousands)
<S>                                                                    <C>
               Gross proceeds from the offering....................    $ 46,575
               Less: Offering and reorganization costs.............       9,225
                                                                       --------
               Net proceeds........................................    $ 37,350
                                                                       ========
</TABLE>

3.       STOCK BASED COMPENSATION

The Company accounts for its stock-based compensation in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations. The Company's policy regarding stock options is to issue
options with an exercise price equal to the market price on the date of grant.
Under APB 25 no compensation expense is recognized given the Company's policy.
Certain executive officers, directors, and employees have been granted a total
of 483,750 options to purchase shares of The MIIX Group common stock with
exercise prices ranging from $13.50 to $16.0625, of which 123,750 options were
immediately exercisable. Pursuant to stock purchase and loan agreements, The
MIIX Group loaned certain officers of the Company approximately $3,895,000,
which the officers used to purchase unregistered shares of The MIIX Group common
stock at the Offering Price. On September 15, 1999, 45,515 restricted shares of
The MIIX Group common stock, having a per share market value of $16.0625, were
granted to certain officers and directors, of which 12,597 shares were
immediately vested.

                                                                               9
<PAGE>   10
4.       EARNINGS PER SHARE

Basic and diluted earnings per share are calculated in accordance with FASB
Statement No. 128, Earnings per Share. Earnings per share for the three and nine
month periods ended September 30, 1999 is computed using the weighted-average
number of common shares outstanding during those periods of 14,483,000 and
12,844,000, respectively. Earnings per share for the periods ended September 30,
1998, gives effect to the reorganization and the allocation of approximately
12,025,000 shares of common stock distributed to MIIX members.

The following table sets for the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                                  SEPTEMBER 30,                   SEPTEMBER 30,
                                                                             -----------------------         -----------------------
                                                                              1999            1998            1999            1998
                                                                             -------         -------         -------         -------
                                                                                 (in thousands)                   (in thousands)
<S>                                                                          <C>             <C>             <C>             <C>
Numerator:
     Net income ....................................................         $ 6,442         $21,497         $13,942         $23,428

Numerator for:
     Basic earnings per share of common stock ......................         $ 6,442         $21,497         $13,942         $23,428
     Diluted earnings per share of common stock ....................         $ 6,442         $21,497         $13,942         $23,428

Denominator:
     Denominator for basic earnings per share of
     common stock - weighted-average shares of
     outstanding ...................................................          14,483          12,025          12,844          12,025

     Effect of dilutive securities:
        Stock options ..............................................              47               0              47               0
                                                                             -------         -------         -------         -------

        Denominator for diluted earnings per share of
        common stock adjusted - weighted - average .................          14,530          12,025          12,891          12,025

Basic earnings per share of common stock ...........................         $   .44         $  1.79         $  1.09         $  1.95
                                                                             =======         =======         =======         =======

Diluted earnings per share of common stock .........................         $   .44         $  1.79         $  1.08         $  1.95
                                                                             =======         =======         =======         =======
</TABLE>

                                                                              10
<PAGE>   11
5.       COMPREHENSIVE INCOME
The Company considers its investment portfolio as available-for-sale and had
unrealized gains (losses) at each balance sheet date that are reflected as
accumulated comprehensive income (loss) in the Consolidated Statement of Equity.

The components of comprehensive income (loss), net of related tax, for the
periods ended September 30, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                                        Three Months Ended                   Nine Months Ended
                                                                           September 30,                        September 30,
                                                                     --------------------------          --------------------------
                                                                       1999              1998              1999              1998
                                                                     --------          --------          --------          --------
                                                                           (in thousands)                       (in thousands)
<S>                                                                  <C>               <C>               <C>               <C>
Net income .................................................         $  6,442          $ 21,497          $ 13,942          $ 23,428
Other comprehensive income:
  Unrealized holding gains (losses) arising during
  period [net of tax of $4,742, ($6,156), $20,319
  and ($8,401) respectively] ...............................           (8,806)           11,432           (37,737)           15,601

  Reclassification adjustment for (gains) losses
  realized in net income [net of tax of ($584),
  $10,261, ($1,785), and $11,747 respectively] .............            1,084           (19,056)            3,315           (21,816)
                                                                     --------          --------          --------          --------

  Net unrealized gains (losses), arising during
  the period [net of tax of $4,158, $4,105,
  $18,534 and $3,347 respectively] .........................           (7,722)           (7,624)          (34,422)           (6,215)
                                                                     --------          --------          --------          --------

Comprehensive income (loss) ................................         $ (1,280)         $ 13,873          $(20,480)         $ 17,213
                                                                     ========          ========          ========          ========
</TABLE>

6.       COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK
On January 13, 1998, the Company implemented an "equity collar" (the "Collar")
with a notional value of $85 million around the Company's equity portfolio. The
purpose of the Collar was to reduce equity market volatility and to stabilize
unassigned surplus. The Collar was constructed using European-style S&P 500
options and expired on July 13, 1998 with a net realized loss of $14.0 million.
This loss offset gains on the related hedged equity securities liquidated in the
third quarter of 1998. To minimize loss exposure due to credit risk, the Company
utilizes only those intermediaries that are approved by the Securities Valuation
Office of the National Association of Insurance Commissioners.


7.       DEFERRED POLICY ACQUISITION COSTS

The following represents the components of deferred policy acquisition costs and
the amounts that were charged to expense for the nine months ended September 30,
1999 and 1998.

<TABLE>
<CAPTION>
                                                                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                                                             --------------------------------------
                                                                                               1999                          1998
                                                                                             --------                      --------
                                                                                                        (in thousands)
<S>                                                                                          <C>                           <C>
Balance at beginning of period .........................................                     $  2,810                      $    100
Cost deferred during the period ........................................                       11,133                        11,018
Amortization expense ...................................................                       (8,673)                       (6,759)
                                                                                             --------                      --------
Balance at end of period ...............................................                     $  5,270                      $  4,359
                                                                                             ========                      ========
</TABLE>

                                                                              11
<PAGE>   12
8.       RESTRUCTURING CHARGE

The Company undertook a restructuring during the second quarter of 1999 and on
June 23 announced the reduction of regional and home office staff and the
closing of regional offices in Boston and Atlanta to centralize their functions
at the Company's home office. Management believes that the restructuring will
allow the Company to operate with greater efficiency and cost-effectiveness as
the Company's growth continues. The Company recognized a pre-tax charge in the
second quarter of 1999 related to this restructuring of $2.4 million.

9.       INCOME TAXES

A reconciliation of income tax computed based on the expected annual effective
federal statutory tax rate to total income expense for the periods ended
September 30 is as follows:

<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED SEPTEMBER 30,
                                                                --------------------------------------------------------------------
                                                                              1999                                   1998
                                                                ---------------------------------      -----------------------------
                                                                                     % OF INCOME                        % OF INCOME
                                                                  INCOME TAX        BEFORE INCOME        INCOME TAX    BEFORE INCOME
                                                                   EXPENSE             TAXES              EXPENSE          TAXES
                                                                --------------      -------------      --------------  -------------
                                                                (in thousands)                         (in thousands)
<S>                                                               <C>                  <C>               <C>              <C>
Expected annual effective federal
 .income tax at 35% ...................................            $  6,222             35.0%             $ 11,217         35.0%
Decrease in taxes resulting from:
Tax-exempt interest ..................................              (1,817)           (10.2)%              (2,135)        (6.7)%
Other ................................................                (570)            (3.2)%                (461)        (1.4)%
                                                                  --------             ----              --------         ----
Total income taxes ...................................            $  3,835             21.6%             $  8,621         26.9%
                                                                  ========             ====              ========         ====
</TABLE>

10.      RECLASSIFICATION

Certain amounts have been reclassified for the prior years to be comparable to
the 1999 presentation.

11.      SEGMENT REPORTING

The Company's operations are classified into one reportable segment: providing
professional liability and related insurance coverage to the healthcare
industry. In connection therewith the Company generally offers three products,
occurrence policies, claims made policies with prepaid tail coverage and claims
made policies in each of its markets. The Company distributes its products both
directly to the insureds and through intermediaries.

12.      SUBSEQUENT EVENTS

On October 1, 1999, the Company received 296,134 shares of Manulife Financial
common stock valued at $3,461,066 as part of the demutualization benefit. The
Company recorded a gain in other revenue equivalent to the fair value of the
stock received in the amount of $3,461,066 during the fourth quarter of 1999.

On November 4, 1999, the Company amended its stock repurchase program to buy up
to an additional two million shares of its common stock or $40 million on the
open market. On October 27, 1999, the Company completed the repurchases under
the initial stock repurchase program of up to one million shares or $20 million
authorized on August 16, 1999. One million shares were repurchased under the
previous authorization at a total cost of $16.3 million.

On November 8, 1999, Daniel Goldberg, President and Chief Executive Officer of
the Company, was granted a leave of absence for reasons unrelated to his
position with the Company. Kenneth M. Koreyva was appointed Acting Chief
Executive Officer. Mr. Koreyva formerly served as Executive Vice President and
Chief Financial Officer and has been with the Company since 1991.

                                                                              12
<PAGE>   13
ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements and the related notes thereto appearing elsewhere in this Form 10-Q.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998

Net premiums earned. Net premiums earned increased approximately $18.5 million,
or 46.0% to $58.8 million for the three months ended September 30, 1999 from
$40.3 million for the three months ended September 30, 1998. This increase is
mainly attributable to increased direct and assumed premiums written in the
three months ended September 30, 1999, particularly a large assumed excess of
loss reinsurance contract written on an institutional account and bound during
the quarter with effect from January 1, 1999.

Total premiums written were $69.5 million for the three months ended September
30, 1999, an increase of $29.3 million, or 73.0% from total premiums written of
$40.2 million for the three months ended September 30, 1998. This increase is
composed of net increases in direct premiums written of $15.5 million and an
increase in assumed premiums written of $13.8 million. The net increase in
direct premiums written consisted of net increases in direct premiums written in
certain states of $15.8 million offset by net decreases in direct premiums
written in other states of $.3 million. The net increases resulted from new
business of approximately $9.6 million along with approximately $5.9 million
resulting from a significant rate increase on institutional accounts renewed on
July, 1 1999. The net decreases were the result of normal turnover in business.
The increase in assumed premiums written results from a single excess of loss
reinsurance contract written on an institutional account.

Net investment income. Net investment income increased approximately $2.7
million or 16.2% to $19.5 million for the three months ended September 30, 1999
from $16.8 million for the same period in 1998. Average invested assets
increased to approximately $1.2 billion for the three months ended September 30,
1999 compared to approximately $1.1 billion for the same period last year. The
average annualized pre-tax yield on the investment portfolio increased to 6.49%
for the three months ended September 30, 1999 from 6.10% for the same period in
1998 primarily as a result of changes in asset allocation with an increased
concentration in higher pre-tax yielding securities in an increasing market
yield environment.

Realized investment gains (losses). Net realized investment losses were $1.7
million for the three months ended September 30, 1999 compared to net realized
investment gains of $29.3 million for the same period in 1998. In 1999, the
losses are principally due to sales of fixed-maturity investments to reposition
the investment portfolio in an increasing market yield environment. In 1998, the
net gain included net gains of approximately $37.4 million on disposition of the
Company's equity portfolio, partially offset by a $14.0 million loss realized on
the expiration of an equity collar position on July 13, 1998. The remaining net
realized gains of $5.9 million in 1998 resulted from sale of fixed-maturity
investments in a generally falling market yield environment.

Other revenue. Other revenue increased approximately $2.6 million to $2.8
million for the three months ended September 30, 1999 from $0.2 million for the
same period last year. The increase in 1999 consists primarily of $1.4 million
of revenues associated with the leasing, brokerage and other businesses acquired
by the Company in the acquisition of New Jersey State Medical Underwriters, Inc.
and its subsidiaries on August 4, 1999, and death benefit income of $1.0 million
received on a corporate owned life insurance policy.

Loss and loss adjustment expense (LAE). The provision for losses and LAE
increased $14.2 million, or 35.5%, to $54.3 million for the three months ended
September 30, 1999 from $40.1 million for the three months ended September 30,
1998. The provision for losses and LAE is net of ceded losses and LAE of $12.5
million and $26.5 million for the three months ended September 30, 1999 and
1998, respectively. The ratio of net losses and LAE to net premiums earned
improved to 92.4% for the three months ended September 30, 1999 from 99.5% for
the same period in 1998. This improvement is principally attributable to a
reduction in the gross loss and LAE ratio on the Company's occurrence business
written in 1999, combined with an increasing portion of the Company's expansion
business being written on a claims made basis which is expected to result in a
lower ultimate loss and LAE ratio. Changes in loss and LAE reserves held on 1994
and prior accident years also impacted the ratio of net loss and LAE to net
premiums earned for the three months ended September 30, 1999. The changes in
loss and LAE reserves were as follows: gross loss and LAE reserves were reduced
by $3.2 million, ceded loss and LAE reserves were

                                                                              13
<PAGE>   14
reduced by $3.7 million, and ceded premiums earned were reduced by $1.9 million.
There were no adjustments made to loss and LAE reserves held on prior accident
years for the three months ended September 30, 1998.

Underwriting expenses. Underwriting expenses increased $1.6 million or 15.5% to
$12.0 million for the three months ended September 30, 1999, from $10.4 million
for the three months ended September 30, 1998. The increase in expenses was
attributable to the cost of acquiring new business, primarily through a broker
distribution network, and to the increased infrastructure costs necessary to
service the increased volume of business activity in 1999. The ratio of
underwriting expenses to net premiums earned, however, declined to 20.5% for the
three months ended September 30, 1999 from 25.9% for the same period in 1998.
This improvement was primarily the result of greater economies of scale present
with the larger premium in 1999 combined with the impact of the Company's cost
reduction restructuring undertaken in June 1999.

Funds held charges. Funds held charges relate to the Company's aggregate
reinsurance contracts and decreased $0.8 million or 18.2% to $3.3 million for
the three months ended September 30, 1999, from $4.1 million for the three
months ended September 30, 1998. The ratio of funds held charges to beginning of
quarter funds held balances also declined, to 1.4% for the three months ended
September 30, 1999 from 2.3% for the three months ended September 30, 1998. This
decrease in the ratio of funds held charges to beginning funds held balance is
the result of three principal factors: profit sharing recognized on the 1993
aggregate reinsurance contract associated with a reduction in 1993 accident year
ceded loss and LAE reserves made in the second quarter of 1999; reduced funds
held charges resulting from net reductions to ceded losses pertaining to other
accident years made during the fourth quarter of 1998 and the first and third
quarters of 1999; and a lower contractual funds held charge rate applicable to
the 1998 and 1999 aggregate reinsurance contracts. Funds held charges are
calculated based upon beginning of quarter funds held balances.

Other expenses. Other expenses amounted to $1.2 million for the three months
ended September 30, 1999 and consist of the costs associated with the leasing,
brokerage and other businesses acquired by the Company in the acquisition of New
Jersey State Medical Underwriters, Inc. and its subsidiaries on August 4, 1999.

Income taxes. Income taxes were $2.1 million for the three months ended
September 30, 1999, resulting in an effective tax rate of 24.9%, compared to
$10.5 million and an effective tax rate of 32.7% for the same period in 1998.
This decrease of $8.4 million was primarily attributable to a decrease in
pre-tax income in 1999 of $23.4 million resulting in reduced tax of $8.2 million
at a 35% rate, and a decrease in taxes of $0.2 million associated with an
increase in tax exempt interest and other items in 1999.

Net income. Net income decreased by $15.1 million to $6.4 million for the three
months ended September 30, 1999, from a net income of $21.5 million for the
three months ended September 30, 1998. This net decrease was primarily the
result of a $31.0 million reduction in realized investment gains offset in part
by all of the following: an increase in premiums earned net of loss and loss
adjustment expenses and underwriting expenses of $2.7 million; an increase of
investment income of $2.7 million; an increase in other revenue net of other
expense of $1.5 million, including death benefit income of $1.0 million; a
reduction of funds held charges of $0.7 million; and a reduction in the
provision for taxes of $8.3 million.


NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998

Net premiums earned. Net premiums earned increased approximately $35.6 million
or 31.1% to $150.3 million for the nine months ended September 30, 1999 from
$114.7 million for the nine months ended September 30, 1998. This increase is
mainly attributable to increased direct and assumed business written in the
three months ended September 30, 1999, particularly a large assumed excess of
loss reinsurance contract written on an institutional account bound during the
quarter with effect from January 1, 1999, and increased direct premiums written
during the latter half of 1998 that are being earned during 1999.

Total premiums written were $223.7 million for the nine months ended September
30, 1999, an increase of $23.5 million or 11.7% from total premiums written of
$200.2 million for the nine months ended September 30, 1998. This increase
consisted of a net increase in direct premiums written of $10.9 million and an
increase in assumed premiums written of $12.6 million. The net increase in
direct premiums written was composed of net increases in direct premiums in
certain states of $20.2 million offset by net decreases in other states of $9.3
million. The net increases resulted primarily from a rate increase on New Jersey
physicians and surgeons business taken as of January 1, 1999, a rate increase
taken on institutional accounts effective July 1, 1999, and new business
generated in New Jersey and other

                                                                              14
<PAGE>   15
states resulting from increased marketing efforts and strong broker
relationships. The net decreases resulted primarily from a loss of Pennsylvania
physicians and surgeons business following a rate increase taken as of January
1, 1999, and because policies written in certain expansion states written during
the nine months ended September 30, 1998 were renewed in the fourth quarter of
1998 and will not again renew until the fourth quarter of 1999. The increase in
assumed premiums written results from a single excess of loss reinsurance
contract written on an institutional account during the three months ended
September 30, 1999 in the amount of $13.8 million, offset by reduced assumed
premium of $1.2 million resulting from discontinued assumed reinsurance
programs.

Net investment income. Net investment income increased $7.6 million or 15.9% to
$55.2 million for the nine months ended September 30, 1999 from $47.6 million
for the same period in 1998. The increase in investment income resulted from an
increase in invested assets during the first nine months of 1999 as well as an
increase in available market yields. Average invested assets increased to
approximately $1.2 billion during the nine months ended September 30, 1999
compared to approximately $1.1 billion for the same period last year. The
average annualized pre-tax yield on the investment portfolio increased to 6.25%
for the nine months ended September 30, 1999 from 6.00% for the same period in
1998 primarily as a result of changes in asset allocation with an increased
concentration in higher pre-tax yielding securities in an increasing market
yield environment.

Realized investment gains (losses). Net realized investment gains(losses)
decreased approximately $38.7 million to net realized losses of $5.1 million for
the nine months ended September 30, 1999 compared to net realized gains of $33.6
million for the same period in 1998. In 1999, substantially all of the losses
are due to sales of fixed-maturity investments to reposition the investment
portfolio in an increasing market yield environment. In 1998 the net gain was
composed of net gains of approximately $38.4 million on the disposition of the
Company's equity portfolio, partially offset by a $14.0 million loss realized on
the expiration of an equity collar position on July 13, 1998. The remaining
gains of $9.2 million resulted from sale of fixed-maturity investments in a
generally falling market yield environment.

Other revenue. Other revenue increased approximately $1.6 million or 103.9% to
$3.1 million for the nine months ended September 30, 1999 from $1.5 million for
the same period last year. The increase in 1999 consists primarily of $1.4
million of revenues associated with the leasing, brokerage and other businesses
acquired by the Company in the acquisition of New Jersey State Medical
Underwriters, Inc. and its subsidiaries on August 4, 1999, and death benefit
income of $1.0 million received on a corporate owned life insurance policy,
somewhat offset by a reduction in finance charge income, which declined as the
Company outsourced its installment payment plans in the second quarter of 1998.

Loss and loss adjustment expenses (LAE). The provision for losses and LAE
increased $27.4 million or 24.3% to $140.5 million for the nine months ended
September 30, 1999 from $113.1 million for the nine months ended September 30,
1998. The provision for losses and LAE is net of ceded losses and LAE of $37.5
million and $59.4 million for the nine months ended September 30, 1999 and 1998
respectively. The ratio of net losses and LAE to net premiums earned improved to
93.5% for the nine months ended September 30, 1999 from 98.6% for the same
period in 1998. This improvement is principally attributable to a reduction in
the gross loss and LAE ratio on the Company's occurrence business written in
1999, combined with an increasing portion of the Company's expansion business
being written on a claims made basis which is expected to result in a lower
ultimate loss and LAE ratio. Changes in loss and LAE reserves held on 1994 and
prior accident years also impacted the ratio of net loss and LAE to net premiums
earned for the nine months ended September 30, 1999. The changes in loss and LAE
reserves were as follows: gross loss and LAE reserves were reduced by $6.0
million, ceded loss and LAE reserves were reduced by $7.3 million, and ceded
premiums earned were reduced by $2.3 million. There were no adjustments to loss
and LAE reserves held on prior accident years for the nine months ended
September 30, 1998.

Underwriting expenses. Underwriting expenses increased $3.9 million or 14.0% to
$31.6 million for the nine months ended September 30, 1999 from $27.7 million
for the nine months ended September 30, 1998. The increase in expenses was
attributable to the costs of acquiring new business, primarily through a broker
distribution network, and to the increased infrastructure costs necessary to
service the increased volume of business activity in 1999. The ratio of
underwriting expense to net premiums earned, however, declined to 21.0% for the
nine months ended September 30, 1999 from 24.2% for the nine months ended
September 30, 1998. This improvement was primarily the result of greater
economies of scale present with the larger premium in 1999 combined with the
impact of the Company's cost reduction restructuring undertaken in June 1999.

Funds held charges. Funds held charges decreased $1.9 million or 15.8% to $10.0
million for the nine months ended September 30, 1999 from $11.9 million for the
nine months ended September 30, 1998. The ratio of funds

                                                                              15
<PAGE>   16
held charges to beginning of period funds held balances also declined, to 4.4%
for the nine months ended September 30, 1999 from 6.5% for the nine months ended
September 30, 1998. This decrease in the ratio of funds held charges to
beginning funds held balance is the result of three principal factors: profit
sharing recognized on the 1993 aggregate reinsurance contract associated with a
reduction in 1993 accident year ceded loss and LAE reserves made in the second
quarter of 1999; reduced funds held charges resulting from net reductions to
ceded losses pertaining to other accident years made during the fourth quarter
of 1998 and the first and third quarters of 1999; and a lower contractual funds
held charge rate applicable to the 1998 and 1999 aggregate reinsurance
contracts. Funds held charges are calculated based upon beginning of quarter
funds held balances.

Other expenses. Other expenses amounted to $1.2 million for the nine months
ended September 30, 1999 and primarily consist of the costs associated with the
leasing, brokerage and other businesses acquired by the Company in the
acquisition of New Jersey State Medical Underwriters, Inc. and its subsidiaries
on August 4, 1999.

Restructuring charge. The Company undertook a restructuring during the second
quarter of 1999 and on June 23, 1999 announced the reduction of regional and
home office staff and the closing of regional offices in Boston and Atlanta to
centralize their functions at the Company's home office. Management believes
that the restructuring will allow the Company to operate with greater efficiency
and cost-effectiveness as the Company's growth continues. The Company recognized
a pre-tax charge of $2.4 million related to this restructuring for the nine
months ended September 30, 1999. No such event occurred during the nine months
ended September 30, 1998.

Impairment of capitalized system development costs. Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" ("SFAS No. 121") requires
recognition of impairment losses for long-lived assets whenever events or
changes in circumstances result in the carrying amount of an asset to exceed the
sum of the expected future cash flow associated with the asset. During the nine
months ended September 30, 1998, management replaced its policy administration
system and accordingly recognized a $12.7 million pre-tax charge which
represents the net book value of capitalized costs associated with the old
computer system which is no longer being used for the Company's operations. No
similar event occurred during the nine months ended September 30, 1999.

Income taxes. Income taxes were $3.8 million for the nine months ended September
30, 1999, resulting in an effective tax rate of 21.6%, compared to $8.6 million
and an effective tax rate of 26.9% for the same period in 1998. This decrease of
$4.8 million was primarily attributable to a decrease in pre-tax income in 1999
of $14.3 million resulting in reduced tax of $5.0 million at a 35% rate, and an
increase in taxes of $0.2 million associated with a decrease in tax exempt
interest and other items in 1999.

Net income. Net income decreased by $9.5 million to $13.9 million for the nine
months ended September 30, 1999, from a net income of $23.4 million for the nine
months ended September 30, 1999. This net decrease was primarily the result of a
$38.7 million reduction in realized investment gains and a $2.4 million
restructuring charge taken in 1999 offset in part by all of the following: an
increase in premiums earned net of loss and loss adjustment expenses and
underwriting expenses of $4.2 million; an increase in investment income of $7.6
million; an increase in other income net of other expense of $0.4 million,
including death benefit income of $1.0 million; a reduction in funds held
charges of $1.9 million; impairment of capitalized systems costs of $12.7
million recorded in 1998, and a reduction in the provision for taxes of $4.8
million.

FINANCIAL CONDITION

Cash and invested assets. Aggregate invested assets, including cash and short
term investments, were $1,203.7 million at September 30, 1999 and $1,167.1
million at December 31, 1998. The net increase of $36.6 million largely resulted
from the net effect of positive cash flows from operations and proceeds from the
initial public offering net of purchased treasury stock, cash dividends to
stockholders, and cash distributions to certain distributees in the
reorganization, somewhat offset by unrealized net depreciation on investments
during the period.

Fixed maturities available for sale, including short-term investments,
aggregated approximately $1.2 billion, or 99.1% of the investment portfolio of
the Company as of September 30, 1999. At that date, the average credit quality
of the fixed income portfolio was "AA-," as defined by Standard & Poor's, while
the total portfolio effective duration (including short-term investments) was
5.13 years.

In 1997, the Company implemented an "equity collar" around its equity securities
of $81.6 million. An "equity collar" is an option position created with the
simultaneous purchase and sale of an equal number of put and call

                                                                              16
<PAGE>   17
options. This resulting option position establishes, for a specified time
period, both a ceiling and a floor with respect to the financial performance of
the underlying asset upon which the equity collar is established. The collar
transaction was executed on July 8, 1997 and expired on January 2, 1998. The
purpose of the collar was to reduce equity market volatility and to stabilize
unassigned surplus. The collar was constructed using European-style S&P 500
options. A "European-style" option is an option contract that may be exercised
only upon expiration of the contract whereas an "American-style" option may be
exercised at any time prior to the expiration of the contract. The reference to
"S&P 500" refers to the underlying asset upon which the option contract's value
will be based. To minimize loss exposure due to credit risk, the Company
utilized intermediaries with a Standard and Poor's rating of "AA" or better.

In 1998, another equity collar was implemented with a notional value of $85
million around the equity portfolio. Again, the purpose of the collar was to
reduce equity market volatility and to stabilize unassigned surplus. The collar
was constructed using European style S&P 500 options. The collar transaction was
executed on January 13, 1998 and expired on July 13, 1998, with a net realized
loss of $14 million. This loss offset gains on the related hedged equity
securities liquidated in the third quarter of 1998.

Since the expiration of the equity collar mentioned above, the Company has not
held any derivative investments.

Unpaid losses and LAE, reinsurance recoverable on unpaid losses and LAE and
funds held under reinsurance treaties. Gross unpaid losses and LAE were $1,010
million at September 30, 1999 and $951.7 million at December 31, 1998.
Reinsurance recoverable on unpaid losses and LAE was $352.1 million at September
30, 1999 and $325.8 million at December 31, 1998. Funds held under reinsurance
treaties, which are unrestricted, collateralize a significant portion of
reinsurance recoverable on unpaid losses and LAE and were $239.0 million at
September 30, 1999, and $228.1 million at December 31, 1998. The increases in
these amounts were consistent with the continued growth in the Company's book of
business.

Equity. Total equity was $338.3 million at September 30, 1999 and $322.8 million
at December 31, 1998. The net increases were primarily attributable to net
income of $13.9 million, net proceeds of $37.3 million from the initial public
offering, and $11.0 million related to the NJSMU acquisition, offset in part by
primary decreases: in unrealized net depreciation on investments of $34.4
million; the purchase of $11.0 million of treasury stock; and $0.8 million and
$1.9 million of cash dividends paid to stockholders, and distributees,
respectively.


LIQUIDITY AND CAPITAL RESOURCES

The MIIX Group, Incorporated. The MIIX Group is a holding company whose only
material assets are the capital stock of MIIX Insurance Company, a New Jersey
stock insurer ("MIIX Insurance"), and the New Jersey State Medical Underwriters,
Inc., a New Jersey corporation, and cash and investments resulting from the net
proceeds of the public offering. The net proceeds of the public offering,
conducted on July 30, 1999, will be used for general corporate purposes, which
may include, without limitation, increasing the capitalization of The MIIX
Group's insurance subsidiaries in order to support their continued growth and
for financing potential acquisitions. The MIIX Group's ongoing cash flow will
consist primarily of investment income on its holdings and dividends and other
permissible payments from its subsidiaries. The MIIX Group will depend upon such
payments for funds for general corporate purposes and for the payment of
dividends on the Common Stock.

The payment of dividends to The MIIX Group by MIIX Insurance is subject to
limitations imposed by the New Jersey Holding Company Act. Based upon these
limitations, the maximum amount that will be available for payment of dividends
to The MIIX Group by MIIX Insurance in any year without the prior approval of
regulatory authorities is subject to restrictions related to surplus and net
income. MIIX Insurance's future cash flow available to The MIIX Group may be
influenced by a variety of factors, including cyclical changes in the medical
malpractice insurance market, MIIX Insurance's financial results, insurance
regulatory changes, including changes in the limitations imposed by the New
Jersey Holding Company Act on the payment of dividends by MIIX Insurance, and
changes in general economic conditions. The MIIX Group expects that the current
limitations that will be imposed on MIIX Insurance should not affect its ability
to declare and pay dividends sufficient to support The MIIX Group's initial
dividend policy.

MIIX Insurance. The primary sources of MIIX Insurance's liquidity, on both a
short- and long-term basis, are funds provided by insurance premiums collected,
net investment income, recoveries from reinsurance and proceeds from the
maturity or sale of invested assets. Such funds are generally used to pay
claims, LAE, operating expenses,

                                       17
<PAGE>   18
reinsurance premiums and taxes. The Company's net cash flow from operating
activities was approximately $91.0 million and $97.1 million for the nine months
ended September 30, 1999 and 1998 and $90.1 million for the year ended 1998.
Because of the inherent unpredictability related to the timing of the payment of
claims, it is not unusual for cash flow from operations for a medical
malpractice insurance company to vary, perhaps substantially, from period to
period.

The Company held collateral of $239.0 million at September 30, 1999 and $228.1
at December 31, 1998, in the form of funds withheld, for recoverable amounts on
ceded unpaid losses and loss adjustment expenses under certain reinsurance
agreements. Under the contracts, reinsurers may require that a trust fund be
established to hold the collateral should one or more triggering events occur,
such as a downgrade in the Company's A.M. Best rating to B+ or lower, or a
reduction in statutory capital and surplus to less than $60 million. Otherwise,
no restrictions are placed on investments held in support of the funds withheld.
In accordance with the provisions of the reinsurance contracts, the funds
withheld are credited with interest at contractual rates ranging from 7.5% to
8.6%, which is recorded as an expense in the year incurred.

The Company invests its positive cash flow from operations in fixed maturity
securities. The current investment strategy seeks to maximize after-tax income
through a high quality, diversified, duration sensitive, taxable bond and
tax-preferenced municipal bond portfolio, while maintaining an adequate level of
liquidity.

Based on historical trends, market conditions and its business plans, the
Company believes that its sources of funds will be sufficient to meet its
liquidity needs over the next 18 months and beyond. However, because economic,
market, and regulatory conditions may change, there can be no assurance that the
Company's funds will be sufficient to meet these liquidity needs.


RECENT DEVELOPMENTS

On October 1, 1999, the Company received 296,134 shares of Manulife Financial
common stock valued at $3,461,066 as part of the demutualization benefit. The
Company recorded a gain in other revenue equivalent to the fair value of the
stock received in the amount of $3,461,066 during the fourth quarter of 1999.

On November 4, 1999, the Company amended its stock repurchase program to buy up
to an additional two million shares of its common stock or $40 million on the
open market. On October 27, 1999, the Company completed the repurchases under
the initial stock repurchase program of up to one million shares or $20 million
authorized on August 16, 1999. One million shares were repurchased under the
previous authorization at a total cost of $16.3 million.

YEAR 2000

Because certain computer software programs have historically been designed to
use a two-digit code to identify the year for date-sensitive material, such
programs may not properly recognize post twentieth century dates. This could
result in system failures and improper information processing that could disrupt
the Company's business operations.

The Company began evaluating this issue in 1996 in connection with an overall
evaluation of the Company's systems and during 1997 assigned a project manager
to study the Company's information systems and computers to determine whether
they will appropriately handle post-1999 date codes. The identification of
compliance issues included the Company's internal systems and processes, as well
as exposure from service providers, brokers and other external business
partners. Software applications, hardware and information technology ("I/T")
infrastructure and non I/T systems such as the Company's telephone, security and
heating and ventilating systems have been reviewed to identify those requiring
upgrading or replacement to improve current computing capabilities and to ensure
that they are Year 2000 compliant. In the course of evaluating the Year 2000
readiness of its internal systems, the Company determined that its claims
administration system was not Year 2000 compliant. The Company has purchased a
replacement system that the vendor has represented to be Year 2000 compliant
which is now in

                                                                              18
<PAGE>   19
operation. The Company also determined that its telephone equipment was not Year
2000 compliant and has upgraded its telephone equipment to make it Year 2000
compliant.

During 1997 and 1998 the Company upgraded all its I/T systems to improve their
performance and efficiency. As part of this process, the Company obtained
certifications from the vendors of such new systems that such systems would be
Year 2000 compliant. The Company has conducted internal tests of its new systems
to ensure that they are Year 2000 compliant and continues to conduct such tests.
To date, such tests have not revealed any Year 2000 issues other than in
connection with the claims administration system discussed above. However, the
Company has retained an outside expert to independently evaluate the Year 2000
readiness of the Company's internal systems. The Company may also be adversely
affected if Year 2000 issues result in additional claims being made against the
Company's insureds. The Company's liability for such claims, if any, is not
clearly established. A number of companies who underwrite liability coverage in
the healthcare industry have submitted applications to various state regulators
requesting that policy exclusions for such liability, if any, be approved. Other
carriers have advised their clients of their intent to deny coverage in certain
circumstances. The Company has not yet taken a formal position.

The Company completed the process of sending inquiries to its service providers,
brokers and other external business partners to determine whether they may
experience Year 2000 problems that could affect the Company. Management has
recently completed the evaluation of alternative contingency plans that could
become necessary if its own or its significant external business partners' Year
2000 remediation efforts fail. Such alternatives will most likely involve the
assignment of internal and external resources to process business manually
during the duration of any non-compliance. Implementation of the contingency
plans are scheduled for completion in the fourth quarter of 1999. It is not
possible at this time to estimate the cost, if any, of such contingency plans or
system failures.

Remediation costs to date (including expenditures associated with replacement
systems) have been approximately $462,000 and are estimated to be less than $1
million through the completion of remediation, which is expected in 1999. These
costs have been considered in preparing the Company's capital and operating
budgets. There can be no assurance, however, that remediation efforts will be
completed within these estimated costs and time periods.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the reported market risks since the end
of the most recent fiscal year as described in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

                                                                              19
<PAGE>   20
PART II           OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS


ACTIONS OPPOSING THE PLAN OF REORGANIZATION

The description of Legal Proceedings in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, as amended, and the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, as amended, and for the quarter
ended June 30, 1999, are incorporated herein by reference. Following the
dismissal of all claims alleged by Plaintiffs in their second amended complaint,
the Company filed a motion to dismiss the additional claims made by Plaintiffs
in their third amended complaint on the grounds that they failed to state a
claim on which relief may be granted and for lack of subject matter
jurisdiction. The additional claims alleged that the prospectus sent to Members
in connection with the special meeting to vote on the Plan of Reorganization
omitted material facts concerning the Company's reserves and assumption of the
Attorney-in-Fact's liabilities, that the compensation and benefits of certain
key executives are unreasonable, that the Salomon Smith Barney Inc. fairness
opinion is misleading and that Plaintiffs did not have an adequate opportunity
to express their views to the Members prior to the vote on the Plan. These
additional claims sought to invalidate the vote of the Members, prevent
implementation of the Plan and unspecified compensatory and punitive damages.
While the Company's motion to dismiss these additional claims was pending,
Plaintiffs filed a motion to stay the Public Offering and for reconsideration of
the dismissal of counts one (declaration of dividend) and six (IPO share price)
of the second amended complaint. Following a hearing on the motions, the court
entered an order granting the Company's motion to dismiss the additional claims,
dismissing the action in its entirety and denying Plaintiffs' motion. Plaintiffs
subsequently filed a notice of appeal of the court's orders to the Appellate
Court. Plaintiffs also filed a motion to conduct discovery pending appeal, which
was denied by the court. The Company intends to vigorously defend against the
appeal.

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS

On July 30, 1999, the Company commenced an Offering of shares of its common
stock at an offering price of $13.50 per share. The registration statement
relating to the Offering (Reg. No. 333-64707) and registering 3,450,000 shares
of Common Stock in connection therewith became effective on July 29, 1999. First
Union Capital Markets Corp., Friedman, Billings, Ramsey & Co., Inc. and Hoefer &
Arnett Incorporated (the "Underwriters") were the underwriters of the Offering,
which was consummated on August 4, 1999. The Company initially sold 3,000,000
shares of Common Stock in the Offering which resulted in gross proceeds to the
Company of $40.5 million, $2.84 million of which was applied to the underwriting
discount and approximately $1.0 million of which was applied to related
expenses. On August 10, 1999, the Underwriters exercised an overallotment option
to purchase an additional 450,000 shares of Common Stock at $13.50 per share,
resulting in additional gross proceeds and net proceeds to the Company of $6.08
million and $5.65 million, respectively. From July 30, 1999, through November 8,
1999, approximately $16.3 million of the net proceeds of the company's initial
public offering was used to purchase one million shares of treasury stock. The
balance was invested in short-term, interest-bearing, and equity securities.
None of the net proceeds of the Offering were paid by the Company, directly or
indirectly, to any director, officer or general partner of the Company or any of
their associates, or to any persons owning 10% or more of any class of the
Company's equity securities, or any affiliates of the Company.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

                  Not applicable.

                                                                              20
<PAGE>   21
ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The MIIX Group's annual meeting of stockholders was held on June 10, 1999, at
which time the following directors were elected by the Exchange then the sole
stockholder of The MIIX Group to serve as Class I directors for a term expiring
at the Annual Meeting of stockholders to be held in 2002: Daniel Goldberg,
Angelo S. Agro, M.D. and Carl Restivo, Jr., M.D. The terms of the following
directors continued after such meeting : Vincent A. Maressa, Esquire, Paul J.
Hirsch, M.D., Harry M. Carnes, M.D., Robert S. Maurer, D.O., A. Richard Miskoff,
D.O., Charles J. Moloney, M.D., Eileen Marie Moynihan, M.D., Fred M. Palace,
M.D., Gabriel F. Sciallis, M.D., Martin L. Sorger, M.D., and Bessie M. Sullivan,
M.D.

ITEM 5.           OTHER INFORMATION

                  On November 8, 1999, Daniel Goldberg, President and Chief
                  Executive Officer of the Company, was granted a leave of
                  absence for reasons unrelated to his position with the
                  Company. Kenneth M. Koreyva was appointed Acting Chief
                  Executive Officer. Mr. Koreyva, formerly served as Executive
                  Vice President and Chief Financial Officer and has been with
                  the Company since 1991.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  a.     Exhibits

                         The following exhibits are filed herewith:

                         10.35   Addendum No. 2 to the Combined Quota Share,
                                 Aggregate and Specific Excess of Loss
                                 Reinsurance Treaty, effective November 1, 1998,
                                 among Medical Inter-Insurance Exchange of New
                                 Jersey and Hannover Reinsurance (Ireland) Ltd.;
                                 E&S Reinsurance (Ireland) Ltd.; Underwriters
                                 Reinsurance Company (Barbados) Inc.; London
                                 Life and Casualty Reinsurance Corporation;
                                 Lawrenceville Re, Ltd.; and European
                                 Reinsurance Company of Zurich.

                         10.36   Addendum No. 3 to the Combined Quota Share,
                                 Aggregate and Specific Excess of Loss
                                 Reinsurance Treaty, effective January 1, 1999,
                                 among Medical Inter-Insurance Exchange of New
                                 Jersey and Hannover Reinsurance (Ireland) Ltd.;
                                 E&S Reinsurance (Ireland) Ltd.; Underwriters
                                 Reinsurance Company (Barbados) Inc.; and
                                 European Reinsurance Company of Zurich.

                         10.37   Addendum No. 4 to the Combined Quota Share,
                                 Aggregate and Specific Excess of Loss
                                 Reinsurance Treaty, effective January 1, 1999,
                                 among Medical Inter-Insurance Exchange of New
                                 Jersey and Hannover Reinsurance (Ireland) Ltd.;
                                 E&S Reinsurance (Ireland) Ltd.; Underwriters
                                 Reinsurance Company (Barbados) Inc.; and
                                 European Reinsurance Company of Zurich.

                         10.38   Excess Cession and Event Reinsurance Contract,
                                 effective January 1, 1999, among Medical
                                 Inter-Insurance Exchange and Hannover
                                 Ruckversicherungs-Aktiengesellschaft; and Swiss
                                 Reinsurance Company.

                         10.39   Excess Cession and Event Reinsurance Contract,
                                 effective January 1, 1999, between Medical
                                 Inter-Insurance Exchange and American
                                 Re-Insurance Company.

                         15      Acknowledgement of Independent Accountants

                         27.1    Financial Data schedule.

                   b.    Reports on Form 8-K

                         No reports on Form 8-K were filed during the
                         second quarter of 1999.

                                                                              21
<PAGE>   22
                                   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.

                                    THE MIIX GROUP, INCORPORATED


                           By:      /s/ Kenneth Koreyva
                              --------------------------------------------------
                              Acting President and Chief Executive Officer
                              (principal executive officer)


                           By:      /s/ Thomas M. Redman
                              --------------------------------------------------
                              Acting Chief Financial Officer
                              (principal financial and accounting officer)


                           DATED:   NOVEMBER 15, 1999

                                       22
<PAGE>   23
                                   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.

                                  THE MIIX GROUP, INCORPORATED


                         By:
                            ----------------------------------------------------
                                           Kenneth Koreyva
                            Acting President and Chief Executive Officer
                            (principal executive officer)


                         By:
                            ----------------------------------------------------
                                          Thomas M. Redman
                            Acting Chief Financial Officer
                            (principal financial and accounting officer)


                         DATED:   NOVEMBER 15, 1999

                                                                              23