<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------

                                   FORM 10-K
                             ---------------------

(MARK ONE)
      [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       OR
      [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
            SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM           TO
                         COMMISSION FILE NUMBER 0-21223

                           PROFESSIONALS GROUP, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                             <C>
                  MICHIGAN                                       38-3273911
        (State or other jurisdiction                          (I.R.S. Employer
      of incorporation or organization)                      Identification No.)

          2600 PROFESSIONALS DRIVE
              OKEMOS, MICHIGAN                                      48864
  (Address of principal executive offices)                       (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (517) 349-6500
                             ---------------------

        Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR
                                VALUE PER SHARE
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]
     The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant on March 1, 2001 was $205,038,859 (based on the
closing price on such date, as reported on The Nasdaq Stock Market(R)).

          The number of the registrant's shares of common stock, no par value
per share, outstanding as of March 1, 2001 was 8,851,223.
                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's Notice of Annual Meeting of Stockholders and
Proxy Statement for its 2001 Annual Meeting of Stockholders are incorporated by
reference in Part III hereof.
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<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                         PAGE NO.
                                                                         --------
<S>       <C>                                                            <C>
                                     PART I
Item 1.   Business....................................................          3
          General.....................................................          3
          Products and Services.......................................          3
          Marketing...................................................          4
          Underwriting................................................          5
          Claims Management...........................................          5
          Reserves and Losses.........................................          5
          Investments.................................................          8
          Reinsurance.................................................          8
          Competition.................................................          9
          Regulation..................................................         10
          Subsidiaries................................................         12
          Employees...................................................         12
          Forward-Looking Statements..................................         13
          Glossary of Selected Insurance Terms........................         13
Item 2.   Properties..................................................         14
Item 3.   Legal Proceedings...........................................         14
Item 4.   Submission of Matters to a Vote of Security Holders.........         15
          Executive Officers of Registrant............................         15
                                     PART II
Item 5.   Market for Registrant's Common Equity and Related
            Stockholder Matters.......................................         16
Item 6.   Selected Financial Data.....................................         18
Item 7.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.................................         19
          Financial Condition.........................................         20
          Results of Operations.......................................         22
          Liquidity and Capital Resources.............................         25
          Effects of Inflation........................................         27
          Effects of New Accounting Pronouncements....................         27
Item 7A.  Quantitative and Qualitative Disclosures about Market
            Risk......................................................         28
Item 8.   Financial Statements and Supplementary Data.................         30
Item 9.   Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure..................................         62
                                    PART III
Item 10.  Directors and Executive Officers of the Registrant..........         63
Item 11.  Executive Compensation......................................         63
Item 12.  Security Ownership of Certain Beneficial Owners and
            Management................................................         63
Item 13.  Certain Relationships and Related Transactions..............         63
                                     PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
            8-K.......................................................         64
Signatures............................................................         68
</TABLE>

                                        2
<PAGE>   3

                                     PART I

ITEM 1. BUSINESS

GENERAL:

     Professionals Group, Inc. ("Professionals Group," and together with its
subsidiaries, the "Company") is a Michigan business corporation and insurance
holding company that was incorporated under the laws of the State of Michigan on
January 31, 1996. The Company had consolidated assets of $1,136.8 million and
$1,072.1 million at December 31, 2000 and 1999, respectively. Professionals
Group's principal executive offices are located at 2600 Professionals Drive,
Okemos, Michigan 48864, and its telephone number is (517) 349-6500.

     On June 22, 2000, Professionals Group entered into a definitive agreement
to consolidate with Medical Assurance, Inc. (NYSE: MAI) and form a new holding
company, ProAssurance Corporation, that would be the nation's third largest
writer of liability insurance for health care professionals and facilities.
Subject to certain adjustments, Professionals Group shareholders would receive
their choice of either $12.00 in cash and ProAssurance stock initially valued at
$14.00, or $26.00 in cash, for each share of Professionals Group stock they own.
The agreement is subject to required regulatory and shareholder approvals and is
expected to be completed in 2001. ProAssurance filed an amended Form S-4
Registration Statement with the Securities and Exchange Commission on January 4,
2001 regarding the transactions contemplated by the agreement and plan of
consolidation. Assuming the consolidation is completed, the shares of
Professionals Group common stock will be delisted from the Nasdaq Stock
Market(R).

     On July 1, 1999, Michigan Educational Employees Mutual Insurance Company
completed its conversion to a stock insurance company and changed its name to
MEEMIC Insurance Company ("MEEMIC"). As a result of the conversion, MEEMIC
became a wholly owned subsidiary of MEEMIC Holdings, Inc. ("MEEMIC Holdings"), a
publicly traded Michigan business corporation (Nasdaq: MEMH). As part of
MEEMIC's conversion, Professionals Group acquired 77% of the outstanding common
stock of MEEMIC Holdings. This acquisition was accounted for as a purchase
business combination. Beginning July 1, 1999, the financial results of MEEMIC
Holdings have been consolidated into the financial results of the Company.
Professionals Group has continued to acquire additional shares of MEEMIC
Holdings and currently owns 84% at December 31, 2000.

     On July 1, 1998, Professionals Group consummated its merger with Physicians
Protective Trust Fund, a medical malpractice self-insurance trust fund located
in Coral Gables, Florida ("PPTF"). Pursuant to the merger agreement,
Professionals Group issued 4,087,525 shares of Professionals Group common stock
to the eligible members of PPTF. The transaction has been accounted for as a
"pooling of interests" business combination under generally accepted accounting
principles, whereby Professionals Group has carried forward to its accounts the
assets and liabilities of PPTF at their respective amounts as reported by PPTF.
All prior period financial information was restated to reflect the combined
operations of Professionals Group and PPTF.

     The Company is organized and operates principally in the property and
casualty insurance industry and has three reportable segments -- professional
liability lines property and casualty insurance, personal lines property and
casualty insurance and investment operations. Segment information, for which
results are regularly reviewed by Company management in making decisions about
resources to be allocated to the segments and assess their performance, has been
disclosed in Note 19 to the Company's consolidated financial statements (see
"Item 8. Financial Statements and Supplementary Data").

PRODUCTS AND SERVICES:

     The Company offers medical professional liability insurance to physicians,
surgeons, dentists, hospitals and other health care providers through its wholly
owned subsidiary ProNational Insurance Company, a stock insurance company
incorporated under Michigan law in 1980 ("ProNational"). Medical professional
liability

                                        3
<PAGE>   4

insurance provides insurance against the legal liability of an insured (and
against loss, damage or expense incident to a claim of such liability) arising
out of bodily injury, sickness, disease or death sustained by a patient arising
from an act or omission occurring in the furnishing of health care services to a
patient. ProNational, which is licensed to provide such insurance in 20 states,
operates primarily in Florida, Michigan, Illinois, Indiana, Kentucky, New
Jersey, Ohio and Pennsylvania. ProNational Casualty Company, a stock insurance
company incorporated under the laws of Illinois in 1994 and a wholly owned
subsidiary of ProNational ("ProNational Casualty"), is licensed to provide such
insurance in Illinois.

     The Company offers private passenger automobile, homeowners, boat and
umbrella insurance primarily to educational employees and their immediate
families through its majority owned subsidiary, MEEMIC, a stock insurance
company incorporated under Michigan law in 1949. MEEMIC is licensed to provide
such insurance in Michigan and Ohio, but is currently writing business in
Michigan only.

     ProNational, ProNational Casualty and MEEMIC are all rated A- (Excellent)
by A.M. Best Company, Inc. ("A.M. Best"). ProNational is rated A- (Strong) by
Standard & Poor's Corporation ("Standard & Poor's"). See "Glossary of Selected
Insurance Terms" for descriptions of the rating continuums utilized by A.M. Best
and Standard & Poor's. In developing their respective ratings, A.M. Best and
Standard & Poor's each evaluate an insurer's financial and operating performance
including a quantitative evaluation of profitability, leverage and liquidity and
a qualitative evaluation of spread of risk, appropriateness of reinsurance,
quality and diversification of assets, adequacy of reserves and surplus, and
management experience. These ratings are based on factors of concern to
policyholders, agents and intermediaries and are not directed towards the
protection of shareholders.

MARKETING:

     ProNational currently markets its insurance products primarily in Florida,
Michigan, Illinois, Indiana, Kentucky, New Jersey, Ohio and Pennsylvania.
ProNational's insurance products are marketed and sold in cooperation with local
independent insurance agencies and by direct employees of ProNational.
ProNational is primarily responsible for general marketing activities such as
advertising, product information, convention participation and relationships
with various professional associations of which ProNational's insureds are
members. The independent insurance agencies are primarily responsible for the
sale of ProNational's insurance products by pursuing leads generated by
ProNational's marketing activities and through agency-generated leads in their
local communities. During 2000, approximately 59% of ProNational's direct
written premiums were produced through independent insurance agencies (with the
top ten agencies accounting for approximately 28% of total direct written
premiums) and 41% were produced directly.

     ProNational has also entered into endorsement and marketing agreements with
local medical associations and other provider-supported organizations that
provide rate credits and certain services for insureds of the programs. These
endorsement and marketing agreements allow ProNational to make presentations and
provide access to the medical association's respective publications for
advertisements.

     ProNational provides risk management services designed to heighten its
insureds awareness of situations giving rise to potential loss exposures, to
educate its insureds on ways to improve their medical procedures and to assist
its insureds in implementing risk modification measures. ProNational presents
and participates in periodic seminars with medical groups at which pertinent
subjects are presented.

     MEEMIC markets its insurance products through sales representatives
associated with its wholly owned agency, which is the exclusive distributor of
MEEMIC's insurance products. Most of the sales representatives belong to the
educational community and are engaged in peer selling.

     MEEMIC's agency conducts regular meetings with its sales representatives,
establishes benchmarks and goals, conducts technical training and sponsors
continuing education programs. The agency representatives provide information to
MEEMIC about the marketplace and needs of its insureds, which is used to develop
new products and new product features. The agency recruits and trains new sales
representatives to work in underserviced areas of Michigan. During 2000,
approximately 90% of MEEMIC's direct written premiums
                                        4
<PAGE>   5

were produced through the agency (with one agency sales representative
accounting for approximately 5% of MEEMIC's direct written premiums and the top
ten representatives accounting for approximately 35% of MEEMIC's direct written
premiums).

UNDERWRITING:

     All underwriting decisions for medical professional liability products are
made by ProNational through its underwriting staff. ProNational's independent
agencies do have binding authority. Each prospective insured is required to
submit an application for coverage that, among other things, reviews the
professional training, area and scope of practice and claims history of the
prospective insured. Through its underwriting process, which involves an
evaluation of the application and, in certain situations, may include
supplemental on-site risk management evaluations, ProNational assesses the
quality and pricing of the risk, emphasizing loss history, practice specialty
and location. ProNational's insurance policy premiums are based upon several
factors, the most important of which are loss history, practice specialty and
location of practice.

     The majority of medical professional liability policies issued by
ProNational are "claims-made" policies, although approximately 17% of
ProNational's direct medical professional liability premiums were derived from
"occurrence" policies during 2000. See "Glossary of Selected Insurance Terms"
for claims-made and occurrence definitions.

     MEEMIC's agency representatives have the authority to bind coverage for a
thirty day period. MEEMIC's underwriting staff accepts applications for
insurance based on established underwriting guidelines. Underwriting supervisors
regularly audit the work of individual underwriters to ensure adherence to these
guidelines.

CLAIMS MANAGEMENT:

     ProNational's claims department is responsible for the supervision of
claims investigation, the establishment of case reserves, cost control, case
management, development of the defense strategy and the coordination and control
of attorneys engaged by ProNational. Medical and/or other professional experts
are retained to assist in the analysis and defense of claims. A claims committee
comprised of experienced company representatives and outside medical specialists
meets regularly to provide medical insights and input for certain complex cases.
ProNational has seven claims offices in order to provide localized and timely
attention to claims.

     ProNational's claims department has settlement authority for claims filed
against its insureds. ProNational emphasizes early evaluation and aggressive
management of claims. ProNational believes that it has developed relationships
with attorneys who have significant experience in the defense of professional
liability claims and who are able to defend claims in an aggressive, cost
efficient manner.

     MEEMIC's claims department is responsible for the timely investigation,
evaluation and settlement of claims, controlling claims expense and maintaining
adequate reserves. MEEMIC's claims operation is centralized in Auburn Hills,
Michigan, however; several multi-line resident adjusters are located in cities
throughout Michigan. MEEMIC has also established a network of automobile glass
and body shops that provide damage appraisals and repairs according to
established company guidelines. Independent adjusters are used when claim volume
rises. Audits of liability claim files are conducted regularly by claims
department managers. Less than 1% of all claims result in litigation. Litigation
is internally reviewed by MEEMIC's in-house legal counsel in determining whether
the file is outsourced to an outside specialist or handled internally and is
monitored by the claims department.

RESERVES AND LOSSES:

     The Company establishes reserves based on its estimates of the future
amounts necessary to pay claims and expenses associated with investigation and
settlement of claims. These estimates consist of case reserves

                                        5
<PAGE>   6

and bulk reserves. Case reserves are estimates of future losses and loss
adjustment expenses ("losses and LAE") for reported claims and are established
by the Company's claims department. Bulk reserves, which include a provision for
losses that have occurred but have not been reported to the Company as well as
development on reported claims, are the difference between (i) the sum of case
reserves and paid losses and (ii) an actuarially determined estimate of the
total losses and LAE necessary for the ultimate settlement of all reported
claims and incurred but not reported claims, including amounts already paid.

     Loss and LAE reserves are determined on the basis of individual claims and
actuarially determined estimates of future losses based on the Company's past
loss experience, available industry data and projections as to future claims
frequency, severity, inflationary trends and settlement patterns. Estimating
reserves, especially professional liability reserves and in states where the
Company does not have significant past loss experience, is a complex process
which is heavily dependent on judgment and involves many uncertainties. As a
result, reserve estimates may vary significantly from the eventual outcome. The
assumptions used in establishing the Company's reserves are regularly reviewed
and updated by management as new data becomes available. Any adjustments
necessary are generally reflected in current operations.

     The following table reconciles beginning and ending reserves for losses and
LAE as shown in the Company's consolidated financial statements for the years
indicated. See also Note 8 to the Company's consolidated financial statements.

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                2000        1999        1998
                                                                ----        ----        ----
                                                                       (IN THOUSANDS)
<S>                                                           <C>         <C>         <C>
Balance, beginning of year..................................  $ 631,981   $ 540,583   $489,207
Less reinsurance balances recoverable.......................   (167,722)   (108,036)   (80,431)
                                                              ---------   ---------   --------
Net balance, beginning of year..............................    464,259     432,547    408,776
                                                              ---------   ---------   --------
Incurred related to:
  Current year..............................................    223,480     181,944    161,417
  Prior years...............................................    (10,252)    (22,184)     9,623
                                                              ---------   ---------   --------
          Total incurred....................................    213,228     159,760    171,040
                                                              ---------   ---------   --------
Loss and LAE reserves acquired..............................         --      39,836         --
                                                              ---------   ---------   --------
Paid related to:
  Current year..............................................     63,218      47,191     26,157
  Prior years...............................................    126,487     120,693    121,112
                                                              ---------   ---------   --------
          Total paid........................................    189,705     167,884    147,269
                                                              ---------   ---------   --------
Net balance, end of year....................................    487,782     464,259    432,547
Plus reinsurance balances recoverable.......................    195,331     167,722    108,036
                                                              ---------   ---------   --------
Balance, end of year........................................  $ 683,113   $ 631,981   $540,583
                                                              =========   =========   ========
</TABLE>

     The following table presents the development of the net liability of
undiscounted reserves for losses and LAE for the calendar years 1991 through
2000. (Through 1994, the Company's losses and LAE reserves were discounted.
Effective January 1, 1995, this practice was discontinued). The top line of the
table presents the Company's original undiscounted estimate of its loss and LAE
reserves at the balance sheet date, including losses incurred but not yet
reported, net of reinsurance recoverables. The portion of the table labeled
"cumulative net paid as of" shows the cumulative payments for losses and LAE
made in succeeding years for losses incurred prior to the balance sheet date.
The next portion of the table shows the re-estimated amount of the previously
recorded loss and LAE reserves based on experience as of the end of each
succeeding year. The estimates change as claims settle and more information
becomes known about the ultimate frequency and severity of claims for individual
years. A redundancy (deficiency) exists when the re-estimated loss and LAE
reserves at each December 31 is less (greater) than the prior loss and LAE
reserve estimate. The "net

                                        6
<PAGE>   7

cumulative redundancy" depicted in the table, for any particular calendar year
represents the aggregate change in the initial estimates over all subsequent
calendar years.

        ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE DEVELOPMENT
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                       -------------------------------------------------------------------------------------
                                       1991(A)    1992(A)    1993(A)    1994(A)    1995(A)    1996(A)    1997(A)    1998(B)
                                       -------    -------    -------    -------    -------    -------    -------    -------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Loss and LAE reserves, undiscounted
 and net of reinsurance
 recoverables........................  $364,746   $372,889   $389,854   $428,016   $448,426   $427,657   $408,776   $432,547
Cumulative net paid as of:
One year later.......................    93,668     95,487    105,882    124,644    133,082    123,436    121,112    116,187
Two years later......................   161,794    167,510    187,443    219,466    223,053    211,797    207,355    199,514
Three years later....................   206,119    215,932    239,956    263,515    281,534    269,935    257,117
Four years later.....................   231,551    244,286    258,242    297,344    318,720    296,752
Five years later.....................   246,433    254,020    280,113    318,762    337,362
Six years later......................   251,918    260,777    293,743    331,762
Seven years later....................   255,597    269,268    303,717
Eight years later....................   263,460    275,236
Nine years later.....................   267,959
Re-estimated net liability as of:
End of year..........................   364,746    372,889    389,854    428,016    448,426    427,657    408,776    432,547
One year later.......................   335,227    344,978    368,231    409,022    434,810    396,296    418,399    415,463
Two years later......................   317,643    327,746    358,275    395,053    400,149    404,898    402,124    400,111
Three years later....................   300,333    322,781    344,771    374,180    414,957    394,175    382,507
Four years later.....................   300,030    311,978    327,943    374,167    406,675    376,937
Five years later.....................   293,631    303,057    331,814    374,576    391,164
Six years later......................   287,939    298,185    332,469    360,765
Seven years later....................   285,053    299,341    321,193
Eight years later....................   287,175    287,098
Nine years later.....................   275,431
Net cumulative redundancy............    89,315     85,791     68,661     67,251     57,262     50,720     26,269     32,436
                                       ========   ========   ========   ========   ========   ========   ========   ========
Original gross liability -- end of
 year................................                         439,870    477,881    501,690    501,512    489,207    540,583
Less: reinsurance recoverables.......                          50,016     49,865     53,264     73,855     80,431    108,036
                                                             --------   --------   --------   --------   --------   --------
Original net liability -- end of
 year................................                         389,854    428,016    448,426    427,657    408,776    432,547
                                                             ========   ========   ========   ========   ========   ========
Gross re-estimated
 liability -- latest.................                         388,703    420,295    448,796    453,449    469,600    506,202
Re-estimated reinsurance
 recoverables........................                          67,510     59,530     57,632     76,512     87,093    106,091
                                                             --------   --------   --------   --------   --------   --------
Net re-estimated
 liability -- latest.................                         321,193    360,765    391,164    376,937    382,507    400,111
                                                             ========   ========   ========   ========   ========   ========
Gross cumulative redundancy..........                          51,167     57,586     52,894     48,063     19,607     34,381
                                                             ========   ========   ========   ========   ========   ========

<CAPTION>
                                          DECEMBER 31,
                                       -------------------
                                       1999(C)      2000
                                       -------      ----
<S>                                    <C>        <C>
Loss and LAE reserves, undiscounted
 and net of reinsurance
 recoverables........................  $464,259   $487,782
Cumulative net paid as of:
One year later.......................   126,487
Two years later......................
Three years later....................
Four years later.....................
Five years later.....................
Six years later......................
Seven years later....................
Eight years later....................
Nine years later.....................
Re-estimated net liability as of:
End of year..........................   464,259    487,782
One year later.......................   454,007
Two years later......................
Three years later....................
Four years later.....................
Five years later.....................
Six years later......................
Seven years later....................
Eight years later....................
Nine years later.....................
Net cumulative redundancy............    10,252
                                       ========
Original gross liability -- end of
 year................................   631,981    683,113
Less: reinsurance recoverables.......   167,722    195,331
                                       --------   --------
Original net liability -- end of
 year................................   464,259    487,782
                                       ========   ========
Gross re-estimated
 liability -- latest.................   628,767
Re-estimated reinsurance
 recoverables........................   174,760
                                       --------
Net re-estimated
 liability -- latest.................   454,007
                                       ========
Gross cumulative redundancy..........     3,214
                                       ========
</TABLE>

---------------

(a) Reflects reserves of ProNational, excluding MEEMIC reserves which were
    acquired on July 1, 1999. Accordingly, the gross and net reserve development
    (reserves recorded at the end of the year, as originally estimated, less
    reserves re-estimated as of subsequent years) relates only to the operations
    of ProNational and does not include MEEMIC.

(b) Reflects reserve development related to the 1998 reserves of ProNational,
    excluding MEEMIC. Favorable net reserve development of $5.1 million related
    to the reserves of MEEMIC, acquired on July 1, 1999, which are not reflected
    in this column, were recorded in 1999 and subsequent periods.

(c) Includes MEEMIC gross reserves of $94.6 million and net reserves of $39.8
    million acquired on July 1, 1999 and subsequent development thereon.

     In evaluating the information in the table above, it should be noted that
each column includes the effects of changes in amounts for prior periods. The
table does not present accident year or policy year development data. Conditions
and trends that have affected the development of liabilities in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.

                                        7
<PAGE>   8

     As shown in the reserve development table, positive reserve development
exists for each of the years 1991 through 1999. Such positive reserve
development is mainly attributable to (i) the Company's historical practice of
establishing its loss and LAE reserves conservatively, as it relates to
immaturely developed accident years, to minimize potential uncertainties, and
(ii) lower than expected claims costs associated in part with tort reform
legislation enacted in Michigan between 1986 and 1994. Such tort reform
legislation shortened the statute of limitations, introduced a statute of repose
with a six year limitation for adults, modified expert witness rules to require
more qualified expert witnesses and capped non-economic damages. The years 1997,
1998 and 1999 have lower positive reserve development compared to years prior to
1997. The Company believes that the reduction in positive reserve development
during these years is related mainly to its professional liability reserves due
primarily to worsening medical malpractice trends. The Company believes the
medical malpractice trends being experienced include increases in the frequency
of reported claims and increases in the severity of settled claims. The Company
further believes that these trends are being experienced on a national basis and
is not specific to any particular geographic region in which it writes business.

     The following table reconciles loss and LAE reserves of the Company in
accordance with statutory accounting practices ("SAP") with reserves reflected
in the consolidated financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") as of December 31, 2000 and 1999.

               RECONCILIATION OF SAP RESERVES WITH GAAP RESERVES
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                                ----       ----
<S>                                                           <C>        <C>
Loss and LAE reserves -- SAP basis..........................  $487,782   $464,259
Provision for reinsurance on unpaid losses..................   195,331    167,722
                                                              --------   --------
  Loss and LAE reserves -- GAAP basis.......................  $683,113   $631,981
                                                              ========   ========
</TABLE>

     Under SAP, loss and LAE reserves are presented net of the provision for
reinsurance, whereas under GAAP, loss and LAE reserves are presented gross of
reinsurance and amounts due from reinsurers are presented as an asset. The
Company does not discount reserves for GAAP or SAP reporting.

INVESTMENTS:

     The Company invests principally in fixed maturity securities, all of which
are classified as available for sale. Investment management services are
provided to the Company by independent third party investment managers. Such
services include reviewing and recommending investment policies and implementing
and executing investment strategies and are currently provided for a fee based
on the market value of the investment portfolio managed by the respective
managers. The general investment policies of the Company are intended to
accommodate its need for liquidity and current income. The primary objective is
to achieve a high level of after-tax income, while minimizing risk. The Company
has invested a substantial portion of its fixed maturity portfolio in municipal
bonds, which the Company believes generate a greater after-tax return than
investments in taxable fixed income securities of comparable risk, duration and
other investment characteristics. The fixed maturity portfolio had an average
Standard & Poor's credit quality rating of AA (Excellent) and there were no
securities in default at December 31, 2000. See also Note 5 to the Company's
consolidated financial statements.

REINSURANCE:

     In accordance with industry practice, the Company purchases reinsurance to
limit risk on individual exposures, protect against catastrophic losses,
stabilize underwriting results and increase its capacity to write

                                        8
<PAGE>   9

insurance. Reinsurance involves the Company transferring, or ceding, all or a
portion of its exposure on a given insurance policy to a reinsurer. The
reinsurer assumes the exposure in return for a portion of the premium received
by the Company. Reinsurance does not discharge the Company from its obligation
to its insureds. If the reinsurer fails to meet its obligations, the Company
remains liable to pay the insured.

     ProNational has various reinsurance agreements. Generally, ProNational's
risk retention level has been dependent upon numerous factors including limits
of liability coverage sold in a particular state, level of experience within a
state and ProNational's analysis of the potential underwriting results within
each state. Accordingly, ProNational's retention has varied between $150,000 and
$1.0 million. Currently, ProNational retains $500,000 in most states.
ProNational also has reinsurance agreements that provide defined coverages for
claims exceeding policy limits or extra contractual obligations. ProNational
also has various stop loss reinsurance agreements, primarily to protect against
potential future adverse development.

     MEEMIC currently reinsures its risks in excess of $200,000 per loss. MEEMIC
has also purchased catastrophe reinsurance for automobile physical damage and
homeowners property damage in four layers up to $13.5 million in excess of
$500,000, with each layer subject to a retention of 5%. Every insurer (including
MEEMIC) engaged in writing personal protection insurance coverage in Michigan is
required to be a member of the Michigan Catastrophic Claims Association
("MCCA"), an unincorporated nonprofit association created by Michigan law. The
MCCA covers all personal injury losses incurred by MEEMIC and all other member
companies in excess of $250,000. Although the MCCA acts in the same manner as a
reinsurer, it is not an insurance company and is not rated by A.M. Best.

     ProNational and MEEMIC place their reinsurance agreements and treaties with
a number of individual companies and syndicates. ProNational's largest
reinsurers are General Reinsurance Corporation and PMA Reinsurance Corporation,
with 44% and 17%, respectively, of ProNational's total ceded premiums in 2000.
MEEMIC's largest reinsurer is American Re, with 73% of MEEMIC's total ceded
premiums in 2000. No other reinsurers exceeded 10% of ProNational's or MEEMIC's
respective total ceded premiums in 2000. All reinsurers exceeding 5% of
ProNational's and MEEMIC's respective total ceded premiums in 2000 are rated A-
(Excellent) or higher by A.M. Best. ProNational and MEEMIC rely on their
reinsurance intermediary to assist in the analysis of credit quality of its
reinsurers. ProNational and MEEMIC have not experienced any material
difficulties in collecting amounts due from reinsurers and both believe (i) that
reinsurance is maintained with financially stable reinsurers and (ii) that any
reinsurance security maintained is adequate to protect their interests. See also
Note 6 to the Company's consolidated financial statements.

     From July 1, 1997 through June 30, 1999, ProNational assumed, on a
quota-share basis, 40% of the net personal lines insurance business from MEEMIC.
In connection with MEEMIC's conversion into a stock company, such quota share
reinsurance agreement was cancelled on June 30, 1999.

COMPETITION:

     The Company competes with numerous insurance companies and various
self-insurance mechanisms. Many of these competitors are substantially larger
and have considerably greater financial resources than does the Company.
Additionally, several of these competitors have A.M. Best ratings that are
higher than the Company's insurance subsidiaries of A- (Excellent).

     Competition, particularly in the medical malpractice insurance industry,
may take several forms including pricing, service quality, breadth and
flexibility of coverages, method of sale, and insurance carrier financial
stability and ratings. The Company competes through name recognition and
reputation by emphasizing a high level of customer service to insureds, and,
especially in its Midwest markets, by using local insurance agencies to sell and
distribute its medical professional liability insurance products. The Company
has attempted to balance its need for rate adjustments with the goal of
maintaining market share in a very competitive insurance market. However, the
Company is endeavoring to obtain additional premium per unit of risk in what
continues to be a very price competitive professional liability environment.

                                        9
<PAGE>   10

     The success of the Company may also be influenced by general economic
conditions in the geographic markets served by it. No assurance can be given
that favorable economic conditions will exist in such markets.

REGULATION:

     General.  Insurance holding companies and insurance companies are
extensively regulated. Such regulation has had a significant affect on the
operations of insurance holding companies and insurance companies in the past
and is expected to have significant effects in the future. Periodically,
legislation is considered and adopted which has resulted in, or that could
result in, further regulation or deregulation of insurance holding companies and
insurance companies. No assurance can be given as to whether any additional
legislation will be adopted or as to the effect such legislation would have on
the business of the Company.

     Insurance companies are subject to regulation by government agencies in the
states in which they are licensed. ProNational is domiciled in Michigan and is
licensed as a property and casualty insurer in 20 states. ProNational Casualty
is domiciled and licensed as a property and casualty insurer in Illinois. MEEMIC
is domiciled in Michigan and is licensed as a property and casualty insurer in
Michigan and Ohio. The nature and extent of such regulation varies from
jurisdiction to jurisdiction, but typically involves prior approval of the
acquisition of control of an insurance company or of any company controlling an
insurance company, regulation of certain transactions entered into by an
insurance company with any of its affiliates, approval of premium rates, forms
and policies used for many lines of insurance, standards of solvency and minimum
amounts of capital and surplus which must be maintained, establishment of
reserves required to be maintained for unearned premium, losses and loss
adjustment expenses or for other purposes, limitations on types and amounts of
investments, restrictions on the size of risks which may be insured by a single
entity, licensing of insurers and agents, deposits of securities for the benefit
of policyholders, and the filing of periodic reports with respect to financial
condition and other matters. In addition, state regulatory examiners perform
periodic examinations of insurance companies, including market conduct
examinations. Such regulation is generally intended for the protection of
policyholders rather than shareholders. In addition, individual state insurance
departments may prevent premium rates for some classes of insureds from
reflecting the level of risk assumed by the insurer for those classes. Such
developments may adversely affect the profitability of various lines of
insurance.

     Professionals Group is subject to regulation as an insurance holding
company because of its ownership of ProNational and MEEMIC and is required to
file information relating to its capital structure, ownership, and financial
condition and general business operations of its insurance subsidiaries. As an
insurance holding company, Professionals Group is also subject to special
reporting and prior approval requirements with respect to transactions among its
affiliates.

     Insurance companies are affected by a variety of state and Federal
legislative and regulatory measures and judicial decisions. Regulation of the
insurance industry is undergoing continuous change and the ultimate effect of
such changes cannot be predicted. Regulations now affecting the Company may be
modified at any time and new regulations affecting the Company may be enacted.
There is no assurance that such modifications will not adversely affect the
business of the Company.

     Change or Acquisition of Control.  ProNational and MEEMIC are Michigan
stock, property and casualty insurance companies organized under the Michigan
Insurance Code. ProNational Casualty is an Illinois stock, property and casualty
insurance company organized under the Illinois Insurance Code. The Michigan
Insurance Code and the Illinois Insurance Code provide that the acquisition or
change of "control" of a domestic insurer or of any person that controls a
domestic insurer cannot be consummated without the prior approval of the
relevant insurance regulatory authority. A person seeking to acquire control,
directly or indirectly, of a domestic insurer or of any person controlling a
domestic insurer must generally file with the relevant insurance regulatory
authority an application for change of control (commonly known as a "Form A")
containing certain information required by statute and published regulations and
provide a copy of such Form A to the domestic insurer. In both Michigan and
Illinois, control is generally presumed to exist if

                                        10
<PAGE>   11

any person, directly or indirectly, owns, controls, holds the power to vote or
holds proxies representing 10% or more of the voting securities of any other
person.

     In addition, many state insurance regulatory laws contain provisions that
require pre-notification to state agencies of a change in control of a
non-domestic admitted insurer in that state. While such pre-notification
statutes do not authorize the state agency to disapprove the change of control,
such statutes do authorize issuance of a cease and desist order with respect to
the non-domestic admitted insurer if certain conditions exist such as undue
market concentration.

     Insolvency Funds; Mandatory Pools.  Most states require admitted property
and casualty insurers to become members of insolvency or guaranty funds or
associations which generally protect policyholders against the insolvency of
such insurers. Members of the fund or association must contribute to the payment
of certain claims made against insolvent insurers. The Company makes accruals
for its portion of assessments when notified of assessments by a fund or
association.

     Insurance companies are also required to participate in various mandatory
insurance facilities or in funding mandatory pools, which are generally designed
to provide insurance coverage for consumers who are unable to obtain insurance
in the voluntary insurance market. Pools are typically found in insurance lines
such as workers' compensation, homeowners and personal automobile insurance.
These pools typically require all companies writing applicable lines of
insurance in the state for which the pool has been established to fund
deficiencies experienced by the pool based upon each company's relative premium
writings in that state, with any excess funding typically distributed to the
participating companies on the same basis. The Company makes accruals for its
portion of assessments when notified of assessments by a pool.

     Restrictions on Dividends.  The Michigan Insurance Code and the Illinois
Insurance Code regulate the distribution of dividends and other payments to a
holding company by its insurance subsidiaries. Under each of the Michigan
Insurance Code and the Illinois Insurance Code, an insurer may pay dividends or
distribute cash or other property so long as such dividends or distributions,
together with all other dividends or distributions made within the preceding
year, do not exceed the greater of (i) 10% of the insurer's statutory surplus as
of December 31 of the preceding year or (ii) the net income, not including
realized capital gains, for the twelve-month period ending December 31 of the
preceding year, with larger dividends payable only upon prior regulatory
approval. Such restrictions or any additional subsequently imposed restrictions
may in the future affect Professionals Group's ability to fund its operations,
pay principal and interest on its debt, pay its expenses and pay any cash
dividends to its stockholders. Future dividends received by Professionals Group
from its insurance subsidiaries may also be limited by business considerations.

     Risk-Based Capital.  The National Association of Insurance Commissioners
(the "NAIC") has established risk-based capital ("RBC") requirements to assist
regulators in monitoring the financial strength and stability of property and
casualty insurers. Under the NAIC requirements, regulatory compliance is
determined by a ratio of an insurer's regulatory total adjusted capital, as
defined by the NAIC, to its authorized control level of RBC, as defined by the
NAIC. Insurers below specific ratios are classified within certain levels, each
of which requires specific corrective action. The levels and ratios are as
follows:

<TABLE>
<CAPTION>
                                                    RATIO OF TOTAL ADJUSTED CAPITAL
                                                    TO AUTHORIZED CONTROL LEVEL RBC
LEVEL                                                   (LESS THAN OR EQUAL TO)
-----                                               -------------------------------
<S>                                                 <C>
Company action level..............................                2.0
Regulatory action level...........................                1.5
Authorized control level..........................                1.0
Mandatory control level...........................                0.7
</TABLE>

     ProNational, ProNational Casualty and MEEMIC have calculated their ratios
of total adjusted capital to authorized control level RBC and each were in
excess of 6:1 at December 31, 2000.

                                        11
<PAGE>   12

     NAIC-IRIS Ratios.  The NAIC's Insurance Regulatory Information System was
developed by a committee of state insurance regulators and is primarily intended
to assist state insurance departments in executing their statutory mandates to
oversee the financial condition of insurers operating in their respective
states. IRIS identifies 11 industry ratios and specifies "usual values" for each
ratio. Departure from the usual values on four or more ratios generally leads to
inquiries from individual state insurance commissioners, of which none have been
received.

     In 2000, neither ProNational, ProNational Casualty or MEEMIC had any ratios
which varied from the "usual value" range.

     Effect of Federal Legislation.  Although the Federal government does not
directly regulate the business of insurance, Federal initiatives often affect
the insurance business in a variety of ways. Current and proposed Federal
measures which may significantly affect the insurance business include Federal
government participation in health care reform, product liability claims,
environmental regulation, pension regulation (ERISA), the taxation of insurers
and reinsurers, minimum levels of liability insurance and safety regulations.

     Tort Reform.  On a state level, several states, including Michigan, have
adopted tort reforms designed to moderate the risk of practice to health care
providers. Although such legislation is being subjected to numerous
constitutional challenges, it generally has a positive impact by reducing
malpractice losses. Such legislation also tends to result in increased
competition because it causes the particular state to be more attractive to
other insurance companies seeking to expand their markets. The Company has seen
an increase in competition in its markets due, in part, to the passage of tort
reform.

     On the Federal level, attempts to reform the delivery of medical care have
contained provisions that could, if adopted, have a material impact on the
Company and its insurance products. An example of such a change is the concept
of "enterprise liability" that was contained in former President Clinton's
health care proposal. Under the enterprise liability concept, doctors would not
bear individual liability for malpractice events with such liability being borne
by the hospital or other enterprise in which the doctor practices. If enterprise
liability or a similar concept were adopted, insurers such as ProNational could
be at a competitive disadvantage because their business is concentrated in
individual physician risks and larger, more established, companies already
provide medical malpractice insurance for the enterprise risks.

     NAIC -- Codification.  On January 1, 2001, significant changes to the
statutory basis of accounting will become effective in all states in which the
Company is licensed. The cumulative effect of these changes, known as the
Codification guidance, will be recorded as a direct adjustment to statutory
surplus. The effect of adoption on the Company's insurance subsidiaries'
statutory surplus has not been determined. The Company expects that its
insurance subsidiaries' statutory surplus will continue to be in excess of the
regulatory risk-based capital requirements.

SUBSIDIARIES:

     Professionals Group has eight wholly owned subsidiaries and two majority
owned subsidiaries. The wholly owned subsidiaries are: ProNational, ProNational
Insurance Agency, Inc., Professionals Group Services Corporation, Professionals
National Insurance Company, Ltd., American Insurance Management Corporation,
PICOM Claims Services Corporation, ProNational Casualty and Physicians
Protective Plan, Inc. The majority owned subsidiaries are MedAdvantage, Inc. and
MEEMIC Holdings.

EMPLOYEES:

     The Company, primarily through ProNational and MEEMIC, had 372 employees as
of December 31, 2000. None of these employees are covered by a collective
bargaining agreement. The Company believes that it enjoys good relations with
its personnel.

                                        12
<PAGE>   13

FORWARD-LOOKING STATEMENTS:

     We make forward-looking statements in this Annual Report on Form 10-K and
may make such statements in future filings with the SEC. We may also make
forward-looking statements in our press releases or other public or stockholder
communications. Our forward-looking statements, which are subject to risks and
uncertainties, include information about our expectations and possible or
assumed future results of our operations. When we use any of the words
"believes," "hopes," "intends," "expects," "anticipates," "estimates" or similar
expressions, we are making forward-looking statements.

     We claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 for all of our
forward-looking statements. While we believe that our forward-looking statements
are reasonable, you should not place undue reliance on any such forward-looking
statements, which speak only as of the date made. You should understand that a
number of factors, all of which are difficult to predict and many of which are
beyond our control, could affect our future results and performance and any
other expectations expressed in our forward-looking statements. This could cause
our actual results, performance and experience to differ materially from those
expressed in our forward-looking statements. Factors that might cause such a
difference include the following:

     - significantly increased industry competition that causes lower premiums
       and reduced profitability;

     - inflation and changes in the interest rate environment that increase our
       loss costs, or reduce the fair value of our financial instruments, or
       otherwise adversely impact our operations;

     - underwriting losses if the risks we insure are greater than we expect;

     - general economic conditions, either nationally or in our market areas,
       that are worse than expected;

     - adverse changes in the securities markets;

     - legislative or regulatory changes that adversely affect our business;

     - fluctuations in our loss and loss adjustment expense reserves as a result
       of uncertainties inherent in our reserving process;

     - changes in the cost, quality or collectibility of reinsurance;

     - restrictions on our ability to enter new markets successfully and
       capitalize on growth opportunities; and

     - technological changes that are more difficult or expensive than we
       expect.

     We do not undertake, and we specifically disclaim, any obligation to update
any forward-looking statements to reflect the occurrence of unanticipated events
or circumstances after the date of such statements.

GLOSSARY OF SELECTED INSURANCE TERMS:

     A.M. Best Rating. A.M. Best Ratings are divided into "Secure" and
"Vulnerable" rating groups as follows. Secure Ratings: A++, A+ (Superior); A, A-
(Excellent); and B++, B+ (Very Good). Vulnerable Ratings: B, B- (Adequate); C++,
C+ (Fair); C, C- (Marginal); D (Very Vulnerable); E (Under State Supervision);
and F (In Liquidation).

     Cede.  To transfer to another insurer (the reinsurer) all or part of the
insurance risk underwritten by an insurer.

     Claims-made policy.  An insurance policy covering only those claims which
are reported during the policy period.

     Combined ratio.  The sum of the expense ratio and the loss and LAE ratio.

                                        13
<PAGE>   14

     Earned premium.  The prorated portion of an insurance premium which is no
longer considered prepaid as a result of the elapsed time the insurance policy
has been in force. For example, after six months, $12,000 of a prepaid $24,000
annual premium is considered earned premium.

     Excess of loss reinsurance.  A form of reinsurance in which the insurer
cedes to a reinsurer, and such reinsurer assumes, all or a portion of losses in
excess of a specified retention level up to a predetermined limit.

     Expense ratio.  The ratio of underwriting expenses to net premiums earned.

     Incurred but not reported (IBNR).  The liability for future payments on
losses which have occurred but have not yet been reported.

     Loss adjustment expenses (LAE).  The expenses of settling claims, including
legal and other fees.

     Loss and LAE ratio.  The ratio of incurred losses and loss adjustment
expenses to premiums earned. Losses include increases in reserves for extended
reporting period claims.

     Net premiums written.  Premiums retained by an insurer after deducting
premiums on business ceded to others.

     Occurrence Policy.  An insurance policy covering losses occurring during
the policy period, without regard to when the claim is reported to the insurer.

     Quota Share Reinsurance.  A form of reinsurance in which the insurer cedes
and the reinsurer assumes an agreed-upon percentage of risks. Also known as
proportional reinsurance.

     Reinsurance.  A procedure whereby an insurer remits or cedes a portion of
the premium to a reinsurer as payment to the reinsurer for assuming a portion of
the risk or liability under the policy. Reinsurance can be effected by
"treaties" under which all risks of a defined category, amount and type for a
primary insurer are covered, or on a "facultative" basis under which risks are
covered on an individual, contract-by-contract basis.

     Reserves.  Liability established by an insurer to reflect the estimated
cost of claim payments and loss adjustment expenses that the insurer will
ultimately be required to pay with respect to the insurance it has underwritten.

     Standard & Poor's ratings.  Standard & Poor's Insurer Financial Strength
Ratings are divided into "Secure Range" and "Vulnerable Range" groupings as
follows. Secure Range: AAA (Extremely Strong); AA (Very Strong); A (Strong); and
BBB (Good). Vulnerable Range: BB (Marginal); B (Weak); CCC (Very Weak); CC
(Extremely Weak); and R (Regulatory Supervision).

     Statutory Accounting Practices (SAP).  Those principles required by state
law which must be followed by insurers in submitting their financial statements
to state insurance departments.

     Statutory surplus.  The amount remaining after all liabilities of an
insurance company are subtracted from all of its admitted assets, applying
statutory accounting practices.

ITEM 2. PROPERTIES

     Professionals Group owns its principal executive offices in Okemos,
Michigan. MEEMIC leases its principal executive offices in Auburn Hills,
Michigan. MEEMIC also owns, primarily for investment purposes, an 11.5 acre
vacant parcel of land in Auburn Hills, Michigan. The Company leases office
facilities in various locations and also leases computer and operating equipment
under cancelable and noncancelable agreements.

ITEM 3. LEGAL PROCEEDINGS

     There are no material legal proceedings to which Professionals Group or any
of its subsidiaries is a party or to which any of their property is subject.

                                        14
<PAGE>   15

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

     No matters were submitted to a vote of Professionals Group's stockholders
during the fourth quarter of 2000.

EXECUTIVE OFFICERS OF REGISTRANT:

     As of March 1, 2001, the executive officers of Professionals Group
consisted of the persons identified below. Executive officers are elected
annually by, and serve at the pleasure of, Professionals Group's Board of
Directors.

<TABLE>
<CAPTION>
                  NAME                         AGE                   POSITION
                  ----                         ---                   --------
<S>                                            <C>   <C>
William H. Woodhams, M.D................       63    Chairman
Victor T. Adamo, Esq., CPCU.............       53    President and Chief Executive Officer
R. Kevin Clinton, FCAS, MAAA............       46    Vice President
John F. Lang, CPA.......................       36    Vice President, Secretary, Treasurer and
                                                       Chief Financial Officer
William P. Sabados......................       51    Chief Information Officer
</TABLE>

     William H. Woodhams, M.D. has been a director of Professionals Group since
1996 and its Chairman since 1999. Dr. Woodhams was a director of ProNational
Insurance Company from 1980 to July 1, 1998. Dr. Woodhams is board certified in
Family Practice and has been in private practice in Kalamazoo, Michigan since
1964. Dr. Woodhams serves as an Assistant Clinical Professor in the Department
of Family Practice at Michigan State University, College of Human Medicine. Dr.
Woodhams is also a member of the Michigan Board of Medicine Committee of
Licensure and Discipline. Dr. Woodhams served as a member of the Board of
Directors of Physicians Insurance Company of Indiana from 1982 to 1994. Dr.
Woodhams is a graduate of The University of Michigan School of Medicine.

     Victor T. Adamo, Esq., has been the President and Chief Executive Officer
and a director of Professionals Group since 1996. Mr. Adamo has been a director
of ProNational since 1990, and was its Chief Executive Officer from 1987 to 1998
and from 1999 to present. Mr. Adamo has been a director and the Chairman of
MEEMIC since May 1997. Mr. Adamo has been a director and the Chairman of MEEMIC
Holdings since its formation in October 1998. Prior to joining ProNational, Mr.
Adamo was in private legal practice from 1975 to 1985 and represented
ProNational in corporate legal matters. Mr. Adamo is a graduate of The
University of Michigan and New York University School of Law and is a Chartered
Property Casualty Underwriter (CPCU). Mr. Adamo and Mr. R. Kevin Clinton are the
only current directors of Professionals Group who are also employees of
Professionals Group or a subsidiary of Professionals Group.

     R. Kevin Clinton, FCAS, MAAA, has been the President and Chief Executive
Officer and a director of MEEMIC since May 1997. Mr. Clinton has been the
President and Chief Executive Officer and a director of MEEMIC Holdings since
its formation in October 1998. Mr. Clinton was the Chief Financial Officer of
Professionals Group from 1996 to March 2000 and has been a director of
Professionals Group since September 1997. Mr. Clinton served as Vice President,
Treasurer and Actuary of ProNational from 1990 through June 1997. Prior to
becoming an officer of ProNational, Mr. Clinton was ProNational's consulting
actuary from 1986 to 1990. He formerly served as the Actuary for the Michigan
Insurance Bureau and in the actuarial department of Michigan Mutual Insurance
Company. Mr. Clinton is a fellow of the Casualty Actuarial Society and a member
of the American Academy of Actuaries. Mr. Clinton is a graduate of The
University of Michigan where he received a B.A. degree in business
administration and an M.A. in actuarial science. Mr. Clinton and Mr. Victor T.
Adamo are the only current directors of Professionals Group who are also
employees of Professionals Group or a subsidiary of Professionals Group.

                                        15
<PAGE>   16

     John F. Lang, has been a Vice President, Treasurer and Chief Accounting
Officer of Professionals Group since July 1998. Mr. Lang has been the Chief
Financial Officer of Professionals Group since March 2000 and its Secretary
since September 2000. Mr. Lang has been a director and Senior Vice President of
ProNational since May 1999. Mr. Lang served as Treasurer of ProNational from
August 1996 through June 1998 and as Chief Financial Officer of ProNational from
July 1997 through June 1998. Prior to joining ProNational in 1996, Mr. Lang was
a senior manager on the audit staff of Coopers & Lybrand LLP where he was
employed since 1986. Mr. Lang is a CPA and has a B.S.B.A. degree in accounting
from Central Michigan University.

     William P. Sabados, has been the Chief Information Officer of Professionals
Group since July 1998. Mr. Sabados is also a director and Chief Information
Officer of ProNational. Mr. Sabados has been a Vice President and Chief
Information Officer of MEEMIC since February 1997. From 1987 to 1997, Mr.
Sabados was Vice President of Information Systems for the Investor Insurance
Group. Prior to that, Mr. Sabados served as Director of Membership/Billing for
Blue Cross/Blue Shield North East Ohio in Cleveland, Ohio since 1984. Mr.
Sabados is a graduate of David M. Meyers College.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Shares of common stock, no par value per share, of Professionals Group have
been traded on The Nasdaq Stock Market(R) under the symbol "PICM" since
September 3, 1996. Prior to Professionals Group's formation, the stock traded
under the name of PICOM Insurance Company on The Nasdaq Stock Market(R), which
also used the symbol "PICM".

     The table below sets forth the high and low sale prices for the common
stock, no par value per share, of Professionals Group on The Nasdaq Stock
Market(R). In each case the quotations have been adjusted as if the ten percent
stock dividend paid by Professionals Group on December 13, 1999 had occurred
prior to such quarters. Although transactions in common stock, no par value per
share, of Professionals Group have been, and are expected to continue to be,
facilitated by market-makers, there can be no assurance that an established or
liquid trading market will continue.

<TABLE>
<CAPTION>
                                                               COMMON STOCK
                                                              ---------------
                                                               HIGH     LOW
                                                               ----     ---
<S>                                                           <C>      <C>
2000
First Quarter...............................................  $24.56   $14.00
Second Quarter..............................................   24.63    12.63
Third Quarter...............................................   24.23    20.69
Fourth Quarter..............................................   24.50    20.75
1999
First Quarter...............................................  $28.86   $22.96
Second Quarter..............................................   32.27    21.36
Third Quarter...............................................   31.82    21.59
Fourth Quarter..............................................   27.00    20.00
</TABLE>

     As of March 1, 2001 there were 3,940 registered holders of shares of common
stock, no par value per share, of Professionals Group.

     The holders of common stock, no par value per share, of Professionals Group
are entitled to receive such dividends as may be declared from time to time by
the Board of Directors of Professionals Group out of funds legally available
therefor. Professionals Group is not expected to declare cash dividends on its
common stock for the foreseeable future, as it is expected that earnings of
Professionals Group and its subsidiaries will be

                                        16
<PAGE>   17

retained and used for operations or to repurchase Professionals Group's common
stock in open market transactions. Any future dividends will depend upon, among
other things, future financial results and requirements and contractual
restrictions applicable to Professionals Group or its subsidiaries, including a
covenant related to Professionals Group's bank term loan which prohibits the
payment of cash dividends on Professionals Group's common stock (except for cash
paid in lieu of fractional shares related to stock dividends declared).
Professionals Group declared a 10% stock dividend on November 15, 1999 which was
paid on December 13, 1999 to stockholders of record as of November 29, 1999. No
fractional shares of common stock were issued in payment of the stock dividend.
In lieu of fractional shares, an immaterial amount of cash was paid to
stockholders.

     The ability of Professionals Group to fund its operations and to pay
dividends on its common stock will be dependent upon its receipt of dividends,
loans or advances from its insurance company subsidiaries (particularly
ProNational). The ability of those subsidiaries to pay dividends is subject to
regulatory restrictions that generally limit the amount of dividends such
subsidiaries can pay to their respective parent in any 12-month period to the
greater of statutory net income for the preceding year (excluding realized gains
and losses on sales of investments), or ten percent of statutory surplus as of
the end of the preceding year. (See "Item 1.
Business -- Regulation -- Restrictions on Dividends.") As of January 1, 2001,
approximately $25.3 million of dividends could be paid by Professionals Group's
direct insurance subsidiaries without prior regulatory approval. In 2000, 1999
and 1998, Professionals Group received cash dividends aggregating $23.0 million,
$12.0 million and $12.3 million, respectively, from its insurance subsidiaries.
There can be no assurance as to the amount of future dividends to be received by
Professionals Group from its direct insurance subsidiaries (see also Note 11 to
the Company's consolidated financial statements). See also "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

                                        17
<PAGE>   18

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data are derived from the Company's
consolidated financial statements, except for selected statutory data, which are
presented in accordance with statutory accounting practices. The data should be
read in conjunction with the consolidated financial statements, related notes
and other financial information included elsewhere in this report. (All such
information is in thousands, except per share data.)

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                          ----------------------------------------------------
                                            2000       1999       1998       1997       1996
                                            ----       ----       ----       ----       ----
<S>                                       <C>        <C>        <C>        <C>        <C>
Income Statement Data(1):
  Gross premiums written................  $271,241   $225,123   $162,529   $181,170   $154,739
  Net premiums written..................   232,230    199,351    143,922    163,014    124,183
  Net premiums earned...................   226,390    195,169    153,449    132,026    125,406
  Net investment income.................    46,232     41,142     38,443     39,521     39,051
  Total revenues and other income.......   273,425    243,571    203,669    181,542    170,106
  Losses and loss adjustment
     expenses(4)........................   213,228    159,760    171,040    124,234    124,761
          Total expenses................   263,178    208,549    213,032    151,273    144,043
  Income (loss) before extraordinary
     item...............................    11,699     25,791     (3,231)    22,428     18,961
  Extraordinary item(2).................        --      1,397         --         --         --
                                          --------   --------   --------   --------   --------
          Net income (loss).............  $ 11,699   $ 27,188   $ (3,231)  $ 22,428   $ 18,961
                                          ========   ========   ========   ========   ========
  Weighted average shares outstanding --
     basic(3)...........................     8,894      9,145      9,189      9,174      9,155
                                          ========   ========   ========   ========   ========
  Weighted average shares outstanding --
     assuming dilution(3)...............     8,986      9,253      9,189      9,176      9,155
                                          ========   ========   ========   ========   ========
Earnings per share -- basic(3):
  Income (loss) before extraordinary
     item...............................  $   1.32   $   2.82   $  (0.35)  $   2.44   $   2.07
  Extraordinary item(2).................        --       0.15         --         --         --
                                          --------   --------   --------   --------   --------
          Net income (loss) per common
            share -- basic..............  $   1.32   $   2.97   $  (0.35)  $   2.44   $   2.07
                                          ========   ========   ========   ========   ========
Earnings per share -- assuming
  dilution(3):
  Income (loss) before extraordinary
     item...............................  $   1.27   $   2.75   $  (0.35)  $   2.44   $   2.07
  Extraordinary item(2).................        --       0.15         --         --         --
                                          --------   --------   --------   --------   --------
          Net income (loss) per common
            share -- assuming
            dilution....................  $   1.27   $   2.90   $  (0.35)  $   2.44   $   2.07
                                          ========   ========   ========   ========   ========
Cash dividends declared per share.......  $     --   $     --   $     --   $     --   $     --
                                          ========   ========   ========   ========   ========
</TABLE>

                                        18
<PAGE>   19

<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31,
                                            --------------------------------------------------------
                                               2000         1999        1998       1997       1996
                                               ----         ----        ----       ----       ----
<S>                                         <C>          <C>          <C>        <C>        <C>
Balance Sheet Data:
  Total investments.......................  $  780,941   $  758,268   $691,033   $678,642   $644,992
  Total assets............................   1,136,753    1,072,089    889,211    847,990    774,904
  Loss and loss adjustment expense
     reserves.............................     683,113      631,981    540,583    489,207    501,512
  Unearned premiums.......................      93,825       87,305     48,201     56,047     21,945
  Reserve for extended reporting period
     claims...............................      28,074       27,674     26,674     25,628     23,420
  Long-term debt..........................      14,500       17,500     20,000     22,500         --
  Stockholders' equity....................     243,576      216,816    222,097    219,880    190,157
  Book value per common share(3)..........       27.52        24.10      24.13      23.97      20.73
</TABLE>

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                            ----------------------------------------------------
                                              2000       1999       1998       1997       1996
                                              ----       ----       ----       ----       ----
<S>                                         <C>        <C>        <C>        <C>        <C>
Selected Statutory Data:
  Loss and LAE ratio(4)...................      94.4%      89.7%     119.1%      95.8%      99.9%
  Expense ratio(1)........................      20.9%      21.7%      24.6%      14.6%      12.0%
                                            --------   --------   --------   --------   --------
  Combined ratio..........................     115.3%     111.4%     143.7%     110.4%     111.9%
                                            ========   ========   ========   ========   ========
  Statutory surplus.......................  $253,545   $229,657   $193,894   $221,487   $185,648
  Net premiums written to statutory
     surplus..............................       .92x       .60x       .74x       .74x       .67x
Selected GAAP Data:
  GAAP combined ratio(4)..................     115.8%     104.6%     136.5%     113.2%     114.9%
                                            ========   ========   ========   ========   ========
</TABLE>

---------------

(1) From July 1, 1997 through June 30, 1999, the Company assumed 40% of the net
    premiums of MEEMIC. On July 1, 1999, MEEMIC Holdings was consolidated into
    Professionals Group's financial statements as a result of Professionals
    Group obtaining majority ownership (see also Note 4 to the Company's
    consolidated financial statements).

(2) In 1999, the Company recognized a $1.4 million gain on the early
    extinguishment of debt by MEEMIC Holdings, net of taxes of $0.7 million that
    was reported as an extraordinary item.

(3) Weighted average shares outstanding are in thousands. Prior period amounts
    have been restated for the effects of 10% stock dividends on December 13,
    1999, December 23, 1998 and December 16, 1996, respectively.

(4) In 1998 the Company increased its estimated liability for loss and loss
    adjustment expense reserves by $25.6 million to reflect actuarial estimates
    and the application of the Company's reserving practices to its Florida book
    of business. The ratio includes the increase in reserve for extended
    reporting period claims.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
the consolidated financial statements and the notes thereto included elsewhere
in this report. The following discussion contains certain forward-looking
statements relating to anticipated future financial conditions and operating
results of the Company and its current business plans. In the future, the
financial condition and operating results of the Company could differ materially
from those discussed herein and its current business plans could be altered in
response to market conditions and other factors beyond the Company's control.
Important factors that could cause or contribute to such differences or changes
include those discussed elsewhere in this report (e.g., see the disclosures
under "Item 1. Business -- Forward Looking Statements").

                                        19
<PAGE>   20

OVERVIEW

     Professionals Group is organized and operates principally in the property
and casualty insurance industry and has two insurance product segments. The
professional liability segment provides insurance coverage and services to
health care providers through Professionals Group's wholly owned subsidiary,
ProNational Insurance Company. The personal lines segment provides personal
auto, homeowners, boat and umbrella coverages primarily for educational
employees and their families through Professionals Group's majority owned
subsidiary, MEEMIC Holdings, Inc. and MEEMIC Holdings' wholly owned subsidiary,
MEEMIC Insurance Company.

     On July 1, 1999, MEEMIC Holdings was consolidated into Professionals
Group's financial statements as a result of Professionals Group obtaining
majority ownership, at which time both the then existing management services
agreement and quota share reinsurance agreement were terminated (see also Note 4
to the Company's consolidated financial statements.) The transaction was
accounted for as a purchase business combination.

     On July 1, 1998, Professionals Group consummated its merger with Physicians
Protective Trust Fund, a medical malpractice self-insurance trust fund located
in Coral Gables, Florida ("PPTF"). The transaction was accounted for as a
"pooling of interests" business combination under generally accepted accounting
principles, whereby Professionals Group has carried forward to its accounts the
assets and liabilities of PPTF at their respective amounts as reported by PPTF.
All prior period financial information was restated to reflect the combined
operations of Professionals Group and PPTF (see also Note 4 to the Company's
consolidated financial statements.)

FINANCIAL CONDITION

     The Company's total assets increased $64.7 million, or 6.0%, to $1,136.8
million at December 31, 2000, compared to $1,072.1 million at December 31, 1999.
The significant components of the increase in total assets related to invested
assets and reinsurance balances, as further discussed below. Reinsurance
balances increased $27.5 million, or 16.4%, to $195.6 million at December 31,
2000, from $168.1 million at December 31, 1999 due primarily to an increase of
medical malpractice business sold at higher limits, resulting in greater
reinsurance participation, therefore the reinsurance recoverables have continued
to increase.

     As of December 31, 2000 and 1999, the Company had invested assets of $780.9
million and $758.3 million, respectively. This 3.0% increase in invested assets
was primarily due to positive cash flows from operations and an increase in the
fair value of the fixed maturity portfolio, as further discussed below. Invested
assets represented approximately 69% and 71% of the Company's total assets as of
December 31, 2000 and 1999, respectively.

     As of December 31, 2000 and 1999, the Company's investment portfolio was
dominated by fixed maturity securities and primarily consisted of U.S.
government and agency bonds, high-quality corporate bonds, mortgage-backed
securities, redeemable preferred stocks, and tax-exempt U.S. municipal bonds. As
of December 31, 2000 and 1999, these fixed maturity securities aggregated $683.3
million and $731.0 million, respectively. This decrease in fixed maturity
securities was offset by a $70.8 million increase in short-term investments. The
increase in short-term investments was due primarily to the Company's conversion
of fixed maturity securities to short-term investments in order to raise a
portion of the cash for the financing of Professionals Group's proposed
consolidation with Medical Assurance, Inc. See "Liquidity and Capital
Resources." Approximately 54% of the fixed maturity portfolio was rated AAA by
Standard & Poor's at December 31, 2000. The fixed maturity portfolio had an
average Standard & Poor's credit quality rating of AA (Excellent) and there were
no securities in default at December 31, 2000.

     All fixed maturity securities are classified as available-for-sale and are
carried at fair value as of December 31, 2000 and 1999. As a result, the
Company's fixed maturity investment portfolio is sensitive to interest rate
changes. As of December 31, 2000, the fixed maturity portfolio had net
unrealized gains of
                                        20
<PAGE>   21

$7.2 million. As of December 31, 1999, the fixed maturity portfolio had net
unrealized losses of $19.5 million. This change was due primarily to lower
interest rates at year-end 2000 compared to year-end 1999. As of December 31,
2000, the fixed maturity portfolio had a weighted average modified duration of
approximately 4.3 years. As a result, the market value of the fixed maturity
portfolio could fluctuate significantly in response to changes in interest rates
(see also "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk").

     Equity securities totaled $4.9 million at both December 31, 2000 and 1999,
and primarily consisted of high-quality U.S. corporate common stocks. As of
December 31, 2000 and 1999, equity securities had net unrealized gains of $2.3
million and $1.1 million, respectively.

     Loss and loss adjustment expense reserves represented approximately 76% and
74% of the Company's consolidated liabilities at December 31, 2000 and 1999,
respectively. These reserves are determined on the basis of individual claims
and actuarially determined estimates of future losses based on the Company's
past loss experience and projections as to future claims frequency, severity,
inflationary trends and settlement patterns. Estimating reserves, and especially
professional liability reserves, is a complex process that is heavily dependent
on judgment and involves many uncertainties. As a result, reserve estimates may
vary significantly from the eventual outcome. It has been the practice of the
Company to establish its loss and loss adjustment expense reserves within the
range of acceptable values periodically estimated by the Company's consulting
actuary. The Company's carried reserves are recorded based on such actuarial
estimates. The assumptions used in establishing the Company's reserves are
regularly reviewed by management and revised as new data becomes available. Any
adjustments necessary are generally reflected in current operations.

     Loss and loss adjustment expense reserves increased $51.1 million, or 8.1%,
to $683.1 million at December 31, 2000, from $632.0 million at December 31,
1999. This increase was due primarily to a general increase in professional
liability reserves (i.e., new reserves recorded exceeded payments on older
reserves) as well as a substantial reduction in the Company's recognition of
favorable prior year professional liability reserve development. The reduction
in the recognition of favorable prior year development was based on a review of
the Company's reserving needs and on medical malpractice trends. The Company
believes the medical malpractice trends being experienced include increases in
the frequency of reported claims and increases in the severity of settled
claims. The Company further believes that these trends are being experienced on
a national basis and is not specific to any particular geographic region in
which it writes business. The remainder of this increase was due primarily to
general allowances for growth in the number of insured vehicles and homeowners
policies in force in the Company's personal lines segment.

     The unearned premium reserve increased $6.5 million, or 7.5%, to $93.8
million at December 31, 2000, from $87.3 million at December 31, 1999. This
increase was due mainly to general growth in direct premiums written for both
the professional liability lines and personal lines segments in 2000 compared to
1999.

     The $16.7 million excess of assets acquired over cost and the minority
interest of $17.6 million at December 31, 2000 were related to the acquisition
of MEEMIC Holdings (see also Note 4 to the Company's consolidated financial
statements.)

     Shareholders' equity increased $26.8 million, or 12.3%, to $243.6 million
at December 31, 2000, from $216.8 million at December 31, 1999. The increase in
shareholders' equity was due to an increase in accumulated other comprehensive
income, consisting of unrealized gains on the investment portfolio of $18.4
million and net income of $11.7 million, which was offset somewhat by other
decreases in shareholders' equity of $3.3 million (primarily related to the
Company's stock repurchase program -- see "Liquidity and Capital Resources")
during 2000 (see "Results of Operations -- Year Ended December 31, 2000 Compared
to Year Ended December 31, 1999.") The Company expects to use retained earnings
to increase its capital base and finance future growth and, therefore, there can
be no assurance as to any future cash dividends by the Company.

                                        21
<PAGE>   22

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999:

PROFESSIONAL LIABILITY INSURANCE OPERATIONS SEGMENT

     Professional liability net premiums written were $111.1 million for the
year ended December 31, 2000, a decrease of $5.5 million, or 4.7%, compared to
net premiums written of $116.6 million for the year ended December 31, 1999.
This decrease was due primarily to a $4.4 million increase in ceded premiums
during 2000 related to retrospectively-rated reinsurance contracts from older
coverage years. Ceded premiums also increased by $1.1 million due to less
favorable reinsurance terms on a stop loss reinsurance contract entered into for
the 2000 accident year compared to the 1999 stop loss reinsurance terms. The
Company did institute price increases during 2000, which increased premiums
written, but these premium increases were offset by a loss of insureds caused by
the rate increases, as well as more selective underwriting practices utilized by
the Company. The Company is endeavoring to obtain additional premium per unit of
risk in what continues to be a very price competitive professional liability
environment.

     Professional liability net premiums earned were $107.9 million for 2000, a
decrease of $5.5 million, or 4.9%, compared to net premiums earned of $113.4
million for 1999. The decrease in professional liability net premiums earned was
due primarily to the factors mentioned above.

     Professional liability insurance incurred losses and loss adjustment
expenses (including the increase in reserve for extended reporting period
claims) totaled $136.4 million in 2000, an increase of $27.3 million, or 25.1%,
compared to $109.1 million in 1999. As a percentage of premiums earned, the
professional liability insurance incurred loss and loss adjustment expense ratio
(including the increase in reserve for extended reporting period claims)
increased to 126.5% in 2000, compared to 96.2% in 1999. The professional
liability insurance incurred loss and loss adjustment expense ratio has
increased due primarily to increases in claims costs, as well as a reduction in
the Company's recognition of favorable prior year reserve development. The
increase in claims costs and the reduction in the recognition of favorable prior
year development were based on a review of the Company's reserving needs and on
medical malpractice trends. The Company believes the medical malpractice trends
being experienced include increases in the frequency of reported claims and
increases in the severity of settled claims. The Company further believes that
these trends are being experienced on a national basis and is not specific to
any particular geographic region in which it writes business. Accordingly, the
Company reduced its recognition of favorable prior year development on its
professional liability segment to $0.8 million in 2000 compared to $17.1 million
during 1999. In addition, reinsurance benefits derived from a stop loss
reinsurance contract entered into for the 2000 accident year were $3.2 million
lower than the benefits received during the same period of 1999 caused by less
favorable reinsurance terms. A premium deficiency on these insurance contracts
has not been recorded because the operating ratio is 93.6%, after considering
investment income attributable to the professional liability insurance
contracts.

     Professional liability policy acquisition and underwriting expenses totaled
$21.1 million in 2000, a decrease of $3.3 million, or 13.6%, compared to $24.4
million in 1999. As a percentage of premiums earned, the underwriting expense
ratio improved to 19.6% during 2000, from 21.6% during 1999. Underwriting
expenses for 1999 included $2.0 million of severance expenses associated with
the resignation of three executives. Excluding the 1999 severance expenses, the
underwriting ratios for 2000 and 1999 were comparable.

PERSONAL LINES INSURANCE OPERATIONS SEGMENT

     On July 1, 1999, MEEMIC Holdings was consolidated into Professionals
Group's financial statements as a result of Professionals Group obtaining
majority ownership, at which time both the then existing management services
agreement and quota share reinsurance agreement were terminated. Accordingly,
the personal lines segment operating results for 2000 are not necessarily
comparable to 1999.

                                        22
<PAGE>   23

     Personal lines net premiums written were $121.1 million for the year ended
December 31, 2000, an increase of $38.3 million, or 46.4%, compared to net
premiums written of $82.8 million for the year ended December 31, 1999. Personal
lines net premiums earned were $118.5 million for 2000, an increase of $36.7
million, or 44.9%, compared to net premiums earned of $81.8 million for 1999.
The increase in both net premiums written and net premiums earned for personal
lines insurance was due to the July 1, 1999 acquisition of MEEMIC Holdings.

     Personal lines insurance incurred losses and loss adjustment expenses
totaled $77.2 million for 2000, an increase of $25.5 million, or 49.4%, compared
to $51.7 million for 1999. The increase in incurred losses and loss adjustment
expenses was due to the July 1, 1999 acquisition of MEEMIC Holdings. As a
percentage of premiums earned, the personal lines insurance incurred loss and
loss adjustment expense ratio increased to 65.2% in 2000, compared to 63.2% in
1999. The personal lines insurance loss and loss adjustment expense ratio
increased due primarily to more severe winter weather in 2000 compared to 1999.

     Personal lines policy acquisition and underwriting expenses were $27.5
million during 2000, an increase of $8.6 million, or 45.3%, compared to $18.9
million during 1999. The increase in the personal lines policy acquisition and
underwriting expenses was due to the July 1, 1999 acquisition of MEEMIC
Holdings. As a percentage of premiums earned, the underwriting expense ratio was
23.2% during 2000 compared to 23.1% during 1999.

GENERAL INSURANCE OPERATIONS

     Net investment income, excluding net realized investment gains, was $46.2
million for 2000, an increase of $5.1 million, or 12.4%, compared to net
investment income of $41.1 million for 1999. The increase reflects the addition
of MEEMIC's investment portfolio as of July 1, 1999. The weighted average tax
equivalent book yield of the fixed maturity portfolio was 7.1% and 7.0% as of
December 31, 2000 and 1999, respectively. Net realized investment gains (losses)
were ($3.5 million) and $2.7 million during 2000 and 1999, respectively. The
significant amount of investment losses recorded in 2000 was mainly attributable
to the conversion of approximately $50 million of fixed maturity securities to
short-term investments in order to raise a portion of the cash for the financing
of Professionals Group's proposed consolidation with Medical Assurance, Inc.
Realized losses for 2000 also included a $1.4 million loss recognized on certain
securities deemed to have other than temporary declines in fair value. See
"Liquidity and Capital Resources." Interest expense was $1.1 million during both
2000 and 1999. See "Liquidity and Capital Resources."

     The Company recorded a $5.1 million federal income tax benefit during 2000,
compared to $6.7 million of federal income tax expense during 1999. The tax
benefit for 2000 resulted primarily from a $2.2 million tax benefit related to
the filing of amended prior year tax returns. The Company's effective federal
income tax benefit rate was (50.0%) during 2000, compared to an effective tax
rate of 19.1% in 1999. In addition to the tax refund noted above, the Company's
low effective tax rate for both 2000 and 1999 was due primarily to the large
amount of tax-exempt income included in the Company's pretax income during both
periods.

     Net income for 2000 was $11.7 million, or $1.27 per diluted share, on
revenues of $273.4 million. This compares to net income of $27.2 million, or
$2.90 per diluted share, on revenues of $243.6 million for 1999. The reduction
in earnings was primarily attributable to the deterioration in the professional
liability loss and loss adjustment expense ratio, as described previously, which
was partially offset by an increase in earnings from the personal lines segment.
The 1999 results also include a one-time $1.4 million gain on early
extinguishment of debt due to MEEMIC's conversion to a stock company. Net income
for 2000 and 1999 has also been reduced to reflect the minority interest of
MEEMIC Holdings not owned by Professionals Group during 2000 and 1999.

                                        23
<PAGE>   24

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998:

PROFESSIONAL LIABILITY INSURANCE OPERATIONS SEGMENT

     Professional liability net premiums written were $116.6 million for the
year ended December 31, 1999, an increase of $15.4 million, or 15.2%, compared
to net premiums written of $101.2 million for the year ended December 31, 1998.
This increase was due to increased premium writings in the Company's existing
markets of Florida, Illinois, Indiana, Michigan and Pennsylvania as well as
business written in new states such as Kentucky and New Jersey. The most
significant increase was in Florida because of eighteen-month policies issued in
1997 as part of a plan to stagger Florida renewals more evenly throughout the
year. The issuance of eighteen-month policies in 1997 resulted in a one-time
decrease in premiums written in 1998 because these policies were not renewed
until 1999. These increases were offset somewhat by continued price-based
competition as well as more selective underwriting practices utilized by the
Company. The Company is endeavoring to obtain additional premium per unit of
risk in what continues to be a very price competitive professional liability
environment.

     Professional liability net premiums earned were $113.4 million for 1999, an
increase of $2.7 million, or 2.4%, compared to net premiums earned of $110.7
million for 1998. The increase in professional liability net premiums earned was
due primarily to increased business in the Company's Midwest markets.

     Reinsurance experience refunds were $3.1 million in 1998. Through 1995,
reinsurance agreements on the Florida business included profit sharing
provisions whereby premiums were refunded to the Company after an established
period of time if premiums paid exceeded actual losses incurred plus an
allowance for expenses. Interest income also accrued on excess premiums paid. In
prior years, the amount of profit recognized in income was based on ultimate
loss projections established by the Company's independent actuary. Reinsurance
profits were paid to the Company when losses developed favorably. During 1998,
reinsurance contracts covering claims prior to 1991 were commuted. Therefore,
any deferred reinsurance profits from these contracts were recognized in 1998.
Reinsurance experience refunds subsequent to 1998 are not expected to be
material.

     Professional liability insurance incurred losses and loss adjustment
expenses (including the increase in reserve for extended reporting period
claims) totaled $109.1 million in 1999, a decrease of $35.0 million, or 24.3%,
compared to $144.1 million in 1998. The decrease was primarily due to unusually
high loss costs during 1998, including a $25.6 million increase to loss reserves
to reflect actuarial estimates and the application of the Company's reserving
practices to the Florida book of business as well as a $9.5 million excess
limits verdict on one Florida claim. As a percentage of premiums earned, the
professional liability insurance incurred loss and loss adjustment expense ratio
(including the increase in reserve for extended reporting period claims, but
excluding the reserve charges) improved to 96.2% in 1999, compared to 96.7% in
1998. The decrease in the professional liability loss and loss adjustment
expense ratio was mainly attributable to reinsurance benefits derived from a
stop loss reinsurance contract entered into for the 1999 accident year and
favorable development of prior years' loss reserves related to the Company's
book of business in the Midwest.

     Professional liability policy acquisition and underwriting expenses were
$24.4 million in both 1999 and 1998. As a percentage of premiums earned, the
underwriting expense ratio improved to 21.6% during 1999, from 22.1% during
1998. Underwriting expenses for 1999 included $2.0 million of severance expenses
associated with the resignation of three executives. Underwriting expenses for
1998 included $3.3 million of expenses associated with the closing of the PPTF
merger.

PERSONAL LINES INSURANCE OPERATIONS SEGMENT

     On July 1, 1999, MEEMIC Holdings was consolidated into Professionals
Group's financial statements as a result of Professionals Group obtaining
majority ownership, at which time both the then existing management services
agreement and quota share reinsurance agreement were terminated. Accordingly,
the personal lines segment operating results for 1999 are not necessarily
comparable to 1998.

                                        24
<PAGE>   25

     Personal lines net premiums written were $82.8 million for the year ended
December 31, 1999, an increase of $40.1 million, or 93.8%, compared to net
premiums written of $42.7 million for the year ended December 31, 1998. Personal
lines net premiums earned were $81.8 million for 1999, an increase of $39.1
million, or 91.5%, compared to net premiums earned of $42.7 million for 1998.
The increase in both net premiums written and net premiums earned was due to the
July 1, 1999 acquisition of MEEMIC Holdings.

     Personal lines insurance incurred losses and loss adjustment expenses
totaled $51.7 million for 1999, an increase of $23.7 million, or 84.6%, compared
to $28.0 million for 1998. The increase in incurred losses and loss adjustment
expenses was due to the July 1, 1999 acquisition of MEEMIC Holdings. As a
percentage of premiums earned, the personal lines insurance incurred loss and
loss adjustment expense ratio decreased to 63.2% in 1999, compared to 65.6% in
1998. The personal lines insurance loss and loss adjustment expense ratio
benefited from favorable weather conditions in both 1999 and 1998.

     Personal lines policy acquisition and underwriting expenses were $18.9
million during 1999, an increase of $5.9 million, or 45.5%, compared to $13.0
million during 1998. The increase in the personal lines policy acquisition and
underwriting expenses was due to the July 1, 1999 acquisition of MEEMIC
Holdings.

GENERAL INSURANCE OPERATIONS

     Net investment income, excluding net realized investment gains, was $41.1
million for 1999, an increase of $2.7 million, or 7.0%, compared to net
investment income of $38.4 million for 1998. The increase reflects the addition
of MEEMIC's investment portfolio as of July 1, 1999. The weighted average tax
equivalent book yield of the fixed maturity portfolio was 7.0% and 6.9% as of
December 31, 1999 and 1998, respectively. Net realized investment gains were
$2.7 million and $4.8 million during 1999 and 1998, respectively. The
significant amount of investment gains recorded in 1998 was attributable to the
sale of a majority of the Company's common stock portfolio due to the Company's
desire to maximize after-tax investment yield. Interest expense was $1.1 million
and $1.3 million during 1999 and 1998, respectively. See "Liquidity and Capital
Resources."

     The Company recorded $6.7 million in federal income tax expense during
1999, compared to a $6.1 million tax benefit during 1998 due to the pretax loss
generated from the reserve charges. The Company's effective federal income tax
rate was 19.1% during 1999, compared to a tax benefit rate of (65.5%) in 1998.
The Company's relatively low effective tax rate for 1999 was due primarily to an
increase in the percentage of tax-exempt municipal bonds.

     Net income for 1999 was $27.2 million, or $2.90 per diluted share, on
revenues of $243.6 million. This compares to a net loss of $3.2 million, or a
loss of $0.35 per diluted share, on revenues of $203.7 million for 1998. The
improvement in earnings was primarily attributable to the improvement in the
professional liability loss and loss adjustment expense ratio, as described
previously. The 1999 results also include a one-time $1.4 million gain on early
extinguishment of debt due to MEEMIC's conversion to a stock company. Net income
for 1999 has also been reduced to reflect the minority interest of MEEMIC
Holdings not owned by Professionals Group during 1999.

LIQUIDITY AND CAPITAL RESOURCES

     Liquidity describes the ability to generate sufficient cash flows to meet
the cash requirements of continuing operations. Liquidity, in the context of
insurance operations, is typically determined by two distinct operations:
underwriting and investing. Net cash flows from underwriting operations are used
to build an investment portfolio, which in turn produces future cash from
investment income. The Company continuously monitors available cash and
short-term investment balances in relation to projected cash needs to maintain
adequate balances for current payments while maximizing cash available for
longer term investment opportunities.

                                        25
<PAGE>   26

     The payment of losses, loss adjustment expenses and operating expenses in
the ordinary course of business represents the Company's principal need for
liquid funds. Payments for losses and loss adjustment expenses are distributed
fairly evenly throughout the year. Payments for reinsurance are generally made
within thirty days subsequent to the end of each quarter, with adjustments made
after each reinsurance year. Historically, cash used to pay for these items has
been provided by operations. The Company did not borrow any funds during 2000,
1999 or 1998. As of December 31, 2000, no material commitments for capital
expenditures existed, and management believes the Company's present liquidity,
together with its expected cash flow from operations, will be sufficient to fund
its commitments for capital expenditures.

     Professionals Group has an unsecured bank term loan, bearing interest at an
adjustable rate of LIBOR plus 62.5 basis points (7.38% at December 31, 2000),
and payable quarterly (the "Credit Agreement"). As of December 31, 2000, the
outstanding principal balance was $14.5 million. The remaining principal
payments are due on April 30, as follows: 2001 -- $3.0 million; 2002 -$3.5
million; 2003 -- $3.5 million; and 2004 -- $4.5 million. The Company paid the
$3.0 million principal amount due on April 30, 2000.

     The Credit Agreement prohibits the payment of cash dividends on
Professionals Group's common stock (except for cash paid in lieu of fractional
shares related to stock dividends declared). The Credit Agreement also requires
the Company to, among other things, maintain total consolidated stockholders'
equity of at least $80.0 million plus 50% of the preceding fiscal year's
consolidated net income, maintain a ratio of debt to equity of not more than
0.5:1 and maintain a fixed charges coverage ratio and an interest coverage ratio
(as defined by the Credit Agreement) of not less than 1.5:1 and 2.5:1,
respectively. The Company was in compliance with, or had received waivers of,
all required covenants as of December 31, 2000.

     The ability of Professionals Group to fund its operations and to pay
dividends on its common stock will be dependent upon its receipt of dividends,
loans or advances from its insurance company subsidiaries (particularly
ProNational). The ability of those subsidiaries to pay dividends is subject to
regulatory restrictions. Generally, these restrictions limit the amount of
dividends such subsidiaries can pay to their respective parent in any 12-month
period to the greater of statutory net income for the preceding year (excluding
realized gains and losses on sales of investments), or ten percent of
policyholders' surplus as of the end of the preceding year. As of January 1,
2001, approximately $25.3 million of dividends could be paid by Professionals
Group's direct insurance subsidiaries without prior regulatory approval. In
2000, 1999 and 1998, Professionals Group received cash dividends aggregating
$23.0 million, $12.0 million and $12.3 million, respectively, from its insurance
subsidiaries. There can be no assurance as to the amount of future dividends to
be received by Professionals Group from its direct insurance subsidiaries (see
also Note 11 to the Company's consolidated financial statements).

     In 1999, Professionals Group's Board of Directors authorized management to
repurchase up to 440,000 shares of the Company's common stock. During 2000 and
1999, the Company repurchased 200,352 and 239,648 shares under this plan at a
total cost of $4.7 million and $6.5 million, respectively. As of December 31,
2000, all 440,000 shares have been repurchased and the stock repurchase program
has been completed.

     On June 22, 2000, Professionals Group entered into a definitive agreement
to consolidate with Medical Assurance, Inc. (NYSE: MAI) and form a new holding
company, ProAssurance Corporation, that would be the nation's third largest
writer of liability insurance for health care professionals and facilities.
Subject to certain adjustments, Professionals Group shareholders would receive
their choice of either $12.00 in cash and ProAssurance stock initially valued at
$14.00, or $26.00 in cash, for each share of Professionals Group stock they own.
The agreement is subject to required regulatory and shareholder approvals and is
expected to be completed in 2001. ProAssurance filed an amended Form S-4
Registration Statement with the Securities and Exchange Commission on January 4,
2001 regarding the transactions contemplated by the agreement and plan of
consolidation.

     Assuming the consolidation is completed, ProAssurance will derive the cash
needed to pay the Professionals Group shareholders in the consolidation from the
following sources: (i) up to approximately $110 million as dividends from
Medical Assurance and Professionals Group payable to ProAssurance immediately
upon completion of the consolidation; and (ii) up to $110 million from a bank
term loan to be
                                        26
<PAGE>   27

made to ProAssurance and funded concurrently upon completion of the
consolidation. The dividend from Professionals Group will be funded in part with
the proceeds of an extraordinary dividend from ProNational. ProNational filed a
Form D Notice with the Michigan Commissioner of Insurance in support of its
request for approval of the payment of an extraordinary dividend of
approximately $50 million. The payment of this dividend was approved by the
Michigan Commissioner of Insurance on November 28, 2000, and will be paid to
Professionals Group upon completion of the consolidation.

     On July 1, 1999, MEEMIC completed its conversion to a stock insurance
company. As a result of the conversion, MEEMIC became a wholly owned subsidiary
of MEEMIC Holdings, Inc., a publicly traded Michigan business corporation
(Nasdaq: MEMH). As part of MEEMIC's conversion, the Company acquired 5,065,517
shares, or 77%, of the outstanding common stock of MEEMIC Holdings, at a cost of
$50.6 million. Of these shares, 2,302,209 shares were acquired upon the
conversion of a $21.5 million promissory note (plus accrued interest of $1.5
million) previously issued by MEEMIC to ProNational. The remaining 2,763,308
shares were purchased by ProNational for cash of $27.6 million. The excess of
net assets acquired over cost was $19.6 million. This acquisition was accounted
for as a purchase business combination. Beginning July 1, 1999, the financial
results of MEEMIC Holdings have been consolidated into the financial results of
the Company (see also Note 4 to the Company's consolidated financial
statements). ProNational has continued to purchase additional shares of MEEMIC
Holdings in open market transactions to increase it ownership position.
ProNational has purchased 510,016 and 30,580 shares of MEEMIC Holdings at a
total cost of $10.4 million and $0.5 million during 2000 and 1999, respectively,
increasing its ownership position to 84.2% at December 31, 2000. Additional
purchases are anticipated to be made as shares become available and as market
conditions warrant.

     On July 1, 1998, Professionals Group consummated its merger with Physicians
Protective Trust Fund, a medical malpractice self-insurance trust fund located
in Coral Gables, Florida ("PPTF"). Pursuant to the merger agreement,
Professionals Group issued 4,087,525 shares of Professionals Group common stock
to the eligible members of PPTF and paid cash of approximately $67,000 in lieu
of fractional shares. Additionally, 30,594 shares (representing 20% of the
153,000 total shares to be issued over a period of five years) of Professionals
Group common stock were issued to directors and management of PPTF, as
contemplated by the merger agreement (see also Note 4 to the Company's
consolidated financial statements.)

EFFECTS OF INFLATION

     The primary effects of inflation on the Company are considered in
estimating reserves for unpaid losses and loss adjustment expenses and in the
premium rate-making process. The actual effects of inflation on the Company's
results of operations cannot be accurately known until claims are ultimately
settled. However, based on actual results to date, the Company believes that
loss and loss adjustment expense reserves and the Company's rate-making process
make adequate provision for the effects of inflation.

EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 138 ("SFAS No. 138"), "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", which amends SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities," and is
effective for fiscal quarters of all fiscal years beginning after June 15, 2000
(as amended by SFAS No. 137). SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction, and if it is, the type of hedge transaction. SFAS No. 138
addresses a limited number of issues that have caused problems for enterprises
applying SFAS No. 133. As the Company currently does not use derivative
instruments, we anticipate that the adoption of SFAS No. 133 and SFAS No. 138
will not affect the results of operations or financial position of the Company.

                                        27
<PAGE>   28

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

GENERAL

     The Company invests in fixed maturity, equity and short-term securities.
The Company's investment strategy recognizes the need to maintain capital
adequate to support its insurance operations. The Company evaluates the
risk/reward trade-off of investment opportunities, measuring their effects on
yield, stability, diversity, overall quality and liquidity of the investment
portfolio.

     As of December 31, 2000, the majority of the Company's investment portfolio
was invested in fixed maturity securities and short-term investments. The fixed
maturity securities primarily consisted of U.S. government and agency bonds,
high-quality corporate bonds, mortgage-backed securities, redeemable preferred
stocks and tax-exempt U.S. municipal bonds (see also "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition").

QUALITATIVE INFORMATION ABOUT MARKET RISK

     Investments in the Company's portfolio have varying degrees of risk. The
primary market risk exposure to the fixed maturity portfolio is interest rate
risk, which is limited somewhat by managing ProNational's duration to a defined
range of 3.5 to 5.5 years and limiting MEEMIC's duration to a maximum of 300% of
the duration of MEEMIC's liabilities. The distribution of maturities and sector
concentrations are monitored on a regular basis. Equity securities (common
stocks), which generally have greater risk and volatility of market value are
not significant to the Company's overall investment portfolio, therefore,
exposure to equity price risk is not significant. However, market values of
equity securities are monitored regularly.

     The Company regularly examines the quality distribution of its investment
portfolio for evidence of impairment. In such cases, changes in market value are
evaluated to determine the extent to which such changes are attributable to: (i)
interest rates, (ii) market-related factors other than interest rates and (iii)
financial conditions, business prospects and other fundamental factors specific
to the issuer. Declines attributable to issuer fundamentals are reviewed in
further detail. Available evidence is considered to estimate the realizable
value of the investment. When a security in the Company's investment portfolio
has a decline in market value which is other than temporary, the Company is
required by GAAP to reduce the carrying value of such security to its net
realizable value. During 2000, realized losses of $1.4 million were recognized
on certain securities that were deemed to have other than temporary declines in
market value. All other declines in market values of the Company's investment
securities at December 31, 2000 were deemed to be temporary.

     The Company currently has no market risk exposure to foreign currency
exchange rate risk or commodity price risk.

QUANTITATIVE INFORMATION ABOUT MARKET RISK

     Financial instruments subject to interest rate risk as of December 31, 2000
and 1999 were as follows:

<TABLE>
<CAPTION>
                                                        MARKET VALUE (IN THOUSANDS)
                                            ----------------------------------------------------
                                            -200 BPS   -100 BPS              +100 BPS   +200 BPS
                                             CHANGE     CHANGE     ACTUAL     CHANGE     CHANGE
                                            --------   --------    ------    --------   --------
<S>                                         <C>        <C>        <C>        <C>        <C>
Total portfolio value at December 31,
  2000....................................  $839,029   $805,761   $773,706   $742,285   $712,490
                                            ========   ========   ========   ========   ========
Total portfolio value at December 31,
  1999....................................  $797,240   $774,165   $750,669   $727,237   $704,158
                                            ========   ========   ========   ========   ========
</TABLE>

     The Company does not invest in fixed maturity securities for trading
purposes. Exposure to risk is represented in terms of changes in fair value due
to selected hypothetical movements in market rates. Bonds and preferred stocks
are individually priced to yield to the worst case scenario. Securities issued
by states of the United States and political subdivisions of the states are
assumed to hold their prepayment patterns.

                                        28
<PAGE>   29

Mortgage-backed and asset-backed securities are priced assuming deal specific
prepayment scenarios, considering the deal structure, prepayment penalties,
yield maintenance agreements and the underlying collateral. All of the preferred
stocks have mechanisms that are expected to provide an opportunity to liquidate
at par.

     Financial instruments subject to equity market risk as of December 31, 2000
and 1999 were as follows:

<TABLE>
<CAPTION>
                                                                          HYPOTHETICAL MARKET
                                                              ACTUAL            CHANGES
                                                              MARKET      --------------------
                                                              VALUE        +10%         -10%
                                                              ------       ----         ----
                                                                       (IN THOUSANDS)
<S>                                                           <C>         <C>          <C>
Common stocks at December 31, 2000..........................  $4,935      $5,429       $4,442
                                                              ======      ======       ======
Common stocks at December 31, 1999..........................  $4,899      $5,389       $4,409
                                                              ======      ======       ======
</TABLE>

     The table above summarizes the Company's equity price risk as of December
31, 2000 and 1999 and shows the effects of a hypothetical 10% increase and 10%
decrease in the market prices as of December 31, 2000 and 1999. The selected
hypothetical change does not reflect what could be considered the best or worst
case scenarios.

     The Company generally does not invest in equity securities for trading
purposes. As of December 31, 2000 and 1999, equity securities represented less
than 1% of the Company's total assets. The carrying values of publicly traded
investments subject to equity price risk are based on quoted market prices as of
the balance sheet date. Market prices are subject to fluctuation and,
consequently, the amount realized in the subsequent sale of the investment may
significantly differ from the reported market value. Fluctuation in the market
price of a security may result from perceived changes in the underlying economic
characteristics of the investee, the relative prices of alternative investments
and general market conditions. Furthermore, amounts realized in the sale of a
particular security may be affected by the relative quantity of the security
being sold. The carrying values of privately held investments are subject to
equity price risk which are based on the forgoing market price considerations
and also on the underlying value of the issuer and other buyer's perceptions of
such value, as well as lack of liquidity considerations.

                                        29
<PAGE>   30

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                                 ----          ----
                                                               (IN THOUSANDS, EXCEPT
                                                                    SHARE DATA)
<S>                                                           <C>           <C>
ASSETS
Investments:
  Available for sale, at fair value:
     Fixed maturities (amortized cost $676,088 and $750,548
      in 2000 and 1999, respectively).......................  $  683,298    $  731,036
     Equity securities (cost $2,618 and $3,846 in 2000 and
      1999, respectively)...................................       4,935         4,899
  Short-term investments, at cost, which approximates fair
     value..................................................      90,408        19,633
  Real estate, at cost, net of accumulated depreciation of
     $132 in 1999...........................................       2,300         2,700
                                                              ----------    ----------
          Total investments.................................     780,941       758,268
Cash........................................................      22,667        13,797
Restricted cash.............................................       2,070         2,070
Premiums due from policyholders.............................      38,942        34,951
Reinsurance balances........................................     195,559       168,100
Accrued investment income...................................       8,650        10,087
Deferred Federal income taxes...............................      49,690        54,161
Property and equipment, at cost, net of accumulated
  depreciation of $7,130 and $5,888 in 2000 and 1999,
  respectively..............................................      11,052        10,779
Prepaid reinsurance premiums................................       7,394         6,667
Other assets................................................      19,788        13,209
                                                              ----------    ----------
          Total assets......................................  $1,136,753    $1,072,089
                                                              ==========    ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Loss and loss adjustment expense reserves.................  $  683,113    $  631,981
  Reserve for extended reporting period claims..............      28,074        27,674
  Unearned premiums.........................................      93,825        87,305
  Long-term debt............................................      14,500        17,500
  Excess of net assets acquired over cost...................      16,650        18,609
  Accrued expenses and other liabilities....................      39,381        48,400
  Minority interest.........................................      17,634        23,804
                                                              ----------    ----------
          Total liabilities.................................     893,177       855,273
                                                              ----------    ----------
Shareholders' equity:
  Preferred stock, no par value; 5,000,000 shares
     authorized; no shares issued and outstanding...........          --            --
  Common stock, no par value; 25,000,000 shares authorized;
     8,851,223 and 8,997,709 shares issued and outstanding
     in 2000 and 1999, respectively.........................       8,851         8,998
  Additional paid-in capital................................      43,864        47,033
  Retained earnings.........................................     184,667       172,968
  Accumulated other comprehensive income (loss), net of
     deferred Federal income taxes..........................       6,194       (12,183)
                                                              ----------    ----------
          Total shareholders' equity........................     243,576       216,816
                                                              ----------    ----------
          Total liabilities and shareholders' equity........  $1,136,753    $1,072,089
                                                              ==========    ==========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                        30
<PAGE>   31

                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                2000        1999        1998
                                                                ----        ----        ----
                                                              (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                           <C>         <C>         <C>
Revenues and other income:
  Premiums written..........................................  $271,241    $225,123    $162,529
  Premiums ceded............................................   (39,011)    (25,772)    (18,607)
                                                              --------    --------    --------
          Net premiums written..............................   232,230     199,351     143,922
  Decrease (increase) in unearned premiums, net of prepaid
     reinsurance premiums...................................    (5,840)     (4,182)      9,527
                                                              --------    --------    --------
          Premiums earned, net..............................   226,390     195,169     153,449
  Net investment income.....................................    46,232      41,142      38,443
  Net realized investment gains (losses)....................    (3,513)      2,704       4,810
  Reinsurance experience refunds............................        --          --       3,071
  Other.....................................................     4,316       4,556       3,896
                                                              --------    --------    --------
          Total revenues and other income...................   273,425     243,571     203,669
                                                              --------    --------    --------
Expenses:
  Losses and loss adjustment expenses, net..................   213,228     159,760     171,040
  Increase in reserve for extended reporting period
     claims.................................................       400       1,000       1,046
  Policy acquisition and other underwriting expenses........    48,585      43,343      37,424
  Amortization expense, net.................................    (1,126)        142         992
  Interest expense..........................................     1,104       1,098       1,313
  Other.....................................................       987       3,206       1,217
                                                              --------    --------    --------
          Total expenses....................................   263,178     208,549     213,032
                                                              --------    --------    --------
Income (loss) from operations before Federal income taxes
  (benefit), minority interest and extraordinary item.......    10,247      35,022      (9,363)
Federal income taxes (benefit)..............................    (5,121)      6,672      (6,132)
                                                              --------    --------    --------
Income (loss) before minority interest and extraordinary
  item......................................................    15,368      28,350      (3,231)
Minority interest...........................................    (3,669)     (2,559)         --
                                                              --------    --------    --------
Income (loss) before extraordinary item.....................    11,699      25,791      (3,231)
Extraordinary item -- gain on early extinguishment of debt,
  net of taxes of $720......................................        --       1,397          --
                                                              --------    --------    --------
          Net income (loss).................................  $ 11,699    $ 27,188    $ (3,231)
                                                              ========    ========    ========
Net income (loss) per common share -- basic:
     Income (loss) before extraordinary item................  $   1.32    $   2.82    $  (0.35)
     Income from extraordinary item.........................        --        0.15          --
                                                              --------    --------    --------
          Net income (loss) per common share -- basic.......  $   1.32    $   2.97    $  (0.35)
                                                              ========    ========    ========
Net income (loss) per common share -- assuming dilution:
  Income (loss) before extraordinary item...................  $   1.27    $   2.75    $  (0.35)
  Income from extraordinary item............................        --        0.15          --
                                                              --------    --------    --------
          Net income (loss) per common share -- assuming
            dilution........................................  $   1.27    $   2.90    $  (0.35)
                                                              ========    ========    ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                        31
<PAGE>   32

                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                               2000       1999      1998
                                                               ----       ----      ----
                                                                     (IN THOUSANDS)
<S>                                                           <C>       <C>        <C>
Net income (loss)...........................................  $11,699   $ 27,188   $(3,231)
                                                              -------   --------   -------
Other comprehensive income (loss):
  Unrealized holding gains (losses) on securities arising
     during the period (net of income taxes (benefit) of
     $8,379, ($12,878) and $3,917 in 2000, 1999 and 1998,
     respectively)..........................................   16,094    (24,997)    7,604
  Less reclassification adjustment for realized (gains)
     losses included in net income (loss) (net of income
     taxes (benefit) of $(1,230), $919 and $1,635 in 2000,
     1999 and 1998, respectively)...........................    2,283     (1,785)   (3,175)
                                                              -------   --------   -------
          Other comprehensive income (loss).................   18,377    (26,782)    4,429
                                                              -------   --------   -------
          Comprehensive income..............................  $30,076   $    406   $ 1,198
                                                              =======   ========   =======
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                        32
<PAGE>   33

                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                             ACCUMULATED
                                                                                OTHER
                                                                            COMPREHENSIVE
                                  COMMON STOCK                               INCOME, NET
                               ------------------   ADDITIONAL               OF DEFERRED        TOTAL
                                SHARES               PAID-IN     RETAINED      FEDERAL      SHAREHOLDERS'
                                ISSUED     AMOUNT    CAPITAL     EARNINGS   INCOME TAXES       EQUITY
                                ------     ------   ----------   --------   -------------   -------------
                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                            <C>         <C>      <C>          <C>        <C>             <C>
Balances, December 31,
  1997.......................  7,593,275   $7,593    $10,482     $191,635     $ 10,170        $219,880
Net loss.....................         --       --         --       (3,231)          --          (3,231)
Issuance of common stock.....     30,594       31      1,126           --           --           1,157
Issuance of 10% stock
  dividend...................    760,055      760     22,374      (23,272)          --            (138)
Net appreciation on debt and
  equity securities..........         --       --         --           --        4,429           4,429
                               ---------   ------    -------     --------     --------        --------
Balances, December 31,
  1998.......................  8,383,924    8,384     33,982      165,132       14,599         222,097
Net income...................         --       --         --       27,188           --          27,188
Issuance of common stock.....     33,473       34        851           --           --             885
Issuance of 10% stock
  dividend...................    820,688      821     18,465      (19,326)          --             (40)
Common stock repurchased.....   (239,648)    (240)    (6,266)          --           --          (6,506)
Dissenter's rights paid......       (728)      (1)         1          (26)          --             (26)
Net depreciation on debt and
  equity securities..........         --       --         --           --      (26,782)        (26,782)
                               ---------   ------    -------     --------     --------        --------
Balances, December 31,
  1999.......................  8,997,709    8,998     47,033      172,968      (12,183)        216,816
Net income...................         --       --         --       11,699           --          11,699
Issuance of common stock.....     53,866       53      1,136           --           --           1,189
Common stock repurchased.....   (200,352)    (200)    (4,530)          --           --          (4,730)
Tax benefit on MEEMIC
  Holdings stock options
  exercised..................         --       --        225           --           --             225
Net appreciation on debt and
  equity securities..........         --       --         --           --       18,377          18,377
                               ---------   ------    -------     --------     --------        --------
Balances, December 31,
  2000.......................  8,851,223   $8,851    $43,864     $184,667     $  6,194        $243,576
                               =========   ======    =======     ========     ========        ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                        33
<PAGE>   34

                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                2000         1999         1998
                                                                ----         ----         ----
                                                                        (IN THOUSANDS)
<S>                                                           <C>          <C>          <C>
Cash flows from operating activities:
  Net income (loss).........................................  $  11,699    $  27,188    $  (3,231)
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
    Depreciation and amortization...........................      1,224        2,409        4,311
    Realized (gains) losses on investments..................      3,513       (2,704)      (4,810)
    Deferred Federal income taxes...........................     (5,138)       2,166       (5,335)
    Extraordinary gain on early extinguishment of debt......         --       (2,117)          --
    Tax benefit on MEEMIC Holdings stock options
      exercised.............................................        225           --           --
    Common stock issued as compensation.....................      1,189          885        1,157
    Minority interest.......................................     (6,170)       2,070           --
    Changes in assets and liabilities:
      Premiums due from policyholders.......................     (3,991)      (2,504)       9,780
      Reinsurance balances..................................    (27,459)          59      (31,366)
      Accrued investment income.............................      1,437          778       (1,222)
      Prepaid reinsurance premiums..........................       (727)      (1,750)      (1,681)
      Deferred policy acquisition costs.....................     (1,088)      (1,922)        (124)
      Other assets..........................................     (6,156)         919       (4,818)
      Loss and loss adjustment expense reserves.............     51,132       (3,236)      51,376
      Reserve for extended reporting period claims..........        400        1,000        1,046
      Unearned premiums.....................................      6,520        5,931       (7,846)
      Accrued expenses and other liabilities................     (8,993)      (6,479)      (7,730)
                                                              ---------    ---------    ---------
        Net cash provided by (used in) operating
          activities........................................     17,617       22,693         (493)
                                                              ---------    ---------    ---------
Cash flows from investing activities:
  Proceeds from sale or maturity of short-term
    investments.............................................    742,866      954,874      602,999
  Purchases of short-term investments.......................   (812,065)    (953,740)    (573,550)
  Proceeds from maturity of securities available for sale...     34,579       10,638       12,440
  Proceeds from sale of securities available for sale.......    196,937      272,807      201,311
  Purchases of securities available for sale................   (160,625)    (285,706)    (240,420)
  Cash acquired in excess of cash paid related to MEEMIC
    acquisition.............................................         --       20,338           --
  Purchases of real estate, property and equipment..........     (2,683)      (5,743)      (1,306)
  Payment on liability for purchased book of business.......         --         (637)        (600)
                                                              ---------    ---------    ---------
        Net cash provided by (used in) investing
          activities........................................       (991)      12,831          874
                                                              ---------    ---------    ---------
Cash flows from financing activities:
  Repayment of long-term debt...............................     (3,000)      (2,500)      (2,500)
  Repayment of payable related to an acquisition............        (26)     (13,034)          --
  Cash paid for dissenter's rights..........................         --          (26)          --
  Common stock repurchased..................................     (4,730)      (6,506)          --
  Cash paid in lieu of fractional shares....................         --          (40)        (138)
                                                              ---------    ---------    ---------
        Net cash used in financing activities...............     (7,756)     (22,106)      (2,638)
                                                              ---------    ---------    ---------
        Net increase (decrease) in cash.....................      8,870       13,418       (2,257)
Cash, beginning of year.....................................     13,797          379        2,636
                                                              ---------    ---------    ---------
Cash, end of year...........................................  $  22,667    $  13,797    $     379
                                                              =========    =========    =========
Supplemental disclosure of cash flow information:
  Federal income taxes paid.................................  $   9,000    $   6,869    $   4,701
  Interest paid.............................................      1,104        1,098        1,384
Supplemental schedule of noncash investing and financing
  activities:
  Exchange of assets for ownership interest in MEEMIC.......  $      --    $  23,022    $      --
  Issuance of common stock as compensation..................      1,189          885        1,157
  Liability incurred in acquisition of subsidiary...........         --           --          313
                                                              =========    =========    =========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                        34
<PAGE>   35

                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

1. FORMATION OF COMPANY AND DESCRIPTION OF BUSINESS

     Professionals Group, Inc. (Professionals Group) is an insurance holding
company incorporated under Michigan law on January 31, 1996. Professionals Group
owns all of the issued and outstanding common stock of ProNational Insurance
Company (ProNational), a Michigan-domiciled property and casualty insurance
company which primarily provides professional liability insurance coverages and
services to health care providers. ProNational owns 100% of ProNational Casualty
Company (ProNational Casualty), an inactive Illinois-domiciled property and
casualty insurance company. ProNational also owns 84.2% of MEEMIC Holdings, Inc.
(MEEMIC Holdings), a publicly traded insurance holding company which provides
personal auto, homeowners, boat and umbrella coverages primarily for educational
employees and their families through MEEMIC Insurance Company (MEEMIC), a
Michigan-domiciled property and casualty insurance company. Professionals Group
and subsidiaries are collectively referred to as "the Company."

2. PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Professionals
Group and its wholly-owned subsidiaries, as well as entities over which it has
voting control, including MEEMIC Holdings, a publicly traded company in which
Professionals Group has an 84.2% ownership interest. All significant
intercompany transactions and balances have been eliminated in consolidation.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Basis of presentation

     The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP),
which vary in certain respects from statutory accounting practices (SAP)
followed in reporting to insurance regulatory authorities (see Note 14 for the
effects of such differences).

  Investments

     At December 31, 2000 and 1999, all of the Company's securities are
classified as available for sale which are those securities that would be
available to be sold in response to the Company's liquidity needs, changes in
market interest rates and asset-liability management strategies, among others.

     Available for sale securities are recorded at fair value. Unrealized gains
and losses, net of the related income tax effect, are excluded from income and
recorded as other comprehensive income.

     A decline in the fair value of an available for sale security below cost
that is deemed other than temporary results in a charge to income, resulting in
the establishment of a new cost basis for the security. During 2000, losses of
$1,359,000 were recognized on securities that were deemed to have other than
temporary declines in fair value. All other declines in fair values of the
Company's investment securities in 2000, 1999 or 1998 were deemed to be
temporary.

     Investments in preferred stock and common stock of nonaffiliates are stated
at fair value. Fair values for all investments are based on quoted market prices
or dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.

     Short-term investments, which consist principally of commercial paper,
money market funds and U.S. Government securities with maturities less than 90
days, are stated at cost, which approximates fair value.

                                        35
<PAGE>   36
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Premiums and discounts are amortized or accreted, respectively, over the
life of the related debt security as an adjustment to yield using the
yield-to-maturity method. Dividends and interest income are recognized when
earned. Realized gains and losses are included in earnings and are derived using
the specific identification method for determining the cost of securities sold.

     Real estate, which primarily consists of vacant land available for sale, is
stated at cost.

  Revenue recognition

     Insurance premium income is recognized on a monthly pro rata basis over the
respective terms of the policies in force, and unearned premiums represent the
portion of premiums written which is applicable to the unexpired terms of the
policies in force.

     Reinsurance arrangements are prospective contracts for which prepaid
reinsurance premiums are amortized ratably over the related policy terms based
on the estimated ultimate amounts to be paid.

     Through 1995, reinsurance agreements on the Company's Florida business
included profit sharing provisions whereby premiums were refunded to the Company
after an established period of time if they exceeded actual losses incurred plus
an allowance for expenses. Interest income also accrued on excess premiums paid.
In prior years, the amount of profit recognized in income was based on ultimate
loss projections established by the Company's independent actuary. Reinsurance
profits were recognized by the Company when losses developed favorably. During
1998, the 1991 and prior reinsurance contracts were commuted and deferred
reinsurance profits thereon were recognized.

  Loss and loss adjustment expense reserves

     Loss and loss adjustment expense reserves represent the accumulation of
individual case estimates for reported losses and loss adjustment expenses, bulk
adjustments to case estimates and actuarial estimates for incurred but not
reported losses and loss adjustment expenses, based upon the Company's actual
experience, assumptions and projections as to claims frequency, severity,
inflationary trends and settlement payments. Additionally, the Company provides
for loss and loss adjustment expense reserves on assumed business based on
information received from the ceding companies. The reserve for loss and loss
adjustment expenses is intended to cover the ultimate net cost of all losses and
loss adjustment expenses incurred but unsettled through the balance sheet date.

  Reserve for extended reporting period claims

     The reserve for extended reporting period claims coverage is recorded
during the term of the original claims-made policy, utilizing the pure-premium
approach, in amounts believed to be adequate to pay for estimated future claims
reported subsequent to a current policyholder's death, disability or retirement.
Changes in this reserve are charged or credited to income.

  Property and equipment and depreciation

     Property and equipment, consisting of real estate, data processing
equipment and furniture and fixtures, are recorded at cost, net of accumulated
depreciation. Depreciation is computed on the straight-line method over periods
ranging from 3 to 25 years. Maintenance, repairs and minor renewals are charged
to expense as incurred.

                                        36
<PAGE>   37
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The cost and related accumulated depreciation of assets sold are removed
from the related accounts and the resulting gain or loss is reflected in income.

  Deferred policy acquisition costs

     Policy acquisition costs, specifically commissions, are deferred, subject
to ultimate recoverability from future income, including investment income, and
amortized to expense over the period in which related premiums are earned.
During 2000, 1999 and 1998, the Company amortized deferred acquisition costs to
income of $9,253,000, $6,400,000 and $2,737,000, respectively.

  Federal income taxes

     Deferred Federal income tax assets and liabilities are recognized for the
expected future tax consequences attributable to differences between the
financial statement carrying amount of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
these temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

  Intangible assets

     Intangible assets are comprised mainly of goodwill, which represents the
excess of cost over the fair value of assets acquired, and the cost of a
purchased book of business. Intangible assets are being amortized on a
straight-line basis over ten years. The carrying value of intangible assets is
periodically reviewed by the Company based on the expected future undiscounted
operating cash flows of the related item. Based upon its most recent analysis,
the Company believes that no material impairment of intangible assets exists at
December 31, 2000.

  Stock-based compensation

     The Company records compensation expense for stock options only if the
market price of the Company's stock, on the date of grant, exceeds the amount an
individual must pay to acquire the stock.

  Net income per share

     Net income per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents (stock
options and stock grants) outstanding during each year after giving effect to
stock dividends and treasury shares.

                                        37
<PAGE>   38
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A reconciliation of the numerators and denominators of the "income (loss)
per share -- basic" and "income (loss) per share -- assuming dilution" is
presented below:

<TABLE>
<CAPTION>
                                                     INCOME         SHARES       PER-SHARE
                                                  (NUMERATOR)    (DENOMINATOR)    AMOUNT
                                                  ------------   -------------   ---------
<S>                                               <C>            <C>             <C>
FOR THE YEAR ENDED DECEMBER 31, 2000
  Income per share -- basic.....................  $ 11,699,000     8,894,047      $ 1.32
                                                                                  ======
  Effect of dilutive securities -- stock options
     and stock grants...........................            --        91,919
  Effect of MEEMIC Holdings stock options on
     minority interest..........................      (252,000)           --
                                                  ------------     ---------
  Income per share -- assuming dilution.........  $ 11,447,000     8,985,966      $ 1.27
                                                  ============     =========      ======
FOR THE YEAR ENDED DECEMBER 31, 1999
  Income per share - basic......................  $ 27,188,000     9,144,597      $ 2.97
                                                                                  ======
  Effect of dilutive securities -- stock options
     and stock grants...........................            --       108,439
  Effect of MEEMIC Holdings stock options on
     minority interest..........................      (353,000)           --
                                                  ------------     ---------
  Income per share - assuming dilution..........  $ 26,835,000     9,253,036      $ 2.90
                                                  ============     =========      ======
FOR THE YEAR ENDED DECEMBER 31, 1998
  Loss per share -- basic.......................  $ (3,231,000)    9,189,441      $(0.35)
                                                                                  ======
  Effect of dilutive securities -- stock options
     and stock grants...........................            --            --
                                                  ------------     ---------
  Loss per share -- assuming dilution...........  $ (3,231,000)    9,189,441      $(0.35)
                                                  ============     =========      ======
</TABLE>

     The diluted share base for the year ended December 31, 1998 excludes
incremental shares of 72,172 related to stock options and stock grants. These
shares are excluded due to their antidilutive effect as a result of the
Company's net loss during 1998.

  Other comprehensive income

     Other comprehensive income consists solely of unrealized gains or losses on
the Company's available for sale securities.

  Restricted cash

     Restricted cash is an amount required to be deposited in escrow for the
appeal process of a specific case being litigated and decided upon in
arbitration.

  Use of estimates

     In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets and revenues and expenses for
the periods then ended. Actual results may differ from those estimates.

                                        38
<PAGE>   39
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The most significant estimates that are susceptible to significant change
in the near term relate to the determination of the loss and loss adjustment
expense reserves and the reserve for extended reporting period claims. Although
considerable variability is inherent in these estimates, management believes
that the reserves are adequate. The estimates are reviewed regularly and
adjusted as necessary. Such adjustments are generally reflected in current
operations.

4. BUSINESS COMBINATIONS

     On July 1, 1999, Michigan Educational Employees Mutual Insurance Company
completed its conversion to a stock insurance company and changed its name to
MEEMIC Insurance Company (MEEMIC). As a result of the conversion, MEEMIC became
a wholly-owned subsidiary of MEEMIC Holdings, Inc. (MEEMIC Holdings), a publicly
traded Michigan business corporation. As part of MEEMIC's conversion, the
Company acquired 5,065,517 shares, or 77%, of the outstanding common stock of
MEEMIC Holdings, at a cost of $50.6 million. Of these shares, 2,302,209 shares
were acquired upon the conversion of a $21.5 million promissory note (plus
accrued interest of $1.5 million) previously issued by MEEMIC to ProNational.
The remaining 2,763,308 shares were purchased by ProNational for cash of $27.6
million. This acquisition was accounted for as a purchase business combination.
The excess of net assets acquired over cost was $19.6 million, and is being
amortized on the straight-line method over 10 years. As contemplated in MEEMIC's
conversion plan, MEEMIC accelerated the payment of certain debt. This early
extinguishment of debt resulted in an extraordinary gain of $1,397,000, net of
federal income taxes of $720,000 in 1999. Beginning July 1, 1999, the financial
results of MEEMIC Holdings have been consolidated into the financial results of
the Company. The following unaudited proforma information presents a summary of
the consolidated results of operations of the Company for the years ended
December 31, 1999 and 1998, as if this acquisition had occurred on January 1,
1998 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                1999       1998
                                                                ----       ----
<S>                                                           <C>        <C>
Total revenues..............................................  $279,571   $273,895
Income before extraordinary item............................    28,820      6,464
Net income..................................................    30,344      6,678
Diluted income per common share before extraordinary item...      3.11       0.69
Diluted net income per common share.........................      3.28       0.72
</TABLE>

     These unaudited proforma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which would have actually resulted had this acquisition occurred on January 1,
1998 or of future results of operations of the Company. During 2000, the Company
increased its ownership in MEEMIC Holdings to 84.2% at December 31, 2000.

     On July 1, 1998, Professionals Group consummated its merger with Physicians
Protective Trust Fund, a medical malpractice self-insurance trust fund located
in Coral Gables, Florida (PPTF). The transaction has been accounted for as a
"pooling of interests" business combination under generally accepted accounting
principles, whereby Professionals Group has carried forward to its accounts the
assets and liabilities of PPTF at their respective amounts as reported by PPTF.
All prior period financial information was restated to reflect the combined
operations of Professionals Group and PPTF.

     On June 22, 2000, Professionals Group entered into a definitive agreement
to consolidate with Medical Assurance, Inc. (NYSE: MAI) and form a new holding
company, ProAssurance Corporation (ProAssurance), that would be the nation's
third largest writer of liability insurance for health care professionals and
facilities. Subject to certain adjustments, Professionals Group shareholders
would receive their choice of either $12.00 in cash and shares of ProAssurance
stock initially valued at $14.00, or $26.00 in cash, for each share of
Professionals Group stock they own. The agreement is subject to required
regulatory and shareholder
                                        39
<PAGE>   40
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approvals and is expected to be completed in 2001. ProAssurance filed an amended
Form S-4 Registration Statement with the Securities and Exchange Commission on
January 4, 2001 regarding the transactions contemplated by the agreement and
plan of consolidation.

5. INVESTMENTS

     A summary of cost or amortized cost, gross unrealized gains and losses and
estimated fair value of investments in securities available for sale as of
December 31, 2000 and 1999 follows:

<TABLE>
<CAPTION>
                                                COST OR    GROSS UNREALIZED    ESTIMATED
                                               AMORTIZED   -----------------     FAIR
                                                 COST       GAINS    LOSSES      VALUE
                                               ---------   -------   -------   ---------
                                                            (IN THOUSANDS)
<S>                                            <C>         <C>       <C>       <C>
AT DECEMBER 31, 2000:
Fixed maturities:
  U.S. Treasury securities and obligations of
     U.S
  Government corporations and agencies.......  $ 23,780    $   353   $   115   $ 24,018
  Debt securities issued by states of the
     United
  States and political subdivisions of the
     states..................................   269,328      5,676       531    274,473
  Debt securities issued by foreign
     governments.............................     3,722        353        --      4,075
  Corporate debt securities..................   147,069      3,015     1,985    148,099
  Mortgage-backed securities:
     Government..............................   145,980      1,279     1,043    146,216
     Other...................................    56,931        659       666     56,924
  Redeemable preferred stocks................    29,278        536       321     29,493
                                               --------    -------   -------   --------
                                               $676,088    $11,871   $ 4,661   $683,298
                                               ========    =======   =======   ========
Equity securities............................  $  2,618    $ 2,331   $    14   $  4,935
                                               ========    =======   =======   ========
</TABLE>

<TABLE>
<CAPTION>
                                                COST OR    GROSS UNREALIZED    ESTIMATED
                                               AMORTIZED   -----------------     FAIR
                                                 COST       GAINS    LOSSES      VALUE
                                               ---------   -------   -------   ---------
                                                            (IN THOUSANDS)
<S>                                            <C>         <C>       <C>       <C>
AT DECEMBER 31, 1999:
Fixed maturities:
  U.S. Treasury securities and obligations of
     U.S
  Government corporations and agencies.......  $ 41,520    $   103   $ 1,388   $ 40,235
  Debt securities issued by states of the
     United
  States and political subdivisions of the
     states..................................   358,686      2,087     9,563    351,210
  Debt securities issued by foreign
     governments.............................     3,728         --       100      3,628
  Corporate debt securities..................   115,019         86     3,491    111,614
  Mortgage-backed securities:
     Government..............................   149,721         80     5,104    144,697
     Other...................................    57,475         16     2,290     55,201
  Redeemable preferred stocks................    24,399        183       131     24,451
                                               --------    -------   -------   --------
                                               $750,548    $ 2,555   $22,067   $731,036
                                               ========    =======   =======   ========
Equity securities............................  $  3,846    $ 1,071   $    18   $  4,899
                                               ========    =======   =======   ========
</TABLE>

     The amortized cost and estimated fair value of fixed maturities at December
31, 2000, by contractual maturity, are shown below. Expected maturities on
certain corporate and mortgage-backed securities may
                                        40
<PAGE>   41
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                                              AMORTIZED   ESTIMATED
                                                                COST      FAIR VALUE
                                                              ---------   ----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>         <C>
Due in one year or less.....................................  $ 23,767     $ 23,820
Due after one year through five years.......................   107,192      108,180
Due after five years through ten years......................   193,453      197,228
Due after ten years.........................................   119,487      121,437
                                                              --------     --------
                                                               443,899      450,665
Mortgage-backed securities:
  Government................................................   145,980      146,216
  Other.....................................................    56,931       56,924
Redeemable preferred stocks.................................    29,278       29,493
                                                              --------     --------
                                                              $676,088     $683,298
                                                              ========     ========
</TABLE>

     Proceeds and related gross realized gains and gross realized losses on
sales of fixed maturities and equity securities follow:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2000       1999       1998
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Proceeds.............................................  $196,937   $272,807   $201,311
                                                       ========   ========   ========
Gross realized gains.................................  $  1,931   $  4,192   $  5,906
Gross realized losses................................    (5,444)    (1,488)    (1,096)
                                                       --------   --------   --------
  Net realized gains (losses)........................  $ (3,513)  $  2,704   $  4,810
                                                       ========   ========   ========
</TABLE>

     A summary of the sources of net investment income follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2000      1999      1998
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Fixed maturities........................................  $43,652   $39,833   $38,584
Equity securities.......................................        3         7       151
Short-term investments and cash.........................    3,866     2,605     1,308
Real estate.............................................       51        51       298
Other invested assets...................................      423       116        65
                                                          -------   -------   -------
  Gross investment income...............................   47,995    42,612    40,406
Less investment expenses................................    1,763     1,470     1,963
                                                          -------   -------   -------
                                                          $46,232   $41,142   $38,443
                                                          =======   =======   =======
</TABLE>

                                        41
<PAGE>   42
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Net realized gains (losses) and net appreciation (depreciation) in fair
value of available for sale securities follow:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2000       1999      1998
                                                          -------   --------   ------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>        <C>
Net realized gains (losses):
  Fixed maturities......................................  $(4,002)  $  2,585   $1,369
  Equity securities.....................................      489        119    3,441
                                                          -------   --------   ------
       Net realized gains (losses)......................  $(3,513)  $  2,704   $4,810
                                                          =======   ========   ======
Net appreciation (depreciation) in fair value of
  available for sale securities:
  Fixed maturities......................................  $26,722   $(41,766)  $8,031
  Equity securities.....................................    1,264      1,187   (1,320)
                                                          -------   --------   ------
       Net appreciation (depreciation)..................  $27,986   $(40,579)  $6,711
                                                          =======   ========   ======
</TABLE>

     At December 31, 2000, U.S. Treasury notes and certificates of deposit with
a carrying value of $5,834,000 were on deposit with regulatory authorities, as
required by law.

6. REINSURANCE

     In the normal course of business, the Company seeks to reduce the loss that
may arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Amounts receivable from reinsurers are estimated in a
manner consistent with the claim liability associated with the reinsured policy.
Although reinsurance agreements contractually obligate the Company's reinsurers
to reimburse the Company for their proportionate share of losses, they do not
discharge the primary liability of the Company. The Company remains liable for
the ceded amount of reserves for unpaid losses and loss adjustment expenses and
unearned premiums in the event the assuming insurance organizations are unable
to meet their contractual obligations.

     The Company has various excess-of-loss, quota-share and stop loss
reinsurance agreements. As of December 31, 2000, the maximum current net
retention on business generated by Professionals Group's insurance subsidiaries,
subject to certain adjustments of risk on any single coverage per claim after
reinsurance, was $500,000.

     The Company continually reviews its reinsurers, considering a number of
factors, the most critical of which is their financial stability. Based on these
reviews, the Company evaluates its position with reinsurers with respect to
existing and future reinsurance.

     From July 1, 1997 through June 30, 1999, ProNational assumed, on a
quota-share basis, 40% of MEEMIC's net business. In connection with the
acquisition of MEEMIC Holdings (see Note 4), this quota share reinsurance
agreement was cancelled on June 30, 1999.

                                        42
<PAGE>   43
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     At December 31, 2000, amounts related to reinsurance balances and prepaid
reinsurance premiums follow:

<TABLE>
<CAPTION>
                                                                              PREPAID
                                                              REINSURANCE   REINSURANCE
                                                               BALANCES      PREMIUMS
                                                              -----------   -----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
General Reinsurance Corporation.............................   $ 53,553       $2,986
Michigan Catastrophic Claims Association....................     36,079           --
PMA Reinsurance Corporation.................................     25,373        1,210
Continental Casualty Company................................     21,713          417
DP Mann Underwriting Agency.................................     14,252          139
American Reinsurance Company................................      9,141           47
Odyssey Reinsurance Corporation.............................      5,418          695
Transatlantic Reinsurance...................................      4,884          695
Max Re Ltd..................................................      4,529           --
TIG Reinsurance Company.....................................      4,425           --
Gerling Global Reinsurance Corp. of America.................      2,647           --
Other.......................................................     13,545        1,205
                                                               --------       ------
                                                               $195,559       $7,394
                                                               ========       ======
</TABLE>

     Reinsurance balances consisted of amounts related to:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Recoverables:
  Paid losses and loss adjustment expenses..................  $  9,395   $  6,275
  Unpaid losses and loss adjustment expenses................   195,331    167,722
                                                              --------   --------
          Total reinsurance recoverables....................   204,726    173,997
Ceded reinsurance premiums payable..........................   (10,943)    (6,919)
Assumed reinsurance premiums receivable.....................       337        388
Ceded reinsurance commissions receivable....................     2,489      2,062
Assumed reinsurance losses and commissions payable..........    (1,050)    (1,428)
                                                              --------   --------
                                                              $195,559   $168,100
                                                              ========   ========
</TABLE>

     The effect of reinsurance on premiums written and earned is as follows:

<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31,
                          ---------------------------------------------------------------
                                 2000                  1999                  1998
                          -------------------   -------------------   -------------------
                          WRITTEN     EARNED    WRITTEN     EARNED    WRITTEN     EARNED
                          --------   --------   --------   --------   --------   --------
                                                  (IN THOUSANDS)
<S>                       <C>        <C>        <C>        <C>        <C>        <C>
Direct..................  $269,568   $262,713   $199,759   $193,180   $114,749   $122,547
Assumed -- MEEMIC.......        --         --     22,513     22,513     42,693     42,693
Assumed -- other........     1,673      1,961      2,851      3,497      5,087      5,135
Ceded...................   (39,011)   (38,284)   (25,772)   (24,021)   (18,607)   (16,926)
                          --------   --------   --------   --------   --------   --------
  Net...................  $232,230   $226,390   $199,351   $195,169   $143,922   $153,449
                          ========   ========   ========   ========   ========   ========
</TABLE>

                                        43
<PAGE>   44
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The effect of reinsurance on losses and loss adjustment expenses incurred
are as follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2000       1999       1998
                                                         ----       ----       ----
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Assumed -- MEEMIC....................................  $   (192)  $ 11,872   $ 28,000
Assumed -- Other.....................................     2,575      2,684      4,208
                                                       --------   --------   --------
          Total assumed..............................  $  2,383   $ 14,556   $ 32,208
                                                       ========   ========   ========
Ceded................................................  $(64,106)  $(36,869)  $(31,973)
                                                       ========   ========   ========
</TABLE>

7. FEDERAL INCOME TAXES

     Professionals Group, together with its subsidiaries, files a consolidated
Federal income tax return. Prior to Professionals Group obtaining more than 80%
ownership of MEEMIC Holdings on September 15, 2000, MEEMIC Holdings, together
with its subsidiaries, filed its own consolidated Federal income tax return. The
income tax expense or benefit for both Professionals Group and MEEMIC Holdings
is computed under the liability method, whereby deferred income taxes reflect
the estimated future tax effects of temporary differences between the carrying
value of assets and liabilities for financial reporting purposes and those for
income tax purposes.

     The provision for Federal income taxes (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                          2000       1999      1998
                                                          ----       ----      ----
                                                                (IN THOUSANDS)
<S>                                                      <C>       <C>        <C>
Current................................................  $    17   $  4,506   $  (797)
Deferred...............................................   (5,138)     2,166    (5,335)
                                                         -------   --------   -------
                                                         $(5,121)  $  6,672   $(6,132)
                                                         =======   ========   =======
</TABLE>

     The significant components of Federal income tax expense (benefit) are as
follows:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                          2000       1999      1998
                                                          ----       ----      ----
                                                                (IN THOUSANDS)
<S>                                                      <C>       <C>        <C>
Continuing operations..................................  $(5,121)  $  6,672   $(6,132)
Extraordinary item.....................................       --        720        --
Shareholders' equity...................................    9,384    (13,797)    2,282
                                                         -------   --------   -------
                                                         $ 4,263   $ (6,405)  $(3,850)
                                                         =======   ========   =======
</TABLE>

                                        44
<PAGE>   45
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Actual Federal income taxes (benefit) vary from amounts computed by
applying the current Federal income tax rate of 35% for 2000 and 34% for 1999
and 1998 to income or loss before Federal income taxes (benefit). The reasons
for these differences, and the tax effects thereof, are as follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2000      1999      1998
                                                           ----      ----      ----
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Expected tax expense (benefit)..........................  $ 3,586   $11,907   $(3,183)
Dividends received deduction............................     (307)     (219)     (202)
Tax-exempt interest.....................................   (4,571)   (4,708)   (3,733)
Non deductible merger expenses..........................       --        --       801
Effect of tax rate change on deferred provision.........     (826)       --        --
Adjustment to prior years' tax liability................   (2,108)      263       515
Other, net..............................................     (895)     (571)     (330)
                                                          -------   -------   -------
Actual tax expense (benefit)............................  $(5,121)  $ 6,672   $(6,132)
                                                          =======   =======   =======
</TABLE>

     The tax effects of temporary differences that give rise to deferred Federal
income tax assets and deferred Federal income tax liabilities follow:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               2000      1999
                                                               ----      ----
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Deferred Federal income tax assets arising from:
  Intangible assets.........................................  $11,815   $12,721
  Loss and loss adjustment expense reserves.................   20,912    23,340
  Unearned premium reserves.................................    6,050     5,483
  Alternative minimum tax credits...........................      454     1,100
  Other tax credit carryforwards............................       --     2,162
  Net unrealized losses on investments......................       --     6,276
  Net operating loss carryforwards..........................   15,443     3,870
  Other.....................................................      980     1,803
                                                              -------   -------
          Total deferred Federal income tax assets..........   55,654    56,755
                                                              -------   -------
Deferred Federal income tax liabilities arising from:
  Deferred policy acquisition costs.........................    1,696     1,221
  Net unrealized gains on investments.......................    3,334        --
  Other.....................................................      934     1,373
                                                              -------   -------
          Total deferred Federal income tax liabilities.....    5,964     2,594
                                                              -------   -------
          Net deferred Federal income taxes.................  $49,690   $54,161
                                                              =======   =======
</TABLE>

     As of December 31, 2000, the Company has $44,100,000 of net operating loss
carryforwards which may be used to offset future taxable income. These loss
credits begin to expire in 2013.

                                        45
<PAGE>   46
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

     Activity in loss and loss adjustment expense reserves is summarized as
follows:

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                        2000       1999        1998
                                                        ----       ----        ----
                                                              (IN THOUSANDS)
<S>                                                   <C>        <C>         <C>
Balance, beginning of year..........................  $631,981   $ 540,583   $489,207
Less reinsurance balances recoverable...............  (167,722)   (108,036)   (80,431)
                                                      --------   ---------   --------
Net balance, beginning of year......................   464,259     432,547    408,776
                                                      --------   ---------   --------
Incurred related to:
  Current year......................................   223,480     181,944    161,417
  Prior years.......................................   (10,252)    (22,184)     9,623
                                                      --------   ---------   --------
          Total incurred............................   213,228     159,760    171,040
                                                      --------   ---------   --------
Loss and loss adjustment expense reserves acquired
  (see Note 4)......................................        --      39,836         --
                                                      --------   ---------   --------
Paid related to:
  Current year......................................    63,218      47,191     26,157
  Prior years.......................................   126,487     120,693    121,112
                                                      --------   ---------   --------
          Total paid................................   189,705     167,884    147,269
                                                      --------   ---------   --------
Net balance, end of year............................   487,782     464,259    432,547
Plus reinsurance balances recoverable...............   195,331     167,722    108,036
                                                      --------   ---------   --------
Balance, end of year................................  $683,113   $ 631,981   $540,583
                                                      ========   =========   ========
</TABLE>

     The estimates for loss and loss adjustment expense reserves are reviewed
regularly and adjusted as necessary which resulted in favorable reserve
development of prior years' reserves in 2000 and 1999. The unfavorable reserve
development in 1998 was mainly attributable to a $25.6 million reserve charge
recorded in 1998 to reflect actuarial estimates and the application of the
Company's reserving practices to the Florida book of business acquired as part
of the merger with PPTF in July 1998 as well as a $9.5 million excess limits
verdict on one Florida claim. This unfavorable reserve development was offset
somewhat by $25.5 million of favorable reserve development related to the
Company's Midwest book of business.

9. LONG-TERM DEBT

     Professionals Group has an unsecured bank term loan, bearing interest at an
adjustable rate of LIBOR plus 62.5 basis points (7.38% at December 31, 2000),
and payable quarterly (the "Credit Agreement"). Remaining principal payments are
due on April 30 of each year, as follows: 2001 -- $3,000,000; 2002 --
$3,500,000; 2003 -- $3,500,000; and 2004 -- $4,500,000.

     The Credit Agreement prohibits the payment of cash dividends on
Professionals Group's common stock (except for cash paid in lieu of fractional
shares related to stock dividends declared). The Credit Agreement also requires
the Company to, among other things, maintain total consolidated shareholders'
equity of at least $80.0 million plus 50% of the preceding fiscal year's
consolidated net income, maintain a ratio of debt to equity of not more than
0.5:1 and maintain a fixed charges coverage ratio and an interest coverage ratio
(as defined by the Credit Agreement) of not less than 1.5:1 and 2.5:1,
respectively. The Company was in compliance with, or has received waivers of,
all required covenants as of December 31, 2000.

                                        46
<PAGE>   47
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE BENEFIT PLANS

     Professionals Group and its subsidiaries currently maintain several defined
contribution employee benefit plans, stock purchase plans and incentive plans,
all of which cover substantially all employees of the respective subsidiaries
meeting certain eligibility requirements. The Company's contributions to these
plans are primarily based on various percentages of compensation, and in some
instances are based upon the amount of the employees' contributions to the
plans. The Company's expense under all benefit plans was $3,165,000, $2,193,000
and $1,541,000 in 2000, 1999 and 1998, respectively.

11. SHAREHOLDERS' EQUITY

     Approximately $955.6 million of consolidated assets represents assets of
the Company's insurance operations that are subject to regulation and may not be
transferred to Professionals Group in the form of dividends, loans or advances.
The amount of dividends that Professionals Group's insurance subsidiaries can
pay to Professionals Group in any 12-month period is limited to the greater of
statutory net income for the preceding year, excluding realized gains (losses)
on sales of investments, or 10% of statutory surplus as of the preceding year
end. As of January 1, 2001, approximately $25,354,000 could be paid by
Professionals Group's insurance subsidiaries without prior regulatory approval.
In 2000, 1999 and 1998, Professionals Group received dividends of $23,000,000,
$12,000,000 and $12,316,000, respectively from its insurance subsidiaries.

     In 1999, Professionals Group's Board of Directors authorized management to
repurchase up to 440,000 shares of the Company's common stock. During 2000 and
1999 the Company repurchased 200,352 and 239,648 shares under this plan at a
total cost of $4,730,000 and $6,506,000, respectively.

12. STOCK OPTIONS AND AWARDS

     Professionals Group has established the 1996 Long-term Stock Incentive Plan
(the "Incentive Plan") under which, subject to adjustment, 300,000 shares of
Professionals Group's common stock are available to grant incentive and
non-qualified stock options, stock appreciation rights (SARs), restricted stock,
restricted stock units, performance awards, dividend equivalents and other
stock-based awards to employees of Professionals Group, including any officer or
officer-director, or consultants to Professionals Group and its subsidiaries.
All terms and conditions of any grants under the Incentive Plan are at the
discretion of the Compensation Committee of Professionals Group's board of
directors. Currently, all options have been granted at the market price of
Professionals Group's common stock on the date of grant. These options vest and
become exercisable over five years beginning one year from the date of grant,
and expire ten years from the date of grant.

     Professionals Group also established the 1996 Non-Employee Directors Stock
Option Plan (the "Directors Plan"), under which, subject to adjustment,
non-qualified options for 50,000 shares of Professionals Group's common stock
may be granted to non-employee directors (maximum of 5,000 shares to one
individual) of Professionals Group. Options are granted at the market price of
Professionals Group's common stock on the date of grant. Options become
exercisable one year from the date of grant and expire seven years from the date
of grant.

     MEEMIC Holdings has established a stock compensation plan (the "MEEMIC
Plan") under which 300,000 shares of MEEMIC Holdings' common stock are available
to provide performance-based compensation to officers, directors and employees
of MEEMIC Holdings and its subsidiaries. All terms and conditions of any grants
under the MEEMIC Plan are at the discretion of the Compensation Committee of
MEEMIC Holdings' board of directors. Currently, all options have been granted at
the market price of MEEMIC

                                        47
<PAGE>   48
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Holdings' common stock on the date of grant. These options vest and become
exercisable over five years beginning one year from the date of the grant, and
expire ten years from the date of grant.

     For all three option plans, no charges to operations are recorded with
respect to authorization, grant or exercise of options and proceeds received
upon exercise are credited to shareholders' equity.

     Option information regarding the Incentive Plan for the years ending
December 31, 2000, 1999 and 1998 follows:

<TABLE>
<CAPTION>
                                               2000                 1999                 1998
                                        ------------------   ------------------   ------------------
                                                  WEIGHTED             WEIGHTED             WEIGHTED
                                                  AVERAGE              AVERAGE              AVERAGE
                                                  EXERCISE             EXERCISE             EXERCISE
                                        SHARES     PRICE     SHARES     PRICE     SHARES     PRICE
                                        -------   --------   -------   --------   -------   --------
<S>                                     <C>       <C>        <C>       <C>        <C>       <C>
Outstanding at beginning of year......  253,065    $29.94    161,150    $33.64    146,500    $37.00
Granted...............................    6,502     23.97     71,000     30.35         --        --
Stock dividend adjustment.............       --        --     20,915     30.58     14,650     33.64
Exercised.............................       --        --         --        --         --        --
Canceled..............................  (11,600)    27.53         --        --         --        --
                                        -------              -------              -------
Outstanding at end of year............  247,967     29.89    253,065     29.94    161,150     33.64
                                        =======              =======              =======
Options exercisable at end of year....  127,021               70,906               32,230
                                        =======              =======              =======
Weighted average fair value of options
  granted during the year.............             $ 5.37               $12.55               $   --
                                                   ======               ======               ======
</TABLE>

     Options outstanding as of December 31, 2000 under the Incentive Plan
consisted of the following:

<TABLE>
<CAPTION>
                             OPTIONS OUTSTANDING                                 OPTIONS EXERCISABLE
------------------------------------------------------------------------------   --------------------
                                                         WEIGHTED
                                                          AVERAGE     WEIGHTED              WEIGHTED
                                                         REMAINING    AVERAGE                AVERAGE
                                                        CONTRACTUAL   EXERCISE              EXERCISE
          RANGE OF EXERCISE PRICES            NUMBER       LIFE        PRICE      NUMBER      PRICE
          ------------------------            ------    -----------   --------    ------    --------
<S>                                           <C>       <C>           <C>        <C>        <C>
$16.25 - $32.85.............................  247,967    6.7 years     $29.89    127,021     $30.04
                                              =======                            =======
Options available for grant at end of
  year......................................   40,433
                                              =======
</TABLE>

                                        48
<PAGE>   49
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Option information regarding the Directors Plan for the years ending
December 31, 2000, 1999 and 1998 follows:

<TABLE>
<CAPTION>
                                              2000                1999                1998
                                        -----------------   -----------------   -----------------
                                                 WEIGHTED            WEIGHTED            WEIGHTED
                                                 AVERAGE             AVERAGE             AVERAGE
                                                 EXERCISE            EXERCISE            EXERCISE
                                        SHARES    PRICE     SHARES    PRICE     SHARES    PRICE
                                        ------   --------   ------   --------   ------   --------
<S>                                     <C>      <C>        <C>      <C>        <C>      <C>
Outstanding at beginning of year......  22,158    $23.77    15,345    $25.44     9,450    $22.38
Granted...............................   4,500     16.84     6,500     27.63     4,500     39.75
Stock dividend adjustment.............      --        --     2,018     23.77     1,395     25.44
Exercised.............................      --        --        --        --        --        --
Canceled/expired......................  (6,502)    23.97    (1,705)    25.44        --        --
                                        ------              ------              ------
Outstanding at end of year............  20,156     22.16    22,158     23.77    15,345     25.44
                                        ======              ======              ======
Options exercisable at end of year....  15,656              15,008              10,395
                                        ======              ======              ======
Weighted average fair value of options
  granted during the year.............            $ 8.80              $12.44              $19.46
                                                  ======              ======              ======
</TABLE>

     Options outstanding as of December 31, 2000 under the Directors Plan
consisted of the following:

<TABLE>
<CAPTION>
                             OPTIONS OUTSTANDING                                 OPTIONS EXERCISABLE
------------------------------------------------------------------------------   -------------------
                                                         WEIGHTED
                                                          AVERAGE     WEIGHTED             WEIGHTED
                                                         REMAINING    AVERAGE               AVERAGE
                                                        CONTRACTUAL   EXERCISE             EXERCISE
          RANGE OF EXERCISE PRICES             NUMBER      LIFE        PRICE     NUMBER      PRICE
          ------------------------             ------   -----------   --------   ------    --------
<S>                                            <C>      <C>           <C>        <C>       <C>
$16.25 - $32.85.............................   20,156    4.5 years     $22.16    15,656     $23.69
                                               ======                            ======
Options available for grant at end of
  year......................................   21,637
                                               ======
</TABLE>

     Option information regarding the MEEMIC Plan for the years ending December
31, 2000 and 1999 follows:

<TABLE>
<CAPTION>
                                                                2000                 1999
                                                         ------------------   ------------------
                                                                   WEIGHTED             WEIGHTED
                                                                   AVERAGE              AVERAGE
                                                                   EXERCISE             EXERCISE
                                                         SHARES     PRICE     SHARES     PRICE
                                                         -------   --------   -------   --------
<S>                                                      <C>       <C>        <C>       <C>
Outstanding at beginning of year.......................  280,000    $10.00         --    $   --
Granted................................................       --        --    280,000     10.00
Exercised..............................................  (56,000)    10.00         --        --
Canceled...............................................       --        --         --        --
                                                         -------              -------
Outstanding at end of year.............................  224,000     10.00    280,000     10.00
                                                         =======              =======
Options exercisable at end of year.....................       --                   --
                                                         =======              =======
Weighted average fair value of options granted during
  the year.............................................             $   --               $ 5.14
                                                                    ======               ======
</TABLE>

                                        49
<PAGE>   50
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Options outstanding as of December 31, 2000 under the MEEMIC Plan consisted
of the following:

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING
-------------------------------------------------------------------------------   OPTIONS EXERCISABLE
                                                          WEIGHTED                -------------------
                                                           AVERAGE     WEIGHTED             WEIGHTED
                                                          REMAINING    AVERAGE               AVERAGE
                                                         CONTRACTUAL   EXERCISE             EXERCISE
          RANGE OF EXERCISE PRICES             NUMBER       LIFE        PRICE     NUMBER      PRICE
          ------------------------             ------    -----------   --------   ------    --------
<S>                                            <C>       <C>           <C>        <C>       <C>
$10.00.......................................  224,000    8.5 years     $10.00       --       $  --
                                               =======                             ====
Options available for grant at end of year...   20,000
                                               =======
</TABLE>

     The Company applies APB Opinion 25 and related Interpretations in
accounting for these plans. Accordingly, no compensation cost has been
recognized for these stock option plans. Had compensation cost for these plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's net income
(loss) (in thousands) and net income (loss) per common share - assuming dilution
would have been reduced to the proforma amounts below:

<TABLE>
<CAPTION>
                                                           2000      1999      1998
                                                           ----      ----      ----
<S>                                                       <C>       <C>       <C>
Net income (loss):
  As reported...........................................  $11,699   $27,188   $(3,231)
  Proforma..............................................   11,651    26,426    (3,289)
Net income (loss) per common share assuming dilution:
  As reported...........................................     1.27      2.90     (0.35)
  Proforma..............................................     1.27      2.82     (0.35)
</TABLE>

     The fair value of options at date of grant for the Incentive Plan and
Directors Plan was estimated using the Black-Scholes option pricing model with
the following weighted average assumptions used for grants in 2000, 1999 and
1998: dividend yield of 0%; expected volatility of 37.1%, 35.4% and 35.6%;
risk-free interest rate of 6.77% and 5.90% for the Incentive Plan (2000 and
1999, respectively); risk free interest rate of 6.74%, 6.01% and 5.69% for the
Directors Plan; expected lives of 5 years and 10 years for the Incentive Plan
(2000 and 1999, respectively); and expected lives of 7 years for the Directors
Plan.

     The fair value of options at date of grant for the MEEMIC Plan was
estimated using the Black-Scholes option pricing model with the following
weighted average assumptions for grants in 1999: dividend yield of 0%; expected
volatility of 51.2%; risk-free interest rate of 5.84%; and expected life of 5
years.

     The proforma effect on net income for 2000, 1999 and 1998 is not
representative of the proforma effect on net income for future years because
additional stock option awards could be made in future years.

13. COMMITMENTS AND CONTINGENCIES

     The Company is involved in litigation arising in the ordinary course of
business. While the results of litigation cannot be predicted with certainty,
management is of the opinion that the final outcome of such litigation will not
have a material effect upon the Company's financial statements.

14. STATUTORY INSURANCE ACCOUNTING PRACTICES

     ProNational, MEEMIC and ProNational Casualty are required to file financial
statements prepared in accordance with SAP prescribed or permitted by Michigan
and Illinois with their respective domiciliary states.

                                        50
<PAGE>   51
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The only material statutory accounting method utilized by ProNational that was
permitted rather than prescribed was the recording of the merger transaction
with PPTF as a "pooling of interests" business combination for statutory
reporting. SAP did not provide explicit guidance on the accounting for this
transaction. As a result of applying "pooling of interests" accounting to the
statutory financial statements, all prior periods were restated to reflect the
combined operations of ProNational and PPTF. MEEMIC and ProNational Casualty do
not utilize any permitted accounting practices.

     Accounting practices used to prepare statutory-basis financial statements
differ in some respects from GAAP. A reconciliation of statutory capital and
surplus at December 31, 2000 and 1999, and statutory net income (loss) for the
years ended December 31, 2000, 1999 and 1998, of ProNational and ProNational
Casualty, as applicable (as filed with their respective insurance regulatory
authorities), to the amounts shown in the accompanying consolidated financial
statements follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                                ----       ----
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Statutory capital and surplus...............................  $253,545   $229,657
Add (deduct) adjustments to statutory capital and surplus to
  convert to GAAP:
  Net unrealized appreciation (depreciation) on securities
     available for sale.....................................     5,328    (19,369)
  Net unrealized appreciation on MEEMIC Holdings............   (76,507)   (26,890)
  Deferred policy acquisition costs.........................     2,062      1,038
  Deferred Federal income taxes.............................    34,135     36,361
  Nonadmitted assets........................................     4,399      5,158
  Liabilities for GAAP in excess of SAP.....................      (900)    (1,350)
  Liabilities for SAP in excess of GAAP.....................     2,768      6,795
  Accumulated intercompany dividends........................    46,533     23,533
  Accumulated deficit attributable to Professionals Group...   (16,312)   (10,608)
  Intercompany paid-in capital..............................   (20,000)   (20,000)
  Surplus contributions.....................................   (10,094)   (10,094)
  Common stock issued.......................................     3,230      2,042
  Common stock repurchased..................................   (11,236)    (6,506)
  Accumulated equity attributable to MEEMIC Holdings........    27,591      8,075
  Other, net................................................      (966)    (1,026)
                                                              --------   --------
          Total shareholders' equity per accompanying
            consolidated balance sheets.....................  $243,576   $216,816
                                                              ========   ========
</TABLE>

                                        51
<PAGE>   52
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                                2000      1999       1998
                                                                ----      ----       ----
                                                                     (IN THOUSANDS)
<S>                                                           <C>        <C>       <C>
Statutory net income (loss).................................  $(10,977)  $22,363   $(18,964)
Add (deduct) adjustments to statutory net income (loss) to
  convert to GAAP:
  Deferred Federal income tax benefit (expense).............     5,855    (1,041)     5,335
  Prior year Federal income tax benefit.....................     4,685        --         --
  Deferred reinsurance experience refund....................        --        --      2,244
  Change in loss and loss adjustment expense reserve
     discount...............................................        --        --     10,658
  Change in liabilities for GAAP in excess of SAP...........       450       450        450
  Other, net................................................       927      (503)        89
                                                              --------   -------   --------
Combined net income (loss) of insurance companies based on
  GAAP......................................................       940    21,269       (188)
Net income (loss) attributable to non-insurance
  subsidiaries..............................................        91      (468)        49
Net income attributable to MEEMIC Holdings..................    16,372     9,816         --
Net loss attributable to Professionals Group................    (5,704)   (3,429)    (3,092)
                                                              --------   -------   --------
Net income (loss) per accompanying consolidated statements
  of operations.............................................  $ 11,699   $27,188   $ (3,231)
                                                              ========   =======   ========
</TABLE>

     On January 1, 2001, significant changes to the statutory basis of
accounting will become effective in all states in which the Company is licensed.
The cumulative effect of these changes, known as the Codification guidance, will
be recorded as a direct adjustment to statutory surplus. The effect of adoption
on the Company's statutory surplus has not been determined. The Company expects
that statutory surplus after adoption will continue to be in excess of the
regulatory risk-based capital requirements.

15. CONCENTRATIONS AND CREDIT RISK

     Premiums written through independent agents approximated 59%, 56% and 51%
of ProNational's direct written premiums in 2000, 1999 and 1998, respectively.
In 2000, 1999 and 1998, the top ten agents produced, in aggregate, approximately
28%, 31% and 27%, respectively, of ProNational's direct written premiums.
Approximately 90% of MEEMIC's premiums are written through its wholly-owned
agency. In both 2000 and 1999, the top ten agency representatives produced, in
aggregate, approximately 35% of MEEMIC's direct written premiums.

     All premiums are directly billed to policyholders, and premiums due are
secured by the related unearned premiums. When insureds fail to pay their
premiums, coverage is canceled. Premiums are collected in advance of being
earned. Subsequent scheduled payments are monitored to prevent the Company from
providing coverage beyond the date for which payment has been received. In the
opinion of management, the amounts carried on the accompanying consolidated
balance sheets are collectible.

                                        52
<PAGE>   53
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

     The unaudited operating results by quarter for 2000 and 1999 are summarized
below:

<TABLE>
<CAPTION>
                                                        INCOME (LOSS)             NET INCOME
                                                        BEFORE INCOME                PER
                                              TOTAL        TAXES,                   COMMON
                                            REVENUES      MINORITY                  SHARE-
                                            AND OTHER   INT. & EXTRA.     NET      ASSUMING
                                             INCOME         ITEM        INCOME     DILUTION
                                            ---------   -------------   ------    ----------
                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                         <C>         <C>             <C>       <C>
2000:
  1st Quarter.............................  $ 69,088       $ 3,685      $ 3,097      0.33
  2nd Quarter.............................    68,867         6,450        4,549      0.50
  3rd Quarter.............................    69,703         4,501        3,125      0.34
  4th Quarter.............................    65,767        (4,389)         928      0.10
                                            --------       -------      -------      ====
          Year............................  $273,425       $10,247      $11,699
                                            ========       =======      =======
1999:
  1st Quarter.............................  $ 50,666       $ 8,532      $ 6,655      0.71
  2nd Quarter.............................    51,372         6,741        5,104      0.55
  3rd Quarter.............................    70,277        10,769        7,797      0.83
  4th Quarter.............................    71,256         8,980        7,632      0.82
                                            --------       -------      -------      ====
          Year............................  $243,571       $35,022      $27,188
                                            ========       =======      =======
</TABLE>

     The sum of quarterly net income per common share data for 1999 does not
equal the annual amount due to changes in the weighted average number of common
shares outstanding during the respective periods.

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosures of fair-value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate the value. In situations where quoted market prices are not available,
fair values are to be based on estimates using present value or other valuation
techniques. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.

     Under SFAS No. 107, the Company's investment securities, cash, short-term
investments and long-term debt constitute financial instruments. The carrying
amounts of all financial instruments -- other than investment securities (see
Note 5), approximated their fair values at December 31, 2000 and 1999.

18. RELATED PARTY TRANSACTIONS

     Professionals Group provided MEEMIC with information system services and
certain consulting services under a Management Services Agreement. Fees for such
services were $1,066,000 for 1999 and $2,073,000 for 1998 and were included as a
reduction to other underwriting expenses. The Management Services Agreement was
terminated on July 1, 1999 as a result of Professionals Group's acquisition of a
majority ownership interest in MEEMIC Holdings (see Note 4).

                                        53
<PAGE>   54
                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

19. SEGMENT INFORMATION

     The Company is organized and operates principally in the property and
casualty insurance industry and has three reportable segments -- professional
liability lines property and casualty insurance, personal lines property and
casualty insurance and investment operations. The accounting policies of the
segments are the same as those described in the basis of presentation. Revenue
is primarily from unaffiliated customers. Identifiable assets by segment are
those assets, including investment securities, used in the Company's operations.
Corporate and other identifiable assets are principally cash and marketable
securities. Segment information, for which results are regularly reviewed by
Company management in making decisions about resources to be allocated to the
segments and assess their performance, is summarized as follows:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                    ----------------------------------
                                                       2000         1999        1998
                                                       ----         ----        ----
                                                              (IN THOUSANDS)
<S>                                                 <C>          <C>          <C>
Revenues:
  Professional liability lines....................  $  107,862   $  113,392   $113,827
  Personal lines..................................     118,528       81,777     42,693
  Investment operations...........................      42,719       43,846     43,253
  Corporate and other.............................       4,316        4,556      3,896
                                                    ----------   ----------   --------
          Total revenues..........................  $  273,425   $  243,571   $203,669
                                                    ==========   ==========   ========
Income (loss) before income taxes:
  Professional liability lines....................  $  (48,393)  $  (20,113)  $(52,716)
  Personal lines..................................      13,830       11,179      1,698
  Investment operations...........................      42,719       43,846     43,253
  Corporate and other.............................       2,091          110     (1,598)
                                                    ----------   ----------   --------
          Total income (loss) before income
            taxes.................................  $   10,247   $   35,022   $ (9,363)
                                                    ==========   ==========   ========
Identifiable assets:
  Property and casualty insurance.................  $1,119,046   $1,064,364   $881,866
  Corporate and other.............................      17,707        7,725      7,345
                                                    ----------   ----------   --------
          Total identifiable assets...............  $1,136,753   $1,072,089   $889,211
                                                    ==========   ==========   ========
</TABLE>

                                        54
<PAGE>   55

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Professionals Group, Inc.:

     In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 14 present fairly, in all material
respects, the financial position of Professionals Group, Inc. and its
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under Item 14 present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP
Grand Rapids, Michigan
February 16, 2001

                                        55
<PAGE>   56

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Professionals Group, Inc.:

     We have audited the accompanying consolidated statements of operations,
comprehensive income, shareholders' equity and cash flows of Professionals
Group, Inc. (formerly Professionals Insurance Company Management Group) and
subsidiaries (the Company) for the year ended December 31, 1998. In connection
with our audit of the consolidated financial statements, we also have audited
the financial statement schedules for the year ended December 31, 1998. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform our audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Professionals Group, Inc., and subsidiaries for the year ended
December 31, 1998 in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

     The consolidated financial statements give retroactive effect to the merger
of the Company and Physicians Protective Trust Fund, on July 1, 1998, which has
been accounted for as a pooling of interests business combination, as described
in the notes to the consolidated financial statements.

/s/KPMG LLP

East Lansing, Michigan
February 23, 1999

                                        56
<PAGE>   57

          SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                   PROFESSIONALS GROUP, INC. (PARENT COMPANY)

                            CONDENSED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                2000       1999
                                                                ----       ----
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
ASSETS
Investment in subsidiaries..................................  $247,086   $232,930
Short-term investments, at cost, which approximates fair
  value.....................................................    11,684      2,183
Cash........................................................       (33)       544
Other assets................................................       119        144
                                                              --------   --------
          Total assets......................................  $258,856   $235,801
                                                              ========   ========

            LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term debt..............................................  $ 14,500   $ 17,500
Accrued expenses and other liabilities......................       780      1,485
                                                              --------   --------
                                                                15,280     18,985
                                                              --------   --------
Shareholders' Equity:
Preferred stock, no par value; 5,000,000 shares authorized;
  no shares issued and outstanding..........................        --         --
Common stock, no par value; 25,000,000 shares authorized;
  8,851,223 and 8,997,709 shares issued and outstanding in
  2000 and 1999.............................................     8,851      8,998
Additional paid-in capital..................................    43,864     47,033
Retained earnings...........................................   184,667    172,968
Accumulated other comprehensive income (loss), net of
  deferred federal income taxes.............................     6,194    (12,183)
                                                              --------   --------
          Total shareholders' equity........................   243,576    216,816
                                                              --------   --------
          Total liabilities and shareholders' equity........  $258,856   $235,801
                                                              ========   ========
</TABLE>

     These condensed financial statements should be read in conjunction with the
accompanying consolidated financial statements and notes thereto of
Professionals Group, Inc. and subsidiaries.

  See accompanying notes to the condensed financial information of registrant.

                                        57
<PAGE>   58

    SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT, CONTINUED

                   PROFESSIONALS GROUP, INC. (PARENT COMPANY)

                       CONDENSED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                               2000      1999      1998
                                                               ----      ----      ----
                                                                    (IN THOUSANDS)
<S>                                                           <C>       <C>       <C>
Revenues:
  Dividend income from subsidiary...........................  $23,000   $12,000   $ 4,816
  Investment income.........................................      249       109       109
  Other income..............................................        7     1,066     2,073
                                                              -------   -------   -------
          Total revenues....................................   23,256    13,175     6,998
                                                              -------   -------   -------
Expenses:
  Operating and administrative..............................    4,760     3,214     3,462
  Amortization expense......................................       97       344       344
  Interest expense..........................................    1,104     1,098     1,468
                                                              -------   -------   -------
          Total expenses....................................    5,961     4,656     5,274
                                                              -------   -------   -------
  Income before federal income taxes and equity in
     undistributed income (loss) of subsidiaries............   17,295     8,519     1,724
Federal income taxes........................................       --        --        --
                                                              -------   -------   -------
  Income before equity in undistributed income (loss) of
     subsidiaries...........................................   17,295     8,519     1,724
Equity in undistributed income (loss) of subsidiaries.......   (5,596)   18,669    (4,955)
                                                              -------   -------   -------
          Net income (loss).................................  $11,699   $27,188   $(3,231)
                                                              =======   =======   =======
</TABLE>

     These condensed financial statements should be read in conjunction with the
accompanying consolidated financial statements and notes thereto of
Professionals Group, Inc. and subsidiaries.

  See accompanying notes to the condensed financial information of registrant.

                                        58
<PAGE>   59

    SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT, CONTINUED

                   PROFESSIONALS GROUP, INC. (PARENT COMPANY)

                       CONDENSED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                                ----       ----       ----
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss).........................................  $ 11,699   $ 27,188   $ (3,231)
  Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Equity in undistributed (income) loss of
       subsidiaries.........................................     5,596    (18,669)     4,955
     Dividend of investment from subsidiary.................        --         --     (2,816)
     Tax benefit on MEEMIC stock options exercised..........       225         --         --
     Amortization...........................................       (80)       257        259
     Common stock issued as compensation....................     1,189        885      1,157
     Decrease (Increase) in other assets....................      (297)       530        (26)
     Increase (decrease) in accrued expenses and other
       liabilities..........................................      (705)       176       (269)
                                                              --------   --------   --------
          Net cash provided by operating activities.........    17,627     10,367         29
                                                              --------   --------   --------
Cash flows from investing activities:
  Proceeds from sale or maturity of short-term
     investments............................................    41,710     43,709     40,381
  Purchases of short-term investments.......................   (51,034)   (44,474)   (37,761)
  Capital contribution to consolidated subsidiary...........    (1,150)        --         --
                                                              --------   --------   --------
          Net cash provided by (used in) investing
            activities......................................   (10,474)      (765)     2,620
                                                              --------   --------   --------
Cash flows from financing activities:
  Repayment of long-term debt...............................    (3,000)    (2,500)    (2,500)
  Common stock repurchased..................................    (4,730)    (6,506)        --
  Cash paid in lieu of fractional shares....................        --        (40)      (138)
  Cash paid for dissenter's rights..........................        --        (26)        --
                                                              --------   --------   --------
          Net cash used in financing activities.............    (7,730)    (9,072)    (2,638)
                                                              --------   --------   --------
Net change in cash..........................................      (577)       530         11
Cash, beginning of period...................................       544         14          3
                                                              --------   --------   --------
Cash, end of period.........................................  $    (33)  $    544   $     14
                                                              ========   ========   ========
Supplemental disclosure of non-cash financing activities:
  Issuance of common stock as compensation..................  $  1,189   $    885   $  1,157
                                                              ========   ========   ========
  Liability incurred in acquisition of subsidiary...........        --         --   $    313
                                                              ========   ========   ========
</TABLE>

     These condensed financial statements should be read in conjunction with the
accompanying consolidated financial statements and notes thereto of
Professionals Group, Inc. and subsidiaries.

  See accompanying notes to the condensed financial information of registrant.

                                        59
<PAGE>   60

    SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT, CONTINUED

                   PROFESSIONALS GROUP, INC. (PARENT COMPANY)

             NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

(1) DESCRIPTION OF BUSINESS

     Professionals Group, Inc. (Professionals Group) is an insurance holding
company incorporated under Michigan law on January 31, 1996.

     Professionals Group owns all of the issued and outstanding common stock of
the following entities:

          ProNational Insurance Company -- a stock insurance company
     incorporated under Michigan law (ProNational). ProNational also owns 84% of
     MEEMIC Holdings, Inc. (see note 3 below).

          Professionals Group Services Corporation -- a business corporation
     that administers certain benefit plans for ProNational Insurance Company
     employees.

          ProNational Insurance Agency, Inc. -- an inactive insurance agency.

          American Insurance Management Corporation -- an Indiana corporation
     that serves as the attorney-in-fact for American Medical Insurance
     Exchange, an inactive Indiana interinsurance reciprocal exchange.

     Professionals Group also owns 80% of the issued and outstanding common
stock of MedAdvantage, Inc. MedAdvantage, Inc. provides credentialing
verification services for medical service providers.

(2) FEDERAL INCOME TAXES

     Under terms of Professionals Group's tax sharing agreement with its
subsidiaries, income tax provisions for the individual companies are computed on
a separate company basis.

(3) BUSINESS COMBINATIONS

     On July 1, 1999, Michigan Educational Employees Mutual Insurance Company
completed its conversion to a stock insurance company and changed its name to
MEEMIC Insurance Company (MEEMIC). MEEMIC became a wholly owned subsidiary of
MEEMIC Holdings, Inc. (MEEMIC Holdings), a publicly traded Michigan business
corporation. As part of MEEMIC's conversion, ProNational acquired 77% of the
outstanding common stock of MEEMIC Holdings. This acquisition was accounted for
as a purchase business combination. Beginning July 1, 1999, the financial
results of MEEMIC Holdings have been consolidated into the financial results of
Professionals Group. During 2000, Professionals Group increased its ownership in
MEEMIC Holdings to 84% at December 31, 2000. See also Note 4 to Professionals
Group and subsidiaries consolidated financial statements.

     On June 22, 2000, Professionals Group entered into a definitive agreement
to consolidate with Medical Assurance, Inc. (NYSE: MAI) and form a new holding
company, ProAssurance Corporation (ProAssurance) that would be the nation's
third largest writer of liability insurance for health care professionals and
facilities. Subject to certain adjustments, Professionals Group shareholders
would receive their choice of either $12.00 in cash and shares of ProAssurance
stock initially valued at $14.00, or $26.00 in cash, for each share of
Professionals Group stock they own. The agreement is subject to required
regulatory and shareholder approvals and is expected to be completed in 2001.
ProAssurance filed an amended Form S-4 Registration Statement with the
Securities and Exchange Commission on January 4, 2001 regarding the transactions
contemplated by the agreement and plan of consolidation.

                                        60
<PAGE>   61

              SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION

                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                    LOSS AND               RESERVE FOR
                                      DEFERRED        LOSS                  EXTENDED                              NET LOSSES
                                       POLICY      ADJUSTMENT               REPORTING       NET         NET        AND LOSS
                                     ACQUISITION    EXPENSE     UNEARNED     PERIOD      PREMIUMS    INVESTMENT   ADJUSTMENT
              SEGMENT                   COSTS       RESERVES    PREMIUMS     CLAIMS       EARNED       INCOME      EXPENSES
              -------                -----------   ----------   --------   -----------   --------    ----------   ----------
<S>                                  <C>           <C>          <C>        <C>           <C>         <C>          <C>
YEAR ENDED DECEMBER 31, 2000
Professional liability lines.......    $2,062       $582,526    $57,070      $28,074     $107,862     $    --      $136,000
Personal lines.....................     2,784        100,587     36,755           --      118,528          --        77,228
Investment operations..............        --             --         --           --           --      46,232            --
                                       ------       --------    -------      -------     --------     -------      --------
        Total......................    $4,846       $683,113    $93,825      $28,074     $226,390     $46,232      $213,228
                                       ======       ========    =======      =======     ========     =======      ========
YEAR ENDED DECEMBER 31, 1999
Professional liability lines.......    $1,038       $545,789    $53,157      $27,674     $113,392     $    --      $108,067
Personal lines.....................     2,552         86,192     34,148           --       81,777          --        51,693
Investment operations..............        --             --         --           --           --      41,142            --
                                       ------       --------    -------      -------     --------     -------      --------
        Total......................    $3,590       $631,981    $87,305      $27,674     $195,169     $41,142      $159,760
                                       ======       ========    =======      =======     ========     =======      ========
YEAR ENDED DECEMBER 31, 1998
Professional liability lines.......    $1,500       $526,574    $48,201      $26,674     $110,755     $    --      $143,041
Personal lines.....................        --         14,009         --           --       42,694          --        27,999
Investment operations..............        --             --         --           --           --      38,443            --
                                       ------       --------    -------      -------     --------     -------      --------
        Total......................    $1,500       $540,583    $48,201      $26,674     $153,449     $38,443      $171,040
                                       ======       ========    =======      =======     ========     =======      ========

<CAPTION>
                                     AMORTIZATION      POLICY
                                     OF DEFERRED    ACQUISITION
                                        POLICY       AND OTHER       NET
                                     ACQUISITION    UNDERWRITING   PREMIUMS
              SEGMENT                   COSTS         EXPENSES     WRITTEN
              -------                ------------   ------------   --------
<S>                                  <C>            <C>            <C>
YEAR ENDED DECEMBER 31, 2000
Professional liability lines.......     $  142        $20,973      $111,094
Personal lines.....................      9,111         18,359       121,136
Investment operations..............         --             --            --
                                        ------        -------      --------
        Total......................     $9,253        $39,332      $232,230
                                        ======        =======      ========
YEAR ENDED DECEMBER 31, 1999
Professional liability lines.......     $1,654        $22,784      $116,599
Personal lines.....................      4,746         14,159        82,752
Investment operations..............         --             --            --
                                        ------        -------      --------
        Total......................     $6,400        $36,943      $199,351
                                        ======        =======      ========
YEAR ENDED DECEMBER 31, 1998
Professional liability lines.......     $2,737        $21,692      $101,228
Personal lines.....................         --         12,995        42,694
Investment operations..............         --             --            --
                                        ------        -------      --------
        Total......................     $2,737        $34,687      $143,922
                                        ======        =======      ========
</TABLE>

                                        61
<PAGE>   62

                           SCHEDULE IV -- REINSURANCE

                   PROFESSIONALS GROUP, INC. AND SUBSIDIARIES
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
PROPERTY AND LIABILITY
Gross premiums earned.......................................  $262,713   $193,180   $122,547
Ceded premiums earned.......................................   (37,930)   (23,581)   (16,869)
Assumed premiums earned.....................................       639     24,180     47,473
                                                              --------   --------   --------
  Net premiums earned.......................................  $225,422   $193,779   $153,151
                                                              ========   ========   ========
Percentage of amount assumed to net.........................       0.3%      12.5%      31.0%
                                                              ========   ========   ========
ACCIDENT AND HEALTH
Gross premiums earned.......................................  $     --   $     --   $     --
Ceded premiums earned.......................................      (354)      (440)       (57)
Assumed premiums earned.....................................     1,322      1,830        355
                                                              --------   --------   --------
  Net premiums earned.......................................  $    968   $  1,390   $    298
                                                              ========   ========   ========
Percentage of amount assumed to net.........................     136.6%     131.7%     119.1%
                                                              ========   ========   ========
          Total net premiums earned.........................  $226,390   $195,169   $153,449
                                                              ========   ========   ========
          Total percentage of amount assumed to net.........       0.9%      13.3%      31.2%
                                                              ========   ========   ========
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     At a meeting of the Audit Committee of Professionals Group's board of
directors held on August 27, 1999, the accounting firm of PricewaterhouseCoopers
LLP was engaged by Professionals Group to perform future independent audits of
Professionals Group. PricewaterhouseCoopers LLP thereby replaced KPMG LLP as
Professionals Group's independent accountants.

     The change in accountants did not result from any dissatisfaction or
disagreement with KPMG LLP. Instead, the change resulted from Professionals
Group's putting its audit work out to bid as part of the consolidation, under
one accounting firm, of all audits of Professionals Group and its subsidiaries.
KPMG LLP participated in the bidding process.

     In connection with the audit of the year ended December 31, 1998, and the
subsequent interim period through August 27, 1999, there were no disagreements
with KPMG LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.

     During 1998, Professionals Group did not engage any independent accountants
other than KPMG LLP to audit the financial statements of either Professionals
Group or any significant subsidiary of Professionals Group.

     KPMG LLP's report on Professionals Group's financial statements for 1998
did not contain an adverse opinion or a disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.

                                        62
<PAGE>   63

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information called for by this item with respect to the directors of
Professionals Group will be reported in Professionals Group's Notice of Annual
Meeting of Stockholders and Proxy Statement for its 2001 Annual Meeting of
Stockholders under the caption "Election of Directors." Such information is
herein incorporated by reference.

     Information regarding the executive officers of Professionals Group is
reported in Part I on this Annual Report on Form 10-K pursuant to General
Instruction G to Form 10-K.

     Section 16(a) of the Exchange Act requires Professionals Group's directors
and executive officers, and persons who own more than 10% of a registered class
of Professionals Group's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Professionals Group common stock and other equity securities of
Professionals Group. Officers, directors and greater than 10% stockholders are
required by the Securities and Exchange Commission regulation to furnish
Professionals Group with copies of all Section 16(a) forms they file.

     To Professionals Group's knowledge, based solely on a review of the copies
of such reports furnished to Professionals Group and written representations
that no other reports were required, all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10 percent beneficial
owners were complied with during the year ended December 31, 2000.

ITEM 11. EXECUTIVE COMPENSATION

     The information called for by this item with respect to executive
compensation of Professionals Group will be reported in Professionals Group's
Notice of Annual Meeting of Stockholders and Proxy Statement for its 2001 Annual
Meeting of Stockholders under the caption "Information Regarding Executive
Officers." Such information is herein incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information called for by this item with respect to the security
ownership of certain beneficial owners and management of Professionals Group
will be reported in Professionals Group's Notice of Annual Meeting of
Stockholders and Proxy Statement for its 2001 Annual Meeting of Stockholders
under the caption "Stock Ownership." Such information is herein incorporated by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information called for by this item with respect to certain
relationships and related transactions of Professionals Group will be reported
in Professionals Group's Notice of Annual Meeting of Stockholders and Proxy
Statement for its 2001 Annual Meeting of Stockholders under the captions
"Election of Directors," "Compensation Committee Interlocks and Insider
Participation," and "Related Party Transactions." Such information is herein
incorporated by reference.

                                        63
<PAGE>   64

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

EXHIBITS:

<TABLE>
<CAPTION>
        ITEM 601
     REGULATION S-K
   EXHIBIT REFERENCE
         NUMBER                              EXHIBIT DESCRIPTION
   -----------------                         -------------------
<C>                      <S>
    (2)(a)/(10)(a)       Agreement to Consolidate dated as of June 22, 2000 by and
                         between Medical Assurance, Inc., a Delaware corporation, and
                         Professionals Group, Inc. (including Exhibit A (Certificate
                         of Incorporation of Medical and Professionals Assurance,
                         Inc.); Exhibit B (Bylaws of Medical and Professionals
                         Assurance, Inc.); and Exhibit C (Form of Company Stock
                         Option Agreement)) (incorporated by reference to Exhibit 2.1
                         of the registrant's Current Report on Form 8-K dated June
                         22, 2000 filed with the Securities and Exchange Commission
                         on June 30, 2000 (file no. 0-21223)).
 (2)(b)/(4)(a)/(10)(b)   Medical Assurance, Inc. Stock Option Agreement dated as of
                         June 22, 2000 by and between Medical Assurance, Inc., as
                         grantor, and Professionals Group, Inc., as grantee
                         (incorporated by reference to Exhibit 2.2 of the
                         registrant's Current Report on Form 8-K dated June 22, 2000
                         filed with the Securities and Exchange Commission on June
                         30, 2000 (file no. 0-21223)).
    (2)(c)/(10)(c)       Professionals Group, Inc. Stock Option Agreement dated as of
                         June 22, 2000 by and between Professionals Group, Inc., as
                         grantor, and Medical Assurance, Inc., as grantee
                         (incorporated by reference to Exhibit 2.3 of the
                         registrant's Current Report on Form 8-K dated June 22, 2000
                         filed with the Securities and Exchange Commission on June
                         30, 2000 (file no. 0-21223)).
     (3)(a)/(4)(b)       Second Amended and Restated Articles of Incorporation of
                         Professionals Insurance Company Management Group and all
                         amendments thereto (incorporated by reference to Exhibit 3.1
                         of the registrant's Current Report on Form 8-K dated July 1,
                         1998, filed with the Securities and Exchange Commission on
                         July 15, 1998 (file no. 0-21223)).
     (3)(b)/(4)(c)       By-laws of Professionals Insurance Company Management Group
                         (incorporated by reference to Exhibit (3)(b)/(4)(b) of the
                         initial filing of the registrant's Registration Statement on
                         Form S-4 as filed with the Securities and Exchange
                         Commission on April 3, 1996 (registration no. 333-3138)).
        (4)(d)           Specimen certificate for Professionals Insurance Company
                         Management Group's common stock (incorporated by reference
                         to Exhibit 4(c) of the Quarterly Report on Form 10-Q for the
                         quarterly period ended September 30, 1996 as filed with the
                         Securities and Exchange Commission on November 12, 1996
                         (file no. 0-21223)).
        (4)(e)           Specimen stock option issued under the Professionals
                         Insurance Company Management Group 1996 Non-Employee
                         Directors Stock Option Plan (incorporated by reference to
                         Exhibit 4(d) of the registrant's Quarterly Report on Form
                         10-Q for the quarterly period ended September 30, 1996 as
                         filed with the Securities and Exchange Commission on
                         November 12, 1996 (file no. 0-21223)).
</TABLE>

                                        64
<PAGE>   65

<TABLE>
<CAPTION>
        ITEM 601
     REGULATION S-K
   EXHIBIT REFERENCE
         NUMBER                              EXHIBIT DESCRIPTION
   -----------------                         -------------------
<C>                      <S>
        (4)(f)           Specimen stock option issued under the Professionals
                         Insurance Company Management Group 1996 Long Term Incentive
                         Plan (incorporated by reference to Exhibit (4)(e) of the
                         registrant's Annual Report on Form 10-K for the year ended
                         December 31, 1997 as filed with the Securities and Exchange
                         Commission on March 31, 1998 (file no. 0-21223)).
        (10)(d)          Credit Agreement dated April 4, 1997 for $22.5 million
                         between the registrant and LaSalle National Bank
                         (incorporated by reference to Exhibit (10)(a) of the
                         registrant's Quarterly Report on Form 10-Q for the quarterly
                         period ended March 31, 1997 as filed with the Securities and
                         Exchange Commission on May 12, 1997 (file no. 0-21223)).
        (10)(e)          Professionals Insurance Company Management Group 1996 Long
                         Term Incentive Plan (incorporated by reference to Exhibit
                         10(c) of Amendment No. 1 to the registrant's Registration
                         Statement on Form S-4 as filed with the Securities and
                         Exchange Commission on June 11, 1996 (registration no.
                         333-3138)).
        (10)(f)          Professionals Insurance Company Management Group 1996
                         Non-Employee Directors Stock Option Plan (incorporated by
                         reference to Exhibit 10(d) of Amendment No. 1 to the
                         registrant's Registration Statement on Form S-4 as filed
                         with the Securities and Exchange Commission on June 11, 1996
                         (registration no. 333-3138)).
        (10)(g)          Professionals Insurance Company Management Group Stock
                         Purchase Plan (incorporated by reference to Exhibit 10(e) of
                         the initial filing of the registrant's Registration
                         Statement on Form S-4 as filed with the Securities and
                         Exchange Commission on April 3, 1996 (registration no.
                         333-3138)).
        (10)(h)          PICOM Insurance Company Employees' Savings and Retirement
                         Plan (incorporated by reference to Exhibit (10)(d) of the
                         initial filing of the registrant's Annual Report on Form
                         10-K for the year ended December 31, 1996 as filed with the
                         Securities and Exchange Commission on March 28, 1997 (file
                         no. 0-21223)).
        (10)(i)          PICOM Insurance Company Pension Plan (incorporated by
                         reference to Exhibit (10)(e) of the initial filing of the
                         registrant's Annual Report on Form 10-K for the year ended
                         December 31, 1996 as filed with the Securities and Exchange
                         Commission on March 28, 1997 (file no. 0-21223)).
        (10)(j)          PICOM Insurance Company Key Employee Retention Plan
                         (incorporated by reference to Exhibit (99)(e) of the initial
                         filing of the registrant's Registration Statement on Form
                         S-4 filed with the Securities and Exchange Commission on
                         April 3, 1996 (registration no. 333-3138)).
        (10)(k)          PICOM Insurance Company Employee Retention Plan
                         (incorporated by reference to Exhibit (99)(f) of the initial
                         filing of the registrant's Registration Statement on Form
                         S-4 filed with the Securities and Exchange Commission on
                         April 3, 1996 (registration no. 333-3138)).
        (10)(l)          MEEMIC Holdings, Inc. Stock Compensation Plan dated October
                         21, 1998 (incorporated by reference to Exhibit 10.11 of
                         MEEMIC Holdings' Registration Statement on Form S-1 as filed
                         with the Securities and Exchange Commission (registration
                         no. 333-66671)).
</TABLE>

                                        65
<PAGE>   66

<TABLE>
<CAPTION>
        ITEM 601
     REGULATION S-K
   EXHIBIT REFERENCE
         NUMBER                              EXHIBIT DESCRIPTION
   -----------------                         -------------------
<C>                      <S>
        (10)(m)          Severance Agreement dated May 4, 2000 between the registrant
                         and Victor T. Adamo (incorporated by reference to Exhibit
                         (10)(a) of the registrant's Quarterly Report on Form 10-Q
                         for the quarterly period ended June 30, 2000 as filed with
                         the Securities and Exchange Commission (file no. 0-21223)).
        (10)(n)          Form of Consulting, Confidentiality and NonCompetition
                         Agreement dated April 24, 2000 between the registrant,
                         certain of the registrant's directors and other consultants
                         (incorporated by reference to Exhibit (10)(b) of the
                         registrant's Quarterly Report on Form 10-Q for the quarterly
                         period ended June 30, 2000 as filed with the Securities and
                         Exchange Commission (file no. 0-21223)).
         (11)            No statement re computation of per share earnings is
                         required to be filed because the computations can be clearly
                         determined from the materials contained herein.
         (16)            Letter from KPMG LLP regarding change in certifying
                         accountant (incorporated by reference to Exhibit 16 of the
                         registrant's Current Report on Form 8-K dated August 27,
                         1999, filed with the Securities and Exchange Commission on
                         September 1, 1999 (file no. 0-21223)).
         (21)            List of subsidiaries of the registrant.*
        (23)(a)          Consent of PricewaterhouseCoopers LLP, independent certified
                         public accountants.*
        (23)(b)          Consent of KPMG LLP, independent certified public
                         accountants.*
         (24)            Powers of attorney.*
</TABLE>

---------------

* Filed herewith.

     Management contracts and compensatory plans or arrangements:

     The management contracts and compensatory plans or arrangements required to
be filed as exhibits and included in such list of exhibits are as follows:

          Exhibit (4)(e) Specimen stock option issued under the Professionals
     Insurance Company Management Group 1996 Non-Employee Directors Stock Option
     Plan.

          Exhibit (4)(f) Specimen stock option issued under the Professionals
     Insurance Company Management Group 1996 Long Term Incentive Plan.

          Exhibit (10)(e) Professionals Insurance Company Management Group 1996
     Long-Term Incentive Plan.

          Exhibit (10)(f) Professionals Insurance Company Management Group 1996
     Non-Employee Directors Stock Option Plan.

          Exhibit (10)(g) Professionals Insurance Company Management Group Stock
     Purchase Plan.

          Exhibit (10)(h) PICOM Insurance Company Employees' Savings and
     Retirement Plan.

          Exhibit (10)(i) PICOM Insurance Company Pension Plan.

          Exhibit (10)(j) PICOM Insurance Company Key Employee Retention Plan.

          Exhibit (10)(k) PICOM Insurance Company Employee Retention Plan.

          Exhibit (10)(l) MEEMIC Holdings, Inc. Stock Compensation Plan.

          Exhibit (10)(m) Severance Agreement for Victor T. Adamo.

          Exhibit (10)(n) Consulting, Confidentiality and Non-Competition
     Agreement for certain directors and other consultants.

                                        66
<PAGE>   67

        INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                               10-K
                                                              REPORT
                                                              PAGE(S)
                                                              -------
<S>                                                           <C>
FINANCIAL STATEMENTS:
  Consolidated balance sheets as of December 31, 2000 and
     1999...................................................     30
  Consolidated statements of operations for each of the
     years ended December 31, 2000, 1999 and 1998...........     31
  Consolidated statements of comprehensive income for each
     of the years ended December 31, 2000, 1999 and 1998....     32
  Consolidated statements of shareholders' equity for each
     of the years ended December 31, 2000, 1999 and 1998....     33
  Consolidated statements of cash flows for each of the
     years ended December 31, 2000, 1999 and 1998...........     34
  Notes to consolidated financial statements................     35
  Reports of independent auditors...........................     55
FINANCIAL STATEMENT SCHEDULES:
   II. Condensed financial information of registrant........     57
  III. Supplementary insurance information..................     61
  IV. Reinsurance...........................................     62
</TABLE>

---------------

All other schedules for which provision is made in Regulation S-X either (i) are
not required under the related instructions or are inapplicable and, therefore,
have been omitted, or (ii) the information required is included in the
consolidated financial statements or the notes thereto that are a part hereof.

REPORTS ON FORM 8-K:

     The Company filed a Current Report on Form 8-K dated November 21, 2000
notifying the public about a public hearing to be held by the Alabama Department
of Insurance regarding the proposed consolidation of Medical Assurance, Inc. and
the registrant.

     No other reports were filed during the three months ended December 31,
2000.

                                        67
<PAGE>   68

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                            Professionals Group, Inc.

Date: March 27, 2001                        By:     /s/ VICTOR T. ADAMO
                                              ----------------------------------
                                                       Victor T. Adamo
                                                President and Chief Executive
                                                            Officer
                                                (Principal Executive Officer)

                                            By:      /s/ JOHN F. LANG
                                              ----------------------------------
                                                         John F. Lang
                                                  Vice President, Secretary,
                                                 Treasurer and Chief Financial
                                                  Officer (Principal Financial
                                                Officer and Principal Accounting
                                                            Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <S>                              <C>

                 /s/ VICTOR T. ADAMO                   Director, President and Chief    March 27, 2001
-----------------------------------------------------    Executive Officer (Principal
                   Victor T. Adamo                       Executive Officer)

                /s/ R. KEVIN CLINTON                   Director, Vice President         March 27, 2001
-----------------------------------------------------
                  R. Kevin Clinton

                 /s/ ELIOT H. BERG*                    Director                         March 27, 2001
-----------------------------------------------------
                    Eliot H. Berg

               /s/ JOSEPH C. CAUTHEN*                  Director                         March 27, 2001
-----------------------------------------------------
                  Joseph C. Cauthen

               /s/ JOHN F. DODGE, JR.*                 Director                         March 27, 2001
-----------------------------------------------------
                 John F. Dodge, Jr.

                 /s/ H. HARVEY GASS*                   Director                         March 27, 2001
-----------------------------------------------------
                   H. Harvey Gass

               /s/ RICHARD P. HORSCH*                  Director                         March 27, 2001
-----------------------------------------------------
                  Richard P. Horsch

                /s/ ISAAC J. POWELL*                   Director                         March 27, 2001
-----------------------------------------------------
                   Isaac J. Powell
</TABLE>

                                        68
<PAGE>   69

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----

<C>                                                    <S>                              <C>

                /s/ ANN F. PUTALLAZ*                   Director                         March 27, 2001
-----------------------------------------------------
                   Ann F. Putallaz

              /s/ WILLIAM H. WOODHAMS*                 Director                         March 27, 2001
-----------------------------------------------------
                 William H. Woodhams

                /s/ DONALD S. YOUNG*                   Director                         March 27, 2001
-----------------------------------------------------
                   Donald S. Young
</TABLE>

*By:     /s/ VICTOR T. ADAMO
     -------------------------------
            Victor T. Adamo,
       as attorney-in-fact for the
            persons indicated

                                        69
<PAGE>   70

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
    (2)(a)/(10)(a)       Agreement to Consolidate dated as of June 22, 2000 by and
                         between Medical Assurance, Inc., a Delaware corporation, and
                         Professionals Group, Inc. (including Exhibit A (Certificate
                         of Incorporation of Medical and Professionals Assurance,
                         Inc.); Exhibit B (Bylaws of Medical and Professionals
                         Assurance, Inc.); and Exhibit C (Form of Company Stock
                         Option Agreement)) (incorporated by reference to Exhibit 2.1
                         of the registrant's Current Report on Form 8-K dated June
                         22, 2000 filed with the Securities and Exchange Commission
                         on June 30, 2000 (file no. 0-21223)).
 (2)(b)/(4)(a)/(10)(b)   Medical Assurance, Inc. Stock Option Agreement dated as of
                         June 22, 2000 by and between Medical Assurance, Inc., as
                         grantor, and Professionals Group, Inc., as grantee
                         (incorporated by reference to Exhibit 2.2 of the
                         registrant's Current Report on Form 8-K dated June 22, 2000
                         filed with the Securities and Exchange Commission on June
                         30, 2000 (file no. 0-21223)).
    (2)(c)/(10)(c)       Professionals Group, Inc. Stock Option Agreement dated as of
                         June 22, 2000 by and between Professionals Group, Inc., as
                         grantor, and Medical Assurance, Inc., as grantee
                         (incorporated by reference to Exhibit 2.3 of the
                         registrant's Current Report on Form 8-K dated June 22, 2000
                         filed with the Securities and Exchange Commission on June
                         30, 2000 (file no. 0-21223)).
     (3)(a)/(4)(b)       Second Amended and Restated Articles of Incorporation of
                         Professionals Insurance Company Management Group and all
                         amendments thereto (incorporated by reference to Exhibit 3.1
                         of the registrant's Current Report on Form 8-K dated July 1,
                         1998, filed with the Securities and Exchange Commission on
                         July 15, 1998 (file no. 0-21223)).
     (3)(b)/(4)(c)       By-laws of Professionals Insurance Company Management Group
                         (incorporated by reference to Exhibit (3)(b)/(4)(b) of the
                         initial filing of the registrant's Registration Statement on
                         Form S-4 as filed with the Securities and Exchange
                         Commission on April 3, 1996 (registration no. 333-3138)).
        (4)(d)           Specimen certificate for Professionals Insurance Company
                         Management Group's common stock (incorporated by reference
                         to Exhibit 4(c) of the Quarterly Report on Form 10-Q for the
                         quarterly period ended September 30, 1996 as filed with the
                         Securities and Exchange Commission on November 12, 1996
                         (file no. 0-21223)).
        (4)(e)           Specimen stock option issued under the Professionals
                         Insurance Company Management Group 1996 Non-Employee
                         Directors Stock Option Plan (incorporated by reference to
                         Exhibit 4(d) of the registrant's Quarterly Report on Form
                         10-Q for the quarterly period ended September 30, 1996 as
                         filed with the Securities and Exchange Commission on
                         November 12, 1996 (file no. 0-21223)).
        (4)(f)           Specimen stock option issued under the Professionals
                         Insurance Company Management Group 1996 Long Term Incentive
                         Plan (incorporated by reference to Exhibit (4)(e) of the
                         registrant's Annual Report on Form 10-K for the year ended
                         December 31, 1997 as filed with the Securities and Exchange
                         Commission on March 31, 1998 (file no. 0-21223)).
</TABLE>

                                        70
<PAGE>   71

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
        (10)(d)          Credit Agreement dated April 4, 1997 for $22.5 million
                         between the registrant and LaSalle National Bank
                         (incorporated by reference to Exhibit (10)(a) of the
                         registrant's Quarterly Report on Form 10-Q for the quarterly
                         period ended March 31, 1997 as filed with the Securities and
                         Exchange Commission on May 12, 1997 (file no. 0-21223)).
        (10)(e)          Professionals Insurance Company Management Group 1996 Long
                         Term Incentive Plan (incorporated by reference to Exhibit
                         10(c) of Amendment No. 1 to the registrant's Registration
                         Statement on Form S-4 as filed with the Securities and
                         Exchange Commission on June 11, 1996 (registration no.
                         333-3138)).
        (10)(f)          Professionals Insurance Company Management Group 1996
                         Non-Employee Directors Stock Option Plan (incorporated by
                         reference to Exhibit 10(d) of Amendment No. 1 to the
                         registrant's Registration Statement on Form S-4 as filed
                         with the Securities and Exchange Commission on June 11, 1996
                         (registration no. 333-3138)).
        (10)(g)          Professionals Insurance Company Management Group Stock
                         Purchase Plan (incorporated by reference to Exhibit 10(e) of
                         the initial filing of the registrant's Registration
                         Statement on Form S-4 as filed with the Securities and
                         Exchange Commission on April 3, 1996 (registration no.
                         333-3138)).
        (10)(h)          PICOM Insurance Company Employees' Savings and Retirement
                         Plan (incorporated by reference to Exhibit (10)(d) of the
                         initial filing of the registrant's Annual Report on Form
                         10-K for the year ended December 31, 1996 as filed with the
                         Securities and Exchange Commission on March 28, 1997 (file
                         no. 0-21223)).
        (10)(i)          PICOM Insurance Company Pension Plan (incorporated by
                         reference to Exhibit (10)(e) of the initial filing of the
                         registrant's Annual Report on Form 10-K for the year ended
                         December 31, 1996 as filed with the Securities and Exchange
                         Commission on March 28, 1997 (file no. 0-21223)).
        (10)(j)          PICOM Insurance Company Key Employee Retention Plan
                         (incorporated by reference to Exhibit (99)(e) of the initial
                         filing of the registrant's Registration Statement on Form
                         S-4 filed with the Securities and Exchange Commission on
                         April 3, 1996 (registration no. 333-3138)).
        (10)(k)          PICOM Insurance Company Employee Retention Plan
                         (incorporated by reference to Exhibit (99)(f) of the initial
                         filing of the registrant's Registration Statement on Form
                         S-4 filed with the Securities and Exchange Commission on
                         April 3, 1996 (registration no. 333-3138)).
        (10)(l)          MEEMIC Holdings, Inc. Stock Compensation Plan dated October
                         21, 1998 (incorporated by reference to Exhibit 10.11 of
                         MEEMIC Holdings' Registration Statement on Form S-1 as filed
                         with the Securities and Exchange Commission (registration
                         no. 333-66671)).
        (10)(m)          Severance Agreement dated May 4, 2000 between the registrant
                         and Victor T. Adamo (incorporated by reference to Exhibit
                         (10)(a) of the registrant's Quarterly Report on Form 10-Q
                         for the quarterly period ended June 30, 2000 as filed with
                         the Securities and Exchange Commission (file no. 0-21223)).
</TABLE>

                                        71
<PAGE>   72

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
        (10)(n)          Form of Consulting, Confidentiality and NonCompetition
                         Agreement dated April 24, 2000 between the registrant,
                         certain of the registrant's directors and other consultants
                         (incorporated by reference to Exhibit (10)(b) of the
                         registrant's Quarterly Report on Form 10-Q for the quarterly
                         period ended June 30, 2000 as filed with the Securities and
                         Exchange Commission (file no. 0-21223)).
         (11)            No statement re computation of per share earnings is
                         required to be filed because the computations can be clearly
                         determined from the materials contained herein.
         (16)            Letter from KPMG LLP regarding change in certifying
                         accountant (incorporated by reference to Exhibit 16 of the
                         registrant's Current Report on Form 8-K dated August 27,
                         1999, filed with the Securities and Exchange Commission on
                         September 1, 1999 (file no. 0-21223)).
         (21)            List of subsidiaries of the registrant.*
        (23)(a)          Consent of PricewaterhouseCoopers LLP, independent certified
                         public accountants.*
        (23)(b)          Consent of KPMG LLP, independent certified public
                         accountants.*
         (24)            Powers of attorney.*
</TABLE>

---------------

* Filed herewith.

                                        72